Your dental practice serves as not only your primary source of income but likely your most valuable asset as well. Selling a dental practice is a significant decision that goes beyond a typical real estate transaction.
With patients, team members, and your professional reputation at stake, careful planning is essential, as you are effectively swapping cash flow (taxed at ordinary income tax rates) from the business for a lump sum payment of many years of cash flow (five to 10 years) on which you will only pay long-term capital gains at today’s rates. You only get one chance to sell your business -- let’s make sure that you make a well-informed decision.
What is your business worth today?
It is hard to plan for your exit if you don’t know what your business is worth today. There is no Zillow for dental practices. As a result, seeking expert advice becomes crucial.
Tusk Partners performs hundreds of practice valuations each year to help owners understand the value of their business. We then provide doctors with a market read of where the value is likely to trend based on previous transactions, current buyer sentiment, and general economic trends like cost of capital and private equity activity.
Armed with this knowledge, you can confidently make informed decisions about your sale. Additionally, we assist in making strategic adjustments to maximize your practice's value before it hits the market.
Timing your sale wisely
The right time to sell is when you are ready and the market value meets your needs. Trying to time the market is fool’s gold, because mergers and acquisitions (M&A) markets, like the stock market, move in cycles.
We have recently seen the greatest rise in practice values in the history of M&A. This run-up in values was driven by private equity demand and a low-interest-rate environment. While demand remains strong, increased borrowing costs have made buyers more selective.
The January issue
A recurring trend in the industry is the rush to close transactions by the end of the year. This rush creates a scarcity of deals in the market at the beginning of January, coinciding with high demand from dental service organizations (DSOs). The basic principles of supply and demand come into play, leading to a surge in prices.
The bogeyman in the closet
Markets hate uncertainty. When there is uncertainty in the U.S. economy, CEOs stall decisions, lenders get nervous, and capital freezes up.
On November 5, 2024, we will have our 60th presidential election. Today, the markets are solid, and capital is flowing. If the polling is close and the presidency comes down to a few Electoral College votes from swing states at midnight, prepare for a choppy September and October.
There was lots of concern in the last election cycle that Biden would increase the long-term capital gains taxes. The current national debt is over $30 billion (the highest in recorded history and 123% of the gross domestic product).
If Democrats keep the White House, one must assume that they will look to add more taxes. Additionally, the lifetime estate tax exemption (currently at $12.9 million) is scheduled to sunset on January 1, 2026, and will be cut in half. These actions could lead to a glut of businesses for sale in 2025. If the supply of businesses for sale exceeds demand from buyers, you will certainly see a precipitous decline in pricing.
Where do you start?
In this dynamic environment, it's essential not to panic but to take proactive steps. Tusk is here to assist you throughout the process. We offer complimentary practice valuations. Whether you're considering a sale in 2024 or exploring options for the future, our team is ready to guide you through the intricacies of the process. Make an informed decision and ensure that your dental practice sale is a success.
Kevin Cumbus is the founder and president of Tusk Partners, an M&A advisory firm focused exclusively on large and group practices that want to partner with a DSO or private equity group.
The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.
