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Inside Dental Technology
January 2020
Volume 11, Issue 9

Preparing Your Laboratory for Sale

Ready the business from the inside out

Bob Yenkner

Sooner or later, every laboratory owner is faced with the decision of selling the laboratory, whether to a colleague, a family member, or a third party. Preparing your laboratory for sale requires you to look at a range of details so as to make the sale as trouble-free as possible and maximize your take-aways. Here a few ideas to get the process started.

Who are the people involved in the laboratory ownership? Are there partners or family members who have stake in the business and what are their desires or dreams? Far too many sales or transfers of ownership have failed because the laboratory's owners have different expectations. If you are a sole proprietor, the expectations may be less varied but still need to be clear. This will help dampen the shock of the sale reality (seller's remorse) when it occurs.

What is the laboratory really worth? Start with a professional business valuation of your laboratory to determine a realistic selling price. A valuation will allow you to set an asking price for the business at a level that nets you a fair deal while still making the sale in a reasonable time. The owner needs to understand exactly what the value of the laboratory is from both a financial and an operational standpoint. Typically, 3-year trends of financial measures such as profit/loss by product, working capital, balance sheet, cash flow, and expenses are examined in great detail, so they had better be current. An operational review assesses the culture of the laboratory, evaluates its ability to compete with current resources, and gives a good indicator of potential earnings or profit the current business model can bring.

What is it you are trying to sell? A blend of culture, skills, people, finances, location, equipment, services, and products all meld to create this thing called a dental laboratory. Potential buyers may be looking to increase their customer base, add a ready-to-work labor force, or offer a new product that your laboratory makes but for which they do not possess the required knowledge or equipment. There are many laboratories for sale; what is it that makes your laboratory stand out to a buyer?

How do you want to sell it? The options are many, but there are perhaps three basic places to start. One, outright cash sale. The buyer hands you a bunch of cash; you flip them the keys and walk away. This approach is clean, with no strings attached. However, this approach usually means the seller settles for a lesser amount of money. Two, the seller takes a long-term payout (over 3 to 5 years) and generally stays on in some capacity to ensure the customer base does not erode. Three, the seller takes some cash up front, agrees to a shorter payout term (over 1 to 3 years), and stays on for a much shorter transition period. With options two and three, the money the seller receives may be greater due to buyers paying for a longer period of time, combined with the salary earned during the transition period.

Will the business operate without you? Many laboratories are dependent on the owner as the key decision maker on everything from answering questions like "Does this crown look OK to you," to contacting dentists, to hiring/firing employees, to the daily production schedule. Potential buyers may see this as a risk to the long-term health of the laboratory. The laboratory owner would be well-advised to train employees and delegate authority well before the sale takes place.

What measurements drive your business? Measurements or key performance indicators (KPIs) should reflect value-added actions and waste prevention, and mirror key customer needs and the laboratory's strategic priorities. They are balanced to include quality, cost, delivery, customer satisfaction, and profitability. A combination of financial and operational measurements can show a pattern of success that include monthly revenue by product, profit margin by product, remake rate (external and internal), output per technician, monthly expenses, inventory (such as components and pucks), on-time delivery, and overtime. Having this information at the ready will be of great interest to potential buyers.

Does your laboratory show well to visitors? If in doubt, remember four simple words: Clean it; organize it. On paper, a laboratory might look good to a buyer, but the physical form may be another story. Get rid of the trash, clean up excess wax, throw out unused or broken equipment, organize the piles of pans/trays, and vacuum up the accumulated dust from the milling machines. As a prospective laboratory buyer once asked: "If they cannot do something as simple as keeping the laboratory clean, how do I know they can produce an error-free denture?"

Whom do you consult about selling? An experienced laboratory business broker can be invaluable to finding a buyer, facilitating the sale itself, and giving overall guidance to you as the seller. It is also important to get good advice from your attorney and accountant when it comes to the fine print of the sale. It could also be helpful to talk to another owner who has gone through the process.

Structuring your laboratory for the best possible sale requires time and effort. If you follow the suggestions above, the entire process will be less stressful and can help create a win for everyone involved.

About the Author

Bob Yenkner is the owner of Practical Process Improvement in East Hampton, Connecticut.

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