Four Vital Points to Review Before Buying a Dental Practice

One of the most important career decisions many dentists will make is how to invest in their practice. Selling a dental practice is an important matter, and buyers seeking practices that fit their buying criteria want answers with measurable value.

Serious potential buyers need concrete facts and details to review before making a purchase. Representation by a third party ensures proper procedures and standards for buyers and sellers. While the process itself is somewhat straightforward, each practice contains a set of variables unique to its business model.

We have put together a checklist of four vital points that most buyers will expect sellers to provide to advance the sales process.

1. Three to Four Years of Tax Returns

This financial data gives buyers sufficient information to measure the performance of the practice.  Additionally, a handle on stability and sustainability may be obtained via said analysis.  By gathering several years of data, trends can be monitored and stability can be evaluated.

2. Aged Accounts Receivables

Next to the balance of cash in your bank account, this is the most vital asset on your books. The ageing of receivables also provides insight into the practice’s administrative efficiency.

3. Dental Practice Valuation

A qualified valuation analyst usually prepares the appraisal of a dental practice, and a business analyst or a professional accountant prepares the report. Analysts set valuation procedures in place to indicate the potential value of the practice.

4. Cash Flow Model

The cash flow model determines the viability of a practice sale. This projection forecasts sales and the costs of running a dental practice for a five to 10 years period.

The analysis of a practice includes growth rate and all fixed and variable operating costs between five and 10 years after the acquisition. A proper analysis does not include “forward thinking”; instead, it is based strictly on a conservative history of the practice. While high hopes and positive thinking are wonderful traits, a legitimate evaluation only includes empirical data. Additionally, we recommend placing an emphasis on the first five years of the report.

In our next post, we will review specific details to optimize the cash flow model, while providing information to supplement this piece on preparing to sell a dental practice.