How to Buy a Dental Practice
Purchasing your first or next dental practice is one of the most important decisions you will make in your professional life. That’s why the process of finding the “right” practice must include proper care and diligence. It’s even more essential to understand the following key factors if you are preparing to buy a dental practice.
1. Location, Location, Location
The adage is true, and in your case, you need to answer the specific question, “Where do you want to live?” This may be the most critical question to answer considering each state has its own nuances; take Florida for example. North, south, east, central, coastal, inland—each location—metropolitan or rural–has a different look, feel, and atmosphere.
Deciding where to live comes down to what is important to you (and your family). Schools? Arts/Entertainment? Water access? Dining options? Land/space/population density? Access to travel? Other family members nearby? If you’re not opposed to some commuting, your ideal dental practice may be located in another town within a reasonable driving distance from where you want to live. If there are several “possible” locations on your list, spend time in each area and rank each starting with your favorite as number-one.
2. Dental Practice Type
The type of practice is possibly the next most important factor when buying a dental practice. What kind of dentistry do you like to do? Do you like restorative dentistry or would you prefer to specialize (presuming you’re not already a specialist). Do you want a cash/UCR practice, or are you comfortable with PPOs and/or HMOs? Some of these questions may not be that important once you select where you ultimately want to live, but it is still a good idea to begin the process of buying a dental practice by thinking about the answers to these questions. This forward-thinking can help you to better analyze the opportunities that come available.
3. How Do You Make Fair Comparisons?
This is something that may work in real estate but simply does not work well when buying a dental practice. The truth is, every practice is different and even two, almost-identical practices in the same town could sell for vastly different prices. When you attempt to collect data on a wide area, trying to compare practices nose-to-nose simply does not paint a true picture of the relative value of each one.
4. Financing a Dental Practice vs. a Home
While it is good for you to reach out to lending institutions about financing, the chances are slim that you will be “pre-approved” for financing as if you were buying a home. Instead, you will be “pre-qualified” meaning that the bank has completed an initial review of your financial status and sees no immediate red flags. The bank will still need information on the specific dental practice you wish to buy in order to complete an actual approval. That’s because their ability to lend you money hinges on your ability to pay them back. So it all comes down to three elements that come full circle: 1) buying a dental practice that will provide you with enough revenue to pay your overhead; 2) paying yourself to cover your lifestyle and liabilities, and 3) paying back the bank.
You will sign a confidentiality agreement. This agreement should state that you will keep all information about practice opportunities (including names, locations, financial and any other information shared) to yourself and advisors only. The agreement should require no more of you.
6. Test Driving a Dental Practice
There are very few cases where the seller of a dental practice will allow you to “observe” the practice before putting in an offer or signing a binding agreement. Your visit would be disruptive to the office, patients, and staff.
7. The Right Amount of Patience
We have seen too many instances where a purchaser was buying a dental practice that they should not have bought because they were not patient enough to wait for the right opportunity. On the other side of the coin, good dental practices in the most desirable areas do not list every day nor do they sit on the market for long. Always remember that you are purchasing for the future opportunity, so getting hung up on the wrong things will hinder you, but jumping in without proper diligence could be costly. In the end, buying the right dental practice becomes a delicate balance between patience and a sense of timeliness and urgency.
8. Due Diligence
Take time to request and review documentation on a practice such as:
- Financial information for the current year (if it is later in the year) and two to three years prior. You should have 2-1/2 to 3 years’ worth of financial data to review, including actual tax returns.
- A proforma showing you reasonable adjustments to the most current information in order to remove the owner’s compensation and balance out incorrect results (due to annualizing early-year figures or one-time purchases, etc.) Note: A 5 to 10 year projection showing the amount of profit that you will earn over the course of that time is intentionally misleading. Instead, look at the most current year and the year after ownership to get a feel for the practice opportunity and workings.
- Documentation that provides an overview of the practice opportunity. If you’re not receiving historical data, just having documentation on the first year after ownership and a practice overview probably won’t give you enough data to make an informed initial decision about buying a dental practice.
9. Trustworthy Dental Practice Transitions Advisors
No transition specialist or broker should restrict your ability to consult with advisors such as attorneys, accountants, consultants or other practice valuations experts. You are the client of your advisors so while they’re providing their expert feedback (what you hired them for), ultimately, you direct their efforts throughout the process of buying the right dental practice.
Contact A Henry Schein Professional Practice Transitions Professional
Have a question about how to buy a dental practice? Contact us online and have a Henry Schein Professional Practice Transitions Broker help you take the stress out of buying or selling a dental practice.
Henry Schein Professional Practice Transitions, Inc. is a national leader in dental practice transitions. A subsidiary of Henry Schein, Inc. they provide expert guidance for selling and buying dental practices, assessing partnership and associateship opportunities, and performing dental practice appraisals and valuations.