Transitioning Your Ownership with Succession Planning
As a business owner and dentist, we know you understand that planning for retirement is not just about contributing to a 401(k) or a profit-sharing plan. In our first article, we outlined what succession planning is and what your options are. This time we will be outlining the first steps to creating a well-thought out succession plan to allow you to cash in on the equity you used to help build your dental practice.
There are two primary routes dental practice owners take when building a succession plan: transition to a practicing child/relative or sell the practice to a partner or another dentist entirely. Learn more about each below to decide which could be best for you.
Transitioning the practice to a relative
For this route especially, it is crucial to start the succession planning process early. Ensure that your relative truly understands the role and responsibilities they will be taking on. During this process, it is vital you bring them into your dental practice so they can gain hands-on experience and understand the business model. Finally, solidify what your role will be after you exit long before you actually retire. It can be difficult to see a business you worked so hard to build in someone else’s hands, even if it is someone in your family. But there is a confidence in knowing the business you built is in familiar hands and you can watch it continue to grow.
Selling the practice
There is a common method most dental practice owners use when selling their practice to a third party:
- 1. Hire the dentist you believe could potentially take over the practice or sit down with an existing partner and discuss them taking over the practice once you retire.
- 2. Set a term for this dentist to learn the ins-and-outs of owning the dental practice.
- 3. If the parties are still interested in transferring ownership at the end of the term, the new dentist will buy a portion of the practice.
- 4. Upon retirement, the original practice owner will sell his or her remaining ownership of the practice to the incoming owner.
In an ideal world, the potential owner would be brought in three to five years before the current owner plans to retire. This gives the potential owner enough time to truly understand their new leadership role and create relationships with existing patients. This is why it can be so beneficial to sell your practice to a current partner; they understand the business and your patients. However, if that is not a viable option for you, start thinking about a succession plan well in advance to ensure both you and the future owner have ample time to prepare.
Succession planning for a dental practice can be a lengthy process. It is important to start early and get the right advisors on your side throughout the process. Contact a team member in our Business Banking department to learn how we can make this easier for both you and your dental practice.
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