Selling your business is never easy.
And, when it comes to selling your dental lab, it’s even more complex. You’ll need to consider several other factors, in addition to some of the basic aspects of selling a business, before you sell your dental lab.
These factors include: the type of deal you structure; the way your customers and employees will be treated; the sort of integration that’s expected; and, ultimately, what a “win” looks like for you, the buyer, your customers and your employees.
It’s difficult to complete a successful transaction that’s mutually beneficial to all parties involved. It requires significant collaboration and alignment between both you and your buyer.
Below, we’ll detail how to sell your dental lab, and which factors to consider throughout the process.
Asset v. Stock Transactions
First, it’s important to understand the deal structure.
There are two types of transactions – an asset transaction and a stock transaction.
An asset transaction is the simpler of the two. In this type of transaction, you sell some, or all, of your dental lab’s assets to the buyer. This might include your physical assets, such as milling machines and alloys. Most likely, though, it will incorporate your customers and the positive relationships you have with them – otherwise defined as goodwill.
Goodwill plays a significant role when determining how the purchase price gets allocated amongst the assets being sold. That’s good for you as the seller, since gains on goodwill are considered long-term capital gains, and thus taxed at a lower rate.
Asset transactions require less due diligence from the buyer, since there is some protection from historical taxes and other liabilities. And, they typically have simpler purchase agreements, or contracts that finalize the sale process (along with funding, of course).
The other type of transaction – a stock transaction – involves the sale of shares or the entire legal entity. In it, the buyer assumes ownership of that legal entity and everything associated with it, including assets and liabilities.
You’ll use a stock transaction if you sell a large company with complex licenses and many contracts (both customer and vendor contracts). It requires more due diligence from the buyer, and the purchase agreement is long and robust in terms of buyer protections.
From a tax perspective, if your company isn’t a pass-through entity, there is less opportunity for the buyer to reduce the tax liabilities from a stock purchase. Thus, the buyer usually pays a higher price for an asset transaction.
Given the lack of customer contracts and licenses required in the dental lab industry, it’s typically more advantageous for both the buyer and seller to consider an asset transaction to sell your dental lab.
Customers and Employees
Your customers and employees are the lifeblood of your lab. And, compared to other industries, they’re far more unique.
Certain dentists require specific case handling, and you’re well aware of that. In fact, that’s probably one of the main reasons why your customers are loyal to you. Additionally, your office managers and lab technicians likely understand each customer so well that they could complete cases without needing written instructions on each tray.
Knowledge is power, thus it’s vital to create a plan ensuring its protection when you sell your dental lab.
It’s also important to work with a buyer before closing to ensure they are aware of any nuances. Oftentimes, the sale of your lab involves both keeping the physical lab in place and retaining most, if not not all, of your employees.
If the buyer intends to make changes, they should be addressed ahead of time. Sure, he/she may retain the lab technicians, but what about the front-office admins and/or the back-office staff?
Those team members regularly communicate with your customers. Thus, it’s important to understand the buyer’s assumptions as they relates to them.
It’d be disastrous for you to lose customers or key employees during an acquisition. So, make sure that there are solid short, medium, and long-term plans designed to take care of customers and employees when you sell your dental lab.
Integration
In order to complete the sale of your dental lab, you’ll need an appropriate integration plan.
Most transactions involve some sort of holdback or earn-out, which creates mutual success in the short-term — up to 36 months after closing — between you and your buyer.
When you successfully execute the integration plan, you ensure that you realize the full value of the agreed-upon transaction. Along with the aforementioned customers and employees, your plan should address other important business aspects. That might include payroll & timing programs, branding, physical space, and lab operating systems (such as LabTrac, Evident, or Magic Touch’s DLCPM).
You’ll also want to address other important functional areas, such as accounting, human resources, and sales. If you ignore any of those during integration, you’re bound to create issues that could affect not just employees and customers, but your overall business.
Your buyer should be transparent with you about the integration plan. He/she should also expect you to participate in the process, since no one knows your business like you.
When you sell your dental lab, instituting an integration plan greatly increases the odds of the a smooth, transaction.
A Win for All Parties
Four primary constituents exist when you sell your dental lab: You (the seller), the buyer, your customers, and your employees. It is vital to keep all four groups in mind as you start the process.
For you, it’s important to understand your exit strategy, your value expectations, and how to best preserve the value of the business you’ve built.
Want to stay on as an employee or partner after the transaction? Make a point of that during initial conversations. The clearer you are on your preferences and expectations going forward, the better it is for all parties.
It’s hard to find good lab operators, managers, and technicians. So, make sure you’re clear on the value you bring to the business. That way, the buyer can create specific plans to accommodate you.
Many financial investors focus on the investment, but won’t offer you much in the way of operating support or experience in the dental lab industry. It’s important to find a good buyer who appreciates your value and the role you play.
Goodwill provides much of the transactional value, so it’s important to preserve it throughout the entire process. A buyer must feel good about you, your lab, and the overall merger.
Since so much of the sale’s value involves keeping your customers happy, you’ll need to create a well-articulated plan to communicate to customers right after closing. This can be done with in-person visits, phone calls, emails, and/or letters.
If there are new products or technologies available post-transaction, highlight those as well. If you want to sell your dental lab but retain customers, keep them informed. You’ll want them to hear about it directly from you.
And finally, get your employees excited about the transaction, too. After Closing, present them with an overwhelmingly positive message that they can relay to other employees and customers.
Transactions and changes cause job-related stress as team members often worry about their roles and/or job security going forward. So, it’s important to be open, upfront, and honest with them. Let each employee know about the benefits, stability, and existing opportunities created by partnering with a good buyer. Give them the opportunity to ask questions, and be prepared to explain the positives of the merger.
If they sense your optimism and excitement, it will permeate the lab, thus ensuring that customer service and product quality do not suffer.
Bringing It All Together
If you’re looking to sell your dental lab, it’s important to consider all of these factors.
It’s also critical to find the right buyer – someone with experience in successful acquisitions and integrations of dental labs. The right buyer will be upfront with you, and will be able to clearly explain processes and expectations. Because of that, you’ll experience a smooth transaction.
Interested in selling your dental lab? First Choice Dental Lab, in partnership with Pareto Asset Management, has extensive experience in acquiring other labs across the country. And, we’re currently looking to partner with other dental lab owners.
If you’d like to learn more, please contact Scott Kaeser, Owner and VP of First Choice Dental Lab, at scottk@firstchoicelab.com or (312) 925-4655. Or, just complete the form below.
We look forward to hearing from you!
