When purchasing an existing dental practice you will probably feel overwhelmed no matter how many times you have been through the process. There are a lot of moving parts and information that needs to come together at the right time in order for the acquisition to be successful.
Understanding the process and the time it takes to buy a dental practice will help you protect your investment and shield you from any unnecessary liability. There are several steps that a buyer should consider before purchasing.
It may take anywhere from three months up to six months to complete the purchase depending on whether or not you are buying the real estate, know the area where the practice is located, and how many times you have been through the process with other potential opportunities.
Some of the research you should do when looking to purchase a dental practice is:
- Talk to other dentists in your network who have purchased a practice before. Nothing will replace the insight you’ll get from the people who have been where you are.
- Understand what to look for when reviewing practice financials. You will want:
- Gross revenue
- Square footage
- Number of locations
- Mention of equipment type
- Fee-for-service vs. PPO revenue
- Number of years in service
- Reason for seller departure
- Number of new patients per month
- Look at purchasing a practice that is a bit more rural. They tend to be much more profitable
Hire a Local Team Who Can Help You
We can’t stress this enough – don’t try to take on this process alone. Hire a team of experts who can help you make informed decisions and perform a thorough analysis.
Here is a list of experts that can help you with the purchase of a dental practice:
- Financial planner
- Business/transition consultant
It’s important to choose professionals who have extensive dental practice-specific experience, so they understand all the financial nuances of acquiring a dental practice.
It may be tempting to save on costs and forego hiring a team, but short-term spending could save you a lot of money in the long term by preventing mistakes and ensuring you acquire the practice with the most potential at the right value.
Choosing a Potential Dental Practice
Once you have found a dental practice you will probably want the following information to properly evaluate the practice: practice profile (provided by the broker), office lease, fee schedule, production by provider & procedure code reports, last 3 years profit & loss (P&L) statements and/or practice tax returns, and current year P&L statement. This will give you better insights into the profitability of the dental practice.
Visit the Dental Practice
Once the buyer has reviewed the practice information and determined they have a strong interest in the opportunity, the next step is visiting the practice in person to evaluate the location, facility, equipment, décor, and any other factors that would affect your decision to purchase.
During this meeting, the buyer should get to know the seller on a personal and professional level, observe the seller’s personality, discuss the seller’s practice philosophy, review why the seller is selling the practice, discuss the seller’s involvement during the transition and following the sale, and ask the seller any questions they have regarding the practice, patient base, and staff.
The broker/transition consultant will be able to help you secure financing for your dental practice. You should consider a bank that specializes in dental practice financing. Using a bank that does not specialize in dental lending may increase the time it takes to secure lending with less favorable terms and rates.
Signing the Asset Purchase Agreement, Lease or Real Estate Purchase Agreement
The practice sale agreement is not a complicated document, but we highly recommend the expertise of a dental lawyer to review it. The sale agreement will include:
- Buyer and seller warranties
- Allocation of the sale price for tax purposes
- Identification of assets sold
- Patient record custodianship details
- Practice transition agreement (the seller may remain at the practice to ease the transition)
- Covenant-not-to-compete agreement
Want to learn more? Let our dental practice transition experts walk through this decision. Our team has over 30 years of experience in the buying and selling process of dental practices with an extensive network of industry experts, accountants, bankers, consultants, and more. Contact us today to get the conversation going.