Though dental practice transitions are not an easy transaction, they don’t have to be head-splittingly difficult to complete. There are a lot of variables you need to consider when deciding on a U.S. dental transition.
Again, a lot of factors play a role when considering a professional practice transition, including your patient base, the value of your equipment and related technology, your location, and of course, your dental office lease agreement. Though you may value your dental practice highly, all things considered, the value of your healthcare practice may not be what you thought or hoped.
Tip #1: Have your practice appraised by a third party.
All too often, dental practitioners are surprised to find out that their dental practice isn’t worth as much as they thought due to the most minute of details like clauses within their lease agreement or not having the terms of their lease properly set up. Your lease agreement may contain specific language that can negatively impact the value of your practice.
They say, “the devil’s in the details” and common leasing terms that could affect the value of your practice lies in the details in your leasing agreement– Options to Renew, Demolition Clause, and Surrender Provisions section. It helps a great deal to negotiate a healthy lease renewal years before your planned retirement if you want a safe dental practice transition.
Tip #2: Have a realistic action plan in place.
It’s common for dentists to plan their retirement in their late 60s or 70s due to their love of practicing dentistry and their attachment to their patients and community. Another reason that dentists tend to hold off retirement until old age is that they lack the savings to retire comfortably due to the financial toll that not having a proper lease agreement can have. Start planning for your retirement early on—in your 30s and 40s to give you time to properly set up your leasing agreement. This will allow you to protect your investment so that you are properly positioned for a professional practice transition.
Tip #3: Look for traps in your leasing agreement.
Of course, we all want to believe our fellow human beings are honorable. Unfortunately, that is not always the case, especially when it comes to real estate agreements. There’s also the problem of human error. When it comes to leasing agreements for a dental practice, you want to make sure that you lease without any personal guarantees or at least limit the guaranty post assignment. Include language in your leasing agreement that will prevent the landlord from approaching you for rental payments.
Also, in your leasing agreement, address how much profit from the sale, if at all, your landlord will be entitled to. Language in the Assignment Clause of a leasing agreement often entitles landlords to 50% or more of the profits. The devil’s in the details. Pay attention and address this as far in advance of your retirement as possible.
Also, the Exit Clause specifies how you must return the space you rented. Not paying attention to this detail could cost you thousands of dollars in having to gut the space and restore it. Review your leasing terms as early as possible.
Tip #4: Make sure you inform your landlord of your practice transition or assignment.
About 85% of dentists have a leasing agreement with language that can halt or even prevent them from selling their practice. Review the Assignment Clause to ensure there isn’t language that would allow your landlord to interfere with your practice transition. Unfortunately, too many dental practitioners are caught off guard when they learn that some assignment provisions allow the landlord to charge higher rent fees, remove tenant-friendly language, or terminate the lease altogether.
Always read contracts thoroughly and pay attention to the details. Selling your dental practice will be the most important financial transaction you make in your life and you want to protect yourself. A professional dental practice broker can help you transition smoothly.
