Critical Considerations When Selling Your Dental Practice

Do it Right the First Time or Risk Starting Over

Picture of by Dr David Phelps

by Dr David Phelps

When it comes to selling your dental practice – whether it's in part or the whole practice…

Here are key considerations you need to think about and some questions you should be asking when selling your dental practice or business.

Many have considered exiting their practice or business in recent years due to the high multiples that have been paid by private equity. In dentistry, they are known as DSOs and the multiples have been inordinately high. But that era is closing.

So what do you need to think about now in order to maximize the sale of your business and what you can do with the money afterward?

#1 Cash Upfront is the Priority

Many are still seeking to maximize the exit of their business or practice. When negotiating the sale of your business all considerations come down to: How much cash am I going to receive up front

DSOs or private equity structure buyouts to be a combination of up front vs deferred compensation, which is typically tied to performance metrics or future recapitalization events… I have cautioned many dentists that the back-end money may not be what they promise and is not guaranteed. 

You have to tread carefully on what’s promised in the future. Too many business owners are setting their sights on proformas or the predictions of the profitability of the business based on what’s happened in the past.

As we proceed into a recession, what has worked and made businesses profitable will look very different in all assets (this includes real estate and businesses) going forward. 

The recent volatility and changes in the marketplace, inflation for the first time in 40 years, and the fastest rate increase in interest rates in our history have been the cause of the recession that is right now barreling down the pipeline.

There will be major fluctuations in asset prices. This means whatever money you receive from selling equity today is what you need to be happy with. Everything else on the backend should be considered icing on the cake because maybe, what you receive on the front end is all you get.

Other Considerations During the Sale of a Business or While Selling Your Dental Practice

How old are you? How close are you to leaving active income and focusing more on passive income? Where are you in practice? In your career? Could you sell it all right now and go back and build a business again? Some people will do that and may be able to do it well.

You have to keep these questions in mind knowing that the path forward will be different than what we've seen in the last decade plus.

We will see much slower growth and heavier headwinds (difficulties) to these recaps and refinances. In the past, the turnover has been as short as 20-24 months. That will no longer happen going forward.

Now you will be forced to play the long game if you want to be successful. But if you are trying to shorten the curve and get out (like many dentists ready to exit), there is another crucial consideration to selling your business that many think about late in the game.

#2 What Will You Do With the Money After the Sale?

If you want to get out and never go back to actively trading your time for money, the #1 consideration is cash flow. How are you going to receive income after the sale of your business?

Cash flow independent from you is vital if you don't want to be operational anymore. Selling your business is supposed to be a huge opportunity. An opportunity you’ve earned through hard work and long years. You don't want to hang around for 3-5 years or have to start over.

So how can you replace the level of income you used to produce with your hands? The stock market? Your 401(k)?

Many people who bet on that during the 2008 Great Financial Crisis were faced with the painful reality of being forced to come back to work. Some bet everything on the financial markets and when you lose 33-50% of your equity, leaving active income is no longer on the table. I know so many who were on the precipice of exiting, yet found themselves delaying their exit by nearly a decade.

An Unforgiving Market

Perhaps you could survive such a hit to your plans and savings if you were 10 years away from exiting. However, we have not seen this level of inflation in 40 years. And it is not going back down to the nominal 2% or less like the Fed predicts.

This means more focus and more accuracy are required to turn that nest egg into a golden goose. Solely investing in bonds or money markets will not work. They may be paying more today, but inflation is still devaluing those assets and their returns.

And due to higher interest rates, equity markets are volatile right now. The stock market is also very volatile. Real estate, especially commercial, is very volatile. Is there no safe place? Where can you go to preserve your capital and build wealth?

That’s exactly what we do in Freedom Founders. We navigate building our nest egg and converting it into cash flow independent of our active participation in any stage of the market cycle. It is the driver for getting through unforgiving times like these.

Consider all your hard work, discipline, and striving to do the right thing and how it can be wiped out in one fell swoop. You’d have to start over and take more than 6, 7, 8, 9, 10 years to get back to even again.

If you're looking for your exit and you don't have 10 years to give up then you need a plan and people with experience who can guide you through it. I too am at a stage of life where time is more scarce than it used to be. I want to stay at the forefront of navigating my own financial future.

What that means is both you and I need to understand how the markets work and how the assets I invest in can provide the cash flow we both need. Financial products won’t provide that. I’ve seen it fail time and time again with my colleagues and the people I help.

For me, tangible assets like real estate have been the vehicle for my wealth preservation and growth. And it will continue to be so during this time. 

Proximity to Investments Matter in This Market

Tangible assets that I can have as much proximity to without having to manage it is the key to investing successfully in this economy. Tangible assets, not financial, are one of the only investments in which enough proximity can be obtained to mitigate risk down the road while leaving flexibility to pivot in changing markets.

I don't want to manage real estate today. I do not want to be a landlord. That’s why close proximity is the answer and not direct management. If I were directly managing all my tangible assets, it would be just like earning an active income again. That’s not something I want to do at this stage of my life, same for those I help.

Adapting and navigating equity and debt investments, based on real estate, is what I love to do today. I’ve done it for four decades. It’s how and why I help doctors and dentists every day.

I help them realize that most of the time, they are closer than they think. They have enough to exit if they can make a game plan now with the right information, access, and confidence. This provides the stability severely lacking in the general marketplace.

If this is you, if you resonate with my message, I’d love to talk to you. I have a game plan for you. I’ve helped hundreds of other practitioners and high-income earners and I can help you. The first step is scheduling a call with my team here.

I’m not someone who will tugboat you in. If I can help you, then I will. If I can’t, then I will at least point you in the right direction.

It is my mission to impact as many of my colleagues, the people I grew up with, as I can. The markets are changing and the ability to make moves to preserve wealth is being squeezed.

It will be harder today, requiring more scrutiny, dedication, and discernment from you to survive the economic shifts and continue growing on the other side.

It’s your freedom. It’s your responsibility to protect it.

– David


P.S. Whenever you’re ready, here are some other ways I can help fast track you to your Freedom goal (you’re closer than you think) :


1. Schedule a Call with My Team:

If you’d like to replace your active practice income with passive investment income within 2-3 years, and you have at least $1M in available capital (can include residential/practice equity or practice sale), then schedule a call with my team. If it looks like there is a mutual fit, you’ll have the opportunity to attend one of our upcoming member events as a guest.

2. Become a Full-Cycle Investor:

There are many self-proclaimed genius investors today who think everything they touch turns to gold. But they’re about to learn the hard way what others have gained through “expensive” experience. I’m offering a free report on how to become a full-cycle investor, who knows how to preserve and grow capital in Up and Down markets. Will you be prepared when the inevitable recession hits? Get your free report here.

3. Get Your Free Retirement Scorecard:

Benchmark your retirement and wealth-building against hundreds of other practice professionals, and get personalized feedback on your biggest opportunities and leverage points. Click here to take the 3 minute assessment and get your scorecard.

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