Henry Schein’s dental practice transition advisors will help you save time & money
Buying a dental practice is one of the most important things you will do in your life, so the process of finding the “right” practice must include proper care and diligence. Considering many dentists engage in the purchase process once, here are ten things to think about as you dive in.
Location, Location, Location
Yes, the old real estate adage sounds cliché, but is actually very apropos. Then again, we are talking about something different – specifically the question, “Where do you want to live?” This is the most important question to answer, particularly in Florida, since no one area of Florida is similar to another area. Whether you’re on the Florida Panhandle, the Gulf Coast, Treasure Coast, South Florida, or Central Florida, each metropolitan and rural area has a different atmosphere. What is important to you (and your family) in where you live? Schools? Arts/Entertainment? Water access? Dining options? Land and population density? Access to travel? Other family?
If you’re not opposed to commuting, your ideal practice may be located in another city within reasonable driving distance from where you want to live. Every area is different so if there are several “possible” locations on your list, spend time in each and rank locations based on desirability.
Dental Practice Type
The type of dental practice you are looking to buy is the next most important factor. What kind of dentistry do you like to do? Do you like restorative dentistry or would you prefer to specialize? How much dentistry can you do? Do you want a cash/UCR practice or are you ok with PPOs and/or HMOs? Some considerations may be moot points when selecting where you ultimately want to live, but it is important to go in thinking about the answers to these questions to better analyze the available opportunities.
While useful in real estate comparables, or comps, simply do not work well in dental practice acquisitions. Every practice is different and even two nearly identical dental practices in the same city could sell for vastly different prices. Attempting to collect data on a wide area (even an entire region) and then comparing practice to practice simply does not paint an accurate picture of specific value and what is being purchased.
Financing Your New Dental Practice
When thinking about buying a dental practice your first thoughts about financing a new practice may be to contact lending institutions, yet rarely will you be “pre-approved” for financing (e.g. – mortgages). Instead, you will be “pre-qualified”, meaning that the bank completed an initial review of your financial status and sees no immediate red-flags. The bank will still need a practice to match you with in order to complete an actual approval since their ability to lend you money is contingent on your repayment ability. Therefore, it’s important to find a practice providing enough revenue to cover overhead, your lifestyle, liabilities and pay back the bank – it must be all three. For more information see Henry Schein’s lender round table.
You must sign a confidentiality agreement which states you will keep all information about practice opportunities – including names, locations, financial and any other information shared – to yourself and advisors only. It should require no more of you.
Test Driving A Dental Practice
Unfortunately, there are very few cases where a seller allows you to “observe” the practice before putting in an offer or signing a binding agreement. The visit is disruptive to the office, patients and staff.
There are too many instances where a purchaser acquired a practice because they were not patient enough to wait for the right opportunity. However, good practices in the most desirable markets are not available for long. Practices in specific areas do not list every day and you are purchasing the future opportunity, so getting hung up on the wrong things will hinder you, but jumping in without proper diligence could be costly.
Doing Your Due Diligence
Within the purchase process you will have the opportunity to spend time in the office looking at the schedule, charts and equipment closely. You will also have time to review financial information including the actual tax returns.
Taking the time to do the right due diligence by requesting and reviewing documentation on a practice will give you a lot of great insight into how the practice is performing and can save you from a lot of potential headaches. You should receive financial information on a practice for the current year and two to three years prior. There should be at least two and a half to three years’ worth of financial data to review. You should receive a proforma showing reasonable adjustments to the most current information to remove owner’s compensation and balance out incorrect results (due to annualizing early year figures or one-time purchases, etc). A five or ten year projection showing the amount of profit earned is intentionally misleading. Use the most current year and the year after ownership to get a feel for the practice opportunity and workings. In addition you should receive documentation giving an overview of the practice opportunity. If you’re not receiving historical data look at the first year after ownership and a practice overview, you probably do not have enough data to make an informed initial decision.
No transition specialist/broker should restrict your ability to choose to use any and all advisors, including attorneys, accountants, consultants or other practice valuations experts. You are the client of your advisors so while they’re providing their expert feedback, ultimately you direct their efforts.
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.