Purchasing a dental practice is one of the most important decisions you will make in your professional dental career. Your choice may open the door to increased income and personal freedom, or a poor choice may lead to unfortunate circumstances, higher debts, and more stress. Therefore, it’s critical for you to begin preparing for practice ownership by building a strong team of advisors who provide a clear path of understanding with the purchasing process and how you can evaluate potential acquisition opportunities that come your way.
Purchase a Dental Practice versus Start-up
Practice ownership can be a wonderful and fulfilling pursuit. Dentists have two choices when it comes to owning their own practice: purchase an existing practice or start a dental practice from scratch. Below are several reasons many dentists chose to purchase an existing practice:
- Cash Flow - The number one reason a dentist may choose to elected an acquisition over a start-up is due to the established patient base and current revenue stream. A healthy, established practice will immediately provide a buyer with sufficient income to cover current practice overhead, debt service associated with the practice purchase, and the buyer’s personal living expenses. In most cases, a start-up requires alternative revenue streams, (associateships or other), to afford debt service and living expenses.
- Established Patient Base - Purchasing an existing practice will come with an existing patient base. Although there may be some fear attrition may occur from a transition, it's not typically a concerning amount.
- Established and Experienced Staff - A healthy dental practice will have well-trained staff members who can be utilized to help you transition into the newly purchased space while maintaining a business flow.
- Proven Location - A thriving practice will have a proven history of sucess in the area it is located. This allows a buyer to make a confident purchasing decision based on successful operations within a particular demographic.
- Growth Potential - An established dental practice may provide a buyer with opportunities to increase new patient flow. We find many practices have un-tapped potential in areas they serve where external marketing, expanding business hours, or retaining specialty dental services in-house may provide further growth.
- Mentorship - In some cases, a selling dentist may be willing to mentor a buyer prior to ownership. Although this only works-out when personalities get along, the longterm effects may be exactly what you are looking for. Techniques, styles, and personal opinions may inspire a buyer in their own dental skills.
Preparing for Practice Ownership
Most dentists rely on financing to purchase a dental practice, and one of the biggest hurdles facing practice ownership is financing. You must ensure your personal credit history and financial condition meet the expectations of lenders when you are ready to make a purchase. The process of preparing for practice ownership should begin during dental school and continue until you are ready to purchase or start your own dental practice. Secondly, practice experience is ideal. Experience in the dental workplace will provide you with history and credibility to any lender you may work with. The better your credit and personal financial condition are with workplace experience, the more prepared you will be when it comes time to pursue practice ownership. Below are some things to monitor as you prepare for practice ownership:
- Pay your debt obligations in a timely manner.
- Check your credit score regularly, about every 6 months. Correct any mistakes or instances of credit card fraud immediately.
- Limit your use of revolving debt on credit cards or home equity lines of credit.
- Avoid closing credit card accounts - even when not in use. It's favorable to have some credit history with associated accounts.
- Avoid declaring bankruptcy at all costs!
- Build Savings and Investments.
- Live within your means.
- Build professional experience.
The Importance of Advisors & Dental Brokers
It is very helpful to include an experienced dental broker in your transition. This will often reduce mistakes that can turn a great decision into a nightmare while decreasing miscommunication that may occur. The National Association of Practice Brokers has an array of professional dental brokers at your disposal. Although many of our dental brokers will usually represent sellers, our philosophy is to present a win-win transaction for all parties involved. To find out if the broker in your area provides buyer representation, please connect with dental broker members in your area. To further prepare yourself for a dental acquisition we recommend building relationships with the following advisors:
- Practice Transition Attorney - Not all attorneys are alike or have the same skillset. It is best to find an attorney who is experienced in handling dental practice transitions. Real estate attorneys may come to mind in a practice purchase when real estate is involved, however, their skills are typically limited to real estate and not a fully loaded business purchase. Your attorney should be a deal maker, not a deal-breaker! They should work to protect the buyer's interests without damaging the goodwill with the seller during the negotiation process.
- Accountant - A knowledgeable accountant can assist a buyer in evaluating a practice's financials, cash flow, and the purchase price of the dental practice.
- Banking Lender - Having a relationship with a lender while you are searching for practice can speed up the process of a purchase. It is always recommended to utilize a lender who understands dental practice valuations and has experience in dental practice financing.
- Dental Consultant - A dental consultant or practice management consultant may help with chart audits, evaluating practice management systems (PMS), collection policies, treatment planning, marketing, and new patient flow.
Once you find the perfect dental practice for you, you'll be prepares with a team of advisors who have the experience and knowledge to protect your interests.
