The First Things Buyers of Dental Practices Need to Consider

You have made the decision to purchase your own dental practice. It can seem daunting, but it will be the best business decision you will ever make. Owning your own practice gives you the time and financial freedom you have always dreamed of.

First, you need to select the area in which you wish to practice. I strongly recommend that you purchase your practice in the same town you ultimately live in. If you buy your house first and cannot find a practice close to home, you could end up with the perfect practice — an hour away. It is much easier to buy the practice and find a nice home in the same area. This also allows you to get involved in the community (e.g., schools, religious and charitable organizations, etc.) which will help you build your practice.

Once you have determined the area you want to practice in, how do you find a practice? Dental practice brokers are usually the best source, as they list well over 50% of the practices for sale. Once you find the names of the brokers in the area, contact them and let them know the area you are looking for, along with the size of the practice you are interested in. If a broker knows you are looking in city “x,” they will contact you when they get a listing in that area.

Next, you should arrange to be prequalified with a dental-specific lender. Companies such as Bank of America Practice Solutions (the largest in the country) can give you a letter stating that you are qualified to purchase a practice up to “x” dollars. This will make it easier to obtain financing when you find the perfect practice. In many cases, dental-specific lenders can loan up to 100% of the purchase price, plus working capital; note: most purchases do not include the accounts receivable, which are most often retained by the seller.

Make sure you have excellent credit. Most dental lenders require a credit score of at least 680 to qualify for a loan. Do not be concerned that you have $300,000 to $500,000 of student loan debt, as lenders understand most buyers have these obligations. What will hurt you is large amounts of credit card debt (which tells the lender you cannot live within your means), as well as late payments on your home mortgage, auto loans and credit cards.

Assemble your advisory team. I always say that it is “buyer beware” when purchasing a practice. This team should consist of the following:

Dental Management Consultant: When you go into contract to purchase a practice, part of your due diligence is for a dental consultant to go into the office, and along with you, review the charts of the seller, along with practice management reports, such as production by provider, production by ADA code, and uncompleted treatment plan reports, etc. It is important that you understand the seller’s philosophy and that his or her philosophy and the types of procedures done in the practice are in line with your philosophy and skill set.

Dental CPA: The dental CPA will first make sure that if the seller is representing collections of, say, $800,000, that the tax returns tie to the accounting records, which tie to the dental practice management reports. The CPA will also run his or her own true net profit calculations to tell you what you can expect as far as net income, assuming collections stay the same when you buy.

Dental Attorney: The attorney will review the letter of intent you are signing and will negotiate the purchase and sales agreement with the seller’s attorney. He or she will also review the office lease of the seller and work with the landlord to either have you assume the seller’s lease or draw up a new lease. Never sign any legal documents without having a dental-specific attorney first review them.

Dental Equipment Specialist: The equipment specialist will inspect the office equipment before closing to make sure it is in good working order.

The entire process — from the time you enter into a letter of intent until you are an owner —should take 60 to 120 days. If you keep in mind some of the points noted above, it will make your path to practice ownership easier and more productive.