Tips on Selling a Dental or Medical Business
2008-04-01 18:53:28 A New Way to Solve Old Problems in the Sale of a Medical and Dental Practice
What are the biggest obstacles to closing the sale of a business? In my experience it comes down to not just price but also the buyer’s ability to pay and to obtain financing for mutually agreed market value of the business
There is a new turnkey business sale program available that solves this problem and provides medical practitioners a nearly tax-free sale of their practice. We call this program Equity Access. Once a buyer is identified, the deal is done.
Top Three Problems the Equity Access program solves:
Monetize the value of the business
Equity Access is a way for the business owner to monetize the value of the business, i.e., to turn a non-liquid asset into money. This money can then be used to provide a secure financial future for the business owner and his or her family.
The unique features of Equity Access include:
o Superior turn-key lending terms,
o Customized tax planning
o Customized retirement planning
o Customized estate planning
o The best way to efficiently access business equity for succession planning and acquisition purposes
Financing the Sale
Financing of the sale, as well as retirement funding and estate transfer planning comes from insurance companies. Insurance companies have the largest pools of investment money in the world, and can give the most favorable financing terms.
Insurance programs maintain the most favorable tax benefits possible under the U.S. tax code. This is why the sale can be income tax-free, the investment interest earned on sale proceeds is tax-deferred, distributions during retirement and the amounts received by heirs are tax-free favorable.
Summary of Benefits
To summarize, the amazing features of this lending program include:
* No down payment is required for the loan
* There is no artificial limit on the loan amount
* The loan is interest-only
* The loan need never be paid back (it’s non-callable) until the owner dies
* All loan proceeds are invested in tax-deferred investments with over a 10% historical average return
* All withdrawals from investment accounts during retirement are tax-free
* The heirs receive income tax-free inheritances in the amount you decide
* The value of the business is exempt from creditors
* Interest rates (currently 7%) are below market rate for commercial loans
The implications of this in the context of business succession planning are unprecedented. There is no longer a need to find outside financing. You can sell your practice to the person or persons best able to make the business successful, not those with the most money. (Such as a great manager you have, or a promising young professional in your field.)
Sell to Any Interested Buyer
Because the Equity Access program means a business owner can sell his medical or dental practice to any buyer, including those with no capital and no borrowing capacity, it is easier to both find a buyer and to close the sale. It is a way to sell a medical business to an interested buyer who could not otherwise qualify for the loan. In fact, for some businesses, this may be the only way that the medical practitioner can even sell the business at all.
In advance of a sale, the seller acquires the loan that will finance the sale, thereby monetizing the value of the business equity. Thus it is similar to a reverse mortgage on a home. Your non-liquid asset is made liquid, so you can let it work to provide you financial security.
Interest-only Loan Need Never be Repaid
The loan never needs to be paid back, although the interest must be paid each year. You can have the buyer repay the loan as the condition of purchasing the business. In fact, the seller is in complete control of determining the amount and timing of purchase payments made to him by the buyer. It can be a low or no down payment purchase. It can spread down payments over a period of years. It can require the buyer to pay only loan interest for the first few years, and then principal also after that.
No Business or Personal Assets are Used as Collateral
It is important to understand that no business assets and no assets of the buyer need to be used as collateral in an Equity Access transaction. This makes more capital available to operate the medical practice, which is invaluable and important to the future success of the practice. The only collateral for the loan is the investment/insurance contract with the lending insurance company.
Sale Proceeds are Insured Against Loss
The proceeds of the loan are invested in tax-deferred insured investments, which are both guaranteed against loss and indexed to stock market gains or fixed rates (currently 5.2%). Because investments can earn stock market returns with no risk of loss, they have earned a historical rate of return in excess of 10%.
Because of the above, the seller and his or her family are protected and have more security available than under other types of business sale transactions.
Sale Proceeds are Not Subject to Income Taxes
It is also important to understand that the sale can be structured to be income tax-free to the seller. Thus the investment accounts not only earn tax-deferred interest, but the amount invested is the full value of the business, pre-tax. This value is set by the seller, and because of the special loan terms, the buyer is willing to pay more than in a normal sale. Thus the seller receives both a higher price, and a much higher net amount, after taxes than a normal business sale.
This program will have the most appeal in situations where the seller is willing to forego a cash transaction in order to receive higher after-tax wealth.
This program is especially useful where there is an interested buyer who really wants the business but is unable to come up with the cash and the financing to pay the owner what the business is worth.
Example – Selling Dental Practice
A good example is a sale of a professional (medical or dental) practice. I have a brother who has been practicing dentistry since 1976, and is planning to retire in eight years. Well, there are two problems with respect to him selling his business:
The Equity Access program solves these problems, as well as many others:
1. The young dentist needs no cash at closing, and also does not have to borrow ANY money to buy the practice.
2. The young dentist buying in will have to pay only 7% interest on the purchase price for a period of years. After that he or she will pay principal plus interest out of practice revenues, over a time period mutually agreed upon. Both parties benefit from the flexibility of not having to borrow money from a bank. (The seller sets the terms of repayment based on expected cash flows and earnings of the business.)
3. The owner of the practice has taken out the value of the practice and invested the proceeds tax deferred. There is a lien held by the insurance company/lender on these investments, and it is filed. Thus the value of the business is protected from other creditors.
4. The seller is able to create a tax-favorable retirement income stream and an income tax-free estate for heirs, which are insured against loss and can provide lifetime guaranteed income. This will maximize not only after-tax retirement income but also after-tax wealth passed on to future generations.
Management and Family Sales
In addition to a professional practice sale, the Equity Access program is ideal for a sale to existing employees or to family members. Usually the best people to continue to operate medical or dental practice in a profitable way are the existing management teams and / or the younger generation of medical professionals. Yet they usually don’t have the money to buy the business. The Equity Access program provides a way for a sale to existing management employees without them having to borrow money or tie up company assets as collateral. The seller of the medical practice determines how much of a down payment is to be made (if any) and when it is paid.
Many owners would also like to sell the business to children or other family members who do not have the capital or borrowing capacity either. The Equity Access program provides a way to finance the sale of a business to a family member (or to anyone).
Leo J. Vidal, JD, MA, CPA
LEO VIDAL FINANCIAL CONSULTING
Retirement Plans, Employee Benefits & Insurance Concepts
Toll Free:
800-311-3920
; www.Srinfosite.com
What are the biggest obstacles to closing the sale of a business? In my experience it comes down to not just price but also the buyer’s ability to pay and to obtain financing for mutually agreed market value of the business
There is a new turnkey business sale program available that solves this problem and provides medical practitioners a nearly tax-free sale of their practice. We call this program Equity Access. Once a buyer is identified, the deal is done.
Top Three Problems the Equity Access program solves:
- Security: replaces an installment sale of the medical and dental practice with a secure asset for retirement and estate planning
- Ownership transition: provides economic efficiencies in transitioning business ownership
- Financing transitions: provides easy access to financing business ownership transitions without limiting the new owner’s ability to finance ongoing working capital needs
Monetize the value of the business
Equity Access is a way for the business owner to monetize the value of the business, i.e., to turn a non-liquid asset into money. This money can then be used to provide a secure financial future for the business owner and his or her family.
The unique features of Equity Access include:
o Superior turn-key lending terms,
o Customized tax planning
o Customized retirement planning
o Customized estate planning
o The best way to efficiently access business equity for succession planning and acquisition purposes
Financing the Sale
Financing of the sale, as well as retirement funding and estate transfer planning comes from insurance companies. Insurance companies have the largest pools of investment money in the world, and can give the most favorable financing terms.
Insurance programs maintain the most favorable tax benefits possible under the U.S. tax code. This is why the sale can be income tax-free, the investment interest earned on sale proceeds is tax-deferred, distributions during retirement and the amounts received by heirs are tax-free favorable.
Summary of Benefits
To summarize, the amazing features of this lending program include:
* No down payment is required for the loan
* There is no artificial limit on the loan amount
* The loan is interest-only
* The loan need never be paid back (it’s non-callable) until the owner dies
* All loan proceeds are invested in tax-deferred investments with over a 10% historical average return
* All withdrawals from investment accounts during retirement are tax-free
* The heirs receive income tax-free inheritances in the amount you decide
* The value of the business is exempt from creditors
* Interest rates (currently 7%) are below market rate for commercial loans
The implications of this in the context of business succession planning are unprecedented. There is no longer a need to find outside financing. You can sell your practice to the person or persons best able to make the business successful, not those with the most money. (Such as a great manager you have, or a promising young professional in your field.)
Sell to Any Interested Buyer
Because the Equity Access program means a business owner can sell his medical or dental practice to any buyer, including those with no capital and no borrowing capacity, it is easier to both find a buyer and to close the sale. It is a way to sell a medical business to an interested buyer who could not otherwise qualify for the loan. In fact, for some businesses, this may be the only way that the medical practitioner can even sell the business at all.
In advance of a sale, the seller acquires the loan that will finance the sale, thereby monetizing the value of the business equity. Thus it is similar to a reverse mortgage on a home. Your non-liquid asset is made liquid, so you can let it work to provide you financial security.
Interest-only Loan Need Never be Repaid
The loan never needs to be paid back, although the interest must be paid each year. You can have the buyer repay the loan as the condition of purchasing the business. In fact, the seller is in complete control of determining the amount and timing of purchase payments made to him by the buyer. It can be a low or no down payment purchase. It can spread down payments over a period of years. It can require the buyer to pay only loan interest for the first few years, and then principal also after that.
No Business or Personal Assets are Used as Collateral
It is important to understand that no business assets and no assets of the buyer need to be used as collateral in an Equity Access transaction. This makes more capital available to operate the medical practice, which is invaluable and important to the future success of the practice. The only collateral for the loan is the investment/insurance contract with the lending insurance company.
Sale Proceeds are Insured Against Loss
The proceeds of the loan are invested in tax-deferred insured investments, which are both guaranteed against loss and indexed to stock market gains or fixed rates (currently 5.2%). Because investments can earn stock market returns with no risk of loss, they have earned a historical rate of return in excess of 10%.
Because of the above, the seller and his or her family are protected and have more security available than under other types of business sale transactions.
Sale Proceeds are Not Subject to Income Taxes
It is also important to understand that the sale can be structured to be income tax-free to the seller. Thus the investment accounts not only earn tax-deferred interest, but the amount invested is the full value of the business, pre-tax. This value is set by the seller, and because of the special loan terms, the buyer is willing to pay more than in a normal sale. Thus the seller receives both a higher price, and a much higher net amount, after taxes than a normal business sale.
This program will have the most appeal in situations where the seller is willing to forego a cash transaction in order to receive higher after-tax wealth.
This program is especially useful where there is an interested buyer who really wants the business but is unable to come up with the cash and the financing to pay the owner what the business is worth.
Example – Selling Dental Practice
A good example is a sale of a professional (medical or dental) practice. I have a brother who has been practicing dentistry since 1976, and is planning to retire in eight years. Well, there are two problems with respect to him selling his business:
- The only people who can buy and operate his business are other dentists, and
- Most young dentists who want to buy a dental practice do not have the cash or the borrowing capacity to pay the practice owner full value of the business. (The amount of debt for new dentists coming out of school averages $200,000.)
The Equity Access program solves these problems, as well as many others:
1. The young dentist needs no cash at closing, and also does not have to borrow ANY money to buy the practice.
2. The young dentist buying in will have to pay only 7% interest on the purchase price for a period of years. After that he or she will pay principal plus interest out of practice revenues, over a time period mutually agreed upon. Both parties benefit from the flexibility of not having to borrow money from a bank. (The seller sets the terms of repayment based on expected cash flows and earnings of the business.)
3. The owner of the practice has taken out the value of the practice and invested the proceeds tax deferred. There is a lien held by the insurance company/lender on these investments, and it is filed. Thus the value of the business is protected from other creditors.
4. The seller is able to create a tax-favorable retirement income stream and an income tax-free estate for heirs, which are insured against loss and can provide lifetime guaranteed income. This will maximize not only after-tax retirement income but also after-tax wealth passed on to future generations.
Management and Family Sales
In addition to a professional practice sale, the Equity Access program is ideal for a sale to existing employees or to family members. Usually the best people to continue to operate medical or dental practice in a profitable way are the existing management teams and / or the younger generation of medical professionals. Yet they usually don’t have the money to buy the business. The Equity Access program provides a way for a sale to existing management employees without them having to borrow money or tie up company assets as collateral. The seller of the medical practice determines how much of a down payment is to be made (if any) and when it is paid.
Many owners would also like to sell the business to children or other family members who do not have the capital or borrowing capacity either. The Equity Access program provides a way to finance the sale of a business to a family member (or to anyone).
Leo J. Vidal, JD, MA, CPA
LEO VIDAL FINANCIAL CONSULTING
Retirement Plans, Employee Benefits & Insurance Concepts
Toll Free:
800-311-3920; www.Srinfosite.com
