After working so hard to make it through dental school and then decades of serving the community, it's not easy for dentists to sell their practice and transition to retirement. But if you approach it logically by starting your preparations between three and five years ahead of time, the transition can be surprisingly painless.
Assess Your Business Honestly
If you're a dentist thinking about retiring and/or selling off your practice, the first thing you need to do is get an accurate tally of where you are right this minute. This means doing a "deep dive" in your books and getting an honest assessment of where your business currently stands. Are there outstanding loans or debts to be paid off? Are there any tax liabilities or issues?
It's also a really good idea to create a list of all of your individual business assets such as equipment and/or real estate in case you wind up selling your practice piecemeal instead of passing it on intact to another dentist or dental group. If your practice owns real estate, it is essential to speak to a consultant who can give you a fair estimate of its market value. Even if you've asked yourself "How to sell my dental practice?" in simply a hypothetical manner, getting these things in order is still a smart move for any practice owner.
Consult A Tax Professional
It's also a really good idea to consult a tax professional. They can help you strategize the most effective way to minimize your tax liabilities when you do sell off the business, including capital gains taxes. You may also be able to divvy up the income from selling your business into multiple payments so as to avoid a huge bump in your yearly income. Tax professionals can also help you deal with issues such as shuttering the LLC or S-Corp that owns your business if that isn't part of the deal when you sell your practice.
What Will Your Retirement Income Sources Be?
The second thing to do is get down to hard tacks and calculate how much income you'll be earning after you've retired and/or sold your practice. Many dentists think they have an accurate tally in their head of how much they estimate that they spend, but you need to start tracking everything so that you have hard numbers.
Upon retirement, your income may come from different sources, including investments, debt repayments, and/or other businesses that you may still own. A rough "rule of thumb" is that you will get $1 of annual income for every $30 in your investment portfolio, so you may need to increase your investments while you're still working.
You also need to find out when you will be able to access annuity payments such as Social Security, private retirement plans, and/or from IRAs/401k accounts. When exactly will you be receiving these payments and how much, exactly, per month will you be receiving?
Practice Living On Your Living
Once you have a reliable estimate of your post-retirement monthly income, try practicing living on that amount. Spend a month or two monitoring your expenditures and see if you can continue your lifestyle comfortably. Don't forget to also include projected future expenses such as more frequent vacations, travel, visiting family members, assisting the grandkids with college and other factors related to your retired lifestyle when you are calculating the income that you'll need during your post-retirement years.
By knowing both exactly where your business currently stands as well as what income you will be able to reliably count on in the future, you'll know exactly when to retire and/or sell your practice long before you have to make your move (or are pushed into it). Even aside from unexpected health issues that might push you to sell your practice and/or retire before you're ready, you never know when other factors, including economic disturbances, political events, family crises, or major overhauls to the tax code, might force your hand.
Dotting the "I"s and Crossing the "T"s
It's also critical to remember that every jurisdiction has laws concerning how long dental records must be kept. In many cases, you may be legally required to keep those records for a decade or longer. If you're selling your practice whole to another dentist, make sure that the sales agreement includes a clause about preserving your patient records. Otherwise, third-party archival companies can store these records for you after you've retired.
Last, but definitely not least, don't forget to consider your staff and your patients. Best practices are to give them a "heads up" of at least a year or two so that they can accommodate your exit from the dental profession.
As long as you approach retirement and/or the pending sale of your dental practice calmly and logically before circumstances force your hand, you'll be able to enjoy the transition with a minimum of stress and anxiety. For More Practice Management Solutions, take the Scheduling Institute's 5 Star Challenge!