Getting A Loan for Starting a Dental Practice or Buying a Dental Practice

Getting a loan for starting a dental practice, or buying a dental practice can seem like a daunting prospect, and rightly so. This will be one of the biggest, if not the biggest, decisions of your career. And you have to make it at a point in your professional life when you have the least amount of experience, either in dentistry or in business. That’s the bad news.

The good news is that if you choose the right lender, one who understands dental practice lending, and you’re prepared, it can be a lot simpler that you might think.

Choosing the right lender is the easy part, you just need a reputable bank with experience lending to dentists—that is, one that understands how practices need to be financed.  They’re not hard to find. The financial preparation can be the hard part. But it doesn’t have to be if you understand a few things about the practice lending process.

Dental Associate Experience Reduces the Bank’s Risk

How much experience do you need before starting your own practice? Honestly, not much. Lenders report that 60% of dentists seek to set up their own offices within the first five years of their practice. But that doesn’t mean you can just walk out of dental school and into a bank expecting to get a few hundred thousand dollars. While many lenders don’t require much experience (more on the reasons for that below), they will be looking for some experience—at least one or two years as an associate. The reason for this is that most young dentists gain invaluable experience in those first couple of years: working in a real world office with patients from the general public, managing staff, increasing hand speed, and creating a track record of production. There is no real substitute for that experience.

There may be an exception for someone with good dental intern experience, or someone who has worked in a family practice and understands the business and administrative sides of a practice already. But these are going to be the exceptions. This will be reflected in the fact that a bank will typically lend less to someone right out of school because its a riskier prospect. The idea is that time working as an associate reduces the bank’s risk because the doctor has an established record of managerial experience and production. Without this, you’ll have to work much harder to convince a bank to lend to you.

Typical Debt (Including Student Loans) is Not an Obstacle

First, you might think that a few hundred thousand dollars of student loan debt doesn’t seem all that typical, however, you have to remember that we are not talking about lending, generally. We’re talking about lending to a dentist starting out a practice. Given that the average dental student graduates with somewhere between $200,000-$400,000 in student loans, within this demographic, your student loan debt is probably typical. The offset here is that loans for starting a dental practice or buying a dental practice are among the lowest risk loans. The default rates are very low and dental practices generate a high cash flow. This is why banks are willing to loan large amounts to dentists, funding the entire cost of starting up a practice, where in other industries, the borrower would have to invest up to 20% of their own capital.

Given these factors, lenders know that new dentists will have debt. As long as that debt appears to be typical, it won’t be an issue. In addition to student loan debt, its typical for a young doctor to have a mortgage, some credit cards, maybe even a luxury car payment. The concern is not having debt, but whether the debt is excessive and whether the practice that the loan is for is reasonably projected to generate an adequate cash flow to cover the loan repayment, along with the other debts, keep the lights on, and the staff paid.

Credit Risks are Still Credit Risks

While typical debt is not a problem, and while that typical debt can add up to quite a bit, banks are still going to balk if they find red flags on your credit history. Dentists generally have a reputation among bankers as being among the most financially dependable borrowers, however, you won’t benefit from that reputation if your credit history indicates an inability to manage debt. Lenders typically want a credit score in the high-600s. You should be concerned about the following things, if they’re reflected on your credit report:

  • A short sale or foreclosure on a home
  • A pattern of late or missed payments
  • Taking on too much debt
  • Excessive credit card debt
  • A low asset to liability ratio

Red flags can also appear with the practice you are proposing to buy or build. These can include:

  • An expensive build-out
  • High costs for remodelling or re-equipment an older office
  • A negative trend in the practice’s collections
  • A young dentist seeking to purchase a high-end practice (typically, a doctor should seek to establish a practice that can be profitably run at the doctor’s current production and managerial ability)
  • Relocation to an area where the doctor has no established community (there is less to keep a doctor there if the practice experience’s problems)
  • A poor production record for the doctor seeking funding
  • Disciplinary actions
  • Probationary periods

Banks with dental industry experience are looking, in essence, at a combination of the doctor’s ability to responsibly run a practice and produce at a level of profitability that will allow repayment of the loan, and whether the practice is worth the amount being asked for. The bank has to be comfortable with both parts of this equation before it will take on the risk of the loan.

Loans Types for Starting a Dental Practice or Buying a Dental Practice

Typically loans for dental practices are 10-to-15-year fixed-payment products. Some banks will offer a 20-year loan, reducing the monthly payment amount. And some offer an alternative to fixed-payment loans, where payments may be low or even deferred during the first months, allowing a new practice to build momentum before starting with low payments which will increase over the first couple of years. The variable-payment loans let a new practice invest in equipment, staff, advertising, and other things needed to establish and grow the business.

Something unique to dental practice loans is they can include money specifically earmarked as working capital. This means that the bank understands that, just as you don’t have 20% of your own capital to invest, you likely don’t have a large cash reserve to keep a business afloat as it operates in the red during those first months. For instance, a typical dental practice loan from Bank of America may include $75,000 for working capital and an additional $25,000 if the doctor wants to bring on a practice management firm to help increase their business training.

SBA (Small Business Administration) loans are often a preferred choice by lenders. SBA loans are guaranteed by the federal government for 75%, greatly reducing a bank’s risk. SBA loans have other because they are loans are designed for small business like the one you are considering. They also are available for ground-up construction, which many conventional banks won’t offer.

Have a Plan

Before any lender is going to work with you, you’re going to have to show them why it’s a smart investment. You need to have two things. First, is a vision for your practice. What will it be? Where will it be? Why that type of practice in that location? And why are you the one to be trusted with it? You should be able to answer any of these questions with thoughtfulness and confidence. This will show you’ve really considered your choices, and that they are being made intelligently and responsibly.

Second, you’re going to need a solid business plan. This is the document that shows what your costs will be, how those costs will bring revenue, and whether that revenue will be sufficient to support the practice, its staff, and repayment on the loan. For more on how to prepare to prepare your plan, read our recent article, “Five Financing Questions to Answer Before Buying a Practice.”

In addition to your business plan, the lender will probably also want to see your tax returns, dental license, resume, production reports, documents which report all of your financial assets and liabilities, demographic information about the location of your practice, and financial records from the practice (if you’re buying an existing one), or any other information they find relevant. Once all of the paperwork is properly submitted, preapproval is typically completed within a week.

We Can Help You Find the Right Practice

Here at ddsmatch Southwest, we specialize in matching the right buyer with the right seller. If you are interested in buying a dental practice in Texas or New Mexico, we can help you find the practice that best fits your vision for your dental career. Contact us today and find out how we can help you.

Five Financing Questions to Answer Before Buying a Dental Practice

As a dentist, no one needs to explain you area of expertise to you. You’ve dedicated yourself to providing the best care for your patients that you can; you are the one in the best position to treat and advise them. And while excelling in your field requires a lot of diverse knowledge and skill, it does not require a high level of financial expertise. You may need to be able to balance your books, and maybe run and P&L report, but you can also have a bookkeeper or accountant do that. But, when it comes to more complicated financial transactions, you are not alone among dentists who may quickly get out of their depth.

At the same time, the more complicated financial aspects are exactly what is involved when buying a dental practice or starting up a new practice. Just as your patients deserve quality, compassionate dental care, you deserve financial advice that is just as reliable and accessible as the care you provide to others. So, when you are ready to take the next step in your career—to either buy or start your own practice—you need to find a dental financial advisor who understands the transaction in the same way you understand your specialty.

What to Consider Before Choosing a Lender

First, you need to work with people who understand the unique needs of your business, the dental business: a dental financial advisor (on your side) and a dental lender (on the bank’s side). While your local bank may be a trustworthy and reliable institution, you have no guarantee that they understand the dental business. And if they don’t, it can create trouble.

Lack of knowledge about the dental business can lead to a lender making errors in valuing the practice you are considering buying or starting. There are unique aspects to how dental practices are valued and financed that don’t align with typical business financing. And that leads to the second problem—that the type of loan you will likely need doesn’t fit into a typical loan structure. You need to work with a lender who understands the type of business you are buying, and what kinds of loans work in that field.

Depending on whether you are buying a dental practice, building one from the ground up, or something in between, a Small Business Administration (SBA) loan can be a good option. For one thing, SBA loans are designed for small business like the one you are starting. They also are available for ground-up construction, which many conventional banks won’t offer. Even if you aren’t building something new, but are planning to buy land or a building, you may need a commercial real estate (CRE) loan.

Also, if you have credit problems, you may still qualify for an SBA loan, even if other lenders have turned you down. You may also have an option for an A/B loan (also known as a syndication loan), where a lender provides part of the loan from its own money, and partners with a second bank for the remainder, reducing the risk for each lender. With these loans, typically the A bank is the lead lender, and administrator for the entire loan.

As you can see, this gets tricky very quickly. This is why you need a financial advisor on your side who understands the dental business, and can help you figure out the answers to these five questions, which you need to have sorted out before you start talking to banks:

  1. How much money will you need for your project? This is an important question to get right, because an error on either side will create a real problem down the road. You definitely do not want to take on any more debt than necessary. On the other hand, you also don’t want to run out of money part way through the process. Getting a second loan can be tough. Talk this through carefully with your dental financial advisor, and review your numbers until you are sure they are correct.
  2. What is your plan? Here is where you identify the specifics of what you are doing. That is, what the is money for. Are you buying an existing practice? Does it include ownership of a building, land, or both? How is the practice equipped—will it need to be updated? Are you constructing a building? Are you outfitting a completely new practice? Again, talk this through thoroughly with your financial advisor and review your numbers carefully.
  3. When do you need the funds and when will they be repaid? Whatever your plan is, the seller (whether it’s a dentist, landowner, or contractor) typically has a strong interest in having the deal closed by a fixed date. Make sure you can meet that deadline, or you risk losing the deal. Also, make sure you will be prepared to start repayment on the loan terms on a schedule that will satisfy your lender, without creating a financial hardship for your practice or yourself personally.
  4. Do you have a solid business plan? All new business are started in a spirit of optimism. Optimism, however, doesn’t pay the bills. If you don’t have a good business plan, it’s likely you won’t get a loan. So, for the bank’s sake, and for yours, make sure your documents are complete, accurate, and based on reliable information. Look closely at the projections, and make sure they support the amount of money you are asking for, and your repayment plan.
  5. What is your backup plan? Things rarely go as we plan them. While many dentists buy or start a practice and it all works out fine, it’s unlikely that it worked out just as they had planned. Given the size of the debt you will take on, you will be better off with a contingency plan in case external factors impact your business. How will you repay your loan? Think about this carefully and work it into your business plan. This is definitely a case in which it’s much better to have something and not need it, than need something and not have it.

Having a solid business plan supported by complete and accurate documentation will go a long ways towards getting where you want to be with a lender. It will make their job much easier, smoothing out the process, and allowing them to determine the most advantageous way to fund your request.

Buying a Dental Practice? ddsmatch Southwest can help!

At ddsmatch Southwest, we are in the business of matching those who are selling a dental practice with those who are buying a dental practice. You can read more about buying dental practices in our article “Ten Things to Consider when Buying a Dental Practice.”

We understand that you are not just exchanging cash for an office and equipment. This business will be where you invest your time and your energy. You are not just investing money, but also your hopes for the future, and your plans for your family and loved ones. You will be building your legacy. We have many practices available for purchase and proven methods for matching the right dentist with the right practice. Give us a call and find out what we can do for you today.

Dental Associateships: Reduce Your Risk Before Buying a Dental Practice

You didn’t go to dental school with a dream of being an employee. But before you are in a strong position to consider buying a dental practice, you may need to put in time as an associate. A generation ago, starting up your own practice right out of dental school, or soon after, was a more common trend. These days, however, the marketplace has changed. More and more, dental graduates are putting in time working with another dentist, whether as a stepping stone to an independent practice, or with an eye to buying-in down the road.  The mentorship experience is also valuable, to train under an experienced guide.

This first step in your career can be critical, and the more care you take when deciding where and how to start practicing dentistry, the better off you will be long-term. The question is, how do you know which practice is right for you? Without being able to see the future, there will always be some risk. The good news is, that there are good ways to reduce that risk, and increase your chances of security and success over time.

Here are a few items to consider.

Location, Location, Location

First, think carefully about where you want to practice. You’re young, you’ve worked hard, you’re on the brink of a successful career, and you want to enjoy this stage of your life while setting the stage for your next step. Living in a cool city where you can take advantage of what urban life has to offer may appeal to you. Or, maybe you’d like to live near a coast, or near the mountains.

However, these preferences come at a cost, both literal and figurative. Cities and other popular areas are expensive. Also, they are competitive. You’ll have to work harder to get hired as a dental associate, to get a decent and affordable place to live (as you’re not earning as much yet), and to attract patients. While rural areas and smaller towns may not be your first choice, they have a lot to offer.

For more on this, read our post about the benefits of dentistry in rural areas. You can let your classmates slug it out for a small apartment and a practice with lower profit margins in the big city, while you get ready for buying a dental practice sooner than you probably could otherwise. You can save your earnings for trips to the city, or weekends at the coast where you can enjoy what it offers with less stress.

Job Interviews are Two-Way Streets

The process of locating a dental associateship is not just about you wooing established dentists. You are young, energetic, well-educated with up-to-date training, and well versed in new technology. You will be an asset to any practice you join. Getting a dental associateship is not just about getting an offer. It’s about finding the right fit. You are kicking the tires on the hiring dentist and their practice, as much as they are vetting you.

Here are some things you can do to make sure you have the data you need to make an informed choice about where to start your career.

The More You Know, the Better

  • Call the practice. Your experience with the front desk personnel can tell you a lot about how the practice operates. Do they answer the phone quickly? Are they courteous? Do they sound professional and organized? Also, call after hours to hear their outgoing message. Do they provide emergency information? Do they provide a professional impression of the practice and reflect a sound business operation? If a practice can’t manage their phones well, what does that say for the rest of their services?
  • Arrive early. Just like calling the practice, you will be able to see the front office staff in motion: what happens when patients arrive, how they are checked in, how long they wait, the culture of the office, and other things that may be glossed over in a formal interview. The front office operations are essential to a successful and healthy practice, and first hand experience is really the only way to see it for yourself. Are they properly scheduling follow ups for additional work? Are they on top of collecting payments and getting insurance information? And while it may seem awkward to sit in the waiting room, you can easily devise an excuse (being cautious about time, for instance, especially if you’ve come a long way) and the information you gather may be invaluable.
  • Don’t just talk. It’s not hard for either party in a job interview to impress the other. But talk is cheap. If it’s not offered as part of the interview process, ask for a “working interview” where you can work with the hiring dentist, perhaps acting as an assistant. This will give you the chance to impress with your skill, but, more importantly, you’ll get to see something you never would have otherwise until after you’ve began your associateship; you’ll get to see how the doctor and their practice actually function. This will tell you more than anything they can say in an interview. Also, when it goes well, you’ve given the staff something good to relay to patients as they start scheduling appointments for you.

Remember, the more information you have, the better positioned you are to make a good decision, reducing your risk.

Dental Associateships Prepare You for Buying a Dental Practice

Dental associates perform a variety of functions for an owner dentist. But, for you, this is your path to prepare for your likely career goal of owning your own practice. It’s a time when you have lower risks and less at stake, so you can figure out how to work within a practice setting, learn managerial skills, and understand what your role is—and, importantly, what it is not.

When you get your diploma, you are a doctor. You are not staff. A well-run practice, like any business, is one where the manager (here, the doctor) hires able staff members, provides them with proper training, direction, and support, and then gives them the independence to do their jobs. This model empowers staff and communicates to them that they are trusted. These qualities in a business encourage staff to do their best, build loyalty, and generally the staff will reflect trust back to the doctor. Organizations with these qualities are better suited to weather tough situations.  

This is important to remember as a dental associate, because, while you are not the manager, you are a doctor, with a supervisory role over staff. If there is an unfortunate circumstance where you need to align yourself with one side or the other, you are best aligned with the other doctor(s). If there is an issue that you think needs to be addressed, address it in private with the other doctor(s), not in front of staff. This can be difficult—we want to be fair, and we want to be liked. But remember, your job is not to befriend the receptionist, as much to provide the best dental care you can to your patients, and work with the practice members to facilitate that. By always knowing your role and being professional at all times, it will be easier for you to navigate the difficult personnel issues that will inevitably arise sooner or later over the course of your career.

You may be someone who loves to attend to all of the details. You may be someone who is independent and self-sufficient, and takes pride in those qualities. Both are positive qualities, but you will need to learn to let some of that go and stay flexible as a member of a larger team. Think about the times you’ve spent in a well-run doctor’s office. Is the doctor at the front desk? Is the doctor looking at the schedule? Is the doctor asking questions about billing and insurance?

No, because the doctor is doing their job, attending to patients. That’s your focus. Let the staff do their job. After all, that’s why they are there (and getting paid and receiving benefits). If you are looking over their shoulder, they will be self-conscious, feel second-guessed, question your trust in them, and it can create an uncomfortable work environment. If there are problems with staff, they can be addressed in private or in staff meetings, whichever is most appropriate.

Finally, while on the topic of meetings, beware of any practice that does not have staff meetings. Efficient, organized staff meetings are essential to a smoothly-running operation. Regularly scheduled meetings allow for open communication and a forum for questions, clarification, and addressing issues. An organization that only holds a meeting when there is a problem is like trying to build a boat after you’ve already launched the hull. A little extra time at the dock saves a lot of hassle out at sea. These meetings don’t need to be long, but they should be regular and always have a clear agenda to keep all staff members headed in the same direction.

If you pay close attention during your dental associateship, learning both what to do and, just as important, what not to do, you will be much better prepared for buying a dental practice when the time comes.

ddsmatch Southwest Can Help Reduce the Risk

One of the things we do at ddsmatch Southwest is place dental associates. Many dentists are thinking of transitioning their practices, but are not quite ready to go into full retirement. They may want an associate who will buy-in and perhaps, eventually take over and buy them out. They may want an associate who will expand their practice, increasing its value. They may want to stay involved, but reduce their personal workload.

We have a variety of options for new dentists looking to begin their career. Let us help match you with the right practice. Give us a call today.

Ten Things to Consider when Buying a Dental Practice

Buying a dental practice is one of the most important decisions a new dentist or dental associate can make in the course of their career. No detail is too small to consider, and there are a lot of factors outside your area of dental expertise that require skilled advisors.

While that may seem daunting, the good news is that people have been doing it successfully for years when they’re backed by the right team. There is a tried and true process, and a clear set of considerations. When you follow the guidance of experienced professionals, it will greatly enhance your chances for success.

In this post, we discuss things to consider as you get ready for the next exciting step in your career.

Start Day One with an Existing Patient Base

An existing patient base means a paying patient base. If you start a new practice, unless you have a loyal base of patients who will follow you from an associateship, you are starting from scratch. You’ll invest a lot in overhead to establish an office and hire staff and then . . . wait for the patients to come. But, when you buy an existing practice, you have patients in the door from day one. Now, that doesn’t mean you’ll keep all of those patients (more on this below) but you will be starting ahead, instead of behind.

This, of course, doesn’t mean you don’t have debt to worry about. The practice will likely have been purchased with a loan, and you’ll need to be able to earn enough to keep the lights on, service your debt, and take something home for yourself. Look at the practice’s cash flow and expenses to see if your expenses will match that, whether you can cut costs, and whether the practice is really sustainable.  According to Bank of America, “Lenders usually look for the practice and doctor’s personal income to cash flow at a ratio of a 1.20%, which means the practice is expected to generate a $1.20 in revenue — or collections — for every $1 spent between the practice expenses and the doctor’s personal expenses.”

Rely On a Team of Experience Professionals to Do what You Can’t

It’s likely you haven’t had experience buying and selling small businesses, dental or otherwise. There can be a lot of complexities in these transactions, depending on how the practice is set up, and there will be a lot of details you won’t even know you should worry about. Without a team of experienced professionals, you could walk right into a common pitfall without even knowing it.

To be successful, you will need these members on your team:

  • Dental Practice Broker. Like any other business or property, a dental practice can be sold directly from one person to another without any intermediaries. Yet this is much more complicated, however, than buying a residence or automobile. And if you’ve never done it before, you don’t know what you don’t know. Working through a broker, such as ddsmatch Southwest, helps ensure that both parties are aware of all of the essential considerations and that no critical steps are missed.
  • Dental CPA. Dentistry is a unique business, with accounting issues that don’t apply to other business, from dental equipment valuation to tax strategies. Find a CPA with a large roster of dental clients, they’ll understand the accounting side and be able to advise you better than a general CPA.  Your dental practice broker should be able to recommend a reliable CPA. At ddsmatch Southwest, we work with Blue & Co., where they have both dental CPAs and certified business valuators.
  • Dental attorney. The law is like dentistry, you have generalists and you have specialists. The generalists are good for small, everyday matters, but once you get beyond that, you really need a specialist. When buying a dental practice, you are going to be dealing with a host of legal issues: a sale contract, a lease, non-compete agreements, patient privacy disclosures, incorporating or other business organization set-up, and they may even help with lender requirements. Like the CPA, find an attorney with extensive dental experience, and ask your broker for recommendations. We can refer several affordable experts that we know and trust.
  • Dental lender. Your local bank may not understand the dental profession and could err in valuing the practice. Also, there are loan terms typical for the purchase of a dental practice that don’t fit into a typical loan. You need to work with a banker who understands they type of business you are buying and what kinds of loans work in that field.

The Term of Your Practice Loan

There is some flexibility here, with most loans ranging from five to 15 years. A longer term can be beneficial, as it will reduce both the impact your debt service has on the practice’s cash flow, and the risk inherent in losing some of the existing patient base (it will happen to some degree). You also may want to consider a flexible repayment option. If you grow your practice or otherwise increase your cash flow, you want to have the option to prepay the loan. If you are concerned about cash flow in the early days, ask about the loan being structured for interest-only payments for the first six months to a year.

Also, as with any loan, consider your interest rate. Often, a low, fixed rate is the best option. While an adjustable rate can have lower payments initially, eventually rates will rise, and so will your payments.

The Advantages of Buying a Dental Practice

As discussed above, an established practice has an established patient base, with a cash flow from day one. Also, the practice has established relationships with the local insurance providers.

The practice has an experienced staff. You don’t need to find, hire, and train a staff. However, remember that the practice was built around the dentist who, depending on the term of your contract, may not be around. Try to arrange to keep the existing staff on for at least a year. This way, you don’t have the hassle and expense of hiring new staff while learning how to run a practice. Also, the patients know the staff, and familiar faces will help with patient retention.

On that point, while the practice has a patient base, despite your best efforts, you will lose some of that base. Your broker can help advise on the best strategy to retain patients, which often starts with a letter explaining the practice transition. Ideally, the selling dentist will write the letter, as that dentist is someone the patients know and trust.

The Disadvantages of Buying an Existing Practice

While there are several advantages, there can be downsides as well. You aren’t just buying a business, you are buying the philosophy upon which that practice has been built. Your approach will certainly be different, and that may cause some strife with staff and patients, who may look for a new dentist.

Changes in workplace practices and policies can be tough for staff, especially when they don’t see why change is necessary or desirable. Also, if the staff members have been around for awhile, their compensation may reflect that, making them seem overpaid. Carefully consider this before making any staffing changes.

Before you finalize the sale, look closely at the office equipment and decor. Consider what updates or upgrades are required and what the cost of those will be. Factor this into the valuation process.

You Are Not Just Buying a List of Patients and an Accounting Ledger

As indicated above, the practice you’re buying was built around a personality and method of organizing that practice. This brings in a lot of things beyond just dentistry. The selling dentist had a vision for their practice and worked to achieve it. Is your vision for your practice compatible with that? If not, it may be a painful transition for you, the staff, and the patients.

When you own a dental practice, you quickly learn that you have to become a jack-of-all-trades. You are the CEO, CFO, and the human resources department. This is all in addition to being both a practicing dentist and the lead clinical director. Be sure you are ready to take on these responsibilities.

Other things to think about include:

  • What quality of care does the practice offer?
  • What types of dentistry does the practice offer? Are there services you don’t want to offer? Are there services you think should be offered? How will this impact the practice, staff, and patients?
  • What is the ratio of restorative or cosmetic services versus hygiene?
  • What services are referred out? Could they be kept in house?
  • Is it fee-for-service?
  • What percentage of the patients are capitation?
  • What percentage of the patients are PPO?

What Type of Acquisition is Best for You and for the Practice?

The common types of acquisitions include:

  • 100% Buyout. Just as the name indicates, you exchange the full cash price for ownership of the entire practice. The selling dentist may exit immediately after your close the sale, or may elect to stay on for a period to aid in transition or to ease into retirement. These terms are negotiable.
  • Buy-In. Here you would buy-in for a portion of the practice, typically between 25-50%, and purchase the rest later when the selling dentist opts to transition into retirement. This may be a good option for someone who wants to ease more slowly into the responsibilities of full ownership.
  • Associate with the Option to Buy. An established dentist may be looking down the road to retirement. The dentist isn’t ready to sell yet, but wants to train a potential buyer in the existing practice, the associateship agreement includes the option to buy. At ddsmatch Southwest, we help place associates, and can provide guidance regarding options to buy.

Practice Valuation

As in most transactions, there is frequently a gap between what the seller thinks their practice is worth and what the buyer thinks it is worth.  As the buyer, you should consider that, for the seller, it’s very personal. They have spent their career building their practice and represents a significant investment of time, money, blood, sweat, and tears. Also, depending on the practice, the dentist may have provided care for generations of families and have strong community ties. All of this will impact the value they place on their practice.

Typically, what buyers are willing to pay (market value) is what the practice will sell for. A rule of thumb can be 70-90% of the last year’s revenue. Speciality practices may value for less because they rely on referrals, which are less predictable.

If You’re Planning Changes for the Practice, Take it Slow

Unless you’ve done a buy-in or option to buy, you are well advised to take your time to get to know the practice: the staff, the equipment, the patient flow, the patients themselves, the billing, and all of the processes and policies. Make sure you understand how it all works together (or doesn’t work) before you start making changes. There might be things that seem odd, but become clear once you are on the inside. Making changes too fast could create disruptions that would cause staff and patients to go elsewhere unnecessarily.

Due Diligence

In every business transaction, due diligence is essential. This means that you undertake a comprehensive appraisal of every aspect of the practice. You may want to retain a consultant to evaluate each aspect of the practice, including staffing, systems, and a complete chart audit and patient count. This type of consultant can also advise post-sale on ways to improve the practice according to your career goals without too much disruption.

At ddsmatch Southwest, we specialize in bringing sellers, buyers, and associates together. Using the experience of hundreds of transitions all across the country, we can help you with buying a dental practice and help it go smoother by avoiding common mistakes and finding the right match for your career goals. Contact us today and find out what we can do for you.

Thinking of Buying a Dental Practice? Midland, TX, is a Great Place to Consider

Where is the best place to buy a practice? Is it in an established, populated area, where markets and economics may shift and people might leave? Consider how much an area might change in 20 years as children grow up, leave home, and their parents downsize their homes. Will new families move in? Or will they look to newer developments as tastes and populations shift?

Is it on the edge of an urban area, where there is room for expansion, but also for a building boom to turn to bust? Think back to when the housing bubble burst 10 years ago. Remember those streets full of empty, new houses?

But what about buying a practice in an area where science is forecasting major economic growth in the coming decades?

And what about in the Permian Basin?

What you might not know is that those last two are one and the same. The Permian Basin is a geological area under a big part of west Texas, including Midland, Odessa, and Lubbock. While you may recognize those names as oil towns, what you might not know is that the Permian Basin is poised to become the largest oil patch in the world. And with that comes the opportunity for incredible growth, if you get in on it early enough. So if you’re thinking about buying a dental practice, Midland, TX, might just be the place.

What’s Happening in the Permian Basin

A recent article on Bloomberg reported that oil output in the basin was set to hit 3.18 million barrels a day in May of this year. That’s the highest the basin has ever produced since the Energy Information Administration began tracking the data. What’s more, that number is expected to only go up, with an estimation that the region may be producing as much as 4 million barrels a day by the year 2023. For reference, the Ghawar field in Saudi Arabia, currently the largest oil field in the world, has a capacity to produce 5.8 million barrels a day. Other top OPEC producers such as Iran and Iraq each produce less than 5 million barrels a day (Iran reportedly hit 3.81 millions barrels a day in March).

According to Rob Thummel, a managing director at Tortoise, a multi-billion dollar energy asset investment management company, “The basin in and of itself could end up being the largest oil field in the world, even bigger than Ghawar in Saudi Arabia . . . If the Permian was part of OPEC, it would be the fourth-largest OPEC member, right behind Saudi Arabia, Iran and Iraq,” and, “[b]y the end of the year, the Permian probably overtakes Iran.”

What Does this Have to Do with Buying a Dental Practice? Midland, TX, and Other Permian Basin Oil Towns are Going to Grow

In any industry, production depends on infrastructure. In the oil business, that infrastructure means pipeline capacity. Presently, the region lacks sufficient pipeline capacity to get the oil out of the area and to the market. Bloomberg reports that “rampant production growth has already strained available pipeline capacity to transport the oil to market, pressuring prices” some of which have dropped to a three-year low. Oil companies are working together to increase pipeline capacity, with a major project recently announced that will increase pipeline capacity by 700,000 barrels a day by the end of 2019.

Growth in the oil industry, including pipeline construction, means jobs. Jobs means families moving to the area, and families need dentists. This news about the oil field capacity can mean a major economic and population change to the area that will last potentially for decades. It’s a growth market for the oil industry and oil industry workers, but it’s also a potential growth market for industries and services that people rely on in their day to day lives. This is why it’s a good time to consider buying a dental practice, Midland, TX, or in nearby areas. Relatedly, if you have an established practice and are thinking about retiring, it’s also a good time to put a dental practice for sale. Midland, TX, and other Permian Basin towns are all set to grow over the next several years.

If you’re asking yourself, “why would I want to practice in Midland, TX?” you might want to take a look at our recent article about the benefits of buying a practice or seeking an associateship in areas outside of major metropolitan areas. While the Midland-Odessa area isn’t exactly a small town (there are just under 300,000 people within the Midland-Odessa metropolitan area), it’s certainly not like Houston or the DFW area, and encompasses a number of smaller communities that would be well served by a quality dental practice. Also, depending on how and where you are considering practicing, it could be a great place to look at purchasing or joining a practice with a pediatric specialty (see our recent post about that).

At ddsmatch Southwest, our team has members who work exclusively in Texas and know both the dentistry business and the region. Whether you are considering buying a dental practice, Midland, TX, or other areas in the Permian Basin, or if you are considering selling your practice, adding an associate, or joining as an associate, we can help you get the results you want. Give us a call today to find out what we can do for you.

Looking for a General Dental Practice for Sale?

Dental CPA Answers Your Top Questions: What You Need to Know with a Dental Transition

If you’re looking for a general dental practice for sale so you can start out on your own, you need some expertise from those who have walked this path before you. Check out tips below before you get started so you can have a successful transition into a thriving dental practice.

Dealing with Non-Clinical Issues

As a dental practice owner, you will deal with much more than just patients. Non-clinical issues can take up a significant amount of time, so knowing how to deal with them is important to running a successful practice. Issues that come up with your employees or your patients should be dealt with straightforwardly, honestly, and quickly.  Ignoring an issue will not make it go away, it will only make it more difficult to address as time passes.

Decision Making in Your Practice

Before you start looking for a general dental practice for sale you need to learn how to think ahead when making decisions. It may be easy for you to decide on a care plan for your patients, but how do you decide when to replace dental equipment, buy a new copier, or hire a new hygienist? Below are some basic things to think about before you make decisions within your practice.

  • Back End Costs. Remember to factor in regular maintenance and usage costs for the things you buy. For example, buying a new copier might be a good idea for your practice, but you need to factor in all the additional costs to own this new copier. The ink and paper might cost more, meaning that instead of budgeting $50 per month on ink, toner, and paper, you are now spending $75. The cost to run and upkeep equipment is a long-term cost you need to account for.
  • “Me Too” Costs. If you have multiple employees be aware of “me too” costs you may encounter. This happens when one employee needs a new piece of equipment, for example, a new computer. Suddenly, your other employees are expecting the same upgrade, and you have to decide whether everyone needs an upgrade, or just wants what the first employee got.

Managing Employees

If you’re feeling anxious about managing employees, you are not alone! How do you motivate your team and create the type of atmosphere you want to work in? Many dentists find a morning meeting helpful so they can talk through the day, what patients are coming in, and any issues that have come up. Here are a few more tips for managing your employees well.

  • Create a Vision Statement. You surely have a vision for your practice. You know how you want it to run, the atmosphere you want to create, and the types of patients you want to attract before you even go looking for a general dental practice for sale. Create a vision statement and share this vision with your employees so they can help you create the practice you have worked so hard for.
  • Employee Motivation. Take the time to get to know your employees and find out how to motivate them. This will be different for everyone. Some employees thrive with words of affirmation while others desire additional training. If you can motivate your employees, your practice will reap the benefits.

A Successful 5-Year Plan

What will your life look like after you open your new practice? Do not make the mistake of thinking that buying a general dental practice for sale rather than building your practice from scratch means you can enjoy a large revenue stream immediately. You have paid for an established practice, but you still need to run the practice wisely and work to retain patients. Following this general 5-year plan will help you set realistic expectations for growing your business into a lasting venture.

Year 1 – Use this year to learn how to manage costs and create an atmosphere at your practice. You may not be building revenue as quickly as you want, but keeping costs down and finding a good rhythm will set you up for future success. Try to build value into your practice rather than getting as many new patients in the door as possible. When your patients value the work you do, they will come back and refer their friends.

Year 2 – When you’re comfortable with how your office runs you can start building revenue. Find out how many patients you can see in one day. Advertise or offer patient referral incentives. Building revenue slowly will help you and your staff adjust and learn without feeling overwhelmed. Remember you are running a marathon not a sprint.

Years 3-5 – After two years running your practice you will learn how to anticipate your overhead costs. Take a look around and decide what to invest in next. Do you need to buy new equipment? Should you hire a new hygienist? Find out the rate of return for any staff you hire or equipment you buy before you move forward with these decisions.

During the first five years of your dental practice, surround yourself with trustworthy advisors. Finding an attorney, financial advisor, and other experts who you trust to give you advice will help you with any difficult decisions you could face in the future.

How to Find a General Dental Practice for Sale

When you’re ready to make a transition in your career, whether it is buying a general dental practice, or selling your practice, call ddsmatch Southwest. Our team makes the transition seamless by matching buyers and sellers for the best possible outcome. For more information set up a consultation today.

Buying a Dental Practice Made Easy

If you’re in the market to buy a dental practice, you may be wondering “where do I start?” Dentists don’t put “For Sale” signs in their front window, so how can you know which practices are for sale, how much they cost, and what the transition process will be like? Finding an excellent broker like ddsmatch Southwest is the first place to start. Buying a dental practice is much easier when you can use expert advice to narrow down your search. If you’re starting out and not sure what you’re looking for, read our tips below for an easier buying experience.

What Type of Practice are You Looking For?

You need to consider what type of practice you are looking for before buying a dental practice.  Are you looking as an individual buyer, to buy into a partnership, or simply transition into a new practice as an associate? Whatever situation you are in ddsmatch Southwest can help you find the perfect fit. Here are some other things to keep in mind as you look at different dental offices.

  • Specialty. Do you have a specialty? Your transition will be easier, and you will retain more patients if you buy within your specialty.
  • Insurance. Consider insurance types and how they will affect your dental practice. Whether you process payments as a Fee For Service, PPO, HMO, or Medicaid your business model is important and could determine who your clients are. If you are taking over an existing practice and plan to change how your patients pay for services, you may lose patients up front.
  • Atmosphere. Each dental practice has its own atmosphere. The personality of the current owner and his or her staff will greatly affect the feel of the office, how well it flows, and what patients it attracts.

Where Do You Want to Live After Buying a Dental Practice?

Big city or small town? Urban area or suburbs? You probably have an idea of the general area you want to buy a dental practice in, but try narrowing down your search based on the following criteria:

  • Personal Residence: if you already own a home, or are planning on buying one, consider the commute you would be comfortable with. Owning a home one hour away from your practice means you could be in for a lot of time in the car, or moving your family closer to your practice.
  • Lifestyle: if you want to keep your commute to a minimum consider the amenities you want around you. Do you like living in a rural area or do you want to be close to new restaurants and concert venues? If you have kids or plan on having kids, do you want to be in a good school district? Buying a dental practice is not something you will fo often, so it will benefit you and your family to think ahead.
  • Expansion Opportunity: if you think you may want to expand your offices to two or more locations, start thinking about that now. Buying a practice in a small town may limit your options for expansion.

How Much Financing Do You Qualify For?

Just like buying a car or a house you are limited by financing when you buy a dental practice. Find out how much you can afford to spend and that will help narrow down your search. How are dental practices valued? Dental Economics has an excellent blog post explaining the basics. Our team at ddsmatch Southwest offers dental practice valuations conducted by a top-rated third-party accounting firm. In addition to this practice valuation, we also offer a “clinical appraisal” through Dr. Charles Blair’s “Clinical Treatment Analysis Report.” To perform your due diligence as a buyer, you must not skip this report.

Transition Process

When you are buying a dental practice, one key thing to keep in mind is how you will transition into your new role. This is different for each doctor, associate, and staff member. For instance, the doctor who is transitioning out of the practice may stay on as an associate after the buyer takes over so they can help with the transition. Other doctors decide to leave as soon as the papers are signed. Each type of transition has pros and cons that you should think through before beginning your purchase. When you work with the expert team at ddsmatch Southwest, you will benefit from our Trusted Transition Process™.  A clearly communicated transition process is the key to a lasting dental practice.

Buying a Dental Practice is Easier With Expert Help

Whether you are looking to buy your own practice or join another as an associate, ddsmatch Southwest has the tools you need to find your perfect match. We will consider your skills, location, long-term goals, and professional needs and present you with a confidential list of sellers to consider. Buying a dental practice doesn’t have to be an arduous task, and when you trust the experienced team at ddsmatch Southwest, it will be a breeze. If you are in the market to buy a dental practice in Texas or New Mexico, give us a call today to set up a consultation.

Financing for Buying or Selling a Dental Practice

Whether you’re looking for financing for one or multiple dental practices or looking to transition into retirement and sell your practice, it’s crucial to have your financial package organized and ready for presentation. However, finding lending if you’re interested in opening up more than one practice will require more documents as proof that your business is and will continue to be a profitable one. If you’re buying or selling a dental practice, there are many variables to take into consideration and many questions to ask when shopping for lending.

Questions to Ask Lenders

The first and most important question to ask is “do you finance multiple practices?” Institutions should be able to give you a firm yes or no. Most institutions do finance multiple dental practices, but research shows that lenders providing this type of service may ask for more requirements and collateral if opening multiple practices.

There are different types of loans associated with dental practices, including SBA loans and alternative lenders, so you need to inquire about which type of loan serves you best. SBA loans tend to be more popular among dentists as the interest rate is lower than alternative loans and the term is longer. However, if you need lending quickly, alternative loans may be the right option for you. Consider that alternative loans have a shorter payback period and typically only loan up to $500K. Depending on your credit history, ask if your lender requires collateral. They may use a house, car, assets or equity to help qualify you. Ask whether the interest on your loan is simple or compound. Laid out simply, compound interest compounds on the outstanding balance and any interest accrued. This means your interest can change month to month. Simple interest is interest at a fixed rate, payment, and term. Whether you’re just starting out or thinking about selling a dental practice after 30 years of being in business, simple interest should always stay the same.

What Lenders May Ask if Lending for Multiple Dental Practices

The more practices you have, the more difficult it may be to find funding. When approaching a lender, make sure you have a clear vision of what you plan to accomplish. Take into consideration if you plan to own five practices, ten practices, or a larger number which would require a lot of infrastructures.

Lenders will only agree to give you a loan if you can prove that your business is currently profitable or has all its “ducks in a row” giving it a promising head start. And of course, based on credit history. Lenders can inquire as to the specific locations of the practices, so they can geographically see if it’s possible for a dentist to commute to all of his or her locations regularly. They may also inquire as to the amount of cash on hand. This could become beneficial in planning and emergency situations. Laying out a detailed business and marketing plan helps lenders see where the funds are going.

If you envision a large network, hiring a CEO and CFO will be needed to keep track of all credits, debts, invoices, and cash flow. If you intend on selling a dental practice down the road, having people in these executive positions will help you understand how much your practice is worth. The larger your practice, the more employees and organization you will need. Lenders can and will put a hold on funds to expand if you cannot prove that your practice is under sound fiscal control. Some lenders may put a limit on the number of practices you can open and own under your loan portfolio, while others may specify a dollar amount of the maximum debt you can incur.

Factors to Consider When Starting or Expanding your Dental Practice

When looking to start or expand your dental practice, consider the following costs:

  • Rent of new location
  • Utilities
  • Staff salaries
  • Dental supplies and lab equipment (if acquiring from someone selling a dental practice, equipment may be outdated and in need of replacement)
  • Office supplies
  • Marketing and Advertising Costs
  • Expanding your Insurance Coverage
  • Business License
  • Remodeling costs

In addition to costs, consider the time frame that you need the loan. Alternative loans provide quick funding. SBA Loans are known for taking weeks or months.

Making a Smooth Transition when Selling a Dental Practice

Whether you’re the seller or the buyer, you want to make certain that the sale doesn’t negatively affect your staff and patients. With over 25 years of experience, ddsmatch Southwest has a proven process that uses technology to reach a wide range of vetted buyers and long-standing relationships with 3rd party valuation analysts and dental industry experts to make certain your practice is priced fairly and competitively.

Transitioning or selling a dental practice requires careful planning and preparation. Leave it to the professionals at ddsmatch Southwest to ensure everything is handled safely and that the future is promising for everyone involved. Call us today.

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