435: Selling Your Practice Under Ideal Conditions or Under Duress - Paul Sletten

Selling Your Practice Under Ideal Conditions or Under Duress

Episode #435 with Paul Sletten

Selling is one of the most important things you will do in your practice life. But whether you're the seller or the buyer, you want to ensure ideal conditions. And to help you in that process, Kirk Behrendt brings back Paul Sletten from the Sletten Group to share his expert advice so you can plan, prepare, and transition successfully. You will likely sell your practice only once. To learn how to do it right and under the best conditions, listen to Episode 435 of The Best Practices Show!

Main Takeaways:

Have a plan for selling under ideal conditions.

Also have a plan for selling while under duress.

Be prepared so that you have more options.

Buying from needy sellers is very dangerous.

Fixer-uppers are usually dangerous situations.

Don't buy or sell on your own — get an expert!

Quotes:

“If the seller comes to the closing table in a financially needy position, they’ve got to score a big win. Look out, buyer. Because it’s liable to be a biased process, a stacked deck, if you will, because they’ve got to scratch every cent out of the sale of that practice.” (3:33—3:55)

“If they’ve done a great job planning and implementing their plan financially over their career, the sale of the practice — even though it’s a big number, typically, in a healthy practice — is really only the icing on the cake. So, if you're going to have a win-win outcome, you can't have someone needy sitting at that closing table.” (3:57—4:19)

“I think an ideal selling price for a practice is what a talented buyer can afford to pay for it. Reducing the debt, retiring a debt over a reasonable period of time, say seven to 10 years, and getting an ever-improving lifestyle in the process so they're not an indentured servant while they're paying off the practice, I think that's what a practice is worth.” (5:17—5:46)

“I don't think I can ask [a dentist if they need the money from the sale] early in the process. But as you're going through the process, certainly. That's a question we ask everyone that we’re helping to sell a practice, ‘What kind of condition are you in for your retirement, and what sort of a contribution does the sale of your practice need to make?’ And we get right on that topic upfront. And sometimes, in those situations — sometimes, not always — the seller is going to come to us and literally tell us upfront, ‘Here’s what I need out of the sale of my practice.’ And we very nicely let them know that this isn't the way it works. Your practice is going to be worth what it’s worth based on a whole bunch of criteria, and we’re going to do a formal practice valuation.” (7:06—8:03)

“Ideal conditions would be where you have a healthy owner and a practice trending well. Maybe it’s a little bit flat, but it’s not in decline. So, it’s a healthy practice. You've got a good team in place; you have a good reputation; you have a good net profit; you have good patient numbers. Or in the case of a specialty practice, you've got a good referral base and that kind of thing. So, it’s all systems-go. It’s something that someone is going to be able to step into and ride it into their own successful career because it’s really doing well. That's what we call ideal conditions.”  (8:19—9:07)

“Duress is when the owner of the practice is ill, or is injured, or had died, and the practice has been impacted in a huge way by those conditions. And so, here, you have a real high, strong sense of urgency to get it sold as fast as you possibly can. You still want to sell it to the right person and all of that. But everybody needs to have a plan for selling under ideal conditions, and a plan for what to do if something bad happens, God forbid.” (9:11—9:53)

“We’ve had so many situations that we’ve had to deal with and help with over my career where suddenly someone becomes ill, or is in an accident, or dies in a plane crash, or takes their own life, and everything imaginable in between. And that kind of a practice needs to be, as I said, sold quickly. But what happens under duress is that people need to move swiftly in that, and they typically don't.” (11:18—11:53)

“Imagine someone dying, and then the family is grieving. The spouse is grieving, and there's no action taken on the practice because they don't know what to do. They don't know whether to retain the team. They don't know whether to close the practice. And typically, months can go by where they're not getting any activity and taking any action on it, and the practice is losing value.” (11:54—12:22)

“You need to have a plan in place where you have a contact — you can call us, you can call your attorney, you can call your CPA — and get some action going. And designate one of the family members as the go-to person for the third parties who are going to be involved in this so we can have direct access. And typically, that is not the spouse. But it needs to be a family member or somebody on the team who’s a key player who can get you the information you're requesting regarding the practice and all of that. And then, you've got to coach them on how to hold the team together.” (12:23—13:02)

“You've got to hold the patient base in place if it’s a general practice. You've got to keep the practice open, which means keep the team in place. And you've got to communicate to the patients. Sometimes, it’s a news story that everybody becomes aware of what happened. And most times, it’s not. But you still have to let them know what's going on and let them know that they still have that practice as their dental home, and that you're going to have the practice covered, and that you're going to, in a very reassuring way, be doing an immediate search to find someone terrific to come in and take over the practice.” (13:03—13:47)

“If you're in solo practice, [the timetable for transition is] a minimum of three years. Five is more ideal. If you think about the process here now under ideal conditions, you're going out and looking for somebody, and you're going to be patient to find someone who fits your practice culture. And that is so important. And you have to be prepared for the search and placement process itself taking anywhere from six to 18, maybe sometimes 24 months. If you're living in a rural area, because it’s harder to recruit to those settings, it might be three or four years that it will take.” (14:22—15:07)

“One of the things that can happen post-sale if the owner is going to stay in the practice for a while, the practice has to be large enough and strong enough and active enough so that the new owner can become productive right away and be able to take over the paying of the overhead expenses, and making the note payment for the purchase, and so on, and having a good income after all that.” (17:51—18:19)

“Sometimes, the continued presence of the seller is a huge, huge asset to the buyer. In effect, they help the buyer pay off the practice note. Sometimes, however, it can work the other way. Sometimes, the continued presence of the seller can get in the way of patients readily transferring to the buyer, to the new owner. And that really becomes an issue because it really slows the growth of the new owner, and it becomes very frustrating. And that's going to end up in a conflicted relationship, guaranteed.” (18:21—19:04)

“I recommend this really strongly. What I think you need to build into your operating agreement is, let's say it’s a two-doctor partnership. I think the surviving or remaining partner should have a contractual obligation to buy out the retiring partner — not a first right of refusal. If it’s a first right of refusal, they can opt out and say, ‘No, I'm not going to do that.’ Or they can say, ‘I don't think I'm going to do that. But I get a big discount, and that's baked into the operating agreement as well because I'm in-house and I'm your partner,’ and it leaves the seller hanging.” (20:05—20:48)

“I don't recommend that people buy fixer-uppers. I think that's a dangerous purchase.” (24:33—24:40)

“Usually, fixer-uppers are practices in decline. And they might've been in decline for a long time. And so, practices where the dentist has fallen asleep, they're still practicing, but it’s not alive. It’s not healthy. So, the practices in decline, it’s very likely that the new owner is going to have a fee schedule that's really substandard. It’s very likely that the systems and protocols in that practice are old and tired, and accounts receivable management is a theory, not something they practice. And if you're going to have to come in and put on the black hat and raise the fees, and you're going to have to come again and put on the black hat and start collecting what is produced, you're going to tick off a lot of people.” (28:31—29:30)

“You might pay triple for a healthy practice what you would pay for the fixer-upper. But buying the fixer-upper is way more dangerous.” (29:58—30:07)

“If you have a healthy practice and you're selling, and you're planning out a ways, three to five years, you might have the opportunity to bring somebody on board before you go and bring them on board even as an associate, but groom them to be the buyer. That would allow you to phase out of your practice rather than go abruptly. If you're in solo practice, and you work your butt off your entire career, and stagger out of the office at 5:00 on a Thursday, never to return again, that's a sudden way to become depressed. Because this thing that's been such a huge part of your life now, beginning Monday, you don't go there. And that becomes difficult.” (31:16—32:15)

“If you can phase out, meaning, go from full-time — that might be three or four productive days a week — to part time, and then phase out over a period of years, you get to try on your new lifestyle that you're going to be adjusting to while you're still practicing. And that is so much better and so much smoother. And it also is wonderful for the new owner because the practice is healthy and can support both doctors.” (32:15—32:54)

Snippets:

0:00 Introduction.

1:37 Paul’s background.

2:44 Does the doctor need money from the sale?

4:19 Estimated value is not always the true value.

6:53 Can a buyer ask the dentist if they need the money?

8:05 Ideal conditions versus duress.

11:12 The timetable to sell under stressed conditions.

13:47 The timetable to sell under ideal conditions.

15:27 Prepare so that you have options.

17:36 Problems that may arise post-sale.

19:04 Potential complexities with partnerships.

21:30 Other questions you should be asking.

23:47 What are you really ready for, and what do you want?

28:23 Reasons to avoid fixer-uppers.

31:03 Last thoughts on selling.

32:57 Don't buy or sell on your own.

35:35 Paul’s contact information.

Reach Out to Paul:

Paul’s email: paul@lifetransitions.com 

Paul Sletten Bio:

Paul D. Sletten founded the Sletten Group, Inc. in 1975 in Denver, Colorado. They are in their 47th year of business and have developed an international clientele, having assisted and completed transitions in all 50 states, six provinces in Canada, and two states in Australia. They continue to exclusively work with fee-for-service dentists and their teams around the country.

It is exciting to see both people and practices grow, and to know they have had a hand in so many transitions bring them enormous joy. Their wide-ranging experiences allow them to bring what they have learned to each new client situation. This experience helps them know how to tailor their services to the unique needs of each client and to be able to offer multiple options to almost any client situation. Due to this ability to customize their services, the Sletten Group also works with all of the specialty practices in the dental industry.

Paul has spoken at more than 285 dental meetings around the country. This includes almost all of the major dental meetings and numerous study clubs. The topics focus on all aspects of Practice Transitions — including buying a dental practice, selling a dental practice, and much more — as well as personal growth and development for dentists and team members.

Pam Sletten, a partner in the group, assists and works in the business and is very involved in helping their clients.

In an effort to expand their range of services for young dentists and prospective buyers, the Sletten Group helps in evaluating practice opportunities and sets a proper course for professional lives. All at the Sletten Group continue to focus on their own personal growth. They come to the world with a sense of wonder and are constantly on a quest to learn more and apply that learning to the benefit of their clients.