Tips for Buying Your Own Dental Practice
Starting a dental practice is difficult and there are two ways to approach this next venture. Dentists can go into business on their own, working to build up a patient base over the years that will allow them to earn a living, or they can buy an existing practice since it’s already established and there is already cash flow. If you’re thinking of buying a dental practice, here are some steps to take.
Assemble Your Team
Buying a dental practice on your own does not always go well. You could end up paying too much or agreeing to terms that are not advantageous. Putting together a team of experts to help you will put you ahead of the game.
The first expert who will help you is a broker. You need advice on the purchasing process so you know what to expect. In addition, you also need to have a better idea of what a practice is worth. This will help you negotiate more effectively without the risk of overpaying for the practice. You are better off negotiating through a knowledgeable intermediary as opposed to trying to do it yourself.
You will also need other experts to help you. This would include an attorney to review the contract and point out legal considerations. Your network would also include an accountant who knows the dental industry and a lender in case you need to borrow money.
Choose Your Area
Much of your success depends on where you choose to buy a practice. The location is critically important. One of the things you are looking for is the amount of competition in the area. A saturated market could keep you from growing the practice as much as you would like.
You should also find a place where you could see yourself living for the long term. Once you buy a practice, you have made a large commitment to a particular area. Before you make an offer, think through whether the area is one where your family would be comfortable. Pay attention to schools and amenities.
Pore Over the Financials
Knowing the ins and outs of the practice you want to buy is crucial. You are buying the practice’s patient base and cash flow, so you must take the time to understand the nuts and bolts of the practice. From the revenue side, here is what you should study:
- Tax returns for at least the past three years
- Balance sheets
- Fee schedules
- Reimbursement structure
- Production reports for each dentist and hygienist
On the expense side, you should understand the overhead. Some overhead could be cut, although each practice has a cost structure. This will determine how much money you can make.
Learn More About the Practice
The profit and loss statement is a good guide to how the practice performs, but it does not tell the entire story. Some patients could have had expensive procedures in the past year, or you may have an older demographic. This may affect your ability to earn the same income in future years. Studying the patient base closely will tell you if there is room to grow the practice or if you could at least maintain the income.
Besides the patients, you should also study the facility. If the office is small, you may need to move in the future to accommodate more patients. You need a space that supports the volume of patients you see and want to see in the future.
Pay Close Attention to Your Financing
As a practice buyer, you have a number of options to borrow money. Interest rates are favorable right now, and banks offer different products. Affordable monthly payments are critical as you take over a practice. Your practice loan will be one of your biggest expenses.
You will likely have your loan for a minimum of five years, so flexible payment terms are a must. Also, you should consider whether fixed or adjustable-rate payments work best for you. Adjustable rates may help you save money on your payments, but you could end up paying more if interest rates rise.
Plan Your Transition
If your offer is accepted, the period when you are taking over the practice is a challenging one. The existing owner is either out of the picture or is in the way. You must provide continuity and give your patients confidence that they can expect the same level of service from the new ownership. You should take the time to devise a plan, even if it means that you largely keep everything in place from the previous owner.
Your transition also includes how you deal with your patients. While you’re not the same as the previous doctor, you should ensure that the patient experience is not too different. Before the previous owner phases out, you should spend time observing them and watching how they do things and deal with their patients. At first, you should pattern yourself after them. Your transition plan should aim to maximize continuity.
Buying a dental practice requires a lot of research and work, but the benefit is in knowing that you have bought a sound business where you can practice and treat patients. Hiring a broker could help you become more effective and smarter when buying a dental practice. Contact Henry Schein Professional Practice Transitions to learn more about how we can help you purchase a dental practice.