How To Get The Best Price And Terms When Selling Your Business With Ryan Kelly

“The main point that I’ve been kind of hammering home. Its practice evaluations are done based on three years. I just like to hammer that home, because so many people do not know that.”

Ryan Kelly is a strategic partner that helps you find the right practice for your needs through their unique and personalized approach to every transition opportunity. He is one of the Practice Sales Consultant in Practice Exchange, LLC that sells dental & optometry practices nationwide.

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How To Get The Best Price And Terms When Selling Your Business With Ryan Kelly

Brett:

As a part of selling your practice. Let’s say you are a veterinarian, an orthodontist, a dentist, anything that’s a professional practice. You want to have a good broker who’s going to help you achieve the highest price and the best terms and help you navigate the sale. Our next guest is a specialist when it comes to exactly that. You can find him at practiceexchange.com. His name is Ryan Kelly and he is focused on optometry brokerage, helping people who are selling the optometry businesses, practices to get the highest price in the best terms. So Ryan, welcome to the show.

Ryan:

Hey, I’m happy to be here. Thank you, Brett.

Brett:

Ryan, tell us a little bit about your story and a little bit about your current focus.

Ryan:

All right. So I work for a company called Practice Exchange and what we do is help dentists and optometrists sell their practices. So we’re a brokerage firm in a niche. And I like to call us a brokerage firm when explaining it to like the greater population, but in the industry, it’s kind of called practice transitions because the beauty of a good sale of optometry or dental practice, really comes down to moving it onto the next doctor. You want to have the next doctor come in and they’re able to really just kind of continue on business as usual. Now, I’m looking at different brokers throughout the country. And one thing that we kind of try to differentiate ourselves with, and I like to harp on, is that our main goal is to keep practices private. So our goal is to let’s say, sell Dr. Joe Smith. He’s 65 years old. He’s a dentist and he’s been working for 30 years. And his goal is to sell to a doctor just like him 30 years prior. So those are the kinds of relationships we like to nurture. There’s a lot of private equity money coming into the industry that I’m not sure who’s aware of, but when you see these corporate dental offices, that’s all private money. And what they do is they would buy a practice that we’d be trying to sell. And then they would kind of just implement corporate standards. And that’s something that many doctors aren’t too privy to. And we kind of is trying to counter that. Giving it a different exit plan is a kind of what we like to present.

Brett:

Excellent. So Ryan, before your success as a broker selling dental practices and optometry practices, who was Ryan growing up, I’m just curious, what were some of the gifts you were given perhaps that helps shape how you help others today?

Ryan:

Yeah, honestly, I was looking at this question and it had me stumped. For a while, I’m like, oh, my gift growing up. It was funny. I always thought I was like a funny guy, a jokester, but then one time in college I did a standup comedy act. I was elected to do standup and it went terribly, terribly, terribly wrong. And ever since then, I’m going with my skill as a listener. I’m a big-time listener. And I’m not just saying that I really do try to listen to people and learn from them every time I speak with them and kind of gain an understanding of their perspective, because I mean, at the end of the day, it all comes down to what you’ve been through, what I’ve been through, our perspective shapes everything that way. Everything that we do essentially. And that’s why I’m pretty interested in speaking with you and learning from you. So yeah, listening would be my best skill, but growing up, I was definitely a funny guy.

Brett:

That’s great. No, you need humor in any business or anything you’re doing to help enjoy life. That’s a great gift to have. And of course, listening is probably the best gift to have as a broker to make sure you really understand what your client’s needs are and how you can best serve them, but you can’t best serve them until you really are a good listener. So excellent. So when did you first become fascinated and/ obsessed with helping optometrists or dentists sell their practice?

Ryan:

All right. Practice Exchange is, to be honest, it’s a family operation. So I was in school and my dad was hinting at me, whether or not it’s something I’d like to get into. And then I ended up going to grad school. And when I was getting my MBA, I really, decided that I was going to kind of go all-in on this family business. And obviously, at first, I was just keen on the idea of growing a business, like many entrepreneurs would be, but then once I really started talking to doctors on a daily basis and realizing that they have a fantastic profession. They’re helping people on a daily basis. And then they create these assets that are very lucrative, but something that not many people understand is these lucrative assets, they’re very volatile. Let’s say you have a practice right now, and it’s at its peak. It’s doing like $2 million in gross revenues. Okay. The practice evaluation and what that practice is, “worth” is based on the last three years of business. So let’s say five, 10 years from now, the practice is only doing $750,000. The doctors suffer a huge, huge loss, and to go even further of that point, it’s sad the number of doctors who are unaware of this, and at one point their practices were thriving. But then when they go to sell 10 years later, their practice is so small that it essentially is dying and we’re unable to help them because banks aren’t looking to get involved and the banks are the only way that buyer’s ability to purchase the practices. When I found out how many doctors ended up at the tail end of their career, sitting on a dying asset, it was something that kind of gave me a little bit of a rejuvenation, I would say, to really go out there and meet as many people as possible and help as many people.

Brett:

Absolutely. This is something they pour their heart, soul and blood, sweat, and tears into. And to only see it not be able to either serve their retirement or not as much as their needs would really be painful. And so what you’re saying is, hey, you’re going to come in there and you’re going to help show them these numbers, show them how to perhaps sell at optimal timing to capture the maximum value based upon the previous three years of operations. And really just show them, hey, this might be the best time to sell and, or let’s create a plan to help you get three years trailing so that we can indeed achieve a higher sales price. Is that a fair summary?

How To Get The Best Price And Terms When Selling Your Business: “Keep Your Sales Pipeline Full By Prospecting Continuously. Always Have More People To See Than You Have Time To See Them.” – Brian Tracy

Ryan:

That’s a fantastic summary. That’s spot on.

Brett:

Excellent. And so maybe give us a deal story or two about what you do or how your services helped somebody in that exact scenario. Walk us through, or just a typical sale when you’re representing a dentist or an optometrist.

Ryan:

Okay. So a typical sale is a doctor will approach us and kind of be interested in getting an evaluation done. And that’s completely typical. I mean, completely normal. We do free preliminary evaluations. So what we would do is we would kind of we’d take the last three years of tax returns. And based on the last three years of tax returns, we’re able to kind of come up with a price point. And I don’t mean to just act like it’s no big deal. Let’s say 2018, 2017, 2016. You look at those three years of tax returns. And again, as I was harping on before, how it’s a volatile price, 2018 would be weighted three times 2017 would only be weighted twice then 2016 once. So that’s just for our listeners, any dentists or optometrists out there who have a practice, just so you have an understanding of how important the last year of businesses is, that’s how the valuations are done. So then we…

Brett:

Let’s pause there Ryan because I get the sense that perhaps some dentists, just in that scenario, you just told me that it’s in the last three years, the previous year is going to be three times the amount. The two years prior is going to be two times and then three years prior is going to be one time the amount. And so, but I get the sense that, and correct me if I’m wrong, that dentists if they’re thriving and doing amazing, they’re not necessarily thinking about selling right now, perhaps it could be, but maybe oftentimes it’s when things are declining and then maybe they’re not enjoying as much. And that’s when the business suffers. So walk us through just that tension of when to sell, if just sell, when it’s thriving, when it’s not thriving, walk us through some of those discussions that you might have with a dentist or an optometrist.

Ryan:

That’s a fantastic point. The thing is not very many people are thinking about an exit plan when they’re making more money than they have in their entire life. So I was talking to a dentist the other day, they’re grossing $2 million. They’re walking home with $800,000 a year. It’s pretty hard for someone like myself to be like, you really might want to sell. They’re looking at me like I have three heads. But it’s all about a long-term exit strategy. So if they were thinking five years down the line, then they can plan accordingly. It kind of comes down to whether or not you’re willing to work for somebody else because we can structure deals and anyone can structure a deal where the dentist sells next year. They work for the next three years, X amount of days a week. And they can kind of go off on their own terms and not have to deal with that day-to-day to be in charge of managing the day-to-day operations. But yeah, to go off of what you’re saying, it is very difficult to convince somebody that the asset that is giving them such an exorbitant amount of wealth is actually volatile to the point that one day if they don’t plan properly, they could be in an unfortunate situation.

Brett:

Excellent. Yeah. Great answer. So willing to work for somebody else is what it kind of comes down to, and then they can maybe maximize the value if they were to sell when things are going really well. If they’re willing to, I guess, give up some of that control, which probably is the tension again, I imagine which means you’d have to find the right ideal corporate partner or buying group that has your values. So walk us through how a dentist or optometrist might vet or select those and or what relationships do you have to bring those groups in to try to make it a really ideal match?

Ryan:

Okay. To answer that question, I think you first have to differentiate between practices. For both dental and optometry. You’re going to have, let’s say A-level practices. These A-level practices, have a pool of buyers like you and me, individuals looking to buy, but then they also have corporate money coming in and looking to buy. So the selling doctor has to make their own decision, whether or not they’re okay with selling to a corporate entity, because once you sell to a corporate entity, they take over everything. So they tell you production standards, they can get rid of your staff. They can make you take different insurances. And all of that changes the day-to-day operation of your practice. Or you decide that, Oh, I only want to sell to another sole proprietor, another doctor like myself. And then that’s when you kind of get opened up to a whole pool of buyers and a company like ours would present multiple different people to you and just wait for that cultural fit and fit in terms of the price point. And everything comes together that way. But to make it crystal clear, these A-level practices have, let’s say, twice as many people looking to buy them as a practice, that’s more of a B-level, just because banks are more willing to fund these practices. And they’re more lucrative of course, but they’re also a little bit less risky because they have such a … When you have such a large gross revenue, there’s money there to be made.

Brett:

Excellent. And I’m curious, for the corporate ones, are they three full-time dentists or optometrists or more per practice location. How are they determining? Is there a certain revenue number where the corporate will look at it? Or walk us through what are some of the defining boundaries for private versus corporate?

Ryan:

Okay. All right. Yeah. That’s a great question. Great question. So the revenues that are kind of late to defining numbers is like, kind of like a million. Once you’re grossing over a million, a bunch of doors is opened. In the dental world, you see practices grossing two, three, four million. Optometry, the top-of-the-line optometry, probably around 1.8, 2 million. So, when you’re looking at those practices, those are the practices that corporate money is willing to pay premiums on. I’m not going to lie to you, but these corporate entities, pay more than we’re able to get doctors in our traditional brokerage sense. Because they’re sitting on a pot of money and it’s being funded because, I don’t mean to call them investments, because, at the end of the day, it’s all about patient care. But these investments really are their goldmines. But to answer your question, no, they don’t necessarily have to have three doctors. It’s usually an operation that’s doing upwards of a million. So it’s very difficult for one dentist to produce much more than 1.5, really, the really elite dentist may be doing 1.5, but a lot of the times you’ll see they would buy the practice, have that dentist stay on, and then they would bring in an associate and they would slowly turn a one doctor operation into two doctors because the highly skilled doctor is the one that is leaving. And oftentimes the doctors are younger, out of school, paying off student debt, doing their thing, the doctors who are working for these corporate entities.

Brett:

Excellent, great answer. It’s really helpful. So now let’s shift a little bit. Would you give it an example of how your service kind of help create and preserve more wealth for a particular doctor, whether it be through deferring capital gains tax or what are some strategies you’ve seen for doctors that are selling and what have they done to defer the 30 to 50% of capital gains tax?

Ryan:

Yeah. See, this is a thing that I’ve been really looking forward to speaking with you about. So when we sell a practice, 85 to 90% of that is allocated to Goodwill. So that’s only a tax of 15%. And then what we do with the other 10 to 15%, they’re allocated to “hard assets” and they’re taxed at 35% up to the depreciated amount. For optometry’s sake, just because they have an Optos, it’s a piece of equipment that … I put myself on the spot here trying to define what an Optos does. And I can’t even remember what an Optos does, but an Optos is a piece of equipment that optometrists buy and they use on a daily basis. So let’s say you bought it for $100,000. It’s depreciated to $50,000. Up until $50,000, it will be taxed at 30 to 35%, I mean, 35%. And then after that, it’d be taxed at the capital gain rate.

Brett:

Got it. Okay. So it just depends if it’s a hard asset or Goodwill, but most of them are structured as 85% Goodwill and then 50% hard assets. And then based upon the basis of those hard assets, depending on how much depreciation you’ve taken will be hit with 35%. But the other amount of Goodwill would be at a lower tax rate. Is that a fair summary?

Ryan:

That’s a spot-on summary. I’m not, and again, this is where I harp on we have such a great team at Practice Exchange, I’m not the CPA over there. You get put into contact with a CPA and they’re the ones who helped you in creating your purchase and sales agreement. But from what I understand is that’s one of the main things we offer. It is 85 to 90% in Goodwill and it saves the doctors a ton. And the other thing we like to offer to preserve wealth or not offer, but advise is sometimes if the doctor’s selling and they’re hanging up their coat after, it might be advisable to sell like January one on a new year. So their huge salary isn’t going to be brought into effect on what they get taxed on for the net sale price.

A bank does not really care what you have to say right now. They don't finance potential. That's one thing that I've learned over the years, it's that banks do not finance potential. In terms of how to leverage our services. Click To Tweet

Brett:

Excellent. Yes. So staggering into the following year so that they’re making whatever they’re bringing in that given year they’ve already retired or walked away. So their income is going to go to, let’s say to zero or very low, and then bringing in the rest in so that you’re in a lower overall tax bracket. So, that’s what you’re saying.

Ryan:

Yeah. And Brett, honestly, I wrote down a couple of numbers.

Brett:

Yeah, why don’t you share that with us, share the listeners? Give us kind of a breakdown. That’d be great.

Ryan:

So a dental practice that we sold, it had a selling price of $980,000. We allocated 780,000 to Goodwill. So that was taxed at 15%. And that’s fantastic if you are a selling doctor. So, 200,000 were allocated to the furnishings, equipment, and fixtures. Then 15,000 was allocated to inventory. And the reason I just want to point this out. The difference between dental and optometry is dentists don’t really have a ton of inventory. Optometrists have all the frames, contact lenses, and at the end of the day, it’s a lot more of their inventory. So for the dental, it was 980 K selling price, 780 K Goodwill, 200 K furniture and fixtures. For the optometry it was a $1 million selling price, 726,000 allocated to Goodwill, inventory and supplies, 42,000, then equipment, furniture, and fixtures 232 K. That’s just for any listener out there, who’s trying to do this on their own. You can try to look at that and figure it out on your own. But the real word of advice is you have to get a CPA who specializes in practice transitions, and ideally, a lawyer who specializes in practice transitions to be process–

Brett:

And that’s what you guys provide right, Ryan? You’re the broker, but you also have the in-house or CPA. And the attorneys are all the contacts for that?

Ryan:

Yeah. We have contacts. We can’t provide the lawyer, because of privileges and things like that. But we have CPAs, but you don’t want your own lawyer, but we have contacts of lawyers throughout the country who strictly do this.

Brett:

Excellent. So what should every wealth advisor, this is financial advisor, commercial real estate broker, business broker, everyone who’s kind of in the industry, a lender, what should they know about what you do? And for the ones that work with you, how do they best leverage your service and expertise to help grow their business?

Ryan:

Yeah. I mean, that’s the main point that I’ve been kind of hammering home. Its practice evaluations are done based on three years. I just like to hammer that home, because so many people do not know that. I talked to a dentist the other day, he’s like, “Oh, but five years ago I was doing this. If a new doctor just does this, this and this, they can make this.” And I’m sitting there on the other side of the phone like, I hear you 100%. I believe you, but a bank does not really care what you have to say right now. They don’t finance potential. That’s one thing that I’ve learned over the years, it’s that banks do not finance potential. In terms of how to leverage our services. I mean, with the broker’s industry, it kind of comes down to who you want to work with. I’m sure that you’ve learned the same thing over the years. It’s really about a relationship that you build with somebody and just make sure you’re comfortable with the person you’re working with. I guess that would be how I answered that question.

Brett:

Yeah. Those are great answers. Those are awesome. What are some of the questions that you’re going to ask? I guess more so for that seller to make sure he’s realistic about your answer that you just gave about five years ago, I was doing this, but now I’m doing this. Why can’t I get this price? I imagine a lot of dentists think the practices are worth more until they actually understand the three-year rule. So what are some of the questions that you’re asking to kind of determine the motivation for those owners when you’re considering taking a listing on?

Ryan:

Yeah. So we want to know a timeframe. We want to know a timeframe. We ask for the timeframe and objective. Is your objective to sell the practice, wash your hands and go to Hawaii. Is your objective to sell the practice, work two days a week, sell the practice work three days a week. And then if it’s a really good practice. We are able to sometimes do it and sell it. And the doctor can work three or four days a week, but you have to have a practice that is cash flow and man, to be able to do that. Let me just look at it here. The other thing that we like to advise, and I know you were talking about on the seller side, but I’m actually going to spin it onto the buyer side. We advise you to buy real estate if you can. You want to own the building because let me explain it. For 20 years from now, 20 years, you’re going to be working there every single day. You’re going to be paying rent for 20 years. Ideally, you’re going to be paying off the real estate so that when you go to sell in 20 years from now, it’s like a double whammy. You have to sell the practice when it’s at its peak and you get to sell the estate that that practice has paid for. You paid for it, but you were just going to work every day, paying for your practice. The other thing is constant education for these buyers. The dentists who are making the most money, they’re the most skilled dentists. They’re the dentists who aren’t referring out root canals, who are doing all the procedures in-house. And that just comes down to constant and continual education. And that’s something that I kind of try to do on my own. So it’s definitely in terms of what people should do. Those would be my words of advice.

Brett:

Those are great words of advice, very helpful, very practical. And so how do you stay centered on your values? Just kind of more personal here, get the listeners a chance to get to know you a little more, Ryan, how do you say you’re centered in your values and encouraged to drive to new heights and reach your goals?

Ryan:

Yeah. Again, this was another question that I was just thinking about how I was going to answer. I mean, I’m just like everybody else I think. I have my up and my down days. It’s just, I think that it’s all about who you surround yourself with and your environment. Again, we have such a good team over at Practice Exchange. Everyone brings something different, but on a daily basis, I mean, I’m real you can’t be the same thing every single day. And I think that it’s important for people to realize that everyone’s going through something. So, I mean, I just try to do the right thing every day and I feel like that’s all we really can do.

Brett:

I love it. No, great answer. So let’s go for the lightning round. Are you ready?

Ryan:

Yeah, I’m ready.

Brett:

All right. So your favorite leadership or business book or wealth-building book?

Ryan:

Oh, my favorite business leadership book. I mean, honestly, it’s just my favorite book in general, but written by Mark Manson. It’s The Subtle Art of Not Giving a F-word. I don’t want to swear here, but that’s my favorite book I read in my life and it’s all about values and things. Kind of the last question we were just speaking about. It might not be as business-oriented as people were hoping for, but that’s a must-read and I do not care what anyone says.

Brett:

Excellent. Mark Manson, The Subtle Art of, and the explicit. Okay, great. What is your favorite encouraging or leadership or business podcast that you listen to?

Ryan:

Hmm. I used to listen to a lot of Gary V, then I started listening to Andy Frisella. I don’t know if you know Andy Frisella, but I’ve been listening to a lot of his podcasts. I think that one’s really good. I honestly just listen to a lot of different podcasts. I’ve listened to a lot of history podcasts lately because I feel like you can learn a lot from evaluating leadership from historians. And so Ben Franklin’s World, that’s another one people might want to check out.

Brett:

That was great. And Ryan, where are you located for our listeners?

Ryan:

So we’re located in Providence, Rhode Island, but we operate all over the country. A lot of what we do marketing-wise is on social media, Facebook, Instagram, Twitter, and actually a lot on LinkedIn. So yeah, we implement our business model throughout the entire country. We’ve built a database of every optometrist in the country and we’re working on doing that for dental as well. So yeah, anyone anywhere in the country, who’s considering a practice transition, or just wants a word of advice. Please give us a call at Practice Exchange.

Brett:

That’s great. So everyone you can find Ryan at practiceexchange.com or you can email him directly at ryan@practiceexchange.com. Ryan, I want to thank you for being on the show and sharing your wisdom and your practical advice for helping dentists and optometrists who are considering selling their practice. Hey, reach out to Ryan and hire him to be your broker to advise you and help you with your transition. I also want to thank our listeners again for listening to another episode of the Capital Gains Tax Solutions podcast. As always, we believe most high net worth individuals and those who help them struggle with clarifying their capital gains tax deferral options. Not having a clear plan is the enemy and using a proven tax deferral strategy such as the deferred sales trust is the best strategy and best way to grow your wealth. Until next time we look forward to connecting with you on the next podcast and go make it a great day. Thanks so much.