Angela Mulrooney had a thriving dental practice in Calgary, and expected to run it for several decades, but then she developed a medical condition called focal dystonia, which affected the muscles in her right hand. The demanding physical side of dentistry just wasn’t possible anymore.
Selling a professional service business takes time – start planning for a sale at least five years out.
She had to sell her practice, but to who? “I started emailing everyone I knew,” Mulrooney says. It worked. She found a dentist via her professional network, and sold the practice for a profit in 2015. “I didn’t have much choice and I was heartbroken, but that is life,” says Mulrooney.
Fortunately, Mulrooney found a way to remain in the field she loved, launching a second career as a dental business coach. In her new job, she sees many professionals who want to sell, but haven’t thought of their clinics as businesses, and, as a result, haven’t created companies that are appealing to buyers.
It’s a similar story in other service industries, such as law and accounting, where people build up successful practices, yet struggle to sell when they’re ready to retire. Most professionals are so focused on their patients or clients that they don’t have time to think about the business side of the operation or boosting growth, which is what many buyers want to see. “They don’t have the energy to put into thinking about it as a business,” she says. “As long as there is money in the bank, they are feeling good.”
If you do want to sell, you’ll need to ensure that a future buyer can expand the business or at least see an opportunity for more success. Fortunately, if you plan ahead and think a little more like an entrepreneur instead of a dentist, lawyer or accountant, then you should be able to sell the practice you’ve spent your career building up – and at a decent price, too.
Get help early
Selling a professional service business takes time – start planning for a sale at least five years out, says Mulrooney. Bring in professionals, including a business consultant to help make the business more profitable and accounting professionals to better organize the company’s finances.
Check in with your financial planner early, too, says Blair Evans, director of tax and estate planning for IG Wealth Management. Additionally, Evans recommends talking to your tax advisor several years before a planned sale so you can examine any tax planning opportunities and appropriately structure your business for a tax-efficient sale. “If you reach out right before a sale, options might be limited,” Evans says.
You may want to speak with a chartered business valuator (CBV) or business broker to help gain an understanding of the value of your business, says Evans. A CBV will generally look at all sorts of financial and growth metrics to come up with a realistic sale price.
Find a buyer
As Mulrooney can attest, having a vibrant professional network can help get the word out to prospective buyers – likely your current colleagues and competitors. It’s best to nurture a wide network in advance of a sale if you can – other professionals can also help you deal with the day-to-day issues of running a business.
Know the limits of doing it alone, though. Neil Hiltunen, the co-founder of the Association of Retiring Dentists, was ready to sell his half of a dental partnership in New Hampshire himself. When a prospective buyer contacted him from Alaska, he realized it was better to use a business broker who knew the ins and outs of selling a business.
“Do you want to spend hours and hours interviewing people and showing them the area?” Hiltunen asks. “The broker saved me a whole ton of time.” Indeed, Hiltunen’s broker came through, selling his portion of the partnership in 2005.
Potential buyers not only want to buy a client list and future growth, but they also want capable staff. Make sure your staff has contracts with clear job descriptions. “A lot of the time, dentists do not have their team on contracts and that is a very scary thing for a buyer,” Mulrooney says.
As well, consider getting an audit, to determine whether staff are using time effectively. “If you have the clinic open for 40 hours a week, but you are only really working 30, you need to trim that down,” Mulrooney says. “That creates upside for the new buyer.”
If you’re overstaffed, you may have to let some employees go before selling, so it’s a good idea to consult a human resource lawyer once you find a buyer. They can help you determine who to let go and what severance to pay.
What happens if you can’t sell?
It’s important to understand whether your business is likely to be sold or not. If you’re in a practice where there is a high demand for services, such as a general medical practice, new doctors may be able to acquire clients quickly after graduation without having to buy an existing practice.
In that case, the professional who wants to sell their business typically stops operating the practice, sells some assets like furniture and equipment and, if the business is incorporated, considers what to do with the corporation after their retirement.
Before doing anything drastic, though, it’s a good idea to talk to your tax advisor about what to do with the corporation. “If you wind up the corporation, you will have immediate tax consequences,” says Evans. “But if you keep the corporation, you could maintain tax deferral and only be taxed on the money you pull out as well as on investment income earned in the corporation.”
Getting a professional services business ready for sale might take a little longer than you hope but do what you can in between serving your clients and finding new ones to create a business that people will be clamouring to buy.