Sell my dental practice and secure my retirement

For an owner dentist, selling their practice is a major step that must be carefully prepared. Steve advises dentists who have reached this stage to ask themselves some crucial questions before embarking on the selling process and, above all, to surround themselves with various professionals.  “The objective is not simply to sell, but above all to optimize the sale so that it’s as profitable as possible. Don’t forget that the value of a dental practice is directly linked to its profitability,” says Steve. “In John’s case, is it the right time to sell? Is he ready? Have his financial goals been achieved? To answer these questions correctly, it’s essential to consult with experts who specialize in assisting dentists.

Since John has just posted record income, it’s a good time to sell his practice. “Aside from John’s good financial results, it’s mainly the anxiety and sleeplessness caused by managing his staff that concerns me. All too often, I’ve seen dentists who have been forced to sell on less attractive terms because of health problems that have had a negative impact on their practice’s profitability.”

“John also needs to consult a tax advisor as soon as possible to ensure that his corporate structure will enable him to benefit from the capital gains exemption at the time of sale. If the sale takes place in 2024, he could exempt up to $1,016,836 in capital gains taxes arising from the sale of his shares. There are, however, a number of criteria to meet to take advantage of this deduction. To meet two of the criteria, which relate to the proportion of assets that must be actively used in the business, the company’s balance sheet must be purified by removing $550,000 in passive corporate investments. As there are numerous purification methods, the company’s balance sheet will have to be examined to identify the most appropriate one. Finally, depending on the organizational structure, it may be possible to multiply the capital gains exemption with other family members.”

Because this step is so crucial, Steve believes John should call on a professional appraiser specializing in dental practices to help him determine the price of his clinic. “Valuation is not an exact science. This means that the fair market value established by an appraiser reflects their opinion as an expert, and is not necessarily the selling price that should be asked for the practice. Two valuation reports for the same practice will not give the same results, since each appraiser may use different methods. The valuation stage should not be taken lightly.” Steve points out that buyers expect the seller to provide them with a valuation report, especially since bankers usually require it for financing.

Once John knows the fair market value of his practice, he’ll have a clearer idea of how much money he’ll have available for retirement. Steve explains: “It’s not enough to know what the amount of his assets will be: John should already have a solid financial plan in place as he approaches retirement. This plan will ensure that he achieves his financial goals after the sale of his practice. Why doesn’t John have a retirement plan yet? Steve suggests: “John probably relied on the idea that the proceeds of the sale would secure his retirement, but he still needs to plan this sale and optimize it, as well as plan how he will use the money during his retirement.”

Steve insists on the added value of a financial plan: “In addition to determining the net standard of living you can enjoy during your retirement, a financial plan allows you to optimize the various aspects. Since John has always maximized his RRSP, depending on the level of taxable income he’ll have when he retires, it could be tax-efficient for him to make RRSP withdrawals or to pay himself taxable dividends before the year he turns 72. After that date, mandatory minimum RRIF withdrawals are added to other taxable income, which often puts you in a higher tax bracket. John must also take his spouse Sylvia into account in his retirement income projections, in order to take advantage of various income-splitting strategies.”

Risk management is a priority for Steve: “Since owner dentists can’t rely on a pension, they need their savings and the proceeds from the sale of their practice to be managed professionally and rigorously. Good financial planning tools can determine the appropriate level of safety to maintain in their portfolio as they approach retirement, or throughout that stage of life, until death.”

Steve has one final piece of advice for John: “As it has been a long time since they were reviewed, John’s and his spouse’s wills need to be reviewed and updated as soon as possible, and again, after the sale of the dental practice. Life changes can happen quickly, and it’s very important that legal documents reflect everyone’s current wishes. Setting up a testamentary trust could enable John to ensure that the assets bequeathed to Sylvia go to his own children in the event of his spouse’s subsequent death, rather than to her children.”

“It’s also important to plan who will look after John or his assets in the event of some kind of disability. Drawing up a protection mandate is essential to protect him and his assets in case of disability. A financial advisor must take into account their client’s overall financial situation.”