Medical Practice Owners Looking to Retire

Situation

As small business owners, Steve and Melody have been practicing dentistry for nearly 30 years. Steve, as the dentist, and Melody, as the office manager. As they reach their early 60s, they both grow tired of the day-to-day grind and want to start looking at retirement. They also have adult children out of the area to whom they want to be closer. They saved for retirement, but they didn’t know if they had saved enough or if they were saving in the most tax-efficient manner. They need a plan for how to transition the business so they can retire, address the tax implications of the sale, and understand its impact on their overall financial plan. They also need estate planning documents since they do not have any in place, to ensure their kids and grandkids receive their assets free from probate upon the second death.

Strategy

We immediately assist Steve and Melody by updating all their beneficiaries on the managed accounts and connect them with a trusted estate planning attorney who creates estate planning documents to ensure their assets are distributed precisely as they intended and avoid probate.

After the probate issue is addressed, Steve and Melody need a comprehensive financial plan to determine how far away they are from retirement, along with a company-sponsored retirement plan for themselves and their employees. This allows them to maximize their contributions along with a profit-share component as a benefit for their employees.

After many discussions about what retirement would look like for Steve and Melody, they need to find a buyer for their practice, and we need to update their retirement projection. They reach out to business brokers who specialize in the dental industry by matching buyers and sellers. However, Steve wants to transition out of the business slowly over the next 3-5 years. After we update their plan, we illustrate the minimum they need to meet their retirement goals.

Steve and Melody both want a buyer who offers a fair price, based on a multiple of EBITDA. The brokers are able to match Steve and Melody with buyers who were looking to acquire practices but retain the doctor for a few years until the transition is cemented. As the offers come in, we discuss the mechanics of the different options, which include private equity, corporate sales, and private sales, as well as the tax implications and the impact on future cash flow.

Once the top three offers are presented, we thoroughly discuss the specifics of each to ensure they find the one that not only allows them to meet their retirement goals through a joint venture sale but also allows Steve the flexibility to transition out of the business gradually. We also coordinate with their CPA regarding the tax implications of the sale to strategically sell the practice and real estate in different years to help reduce the tax liability from capital gains, along with loss harvesting in the portfolio.

Outcome

Steve and Melody sell their practice. Now, Steve will have the flexibility to stay on for five years and gradually transition out of the business, working one day less a week each year as a new doctor gets up to speed. He thoroughly enjoys the new agreement, since he only focuses on patients, and the investment group runs the practice. Once he is fully retired, the real estate will then be sold to help mitigate the taxes. Melody can completely retire and immediately spend more time with their grandchildren, which she loves. We helped Steve and Melody select the right buyer who not only allowed them to retire with their retirement goals ahead of them but also on their own terms, exactly as they wanted. They also have peace of mind knowing that if something were to happen to both of them, their affairs are in order and their estate will be distributed as they wish. Now, they look forward to spending their retirement closer to family and helping with their grandkids.

This common scenario is hypothetical and provided for informational and illustrative purposes only. It does not represent an actual client of Spraker West Wealth Management, nor is it based on the experiences of any current or past client. The scenarios, strategies, and outcomes described are not intended to be projections of future performance or an indication of actual results. No portion of this content should be construed as a guarantee or assurance that any client or prospective client will experience the same or similar results or level of satisfaction if Spraker West Wealth Management is engaged to provide investment advisory services. All investment situations are unique, and results will vary based on individual circumstances, goals, risk tolerance, market conditions, and the client’s own actions, effort, and discipline. Past performance is not indicative of future results.