How to Sell a Dental Practice - Step-by-Step Process

Selling your dental practice is one of the most rewarding yet complex decisions you will make in your career.

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For most owners, the main challenge is securing an accurate valuation and achieving the maximum outcome.
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Our guide serves as a resource for selling a dental practice. We’ll explore every step needed for a successful sale, from getting a valuation to closing the deal. We also discuss the tax implications of each sales structure to help you maximize your after-sales proceeds.
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Let’s get started.

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TL;DR - Steps to Sell a Dental Practice

In a rush?

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Here is a quick rundown of how to sell a dental practice:
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1. Set your exit goals.
2. Get a professional practice valuation.
3. Prepare your documentation.
4. Assemble your M&A team.
5. Market your practice.
6. Negotiate the sales terms.
7. Finalize the legal agreements.
8. Execute the transition plan.

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When is the Right Time to Sell a Dental Practice?

Timing is everything when selling a practice. If you sell too early, you leave significant value on the table, and if you wait too long, you may face unfavorable market conditions.
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Here are signs that it’s the right time to sell your practice:

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1. Favorable Interest Rates: Interest rates affect your buyer's affordability. You should sell when interest rates are low, because buyers can finance larger acquisitions, which can support higher sales prices.
2. Changes in Tax Laws: You should monitor changes in capital gains to avoid a reduction in your after-tax proceeds. You should sell when you can take advantage of favorable capital gains tax rates.
3. High Production: You should sell your practice at peak production, when overhead costs are low, and you have 3+ years of consistent performance. You can command a high EBITDA and attract better offers from buyers.
4. Personal Triggers: You should sell if you’re burnt out, facing health changes, or you've achieved your career goals.

Plan your exit 1 to 3 years in advance to achieve meaningful outcomes.

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How Much is a Dental Practice Worth?

A good EBITDA multiple is 3.0x to 5.0x for a practice dependent on an owner, 5.0x to 8.0x for a business with associate dentists, or 9.0x to 12.0x+ for a practice with strong, consistent systems.
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Here are key pointers to understanding your dental practice's worth:

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• Move Beyond ‘Rule of Thumb’: Avoid using the traditional method of valuing your practice using 60% to 80% of your previous year's gross annual revenue. It fails to account for specific value drivers such as profitability and location.
• Focus on EBITDA: Aim for a higher Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), as this shows buyers the actual profit your practice generates and an estimate of the cash flow they can expect.
• Understand Your Practice Goodwill: Goodwill is the intangible assets, such as your personal reputation, which accounts for approximately 80% to 85% of your practice value.

Use our free valuation calculator to get an estimate of your dental practice.

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Common Dental Practice Valuation Methods

There are three popular methods for dental practice valuation.
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Our table breaks down when you should use each of them, and their main limitation:

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Factors That Affect Your Sale Price

Practices can sell anywhere from mid-six figures to several million dollars, depending on factors that make your practice attractive to buyers.
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Here’s what actually drives the sales price of your dental practice:

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1. Location: If your practice is in a prime area, it attracts more patients and generates higher revenue, thereby creating greater value.
2. Financial Performance: Your practice’s revenue, expenses, and profits are insights into the profitability and stability of your business. A practice with good financial health is valuable to potential buyers.
3. Quality of the Facility: A practice facility that is in top condition is appealing to buyers and commands a higher sales price. You should renovate your facility and equip it with up-to-date technology, such as digital X-rays, intraoral cameras, and laser machines, to provide modern dental care.
4. Staff Quality: Buyers prefer a practice with well-trained staff to avoid disruption, retain patients, increase revenue, and improve practice efficiency. So, consider your staff members' experience.
5. Patient Base: If you have a large patient base, you can command a higher value. The number of active patients determines your sales price since it directly impacts revenue, patient retention, reputation, and risk mitigation.
6. Specialties and Procedures: General dentistry generates $700,000 to $1M annually, while specialized practices exceed $1.5M annually. If you specialize in highly profitable and specialized services such as cosmetic dentistry, you’ll command a higher price than if you focus only on routine procedures.
7. Legal Issues and Reputation: Buyers prefer to invest in your business if it has a clean legal history, free of disputes. You should therefore maintain accurate records, follow ethical and legal guidelines, and seek legal advice when issues arise.

Steps to Sell a Dental Practice

When you take the right approach to sell your dental practice, you make negotiations easier, set your practice up for success under the new leadership, and preserve your legacy.
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Here are the 7 steps to follow:

1. Set Your Exit Goals

You should have clear goals for your dental practice, including your financial goals, succession plan, exit timing, and transition preferences.
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You should create a 3- to 5-year timeline to boost profitability, resolve outstanding debts, improve patient retention systems, and prepare your team for the transition.

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2. Get a Professional Practice Valuation

Get a professional valuation to understand your practice’s true worth. The valuation will consider your revenue, patient base, and equipment to determine a fair market price.
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Consider dental M&A advisors to help you choose the right valuation method, whether it’s income-based, market-based, or asset-based. They can also help you enhance your valuation by reducing unnecessary expenses, optimizing staffing costs, minimizing your reliance on third parties, and improving your financial records.

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3. Prepare Your Documentation

Clear and comprehensive documents demonstrate your practice’s value and build the buyer's confidence, helping avoid negotiation delays.
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You should gather the past 3 to 5 years of financial statements, patient demographics, and production reports. Gather details of the condition of your equipment, the lease property details, and the staff contracts that detail their employment terms.

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4. Assemble Your M&A Team

If you want an expert guide to dental practice valuations, consider an M&A team that can position your practice to premium buyers. They can help you market your practice, qualify buyers, and negotiate better terms.
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Consider forming your M&A team before the sale process begins to protect your practice's value and improve its marketability.
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At Exitwise, we can build your dream M&A team to provide comprehensive, strategic guidance. We can connect you with M&A advisors, M&A attorneys, and investment bankers to develop strategies that can maximize your practice value and position you for a successful transition.
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Let’s start the conversation to help you hire and manage M&A experts who can act in your best interests and walk you through every stage of the exit process.

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5. Market Your Practice

You should have a strategy for finding the right buyers, whether they are individual dentists, DSOs, or private equity firms. You should either market your practice discreetly or use a broker specializing in dental practice sales.
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An M&A expert can help you position your practice in the market by highlighting its revenue potential, patient retention, and future growth. They can also help you market your practice to prequalified dentists and evaluate potential buyers.

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6. Negotiate the Sales Terms

Besides your sales price, you should focus on the long-term value. You should look at the payment structure, transition periods, staff retention, and the transfer of your patient records.
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Partner with an M&A advisor to help protect your interests and ensure all agreements are clear before proceeding.

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7. Finalize the Legal Agreements

Once the negotiations are complete, you can finalize the legal side of the sale. You should work with an M&A attorney who can structure your deal, whether it’s an asset or stock sale. They can draft disclosure agreements and asset-transfer contracts.
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An expert can ensure the contract includes strong confidentiality clauses and clear acceleration provisions in the event of payment failure.

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8. Execute the Transition Plan

A well-executed transition helps to ensure your dental practice continues to thrive under the new leadership.
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You should stay approximately 60 to 90 days to introduce the new owner to your team, reassure patients about continuity of quality care, and offer support during the handover period.

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Tax Considerations When You Sell a Dental Practice

When selling your dental practice, you should consider the sales structure that affects the tax and legal implications.
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Here’s a breakdown of the seller tax consequences:

Asset Sale Vs. Stock Sale

If you’re considering structuring your sale as a stock sale vs. an asset sale, here are the tax consequences to consider:
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• Asset Sale: If you sell individual dental assets, such as patient records, goodwill, and equipment, you may incur different taxes..

Here are the taxes according to different types of assets:

            > Tangible assets: If you sell furniture, equipment, medical supplies, or other physical assets, they are treated as depreciated property. So the gains will be subject to recapture rules. Depreciation deductions taken in prior years may be recaptured and taxed as ordinary income.

             > Accounts Receivable: If there are any outstanding accounts receivable, they are taxed as ordinary income since they represent payments or services rendered but not yet received.

             > Goodwill and Intangible Assets: Goodwill in your dental practice, such as your reputation and client base, can result in a lower capital gains tax rate.

Other intangible assets may qualify for capital gain treatment depending on how you qualify them.
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Buyers prefer asset sales because they can cherry-pick assets to purchase and benefit from tax depreciation.

• Stock Sale: If you sell corporate stock or ownership interest, you qualify for long-term capital gains tax rates, which are better than ordinary income taxes. As a seller, you get more favorable tax treatment from a stock sale.

However, the buyer doesn’t benefit from any tax deduction in the stock sale.

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Capital Gain vs. Ordinary Income

Different dental assets are taxed differently depending on how long you held them before selling.

• If you’ve held dental assets for more than 12 months and make a profit, you make a capital gain that may be subject to capital gain taxes at a rate of either 0%, 15%, or 20%.
• If you’ve held your assets for less than a year, or you have certain assets, such as inventory, that are treated as short-term capital gains, these are taxed at ordinary income tax rates.

Earnouts: Deferred Purchase Price Payment or Compensation

How and when you receive the payment for the sale of your practice will determine the tax treatment.
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Here is a breakdown:

• The IRS will treat earnout payments as deferred purchase price payments and treat them as capital gains. They are taxed at a much lower rate than ordinary income.
• However, if the earnout includes compensation to you as a seller, it’s treated as ordinary income and subject to high tax rates.

Consult with an M&A advisor before you structure your deal to maximize your after-tax proceeds and ensure compliance with tax laws.

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Frequently Asked Questions

Here are answers to the questions dentists most commonly ask before putting their practice on the market:
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What Happens to Staff and Patients When a Dental Practice is Sold?

When you sell your dental practice, the new owner often retains staff to ensure there’s continuity in patient care.
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Here is what the transition looks like:
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• Sometimes, your staff may renegotiate employment agreements at closing.
• The new owner may keep the compensation and benefits the same, but employment terms may change later.
• The patients should be notified 30 to 60 days before the sale of the dental practice in accordance with state laws.

Can I Sell a Dental Practice That is Not Profitable?

Yes. Here are the top three ways you can sell your unprofitable dental practice under specific conditions:
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1. Goodwill Sale: If your practice has an established goodwill, such as an active patient list, you can merge with an existing business.
2. Asset Sale: You can conduct an asset sale, including the sale of equipment and technology.
3. Growth Potential: You can highlight potential and focus on growth areas, such as strong location and opportunities, to reduce overhead.

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Consider a professional valuation to navigate the valuation process and identify the right type of buyers.
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What is Goodwill, and How Does It Affect My Sale Price?

Goodwill is the intangible asset of your dental practice, whether it is:

• Personal goodwill, such as your reputation and patient relationships, is attached to you as the owner and can decrease if you leave.
• Practice goodwill, such as your patient base and systems, is more valuable to buyers.

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Higher practice goodwill directly increases the total sales price by boosting overall valuation and leading to a higher SDE multiplier.
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What Documents Do I Need Before Listing My Dental Practice for Sale?

Here are the documents you need before listing your dental practice for sale:
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1. 3 to 5 years of financial records, such as P&L statements and tax returns.
2. Lease agreements and vendor contracts.
3. Patient data, including their monthly count.
4. Employee records, including their benefits and salary information.
5. License and compliance documents, such as HIPAA and OSHA.
6. List of dental equipment, including their age and conditions.

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What is the Typical Transition Period After Selling a Dental Practice?

Most buyers expect you, as a seller, to remain on for 60 to 90 days to protect patients' trust and support continuity of administrative processes.
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You might stay longer if the new owner requires more time to understand the systems or if you’re in an earnout arrangement.
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Conclusion

Selling your dental practice requires you to start the exit process early to control the timing and value. You should also partner with a team of professionals to support valuation, buyer screening, and fast exits.
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At Exitwise, we have a network of 4000+ vetted professionals with decades of negotiation experience and access to buyers. Whether you need assistance with valuations, negotiations, or tax structuring, we can help you interview, hire, and manage your industry-specific M&A team to guide you through each stage.
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Book a consultation today and get an M&A team to maximize your outcome, screen potential buyers, and help you transition on your own terms.

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