Transitioning Your Dental Business – Are You Ready?

Owning and operating a dental practice may have been your professional dream (and congrats for making it happen!), but there’s a reality that all dentists with their own practice must face: at some point, everyone needs to transition their business. While it’s easy to dismiss this issue and kick it down the road, having a sound exit strategy right now is prudent for ongoing business planning. A transition-ready business is often more profitable and valuable, regardless of whether/when a doctor plans to sell. However, determining when and how to think about this major transition can be daunting. In this article, we’ll explore the concepts that will help you identify when you may be ready and what may help you be prepared well before that day arrives. By focusing on both financial AND personal readiness, we aim to share the key elements that may allow you to enjoy your business more today, as well as successfully execute your transition at some time in the future.

Personal readiness

From our experience, transitioning your dental practice involves more than just financial considerations; we believe it also requires personal readiness. Here are three key factors to help you assess your personal preparedness:

1. Personal and lifestyle goals: Reflect on your current lifestyle goals and aspirations. Do you wish to reduce your working hours, take on a new challenge or hobby, travel, spend more time with family or retire altogether? Transitioning your dental practice allows you to align your activities (both personal and professional) with your desired lifestyle.
2. Passion and motivation: Evaluate your current passion and motivation for dentistry. If you find yourself becoming less enthusiastic about the day-to-day operations of your practice or if you’re ready to explore new endeavors, it might indicate that you are prepared to think seriously about the next steps after dentistry.
3. The “off-ramp” approach: Can you walk away from your “baby” without turning back? Years of long nights, hard work and sacrifice have gone into building your business. Will you be able to step away and simply let it go? Instead of a sudden and complete stop, a better approach may be to structure an “off-ramp” to help you transition out of clinical dentistry and even management. You may be surprised by what you find and the space that this intentional action creates.

Financial readiness

In addition to personal readiness, we believe it’s essential to ensure your financial situation is secure before transitioning your dental practice. Here are three key financial indicators to assess your readiness:

1. Practice valuation: Obtain a comprehensive, independent valuation to understand the practice’s worth in the current market environment. This evaluation will objectively assess your practice’s financial standing and help you determine whether it’s the right time to transition.
2. Solve the wealth gap: Evaluate your retirement savings, both now and post-transaction. Will the net proceeds from the transition, in addition to your current savings and investments, create the net worth required to comfortably support your retirement lifestyle and goals? There are no mulligans (i.e., do-overs) in practice transitions, and solving the wealth gap is a critical first step. Knowing your required financial outcomes will help you determine your readiness and inform how to structure your practice transition.
3. Waterfall implementation: Why do so many lottery winners go bankrupt?  Because they have no plan for the implementation of their liquidity windfall. The same holds true for a business transition. Before the final wire transfer, plan how you will allocate your proceeds. Create the structures and entities that will effectively operationalize your goals—whether they be charitable, estate, tax planning, etc. Documenting this plan in advance is critical to help avoid the emotional fog of a significant liquidity event.

We understand that transitioning your dental practice is an important and impactful decision that requires careful consideration of both personal and financial readiness. We believe by evaluating your lifestyle goals and passion for dentistry and by creating an off-ramp, if necessary, you can determine your personal readiness for a practice transition. Simultaneously, conducting a practice valuation, solving the wealth gap and designing your waterfall can also help secure your financial readiness.

By aligning these two critical aspects of preparedness, you can confidently take the next step toward a successful and rewarding transition that paves the way for the continued success of your dental practice and the alignment of your goals. We believe the key is not only to execute on this transition but to transition well. That means optimizing value on your own terms, with the confidence and clarity to embrace your next chapter. Enjoy the journey!

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