How to Buy a Dental Practice
Owning a dental practice means that you need to be an expert clinician, expert patient manager, and expert business manager. But there’s good news: you don’t have to do it alone. Dental school only provides you the tools for two-thirds of what it takes to run a successful office. If you’re buying an existing practice, here are a few key steps to keep in mind that will give you a business perspective as you start the journey:
Finding a Lender
Developing a relationship with a lender should be one of your initial steps. There are a lot of options out there, and the choice comes down to what you think is most important. Some lenders are more hands-on and can provide you with a lot of guidance and a long-term beneficial relationship (especially if they are dental-specific lenders), while others are more rate-based. Whichever you choose, you should make sure your lender knows at least the basics about the dental market. Since the dental industry is a strong and resilient one, banks that know the market are willing to lend much more money to dentists than they are to other business ventures.
Due Diligence & Collecting Important Documents
In order to narrow down your shortlist of potential practices to purchase, this step of due diligence will come in handy. As you are crunching the numbers and taking a peek under the hood of the internal workings of these businesses, here are some key data points and documents to collect:
Three to four years of tax returns: These will provide the financial data needed to measure the historical financial performance of the practice. By gathering several years of data, trends can be monitored and stability can be analyzed.
Practice valuation: Hopefully, the seller has had a formal practice valuation prepared by a qualified party. Examine the report’s thoroughness and the credentials of the preparer.
Cash flow model - This is one of the most important tools to analyze whether the practice is a viable option. The cash flow model should be a projection of the next five to 10 years after the acquisition.
Build a Team of Advisors
Buying a dental practice is typically a one-time event and the most significant purchase a dentist will make in his or her career. During each phase of purchasing (and long after, when you own and run your practice!) it’s important to have a solid team of advisors you trust. This will help during the due diligence process, purchase agreement and lease review, and transition. Here are some people you should consider having in your corner for the journey:
Dental Attorney: It is imperative to utilize an attorney who is experienced in handling practice transitions and understands the nuances involved with buying a dental practice.
Dental Consultant: A dental practice management consultant can assist with a chart audit and evaluating practice management systems, collection policies, treatment planning, patient base, and new patient flow, marketing, etc.
Dental Accountant: Really, we can’t stress this enough. Hiring an accountant who is experienced in working with dental clients will help bolster your success when buying a dental practice-- and keep your business successful in the future. Knowledgeable accountants, like the team at Tooth & Coin will be able to assist you in evaluating practice financials, cash flow, and purchase price.
We will also understand and advise you about any tax consequences associated with the allocation of the practice purchase price and offer guidance on what type of corporate entity you should establish to serve as the owner of the practice. Even after the purchase, we can work with you to properly set up your financial books and put systems in place to monitor overhead and collections as well as prevent fraud and theft.
Thinking of purchasing your own dental practice? Putting together your team of trusted advisors? We’d love to work with you and offer honest guidance. Contact us today to get started.