The thought of buying a dental practice can be overwhelming for anyone. Not only are there financial and physical challenges, but emotional ones as well. That is why it is imperative to work with a professional to ensure you have all the components needed for a smooth and seamless transition.
When it comes to buying a dental practice, one question you may ask is what is right for me? Should I buy an established practice, or should I start one from scratch? There are advantages and disadvantages to both, which is why you want to ensure you have a knowledgeable and professional team behind you to help you choose the right path for your future.
In the business world, the rearview mirror is always clearer than the windshield.
– Warren Buffet
At Professional Transition Strategies, we will help guide you through this important time in your career. We will provide:
- Knowledge of medical or dental competition and patient demographics in your location of interest
- Expertise in Practice Appraisals to determine a fair market value
- Financial assistance for purchase and upgrades
- Real Estate License and knowledge to offer a complete transition service all in one place.
As a national broker who works within 37 states throughout the country, we have several amazing opportunities available through the Unites States. Feel free to check out our Practices for Sale to see if any of them are right for you. Of course, if there is something else you are interested in, please contact us directly to set up your own buyer profile. That will allow us to contact you FIRST about an opportunity that fits what you are looking for. All buyers with buyer profiles are contacted prior to a practice being marketed to the public.
The first and possibly the most important step for every buyer, especially first-time buyers, is to build your advisory team. It is important not to choose the first person you meet in each category, talk to a few to determine what each company or individual can offer. Decide with who you feel most comfortable, not necessarily who offers the lowest price for their services. Feel free to reach out to us, PTS, for referrals and recommendations.
There are several types of banks to work with, therefore do your research and determine which bank is right for you. There are:
- Local Banks
- Regional/National Banks
- Dental Specific Banks
- Equipment Loans
All of these individuals are necessary members of your advisory team. It is recommended to choose people who are dental specific as it will raise your rate of success. We, at PTS, also advise using specialists from each industry normally, not from the same firm.
We, at Professional Transition Strategies, advise working with a full-service marketing agency, so you only have one single point of contact as they take full responsibility for the success of the project. A full-service agency will be able to offer service bundles that include website development, social media management, digital and print advertising, TV and radio exposure, logo and collateral development, signage, brand analysis, demographic and audience targeting.
Of course, it is possible to find an expert for each job, we only recommend finding a firm that can handle all responsibilities for your convenience. Equipment Rep and Supply Companies There are multiple options when it comes to supplies and equipment, therefore it is advised to interview and receive testimonials from current customers to ensure you are making the right decision. Most suppliers’ reps cannot sell every brand of equipment. This interview process will allow you to see the various products each offers.
It is important to note that supply reps will be a long-term relationship for you within your career, therefore make sure they can bring more value than only the supplies you order.
Should you consider an expansion or a new build, equipment reps can streamline the process as well as save you money as most equipment companies have in-house design teams. Commercial Real Estate Broker It is important that your commercial real estate broker has at least 7 years of dental and medical experience. This will not only ensure they are familiar with standard industry needs, but also that they are well versed in the area, knows the landlords, and can define your value proposition by your location.
Make sure that your broker is with a reputable firm – local, regional or national. A good agent will walk you through all your options and discuss what is right for you, be it buying, leasing, expanding, developing or investing.
It is crucial to find someone who will be your advocate and have your best interest at heart. By having someone on board who has all these traits, you will not only save money, but also time so you can focus on your passion – Dentistry!
It is smart to hire an architect and/ or contractor that has dental office experience (especially the architect). The reason for this, is that hiring an inexperienced one can cost you thousands of dollars.
Many choose to go with a team that works together (contractor, architect and engineer) and knows the ins and outs of the real-estate market.
Be sure to review their portfolio, receive references from their previous clients, confirm they are familiar with local building code and regulations, and have a good construction team they’ve worked with prior to ensure a smooth process throughout.
Of course, as with most people in the industry, review local business journals and their BBB rating to read more about them
There are many different types of practice consultants, ranging from operational to start-up specific to full-service consulting. Essentially, it all comes down to looking at your practice through someone else’s eyes. To ensure you aren’t missing anything, it is key to have a different perspective on your practice.
When you are choosing your consultant, make sure that their specialty aligns with the project you need completed. To stay on track and not go outside your financial limit, it is imperative to make sure that results are trackable, and the timeline and budget are understood by everyone involved.
Make sure that your technology adviser is certified with the various dental software and hardware systems you are interested in using. It is common for them to place blame elsewhere if they are not certified with the programs and equipment used.
While implementation is important, it is not nearly as important as the servicing on the back end. It is always better to find someone who will implement AND service, rather than using two different people.
As always, it is recommended to look at BBB ratings for any advisers you are considering. Broker When you are looking to hire a transition broker, it is smart to find someone who will market your abilities to the places you are looking to go. You will want to choose a group that is most knowledgeable about various opportunities available in your desired area.
To ensure a smooth process, look for a broker with a good amount of resources and is also happy to hold your hand throughout the entire process.
Last but not least… LOOK NO FURTHER! PTS is a full-serviced broker with over 10 years’ experience working coast to coast (shameless plug, we know.)
How Do I Start My Own Dental Practice?
Following are some of the things to consider is you're thinking of starting your own dental practice:
- It is very wise to have a consultant guide you through the process.
- The average start-up will require a total of $500k in start-up loans and capital. The average student loan is $500k. Therefore, many are looking at $1 million in debt before they start seeing patients.
- In a vast majority of situations, PTS recommends buying an established practice rather than starting a practice from scratch. The reason is that the return on investment (ROI) is typically higher.
- Keep in mind that if you have student debt, servicing your loan is key. This is why you may be better off buying an existing practice.
- Interesting Fact: Only 0.3% of dental offices fail.
How Much Should I Pay for a Dental Practice?
Once you’ve identified a practice of interest, it is time to figure out how much you should pay for a dental practice. You need to obtain the practice prospectus. A prospectus is a document that tells the story of a practice within approximately 20 pages.
A PROSPECTUS NORMALLY INCLUDES
- Description of the Practice
- Biography of the Doctor
- Location and Facility
- Types of Equipment
- Active and New Patient Analysis
- Photos of the Practice
- Evaluation of Procedure
HOW TO READ A PROSPECTUS
Now that you have the practice prospectus, it is time to review. The most important things to look at are:
- Practice Trend
- Types of Procedures
- Top Line Revenue
- Amount you can expect to take home
- CapEx 20
How to Buy a Dental Practice
There are various steps involved throughout the buying process. These steps include:
- Pre-qualification through a bank – The bank will look at your net income, stress and how much debt you can handle, will gauge debt to equity ratio, debt to income ratio, and your credit score.
- Making an offer – Once you are pre-qualified you have the green light to make an offer on a practice and feel confident that you will be able to back it up financially. This will ensure that the deal will not be stifled by a bank. Please note that the approval by the bank will be dependent on the type of practice you are considering.
- Practice Analysis – Since you are now pre-approved, it is time to look for your perfect practice. This practice analysis phase can be quick or can potentially take over a year.
- Working with a broker – To ensure you are on the right track and not wasting valuable time, it is smart to work with a broker. A broker can assist in figuring out the right practice scenario for you.
- Letter of Intent (LOI) – Once the practice is identified, it is time to make an offer through a letter of intent. The LOI is not a legally binding document but it expresses your intent to follow through with the transaction.
- Negotiation Process – Next is the negotiation period. This period continues until the buyer and seller agree on price, terms, and the closing date.
- Due-Diligence Process – Once negotiations are complete, it is time to move in to the due-diligence process. During this period, you and your advisers will review all financials and various aspects of the practice.
- Asset Purchase Agreement – Now, it is time to finalize the asset purchase agreement. This document will outline all points of the pending deal.
- Complete Practice Loan – Once the asset purchase agreement is finalized, it is time to complete the practice loan.
To ensure confidentiality, it is standard for a selling practice to only show before or after business hours. Of course, there are exceptions when a practice can be seen during the business day.
The benefits of seeing the practice during office hours is that you are able to see how the practice runs in real time. You can also practice software, meet the staff and doctors in person, and get a real vision of how you would like to run the office.
There are many advantages of seeing the practice after hours as well. By seeing the office once staff and patients are gone, it allows for the showing to be kept confidential. Therefore, not alerting patients or staff prior to an announcement. It will also give you the opportunity to see all operatories (as they won’t be occupied and give you the chance to speak your mind freely.
Once you’ve identified the type of practice that you want, make sure to consider the competitive analysis and demographics to ensure the location will work for your practice. “Business owners work with a business valuation specialist to help them obtain an objective estimate of their company’s value,” according to the Corporate Finance Institute. (1)
- Practice Value: Just because the office is in the “hot new” area does not mean it is the right place for your dental practice. Typically, practices in more urban and suburban areas have a higher value than practices in more rural areas, however practices in rural areas have a higher cash flow. Practices in highly desired communities (Malibu. Manhattan, Miami Beach, etc.) have higher values but also higher overhead.
- Demographics: Make sure to examine the demographics of the considered practice. How is population growth? What is the age distribution? Is it your target market based on income and job types in the area? What is the average education level? Do most residents come from an ethnic background? Does the neighborhood lifestyle align with your practice?
- Competitive Landscape: Identify your competition and what they do in the area you are considering. Do they offer the same type of services as you? How established are the other practices? What is your unique value proposition?
- Practice Growth: When you are looking to purchase an existing practice, it is a good idea to examine the current status. While looking at the prospectus and financials, identify if the practice is growing, in status, or is declining. Consider what this could mean for the type of niche practice you are looking to buy – do you need to invest in marketing, additional operation costs, etc.
Now that I found the perfect practice, what do I do?
Now that you’ve found your perfect practice it is time to show your intent to purchase with a formal Letter of Intent. You will note your proposed purchase price within this LOI.
Once your LOI is submitted, you will move into the due diligence process with your advisers to confirm all findings. As previously noted, PTS will obtain all necessary documents from the seller so you don’t have to.
Once all findings are confirmed, you will finalize your financing and negotiate the purchase agreement. After everything is agreed upon, it is time to determine your closing date you will then notify existing employees and patient base.
Please note that paralysis by analysis is real. You don’t want to do too much analysis on the practice in the beginning or you will lose out on the deals.
Now that you know what is involved, let’s talk about the loan process. The first step in the loan process is to get pre-qualified, then identify a practice opportunity.
After you identify an opportunity, you will go through the underwriting process with the bank. This is a very time-consuming and cumbersome process. You will provide a lot of information and proof of your ability to fund the impending deal. Please note that this time frame can range from a few weeks to a few months. Also note, that it is standard for a broker to request needed documents from the seller, so you don’t have to.
Once the funding decision is received, a closing date will be set. Followed by the practice funding/closing.
You know now what is involved within the loan process, but it is also important to choose the right bank for you. It is important to note that the right bank is not always the bank with the lowest interest rate. The interest rate is only one part of the overall loan package. There are Four Top points to consider with your loan package.
- Interest Rate
- How familiar is the bank with dental lending?
- Talk to friends and brokers about their experiences with the considered bank
With this large investment you are making – whether it is new or existing, is the return on your investment. When you are calculating your ROI, time value of money should always be considered. The time value of money theory states that a dollar in the bank today is worth more than the expectation of receiving a dollar in the future. Of course, it is always important to remember the opportunity cost of these decisions.
- Loan Payment – When you are looking at your loan payment remember that interest can be written off. Each year in taxes (like mortgage payments), interest expenses you pay on a loan is a tax-deductible event. Sometimes it may make sense to take out a longer term loan with lower payments to help with the cash flow of the practice as it acts like an insurance policy for the buyer.
- Maximizing Tax Advantages – It is always a good idea to consider how you can best maximize the tax advantages of buying a practice. Section 179 gives you different benefits you can utilize.
- Section 179 – As you are aware, all assets depreciate overtime. Therefore, with the Section 179 Depreciation Schedule, you can depreciate all assets up to a certain amount in the first year. In most cases, no taxes will be paid that year.
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