Should I Have a Dental Practice Checklist?


Whether you are buying a dental practice, starting a dental practice from scratch, or looking to sell your dental practice, there are many things to keep in mind. To ensure you do not miss anything, we created a checklist for whichever scenario best suits your situation.

If you’re a buyer

As a buyer, you have two options: buying an established practice or starting from scratch. Whatever you decide, the items on this checklist pertain to you.

Find your advisory team: The first place to start is with 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 and individual can offer. Go with whom you feel most comfortable, not necessarily who offers the lowest price for their services.

Your team of advisors will include:

  • Banks
  • Certified public accountant (CPA)/chartered financial analyst/attorney/insurance agents
  • Marketing agency
  • Equipment representatives and supply companies
  • Commercial real estate broker
  • Contractor/architect
  • Practice consultant
  • Technology advisor
  • Broker

Get prequalified: To fully understand your options, you will need to get prequalified. During the prequalification process, banks will look at your net income stress and how much debt you can handle. Loan representatives will gauge debt-to-equity and debt-to-income ratios, as well as your credit score.

Hire a broker: Once you have your prequalification taken care of, it is time to get to the fun stuff — find the right practice and location. If you are looking at starting a practice from scratch, find the right commercial real estate broker. If you are looking to purchase an established practice, get in touch with a reputable practice broker, like Professional Transition Strategies (PTS). From there, it is time to concentrate on the right location for you and your practice.

Find the right location: When figuring out your location, keep area demographics and the competitive landscape in mind.

Demographics: Make sure to examine the demographics of the considered practice. How is the 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 types of services as you? How established are the other practices? What is your unique value proposition?

If you’re buying an existing dental practice

Evaluate the practice: Once you’ve identified a practice of interest, it is time to obtain a practice prospectus. A prospectus is a document that tells the story of a practice within approximately 20 pages. It will include the description of the practice, biography of the doctor, demographics of the practice, procedures performed within the practice, location and information on the facility, types of equipment, active and new patient analysis, financials, photos of the practice, evaluation of the procedures and staff information.

Read the prospectus: Now that you have the practice prospectus in hand, it is time to review it. The most important things to look for are:

  • Patient information
  • Practice trends
  • Types of procedures
  • Top line revenue
  • Amount you can expect to take home

Make an offer: Once you found the practice, it is time to make an offer through a letter of intent (LOI). The LOI is not a legally binding document, but it expresses your intent to follow through with the transaction.

Negotiate: Next is the negotiation period. This period continues until the buyer and seller agree on the price, terms and closing date.

Start the due diligence process: Once negotiations are complete, it is time to move into the due diligence phase. During this period, you and your advisors will review all financials and various aspects of the practice.

Finalize the asset purchase agreement: Now, it is time to finalize the asset purchase agreement. This document will outline all points of the pending deal.

Complete the practice loan: Once the asset purchase agreement is finalized, it is time to complete the practice loan. When you are looking at your loan payment, remember interest can be written off. Similar to mortgage payments on your house, each year in taxes, 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.

If you are a seller

You decided you are ready for the next step in your life and your practice. No matter if it is time for you to retire, bring on a partner, affiliate with a group or just go in a different direction, you need to make sure your T’s are crossed and I’s are dotted if you are considering a sale of your practice. To do this, the best advice you can receive is to start the process early.

Create a prospectus: Before deciding what you are going to do, learn the facts and then determine which strategy is right for you. The first place to start is to have a prospectus created for your practice. The prospectus will give a 3,000-foot overview of your practice and outline the fair market value for both an individual buyer and institutional buyer. After all, without having all the facts you need to make an educated decision, how do you know you are making the right one?

Decide the right transition for you: After you go through the prospectus process and understand your options, it is time to decide what direction is best for you. Should you bring on a partner? Sell the practice? Affiliate with a group? Or just hold steady, increase production and sell later?

Keep up your production and practice value: Slowing down before selling your practice could be a big mistake. It is important to keep your practice healthy and profitable. By decreasing now, you risk the potential of devaluing your practice. When it comes to valuing a practice, the past three years are in play with the most recent year being weighted the heaviest. With that in mind, don’t you want your practice story to be as strong as possible?

Hire the right broker: While you may think you can save money by selling your practice by yourself, you can actually leave more on the table than you can imagine if you don’t have a professional by your side. When you are hiring a broker, you want to make sure they have your best interest in mind and are not just looking out for their broker’s fee. Hire someone whom you can trust, will not lock you into a long-term agreement and will be actively working for you. Make sure they think outside the box to bring you more options to consider. By thinking small and working with someone who is only connected locally, you risk the potential of your outcome being small.

Assign broker’s responsibility: If you hired the right broker, the process should be painless and very seamless on your end. Your broker should be skilled in marketing and take an active rather than passive approach to finding potential buyers for your practice. Your broker team is responsible for fielding interest in your practice and must ensure all parties sign nondisclosure agreements (NDAs) before learning anything about your practice. When done correctly, this NDA will protect both the buyer and seller and start the relationship on the right foot with trust on both ends. Your broker is responsible for developing this list of potential buyers, and it is their duty to highlight your practice in the best light, by not only describing how wonderful it is, but also discussing potential opportunities for the future.

Schedule showings: By developing a strong list of qualified buyers, your broker should have several showings scheduled for your practice. Your broker is responsible for setting up and being present for all showings. Furthermore, showings should only be scheduled when they work best for you. Typically, this occurs outside of work hours, including on the weekends and in the evenings.

Start due diligence: After your broker has found your perfect buyer, LOIs are signed and everyone’s intentions are known, next comes the due diligence process, which can take 30 to 45 days. Part of the due diligence process includes understanding the practice corporation, reviewing A/R, solidifying real estate, confirming licensing and reviewing insurance.

Sign contracts: When working with a reputable broker, your contracts should be included in your agreement at no additional cost. Standard contracts include but are not limited to purchase agreements (asset purchase agreements and stock purchase agreements), operating agreements, employment agreements (in the event of a transitional period) and real estate agreements.

Final considerations: You are almost through the finish line, but there are still a few things you’ll want to consider. Above all, it’s important not to forget your relationships. Most likely, you now consider your staff and patients as family. You want to make sure they are in good hands. While they may feel like family, it is important to remember this is still a business and you do not want to show your cards too early. For this reason, we advise keeping your upcoming transition quiet until just before the closing.

Many doctors decide to stay on for a short period of time (typically three to six months) to ensure a smooth transition. This timeframe allows for personal introductions from the previous doctor between the new doctor and patients. In addition, hosting open houses or similar events are also common. Should this type of personal touch not be possible, a simple letter or email will also suffice.

What’s next?

Whether you’re looking to buy a dental practice or sell your current business, contact the experts at Professional Transition Strategies to get the ball rolling in the right direction.