Tips for a Successful Dental Practice: Read Before Buying a Dental Practice

As you know, not all dental practices are equal. What makes one successful and another not? In this post, we address some general principles to help you understand what you can do to ensure the success of your practice. It’s best if you can understand these principles before buying a dental practice, but they can be of use to you no matter where you are at in your career. 

If all it took to make a dental practice successful was an adequate set of clinical skills and competency, then everyone would be on an even playing field. This is, however, not the case. There are factors outside of the quality of care your training and experience can provide. Perhaps the three of the most important factors are: 

  • Technology: Staying current with dental technology matters. First, it provides your patients with a better experience. Patients respond positively to things like digital imaging and quieter handpieces. Second, it makes you more efficient. The new equipment can cut down your time in procedures, allowing you and your hygienists to increase your production per hour.
  • Business acumen: While you got into dentistry to provide quality care, you can’t accomplish that goal if you can’t stay competitive. Organizing your office in a way to maximize your efficiencies, give quality customer service, and reducing overhead will make sure your practice provides that high quality of care to as many patients as possible.
  • Identity: There is no other dentist like you. Sure, there are dentists that will offer the same services with the same equipment in similar environments. But there is one variable: the doctor. What is it that sets you apart from the other doctors in your area? What, in essence, is your brand? This is what you have that will make you stand out. If you can, it’s best to have identified this before buying a dental practice so you can build your practice around it from day one. 

A Good Doctor Has Good Communication Skills

Everything we do communicates something, whether we mean it to or not. This is why it matters where your office is located, how it appears to new patients, what your signs look like, and where and how you advertise. These are the “first impressions” you give to new patients. And it continues when they walk through the door. Is your waiting room comfortable, clean, and inviting? What is the demeanor of your front desk staff? You want all of this to communicate that your patients are in a caring environment where their interests are being heard and addressed.

Consider how you interact with your patients. Do you actively listen? Active listening means that you closely observe your patients, hearing their words and watching their body language. By paying close attention, you’ll learn more about what they are thinking and feeling, making you better able to understand and respond. Patients who feel seen and heard will appreciate the attentiveness.

Compare active listening to an experience where you were speaking to someone and they were engaged in other tasks, waiting for you to finish talking so they could move on, or, worse, showing disdain for what you were saying. This isn’t someone you want to speak to again. And it wouldn’t be a dentist your patients will want to return to.

If you don’t have these skills, work on them. If you already have a practice, be sure to incorporate these skills and encourage your staff to do the same.

Implement a Management System

Fortunately for you, you’re not the first to run a dental office. It’s been done before and done well. If you’ve had experience working in other offices, consider what worked well and why (and what didn’t and why). If you are buying a dental practice, look closely at how its managed and whether that seems to be working. You don’t need to have all the answers on day one, but you do need to be thinking about things like division of labor among employees, patient flow from making an appointment through checking out after treatment, how to address and resolve employee issues, keeping inventory, and so on.

Some dentists like to be involved in every aspect of practice management. Some prefer to delegate to an office manager. Whichever works for you is fine, but, remember, at the end of the day, it’s your practice so it’s your responsibility. If you have a manager, keep in close communication with them to be aware of what’s happening. 

Create and Use an Online Presence

More and more, our communication is becoming electronic. When people want to know about a dental office, they’ll look at the website, read Google reviews, check out their Facebook page. These are all opportunities for you to communicate what you are and, perhaps more than you think, interact with your patients. 

You can create a patient portal on your website where patients can schedule appointments, see their records or results, and message with you and your staff. Make sure that someone in your office is checking for messages submitted through your website or any of your social media channels and promptly responding. 

Use your website, Facebook page, and social media channels to highlight what sets your practice apart. Highlight your services and products and your staff members. Have a page with your picture and bio, include a little personal information. Let your patients know you are a real person, not just a doctor behind a mask. 

For more on how to use social media to promote your practice, check out our article on this topic.

Have a Marketing Plan

It’s not enough to put up a sign, pay for advertising on the local baseball diamond’s back fence, and sponsor a float in your town’s Fourth of July parade (although you should do all of those things). Marketing requires a strategic effort in which you consider what patients you want to attract and how to best communicate with them. What works will vary from market to market, however, in the 21st century, this is increasingly electronic. This means the online efforts described above along with email and coordinated social media efforts. For more on this, check out our recent post on marketing.

Pay Attention to the Details

There are a million details to keep track of and instead of listing them all, we’ll discuss an example: inventory. Who is in charge of inventory? Who is tracking use of supplies, what is remaining, what needs to be ordered, and how soon? Do you know how quickly you go through your supplies, meaning, do you know when you need to reorder so you don’t run out? You don’t want to find out the answer to that question when you are in the middle of a procedure and it’s too late. Carefully consider the details required to have a smooth running day in the office, make a list, and then think through how those details are managed in your office. Look for where you can be more efficient.

Consider a Flexible Financial Options

This one might not work for every practice, but, if you are considering buying a dental practice, you should think carefully about the pros and cons of flexible financial options.

One thing is that not every office offers these options. That is something that can set you apart. Another thing is that the flexibility gives patients a reason to accept treatment. The more reasons they have to accept, the more frequently they will accept. It encourages patients to accept more expensive treatment plans that they otherwise wouldn’t be able to afford. This means you get to capture those patient’s business and they get the care they need. 

Remember what we said in the beginning: a major factor in your success will be dependent on what sets you apart. Your unique qualities—as both a person and a doctor—should be baked into your practice’s brand. You are giving your patients a reason to choose you. Most likely there are other doctors in your area that offer the same services and products with a comparable level of skill and experience. It’s your unique personality and perspective that will set you apart. It will resonate with patients. Leverage it.

Considering Buying a Dental Practice?

If you are considering buying a dental practice in Texas or New Mexico, ddsmatch Southwest has practices available. Review our listings here. At ddsmatch, we believe a good match is one where both doctors walk away happy with the deal. We work closely with our seller clients and potential buyers to find the right doctor to build on the success of our clients. If you are interested in any listings you see on our site or would like more information, contact us today—it starts with a conversation.

Good Hires Build Value When Selling a Dental Practice

One of the most valuable assets of a successful dental practice is its employees. Whether they are front desk personnel, office managers, hygienists, or assistants, a staff member that is responsible, attentive to detail, good with patients, has the ability to listen and learn, and looks for ways to improve office practice or policy is worth much more than what they may represent in terms of production or collections. They are invaluable. In addition to making your practice more successful (and your life much easier), they are part of what will ensure your legacy and reassure your patients when it comes to selling a dental practice.

The question is, how do you hire good people? It’s a difficult question to answer, however, one method is to hire smart people with the intangibles you need and then train them in whatever technical skills they may lack. That is, you look for attributes as much as specific skills. For instance, you may be accustomed to posting want ads that are a list of skills, including a working knowledge of your equipment or software, thinking that you don’t have the time, or need the bother, of training a new hire on how to use it. And, true, it will take some time. Consider, however, how much longer it will take—if it’s even possible—on how to teach a new hire appropriate interpersonal skills. Or how to think critically. Or how to understand their role in a team environment. Which would you rather do?

There is no harm in requesting preferences in terms of these skills, such as “proficiency in Acme Software preferred.” But if you make it a requirement, you may be weeding out the best candidate before you’ve even posted the ad. Honestly, if a smart and capable person can learn one software program, or machine, they can learn another. And a few months down the road, you’ll find yourself with an employee that you appreciate and contributes to your practice, as opposed to one who requires less up-front training but may end up creating problems with their personality.

What Qualities Do You Really Want from an Employee?

The first thing you have to determine is what is it that you are looking for. Some of this may be applicable to any dental practice. Good dental office employees often are positive people with upbeat personalities. Let’s be frank, many people dread the dentist and a friendly smile and helpful attitude can go a long way to helping your patients feel comfortable. This kind of employee is often calm, kind, friendly, and wants to help the patient feel comfortable and cared for. In short, these employees are putting patients’ needs first.

Beyond that, however, you need to ask yourself what are your practice’s core values? What is your practice’s identity? What is its image? What do you want to communicate to your patients, and the community you serve, about who you are as a care provider? The answers to these questions will further illuminate the qualities you should look for in your hires.

Having a strong sense of you practice philosophy will be a great aide to you throughout your career. It will help guide how you market your practice, how you grow your practice, and, when it comes to selling a dental practice, which doctor is the right doctor to sell to— one who reflects your practice’s values and will mesh well with the legacy you have built. 

Essential Attributes

The Ability to Learn

A person who believes they already know everything they need to know will always be at a disadvantage to one who is open to being taught. This applies to everyone, even dentists. An assistant who is open and willing to learn new technologies and techniques will be a much better addition to your practice than one who assumes that how they’ve always done things is simply good enough.

While this might seem simple enough, many people are made uncomfortable by new information or methods. They may see it as a challenge to their abilities or value as an employee. Instead, you want employees who are comfortable with opportunities to expand their knowledge and skill set, who will see it as a chance to make themselves better prepared and more capable at doing their job.

Instrumental to this, however, is that your employees understand how they fit into your organization. That is, they can see how all of the parts mesh, working together for the efficiency and success of the organization. You and all of your staff members should be able to see themselves as parts of a whole, each benefiting the others, not as individuals whose interests are at odds with one another.

The Ability to Listen

The ability to listen within a clinical context takes two forms: the ability to listen to patients and the ability to listen to coworkers. 

You need your patients to feel calm. In order to feel calm, they must feel comfortable. To feel comfortable, they need to feel that they are in a friendly and safe pace. This is done when they feel that they are seen as individuals whose concerns are being heard and addressed. And for them to feel heard, they must be listened to.

Also, remember that your patients may not be expressing themselves directly. Sometimes it’s in the idle chit-chat that they reveal themselves. So, when your patients are talking, be sure that your staff is listening. When your patients feel heard, they’ll feel cared for. 

Additionally, you need staff members that listen to each other. If there are problems in the office (and there will be problems), you need staff members who can communicate openly about the issue and work together to resolve it. Many disputes between co-workers originate and escalate when they view each other as rivals. This means they are not talking or listening to each other, but advancing personal goals. As much as your patients, your employees need to feel that their workplace is one that is calm, comfortable, that values them and their contributions, and where they can also be seen as individuals. An office that functions this way will also be highly attractive to potential buyers when it comes to selling a dental practice.

The Ability to Present Cases

The attributes discussed above lend themselves well to case presentation. This is important, however, because it’s more likely that your assistants, hygienists, or administrative personnel will be regarded as a confidant than you, as the doctor. 

There is no question that what you are prescribing is the best course of treatment for your patients’ needs. Patients, though, may be skeptical about whether there is a difference between what they need and what you may want to earn. This is simply a reality of the dental business.  

When you have employees that communicate well with your patients, actively listening to and understanding their concerns, they are well positioned to back you up on treatment plans. They can reinforce the importance of the care being provided, reassuring the patients that its in their best interests. An ability to hear what is on the patient’s mind and respond, both with empathy toward the patient and an understanding of why the treatment plan is important, is an essential attribute. 

ddsmatch Southwest Can Help With Selling a Dental Practice

Protecting your legacy is important to us when it comes to selling a dental practice. That means finding the right match to reflect the values you’ve built your practice around. To find out more about how we can help you find the right buyer, contact us today.

Prepare to Buy a Dental Practice for Sale: First Steps

At ddsmatch Southwest, we are dental practice transition specialists who focus on matching the right buyer for doctors who have placed a dental practice for sale in Texas or New Mexico. We believe that the right match is important because a successful practice transition is one where the practice continues to thrive, protecting the legacy of the selling doctor and providing the buying doctor with a solid foundation on which to build their own legacy. Because of this, we believe it is important for the buyers in the practice transitions we facilitate to be well prepared and well informed, with everything they need to have confidence in both the practice they are buying and the fairness of the transaction. 

To this end, we will be posting a short series of articles about how to best be prepared to purchase a dental practice for sale in Texas or New Mexico. In this article, we will provide a brief overview of the first steps of the dental practice transition process, from the buyers point of view, and some general principles to keep in mind. 

Assemble a Team of Advisors

After you have decided the time is right for you to buy a dental practice, and have an idea of where you would like that practice to be, you should identify and retain a small group of trusted advisors to counsel you through the process. This should include, at least, a dental CPA, a dental attorney, and a banker with experience lending for dental practice purchases. You may also want your own dental practice broker.

You may wonder why you can’t use your family member who is a respected attorney or a friend who is a CPA. While these types of contacts may be great for general purposes, you need advisors who understand the particulars of dental practices and the accounting and legal issues that are unique to your industry. You don’t want something important overlooked because your CPA didn’t recognize its significance. And you don’t want to pay an attorney’s hourly rate while they get themselves up to speed on an issue. You’ll save money and time by retaining specialists with experience.

Before you get anything but the most cursory information about a dental practice for sale, you will be required to sign a non-disclosure agreement. This agreement will protect your personal and financial information, as well as the selling doctor’s, and will protect the dental practice from staff and patient concerns if knowledge of a transition is leaked too soon. It’s a good idea to have your own dental broker or attorney to help you review and understand the agreement.

Have a Realistic Idea of What You Can Afford (and Need the Practice to Earn)

In 2018, the average dental student graduated with over $285,000 of student loan debt. When you are buying a dental practice, you have to consider both what you can afford to buy and what you are going to need to earn to cover the practice’s expenses, pay off the practice loan, keep paying on your student loans, and still have enough for your personal expenses and savings.

Depending on the practice, you may need some operating capital to keep things going in the early days after the transition. You may also need to compensate the selling dentist if you both agree it will be mutually advantageous to keep the doctor on for a period. A dental CPA and a dental practice broker can help you better understand how to look at a dental practice for sale and see its potential—or its problems. A banker with dental practice experience can also discuss with you how much you might expect to be lent for the practices you are considering.

Know the Value of the Existing Dental Practice Staff

When you are buying a dental practice, you are also getting the existing employees: hygienists, billing staff, receptions, etc. Although you will be the doctor, they are the ones that really know the patients and how the practice runs. Their institutional knowledge will be invaluable to you, both during and after the transition, to keep the operation running smoothly and help the patients feel comfortable with you, the new doctor. It is imperative to show them respect to help the transition be as smooth as possible. It’s a big change for them as well!

See It for Yourself

Every dental practice is different. You won’t really know what the practice is like until you can experience it in person. You also will want to look closely at details indicating the health of the practice: how many patients have visited the office over the past 18 months, whether the practice is appropriately staffed, patient flow, and cash flow. Those last two items, in particular, can show you whether a practice is growing, stable or shrinking. If the practice is underperforming, there may be some untapped opportunities for growth.

Look Closely at the Practice’s Financials

The asking price may not reflect the actual value. Many people tend to overvalue their assets because of their emotional attachment to them. Dentists are no different. The price of a dental dental practice for sale in Texas or New Mexico should be a reflection of its value based on sound accounting and valuation methods, not a reflection of what a doctor has put into the practice. Have your team of trusted advisors review the financial information with you to help you understand what it really says about the practice and whether its in line with what a business of its type should be doing.

Understand What Is and Isn’t Part of the Deal

If a selling doctor is asking $750,000 for a practice, you need to understand what you get for that amount. That may not include the equipment. It probably won’t include the accounts receivable. If the doctor owns the building, and you want the building as part of the deal, that can be a separate transaction and will definitely be a cost in addition to the practice sale price. If you have to purchase a lease, that will also have to be negotiated.

The selling price is a good place to start, though. If you and the selling doctor can reach an agreement on the sale price, usually negotiations on the other aspects will be smoother as both parties are motivated to complete the deal.

Be Wary of Owner Financing

Simply stated, a bank is more objective. Banks certainly have an interest in the money they lend—they want it back with a return on that investment. But this means they will perform a thorough due diligence relying on independently verifiable information. In a seller-financed deal, the seller is less likely to have a third-party valuation of the practice and asking price. They are likely looking to finance their retirement out of the sale and want to capture the interest as well as the principle. This can result in them trying to get a certain number rather than the true value of the practice. 

Consider the Value of the Seller Staying On After the Transition

It is common for the selling doctor to remain working in the practice for a period after the transition. This can be useful for helping to ease the transition for the patients, the staff, and the new doctor. It can be an attractive option for a doctor who is not ready to fully retire but wants to be rid of the business responsibilities and just focus on patient care, perhaps with reduced hours, before fully stepping away. Occasionally, however, it can indicate a seller who wants to have their cake and eat it too: sell the practice but not really have to give it up. Discuss this with your advisors. But be wary of a doctor who is proposing a period in terms of years, rather than weeks or a few months.

We Have Available Dental Practices for Sale in Texas and New Mexico

As stated, as ddsmatch Southwest, we focus on finding the right buyer for dental practices we have available for sale in Texas and New Mexico. If you are ready to make your move into practice ownership, check out our listings. If you see any your are interested in, or have any questions, please contact us— it starts with a conversation.

What You Need to Know About Buying a Dental Office for Sale

A young doctor, on the cusp of their career, is full of hope for what lies ahead. But there can be apprehension as well. For many, ownership of one’s own practice is the goal. Many have done it, so it is certainly not out of reach. If you’ve not had experience with dental practice transitions, however, the process of buying a dental office for sale can seem difficult, complicated, and risky.

We’re not going to lie to you and say that is not complex. And there is certainly risk involved, as with most things in life. But with a little bit of information, and the right support team in your corner, it can be much simpler than it seems.

Here at ddsmatch Southwest, we are dental practice transition specialists. To help quell any fears, we’ll provide a short overview of why it can be a smart move to buy an existing dental practice rather than starting one from the ground up, and then we’ll give you some information that will help you get started. When you are ready to make your move, we have several dental offices for sale in Texas and New Mexico.

Why Buy an Existing Dental Practice: Built-in Patient Base = Built in Cash Flow

While this is far from being the only advantage, it is certainly the most significant one. You have a stream of income from day one that you will need to cover the debt you incurred to buy the dental practice, your dental school loans, the practice overhead costs, and your personal expenses. If you start a new practice, you’ll have those same expenses but will have to cover it all with your practice loan until your new practice can cover its own costs. That is to say, most often, an existing practice will get you closer to where you want to be earning—and paying off those loans—much faster.

Don’t Try and Buy a Practice on Your Own

As stated above, dental practice transitions can be quite complicated. Fortunately, however, you are not expected to be an expert at anything other than dental care. You don’t need to be a financial expert, a legal expert, a business valuator, or a practice transition specialist. You can—and most definitely should—hire those people. This investment is the foundation of your career and will be the financial bedrock you build the rest of your life on. Do not cut corners or proceed blindly. The money you spend on trusted, qualified advisors will be well worth it in the end.

You should think carefully about hiring the following types of advisors:

  • Dental Practice Transition Specialist. Some doctors will try and put their dental office for sale on their own. Going through a broker or specialist, however, has many advantages. Typically, in dental practice transitions, the broker represents the seller. This, however, doesn’t mean that you, as the buyer, should be wary of them. Any one with a good reputation understands that their job is to try and get a mutually beneficial outcome for both the buyer and seller. This means a responsible broker has vetted the listing, done an appraisal, and set a fair market price; and the broker is looking for the right buyer—one who’s experience, goals, and personality are a good match for the practice. A successful dental practice transition is one where everyone walks away happy. Plus, someday you will want to sell your dental practice and you will need a broker then. Smart brokers understand this.
  • Dental CPA. Even if you already have an accountant you like, you will be best served by one with extensive dental practice experience. A good rule of thumb is to find one with a minimum of 25 other dental clients. There are a number of financial issues, especially regarding the buying or selling of a dental practice, that are unique to the industry, such as the tax ramifications of how the practice assets are allocated, costs analysis on hiring and equipment purchases, expense averages, and other best practices they’ve learned from serving their dental clients. Finding a dental CPA you can trust and work with now can result in a lifelong professional relationship.
  • Dental attorney. This person can act as your representative in the deal, as the seller is already represented by the practice transition specialist. You are better off with a specialist as there are issues specific to the industry that you’ll need advise on. These include the terms of the buy/sell agreement, office lease negotiations, non-compete covenants, establishing your corporation, and lender requirements. Because this is a niche service, local dental-specific attorneys will have a reputation among doctors in the community and may offer their advice at a package price (avoiding billable attorney hours which get very expensive, very fast).
  • Dental lending specialist. You may have heard that banks like to lend to dentists to buy practices. Generally speaking, it’s a good investment for banks and most banks know this. But dental practice loans aren’t like other small business loans. A lender who doesn’t understand the industry may not know how dental practices are valued, with the intangible “goodwill” of the practice often being 75% or more of the value of the practice. To a typical banker, this could look like a bad deal, as the tangible assets are far, far less than the requested loan amount. This could mean that you get the loan but with less favorable terms (shorter term, less flexibility to grow, etc.)

By working with these specialists, you are buying knowledge and experience to help navigate the complexity of the deal without having to become an expert yourself or stumbling blindly into a thicket of legal and accounting issues. With a good team in your corner, you can rest assure that your interests are being protected.

Risks of Buying a Dental Practice

Nothing in life is risk free, especially nothing really worth doing. Risk is not to be feared but to be intelligently assessed in order to make an informed decision. Here are some things you should think about both before and while considering existing dental offices for sale.

  • The practice is built on someone else’s personality and philosophy. The selling doctor built up their practice the way they wanted their practice to be. This includes everything from equipment to furniture to staff (hiring, training, supervising, or lack thereof) to patient flow and so on. We’ll discuss this more below, but consider carefully whether the practice is one that you can fit in to. You can make changes as you go, but for the practice to maintain the level of success it has at the time you buy it, you need to be able to keep it running smoothly.
  • You will lose patients during the transition. While the fears of patient attrition in dental practice transitions can be overstated, the fact is that some patients will leave. How many and how quickly depends on how you manage the transition with the selling doctor. The seller’s broker, the person with the most experience in this area, can be an invaluable tool in helping guide this part of the transition.
  • Staff may be overpaid, undertrained, disloyal, or all three. It is generally to your advantage to keep staff on at their same level of compensation for at least 90 to 180 days. That said, you can only control what you do. Some staff may choose to leave on their own. However, changing faces in the office or disgruntled employees can have as much, if not more, of an impact on patient retention as the change in doctor. After all, patients begin and end their experience in the office with the front desk staff and often spend more time interacting with hygienists and administrative personnel than the doctor.
  • Equipment and office decor may need to be updated. This can be expensive, so look carefully at how the office is furnished and equipped. Determine if there is an effective office management software system. If you need to make any of these upgrades, you’ll want that provided for in your loan.

Do Your Due Diligence

While the seller’s broker will have done work on their end to evaluate and value the practice, you should still have your own consultant analyze the staff, the systems, and perform a complete chart audit/patient count to make sure you are buying what you think you are. This person can also help you post-sale with concerns regarding staffing (hiring and firing), and customizing the practice to shape it the way you want it to be, without doing too much too soon or in a haphazard manner.  In addition to the practical aspects of the practice, you also want to consider with any dental office for sale the following questions:

  • Does this practice match your professional vision, and will it continue to for years to come?
  • Do you and the seller practice the same quality of care?
  • Is the practice’s type of dentistry align with your vision? Is the practice fee-for-service?
  • What percentage of the practice capitation?
  • What is the percentage of PPO patients?
  • What is the ratio of cosmetic or restorative dentistry versus hygiene? How much business is referred out to specialists?
  • Can you perform the specialty care if it has been kept in house?
  • Knowledge is power, and the more you know about this big investment, the better.

Bring Change Slowly

Despite all of this talk about how you are buying not just the office, but the staff, systems, and philosophy of the selling dentist, that does not mean you are locked into any of those things. Once the practice is yours, it’s yours. You should plan on making it into the kind of dental practice that you want it to be—one that will support your vision for your career.

The key is that the changes you make should be done with deliberation. That means after careful consideration and in due time. Make sure you understand how every part of the office works, and why it was set up that way, before you start making changes. There is a lot of history there and that can include a lot of information you don’t yet know. You have time, so be careful and be patient.

ddsmatch Southwest has Quality Dental Offices for Sale Throughout Texas and New Mexico

If you are looking for a dental office for sale in Texas or New Mexico, check out our current listings. And, as dental practice transition specialists, we have the experience of hundreds of successful dental practice transitions from all across the country to draw on to help match the right buyer with our sellers for a mutually beneficial outcome. If you have questions about our available dental practices or want more information, please contact us today.

Should I Buy the Building when Buying a Dental Practice?

One of the most common questions about buying a dental practice is whether to buy or lease the space. And, as with many things in life, the answer is: it depends. It depends on the real estate market where you are looking to practice, whether the practice space is owned by the selling doctor or not, your plans for growing the practice, whether you foresee moving the practice, whether you want to deal with the additional responsibilities of real estate management, what kinds of risk you are comfortable with, just to name of few considerations.

Most advisors will say you should always buy. Some will say you never should. The fact is, that there is no consistent rule. Some doctors have bought their property and lost their shirts when the property devalued. Some doctors have built lucrative practices in leased space. So, ultimately, the question is really what will be best for you and your practice. Below we discuss some of the factors you should think about.

Return on Investment

When you lease, you are paying for someone else’s investment. When you buy, you are paying for your own. When you lease, your monthly payments will increase over time. If you are buying with a fixed-rate mortgage, your monthly payments will stay the same (unless you refinance or there are other loan terms that impact the payments). If you lease, you will pay rent every month until you someone else buys your dental practice. If you buy, depending on where you are at in your career, you may pay off the building and own it outright.

Conversely, when you lease, your landlord is responsible for maintenance and upkeep. When you buy, these are your expenses. When you lease, you have more flexibility to relocate if you need to expand beyond the available space or there are other reasons to move. When you buy, it’s much harder to relocate and cannot be done as quickly. When you lease, you are insulated from the factors that cause property values to drop. When you own, you take the brunt of any economic downturn.

If you choose to acquire real estate as part of buying a dental practice, you have the option of thinking beyond the needs of your practice. If your practice requires 2,500 square feet but are looking to expand, you can buy a 10,000 square foot building, divide it in half, and rent the other 5,000 square feet to another tenant or two or three. This creates an income stream separate from your practice. But it does mean increased costs in terms of managing the space, dealing with tenants, complaints, and repairs.

Also, when you decide, “it’s time to sell my dental practice,” you can choose to sell or keep the real estate, either getting the equity out of the building or an ongoing income stream as part of your retirement plan.

In the end, however, a lot of this comes down to whether you want the risk and responsibility of real estatement ownership.

Control Over the Property

For an entrepreneurial doctor who is buying a dental practice, buying the building (or constructing a new building) can have some real advantages. First, it gives you much more control over your brand, which is a significant asset. You can make the property look how you want. You get to choose your signage. And you get to choose who you share the property with, if there is space for other tenants. These things can add significant value in unexpected ways.

If you lease space in a medical plaza, you might get your name on small sign along with all of the other tenants. You also might not get a sign at all. If you are in a retail space, you might get a sign over your entrance. Or you might not. And you have no control over who is in the spaces around you. If the property is not managed well, you could end up with questionable business as neighbors, or in a space that has high turnover and frequent vacancies. None of these are good for your brand.

By owning the building you can do something such as install a highly visible LED sign at the street. While this can be a significant outlay, you need to consider what you are buying. If you pay, for instance, $17,000 on a sign, assuming you get ten years out of it, that works out to $1,700 per year for 24-hour a day advertising visible to every person who walks or drives past. Some dentists have reported that these kinds of signs have, on their own, increased their business—simply by being there.

Additionally, if you have space to lease out, you get to choose which kinds of business you rent to. There are opportunities for cross-promotion and strategic partnerships. If, for instance, you have pediatric dental practice, you can look for business that also cater to families and children. If you present the opportunity for cross-promotion (having marketing materials in each other’s locations, splitting costs on advertising, etc.) and the exposure from foot traffic, you can end up with a tenant who feels more like a partner and may be willing to pay over market value for the benefits.

It May Pay to Lease when Buying a Dental Practice

If you are a young doctor at the beginning of your career, you may have ambitions beyond those that the selling doctor had realized. If you see room for growth in your new practice, it might make more sense to start out with a lease, with an eye toward buying or building your own space later on.

It wouldn’t make a lot of sense to buy a dental practice and immediately move its location. The move, along with the change in doctor, could have a negative impact on your patient retention (especially if the landlord ends up leasing to another dentist). Also, the perfect space that you envision might not yet be feasible for the practice. Under these circumstances, you may be better off leasing for the first few years as you establish yourself in the practice—and in the community—and put your effort into planning how to expand and and working toward that goal. Then, when you’re outgrowing your present space, you can begin looking at buying or building a new space.

Another reason to consider leasing is the real estate market in the area you are buying a dental practice. If you are in a dense urban area, property values may be so high that buying real estate is not feasible. Also, if you are in a market where real estate costs are peaking, that’s a bad time to buy, as the market will inevitably correct itself. And while real estate tends to appreciate over time, you don’t want to be the one who bought right before the crash.

Tax and Balance Sheet Implications of Leasing versus Buying

Whether you buy or lease space, either can have a positive impact on your tax liability, but in different ways. Lease payments are generally deductible as an ordinary business expense, however, deduction limits may apply. On a balance sheet, however, lease obligations will appear as liabilities (similar to equipment or other assets that you would finance with a traditional bank loan).

When you buy property, on the other had, Section 179 expensing (referring to the tax code section that allows a taxpayer to elect to deduct the cost of certain types of property on their income taxes as an expense rather than requiring the cost of the property to be capitalized and depreciated) and first-year bonus depreciation can provide a significant tax savings for the first year the property is used by your dental practice. In fact, recent tax code changes have enhanced these tax breaks such that you may be better off buying things you would have previously leased (such as equipment).

Whether it will be better for your particular practice to buy or lease your practice space is a decision that needs to be made with the advice of a qualified tax professional.

ddsmatch Southwest Has Dental Practices for Sale in Texas and New Mexico

If you are looking to buy a dental practice in Texas or New Mexico, here at ddsmatch Southwest, we have several great options for you to consider. If you are considering selling a dental practice, we are dental transition specialists and can help you prepare and sell your practice on your terms, getting the most value out of your practice. Contact us today to find out what we can do for you.

What to Watch Out for When Buying a Dental Practice

Buying a dental practice will be one of the biggest—if not the biggest—decision of your career. It’s also the biggest risk, so it will pay, in both the short and long run, for you to be careful, get reliable professional advice, and do all of your due diligence. This is because, absent an ability to show fraud, once the practice keys are in your hands, there will be very little you can do about any overlooked details. And this landmark moment will cast a long shadow over your career.

Here at ddsmatch Southwest, while we represent the interests of our client, we view a successful transition as one where both the buyer and seller are happy with the terms and outcome of the deal. Most frequently we represent sellers (although we also have services for buyers and dental associates) but we think it’s important for those looking to buy a dental practice to know what they should look for, and what they should look out for, when considering a dental practice for sale.

What to Look for When Buying a Dental Practice

The Practice’s Financials

This might seem obvious, but it can also be complicated. It’s not just so simple as reviewing a profit and loss statement. You should expect to be provided with all recent financial statements and tax documents, along with the records of expenses for things like payroll, employee benefits, insurance premiums, continuing education, and reimbursements. You want to be able to know what percentage of collections is covering the practices overhead. That is, what does it really cost to run this practice?

The Practice’s Valuation

The seller will give you a number of what they think the practice is worth. You need to know how they reached that conclusion (the valuation method) and what are the bases of that valuation. Don’t be satisfied with the prior year’s cash flow, or a few recent years’ of cash flow. You should be prepared to review the entire history of the practice. That will tell you the whole story. For more on valuation methods, see our post “How Much is My Dental Practice for Sale Worth?

The Practice’s Brand and Goodwill

While the financial numbers are quantifiable, and easy to evaluate if properly recorded, the intangible assets—the practice’s reputation in the community and how closely it is tied to the selling dentist—are major factors in the practice’s overall value. This can be determined by looking at patient records which will show you patient retention, patient turnover, new patient referrals. These are indicators that the practice is viewed positively in the community.

Relatedly, when buying a dental practice, you need to know how the selling dentist intends to transfer that goodwill to you. This may or may not be something the selling dentist has thought about. It may mean that the selling dentist will want (or need) to stay on for a while to ease patients through the transition. How this works will vary from practice to practice. It’s a good idea to retain your own consultant or broker to help evaluate this and give recommendations of what will work best.

If the selling dentist is not retiring, you may need to obtain a non-compete agreement to keep the patients from being syphoned off.

The Practice’s Patient Base

In addition to what is discussed above, it’s a good idea to look at things such as the types of insurance the practice accepts and how many patients are with each plan, the patient demographics (older patients or young families, for instance), and how patients are retained. This information can help you project future cash flow.

What are the Seller’s Plans?

Is the selling dentist intending to stay on as an employee or contractor? If so, for how long? Does this match with your vision for the practice? While it is common, you should be wary of a selling dentist who may want to exert control rather that ease transition. However, if the selling dentist doesn’t want to stay on, you should consider whether you will have access to the doctor in case you need to consult regarding past patient treatment plans or accounts receivables.

What to Look Out for When Buying a Dental Practice

Pressure to Rush into Closing

While it may be understandable for a seller to be anxious, do not allow yourself to be rushed. Any step that is skipped will only run to your detriment, not theirs. It’s in your interest to be cautious and take the time necessary to complete all of the due diligence. A seller rushing you into buying a dental practice may be hoping that you’ll overlook a defect. It’s simply not worth the risk.

Seller Refuses to Disclose Information

If a seller refuses to make the requisite disclosures, or suggests you don’t need to see complete sets of records, or otherwise obscures information, it is likely there is something they don’t want you to see. While a dental practice can be a complex operation with legitimate issues of confidentiality, you have absolutely no incentive to overlook any detail, especially those being requested by your team of professionals (lawyer, accountant, business valuator, broker).

Declining Production or Poor Patient Retention and Recall

Sometimes selling doctors cut their hours in anticipation of the practice transition—looking forward to retirement, for instance. While this is not the best practice, it does happen. However, if there is declining production, be sure to determine the cause and make sure there isn’t a larger problem that you will be buying. The same goes for low patient retention and recall numbers. If you see this in the records, you need to know why. If the patients are going to another practice, you need to know where and why. You may want to ask the staff about this—often they have a good sense of patient issues. If the selling dentist won’t give you access to staff, that’s another red flag.

Employee Turnover

There are a lot of factors why employees leave (or are dismissed). But if the practice records indicate an unusually high turnover rate, it could indicate that wages are too low, meaning you may have to increase your payroll and benefits costs. It could also mean that the selling doctor is either poor at hiring or a bad manager. This can have an impact on the practice’s reputation and goodwill, if patients are having negative experiences with the staff.

Overreaching Non-Disclosure Agreements (NDA)

You should expect to sign an NDA before you get anything but the most basic information about a practice. For a variety of reasons, the selling doctor has a strong incentive to not let it be know the practice is for sale. However, if the NDA includes terms such as trying to establish an exclusive relationship with you as a prospective buyer or imposes an unethical requirement prohibiting you from looking at other practices for sale, you should not sign. When buying a dental practice, you need to keep all of your options open.

ddsmatch Southwest has Experience Matching those Buying a Dental Practice with The Right Seller.

When we look for the right buyer for our sellers, we consider your lifestyle and location goals, clinical skills, personality, and professional needs before we present you with a confidential list of sellers seeking to transition out of practice or bring on a new partner or associate. The ideal ddsmatch Southwest buyer candidate will have a comparable clinical skill set as the seller, associate experience, a desire to reside long-term in the geographical area of the practice, and requisite financial qualifications. If you are considering buying a dental practice in Texas or New Mexico, contact us today to review our extensive network of dental practices.

Whether to Start or Buy a Dental Practice

As you think about your career in dentistry, there are three main questions to answer. What will be the focus of your practice? Will you go out on your own, or join an existing practice? And if you go out on your own, should you buy a dental practice or start a new office? Here we’ll discuss what’s involved involved in starting a new practice, and give you some things to think about as you consider the costs.

No doubt about it, the costs of starting a new practice are high. If you are independent and enterprising, and willing to put the time and effort into creating a solid and detailed plan, financing with reasonable terms is available. Buying an existing practice can be similar in cost and you’ll get everything in one package, with adjustments for depreciation of assets.  You will also benefit from a couple of pretty big assets that aren’t involved in starting a dental practice: the practice’s reputation and patient base.

Whether building from the ground up or buying, you need to consider many of the same principles.

What You Probably Already Know

When you start a new practice, your practice has to be located somewhere. You have some options here. You can buy a piece of land and build a new building on it. You can lease a piece of land and build a new building on it. You can lease a piece of land with an existing structure. Or you can lease space in a multi-tenant building. The last option is probably the least expensive, but may be the most restrictive in terms of what you can do in your space and in the common areas.

What is the most advantageous option will likely depend on where you practice. Leasing within a multi-tenant building might be the smart move in an urban area whereas buying is probably more practical in a rural area or small town. Even if you lease, it’s highly unlikely the space will be ready for you to move into. You’ll need to budget for the lease (which, unlike an apartment lease, will probably involve a substantial down payment of several months’ rent up front) along with costs for renovations, including decorating and furnishing.

Other major costs include:

 

  • Equipment: this will include everything you need to provide clinical care and operate the practice. Chairs, handpieces, imaging equipment, computers, printers, office supplies, etc.
  • Employees: eventually employees will be paid out of revenue, but, when you start or buy a dental practice, you have no revenue. So you need to budget to pay your hygienist, your receptionist, and whoever else you’ll need (along with your lawyer and accountant) to have a functional office. Also, you’ll have to provide insurance and other benefits. Remember that your patients will probably spend more time interacting with your staff than with you, so it’s important to put the time into carefully selecting the right people (it will take more time that you think), then compensating them in a way that makes them happy to work for you.
  • Marketing: how are you going to get patients through the door? You’ll have to advertise and make your community aware of you and your services. Here it might be best to start small and increase your advertising budget when you can or if its needs a boost. For more on modern dental practice marketing, read our post on the topic.
  • Operating costs: once you’ve staffed and equipped your office, your costs don’t stop. Supplies have to be replaced as they are consumed. Staff has to be paid every month. So do insurance premiums. And utility bills. And so on.

 

What You Might Not Know

Unless you’ve already ran a small business, there are a lot of costs that might not be on your radar. These can include:

  • Self-employment taxes: You aren’t going to just be a dentist. You’ll also be CEO (literally, if you organize your practice as an S-corporation). You’ll also be the human resources department and bookkeeper. However you manage it, at the end of the day, it’s up to you to make sure all of the necessary taxes are being paid, including Social Security and Medicare. This isn’t just what comes out of your paycheck, but includes quarterly payments you have to make as an employer.
  • Health insurance: whether you offer this as part of an benefits package for your employees or not, you’ll probably want to have health insurance for yourself and family. In addition to purchasing a plan and making the premium payments, you may want to consider a health savings account or flexible spending account for additional out-of-pocket expenses.
  • Vacation time: when you’re an employee, you may enjoy the luxury of paid time off. Not so when you’re self-employed. Anytime you aren’t working is time you aren’t earning. Maybe you won’t take any time off in those early months, but, after a while, this will be something that you will need. Be sure to plan well for it.
  • Retirement: you might be inclined to put this last, as retirement is, chronologically, last. But it’s something that will be easier the sooner your start, and it’s highly unlikely that you’ll regret planning for the future. Discuss this with your accountant or financial planner to create a plan that is right for you, including options such as an IRA or other savings plan with tax advantages.
  • Maintenance and repairs: it’s smart to create a monthly budget for maintenance and repairs. You want a surplus because some months, you won’t need much, but others, you will. If you’ve used your monthly allotment for a building repair and then have equipment malfunction, you don’t want to have a disruption in your ability to see patients.

This is not a comprehensive list, but gives you something to start with. If you’re starting as an associate, take a look at the practice you’re working in and make notes about what you see that you will have to take care of (and pay for).

ddsmatch Southwest Can Help You Buy a Dental Practice

At ddsmatch Southwest, we have available practices in Texas and New Mexico. As part of our Trusted Transition Process, we specialize in matching the right buyer with the right practice. We understand this is about more than just exchanging money for the keys to a business: its a career choice with far-reaching consequences throughout your life. We want our clients and whoever is on the other side of the transaction to walk away feeling like they’ve each gotten what they wanted out of the deal. If you are interested in buying a dental practice or an associateship, contact us today and find out if we have the right practice for you.

Review the “Don’ts” of Dental Practice Marketing

Being a dentist who owns their own practice is really two jobs in one. First, you are a dental care provider. After all, you went into dentistry to be a dentist. But you are also an entrepreneur. When you start or buy a dental practice, you have taken on all of the financial risk of that business just as any small business owner does. You want it to be the best it can be—to take care of your patients, your staff, your family, and yourself. In a large part, your practice is your legacy. This means that in addition to providing the highest quality dental care to your patients, you also want to put that same level of quality into the business side of your practice.

So, while you went into dentistry to practice dentistry, as long as you are running your own practice, you cannot ignore the competing responsibilities to properly manage the business of your practice. When we say “competing,” we don’t mean there has to be a compromise in the quality of care your provide. Rather, we mean that the business responsibilities will compete for your time, a finite resource. This month, here at ddsmatch Southwest, we are running two articles focusing on good and bad business practices: some simple “do’s and don’ts” to help you manage your practice. These basic principles can help you grow your business and sustain a level of success that will pay off in both the short and long term.

This article will focus on a few “don’ts” for promoting and growing your business. If you’ve not run a business before, you’ve probably already realized is a bit more complicated that it looks. Here are a few things to avoid going forward that will make it easier to get your practice to operate at the level you hope to reach.

Don’t Rely on Traditional Marketing, the Marketplace has Changed

When you are starting or buying a dental practice, you can look at what the practice has done in the past—or what other local practices are doing—to market themselves. Are they hyping specials? Discounts? Are they lowering prices or advertising what insurances they accept? If so, they are engaging in traditional dental practice marketing.

That may have worked well in the 20th Century, but not today. Dental patients have more choices than ever, and more access to information. Although they aren’t experts, consumers in general are better informed than previous generations. When someone wants a dentist, they start online, most likely with reviews. Look at those reviews, and you will see what patients care about most. Sure, cost is a factor. But customer service, the attentiveness of the staff and care provider, and the quality of care are all a priority. The fact is, consumers are looking for the nexus of value and quality overall, and most are willing to pay a little more for a better experience and quality of care.

Chasing the low-price consumer is a losing game. You’re competing against cut-rate providers for customers who will not stay loyal to your practice if they think they can get a better price. Also, you’ll be forced to cut your margins so tight that you may end up reducing your cash flow to a point that could be detrimental to your business.

What you want for your practice is not an ever-shifting patient base with no loyalty. What you want are the smart consumers who understand the quality that you offer and are willing to pay a fair price. Those are the patients that will keep coming back. That stable patient base is essential for a healthy dental practice (and will be a big asset when you want to sell your dental practice).

Don’t Overlook What Your Patients Care About

Another common mistake is thinking that your patients will think about dentistry the way you do. You are an expert with training and experience. Your patients just want their teeth to look and feel good. Exactly how that happens is what they are paying you for.

The more technical something sounds, the less potential patients will care. Do you have techniques or technology that will enable them to smile again? To be free from pain and discomfort? That they care about. A lot. However, they will care about it at about that level of detail. If you’re buying a dental practice and updating to the equipment with the most advanced technology, go ahead and advertise that. But don’t explain what the technology is. Explain what it does to better patients’ lives in terms they can understand (a good rule of thumb is to keep everything at about a 6th Grade reading level).

Remember, it’s not about compromising the quality of care, it’s about making it accessible.

Don’t Neglect Social Media

Social media performs two important functions in marketing, and any dentist who neglects their online presence will lose patients to one who doesn’t. First, on a human level, it allows you to engage with your patients and potential patient base. It gives them a feel for who you are, what your practice philosophy is, whether you are someone they want to take a risk on with their money and their mouths. With less people watching broadcast television, listening to terrestrial radio, reading print publications, or paying attention to traditional advertising, your social media presence is one of the best, most direct ways of engaging with your market.

Second, an up-to-date, well-optimized website, linked to social media and YouTube channels, with a steady stream of backlinked content, signals to the online search algorithms that you are an active, healthy, legitimate business that will appeal to consumers doing searches in your area. Active engagement and promoting quality website content across social media channels is an essential piece in keeping your website at the top of local search rankings. And whether you like social media or not, it’s key to modern marketing.

Don’t DIY Your Marketing

If the last few paragraphs aren’t sitting well with you, that’s fine. You don’t actually have to do this yourself. In fact, it’s probably better if you don’t. Online marketing is an ever-shifting shell-game. Once people learn how to work the search algorithms, the algorithms change, often on weekly basis. Online marketing requires the expertise of people who are staying on top of these changes, which is, in itself, a full-time job.

Hire an online marketing company to build your site and work with them to produce quality content. Maybe you have a young, savvy receptionist or hygienist who, for a little extra in their paycheck, will engage with patients on Facebook, Twitter, and Instagram. Trying to do it yourself will cost you time you don’t have, and will not be as effective. Plus, the experts help track where new patients are coming from and can continually optimize to ensure your marketing efforts are paying off and where you need to adjust.

When Buying a Dental Practice, Use a Dental Broker

Just as you are not an expert in marketing, you also probably aren’t an expert in selling or buying dental practices. But here at ddsmatch Southwest, we are. We take the combined experience of hundreds of dental practice transitions from all across the country and put that to work to match the right buyer with the right seller. Give us a call today and find out how we can help you get the right practice.

Loans for Beginning 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.

Buy, Sell, or Start a Dental Practice

RK: Randy Kinnison with ddsmatch Southwest, just wanted to thank you for being with us today and answering a few questions that we’d like to share with our potential clients and customers. If you would just please introduce yourself and kind of describe the relationship that ddsmatch has with Blue & Co. and the business valuations that you guys prepare for us.

MH: Good morning Randy, and thank you for the time. I’m Matt Howard with Blue & Co.  I lead our business valuation team. We do approximately over a hundred dental evaluations a year for ddsmatch and other dental needs. We’ve just really carved out a nice niche in it and have a lot of fun with it.  I am a dental CPA and also an accredited business valuator and a certified valuation analyst. So, I have certain credentials that are specific to valuation. Our relationship with ddsmatch Southwest is, we are the third-party, non-biased valuator that comes in and gives you a true market test for what your practice is worth at the date of our valuation.  We’ll be looking at the practice from an industry perspective trying to help both seller and buyer know what a true fair market value price is for the practice.

RK: Thank You, Matt. Just describe a little bit about the BV [business valuation] and what it entails. I know the first part of the business valuation always has the historical numbers of the practice as well as the performance. So, if you would just tell us a little bit more about the BV and what it entails.

MH: Certainly. With any small business or personal service company, the biggest noise in the practice would be the owner’s noise. What I mean by that is anything that’s inside the practice that is not necessarily operational or is basically something that the owner has decided to do at the practice that doesn’t exactly reflect the operations of the practice. A lot of times a seller will own the building, and in owning the building, they’ll pay themselves a lease rate for that building. Sometimes, that isn’t a market rate. And sometimes, it’s a little bit above; sometimes, it’s a little bit lower. Our job in this process is to really work through the practice to make sure it shows the historical financial statements. Basically, we help sanitize or normalize the numbers as we see them and as the true operations of the practice are reflected. So, our part in the valuation process is we will collect data. We’ll go through the data. We’ll enter it into our models. We’ll ask very specific questions about that data about maybe aberrations and the financial performance over time. Sometimes, a dental supply category jumps ten percent over a year. We want to really understand everything that’s going on inside the practice.  Then as we go through it, we would release a draft document for discussion with the seller. That document would be completely … a conversation piece to talk about the variables that we took into consideration, the market effects that impacted the valuation price to really just helped you understand exactly how we came up with that number. And then after that conversation, with any input from the seller, we’ll move it to a final, and then that will be the piece to share with any potential buyers as they consider the practice.

AE: That’s great, Matt. Hey Matt, Andy Edmister here jumping on the call with you. I have a few more questions. Thanks for joining us today. Matt, when would you recommend a dentist start preparing for a sale? And, why would you recommend him at that time?

MH: Yeah, a great question. I wish it’s a question that a lot more sellers kind of investigated not the year before they’re considering the sale. So, some things to take into consideration is knowing yourself and knowing what your aspirations or your goals are for the practice transition. What I mean by that is, a lot of dentists will wait until they’ve slowed down some, and we have something called a decreasing revenue stream, that’s where the collections slowly over time have started to decrease. That’s just basically reflective of the seller or the owner wanting to start to slow down. There’s nothing wrong with that if that’s an intentional decision you want to make. Unfortunately, when we see that in an evaluation, and even when banks see that in our evaluations as they consider financing this for a buyer, it does have to be taken into consideration. So, a decreasing revenue stream in the valuation world is not exactly ideal. More of what we like to see is if they’re an immature practice that’s either consistently growing by inflation or at least steady in the collection perspective. So, as you understand who you are and what your goals are, I do think it’s an important thing to consider when to sell and maybe selling before we start decreasing your output or decreasing your hours. That’s the first key. I would say anywhere from five, maybe even a little bit over five years, would be a good time to meet with your ddsmatch Southwest broker and start discussing what you want to do in the future and what does that look like in your mind from an ideal perspective taking all the different desires that you have into consideration. They’ll be able to help you walk through when may be a good time to even bring in an associate; or maybe when it’s a good time to think about something; maybe a couple of years before you thought you would; just so that we don’t run into that decreasing revenue stream which would impact the valuation price.

AE: Okay, that’s great advice. Basically, to sum it up, keep your foot on the gas until you get through the evaluation and the transition of the practice to maximize the value of the dentist’s practice.   

MH: Precisely, I couldn’t have said it better myself. Yes, trying not to minimize the fact that yes, you want to slow down; however, you also want a good price for your practice.  Obviously, those two things go hand in hand.

AE: Okay, well, thank you. I’m gonna move on to another question. The question pertains to purchasing in a practice or doing a de novo or startup practice on your own. What do you see is the benefits of each or the cons of each; and what would you recommend to a new dentist client of yours.

MH: A great question. And, a question that comes up quite often. As a person coming out of school, the ideal part of buying a practice is the fact that you’re walking into cash flow day-one.  What I mean by that is, you are paying a fair market value price for the practice; and then, you’re making money. You’re walking into, hopefully, a three hundred, four hundred, five hundred, and up thousand dollar collection practice which helps pay your bills day-one. That’s an obvious benefit of buying a practice. The problem with starting a practice is this: it’s a three to sometimes seven-year journey to maturity or average collections of a de novo. So basically, the first year you’re probably going to feed the business as in bring money to the table to keep it going as you build up that collection stream. The second year, you might break even or maybe pay yourself a little bit but definitely not up to industry standards. The third year, between the second and third years, during these startups is where we see you making some progress towards paying yourself a reasonable wage. Still probably not what you could get out being an associate at another practice. But you’re on your way. And then, that fourth, fifth, six, maybe up to seven years could get you, hopefully, up to average. An average is somewhere around nine hundred thousand dollars of collections, hopefully, dropping somewhere about to two hundred and fifty to three hundred thousand dollars bottom line. These are all guesses. Every marketplace is a little bit different. Every geography is a little bit different, but that’s just in general.

AE: Okay, well, good answer, thank you. I’m sure that will be useful for a lot of people watching. Next question. When would you recommend or what do you think is the best time for a dentist who is where he wants to be, but he’s not sure if he’s ready to bring on a new associate. What would a dentist do to say, “hey am I ready, or am I not ready to bring on the associate.”

MH: Again, a great question enough, and a complicated one sometimes. Every practice has a limited amount of resources, of ops, of time for the staff to not hit over time. So, there’s a lot of variables that play here. Typically, we like to see over a 1.2 million dollar collection practice, in general, that way there’s plenty of room for an associate to come in, inherit some of that revenue stream as the seller wants to back off a bit and transfer some of their patient-base over to the associate. Let’s just look at this from both angles. A seller wants to have an associate for the benefit of growing and continuing to serve the patient-base well. If you’re booked two to three months out, that’s not a very good patient-service quality for your patient. So, you need to come up with a constructive way to service them quicker and have a better overall experience for your patients. A lot of times that’s where an associate will come in. Therefore, you can help address the backlog and give to the associates.  From the other angle, the associate has the ability to make money day one, not build up a new business inside of a practice. They might get some sort of guarantee the first year, but you’re gonna move them to some sort of production or collection-based compensation after the first couple of months or even maybe after a year at the most. It’s important that it’s a formula that doesn’t only work for the seller, but it also makes economic sense to the buyer. Typically, buyers these days have quite a bit of student loans that they need to address, so they need to make a certain amount inside the practice. Associateships work great if there are enough collections and the seller wants to slow down a little bit and maybe back off a day, and open up some collections to the associate. And then obviously, there’s a lot of other variables, but those are just some general thoughts.

AE: Okay, well that’s great. What kind of tools could you offer as part of ddsmatch Southwest? What could you provide to help dentists decide if they are ready for an associate or not on an analytical side just on the numbers besides a gut feeling and wanting to slow down.

MH: Yeah, that’s also something that we’ve seen over and over again coming up is, “am I a good candidate for an associateship? Does it make sense for my practice to do this?” So, what we’ve come up with is an associate IQ or quotient that helps walk you systematically through the practice with about ten different areas that we look at to make sure that it makes sense for the practice to bring this on. Does it make sense from the owner side? Does it make sense from the associate side? Some things we’ll look at is if you only have three ops, and you want to bring in two dentists a day, that does not make a lot of sense. After looking at a bunch of these different variables and intricacies of the practice, we will come up with a quotient of how you rate on a scale of 0-100 for being a good candidate for how many associates. We’ll walk you through the entire process. Does that answer your question, Andy?

AE: Yeah, I think that’s great, in that way, they can make an educated decision on where they’re at currently and if their business can support another dentist. But also, it shows them what they would need to do to grow to get to that point.

MH: Exactly, the last thing that anybody wants, and we run into this occasionally as well because people jump into associateships, is after a year the associate goes away. We’re stuck holding the bag here–of all the attorney fees and the professional fees to get that to happen, and then have that asset, have that partner walk away. That’s really tough for a practice, especially, if you’ve grown it significantly and can’t keep up with all the work coming in the door. It’s very important that an owner of a practice considers all the variables in play as they consider this major decision that can affect the valuation of the practice and can affect your stress levels as well.

RK: Very good Matt, thank You. Randy again. We have another question. We get a lot from dentists that are preparing to sell their practice, and even if they are a few years out, they ask a question, “should I invest in any major equipment purchases? Or, what should I do to make the practice more attractive to a buyer?” What does that do, normally, to evaluation? Does that help evaluation or not?

MH: Yeah, you’re absolutely right. That question comes up quite often. I’ll use a house as an illustration here. There’s a couple of different types of upgrades for remodeling that we can take into consideration. When you’re buying a house, you fully expect the roof to be leak proof. That’s just part of the standard price of the house. It doesn’t add anything if you find out the roof has all sorts of problems that need to be replaced before I pay you the price that you quoted. So, with that kind of consideration inside of a dental practice, certain things like x-ray heads, chairs, and normal standard-of-care type assets at the practice, you absolutely need. If you redo them a year before selling the practice, it’s not really gonna make a significant difference in the value of the practice. Some things that would make a significant difference in the practice, let’s say two months before you sell your practice, is adding a cerec machine or something that’s not been in the practice previously that hasn’t affected the income or the collections of the practice. There’s a couple of different things to consider, to remodel the practice. If you still have shag carpet in the practice, it probably needs to go before you start marketing it. So, those types of considerations and things that will bring it up to a higher standard-of-care could make it more valuable. However, you’re probably not going to get a one-for-one pay back on your investment. I guess my end-all be-all recommendation is five years before the practice sale, unless you’re really making your practice digital or doing something that’s bringing it up to standard-of-care, any other significant remodels at that point would probably not be a complete one-for-one return on your money. Does that make sense?

RK: Yes, that makes great sense. Thank you for that clarification and answer. One other question we’d like to ask you, Matt, once we get down the road matching a buyer and seller together and negotiating the asset purchase agreement, there’s always the question of asset allocation which plays a pretty important part for both sides. Do you mind touching on that a little bit?

MH: Yes, so what we’re talking about here is let’s say we come up with a price, and the price is one million dollars for the practice. The practice price is set, and we’ve negotiated that. At the end of the day though for both parties at play, really even more acutely to the seller is, it’s not just the price, it’s the overall deal that makes it a good or bad deal for you. What I mean by that is this, the million dollar price is great; however, it’s not about what the price is. It’s about what you keep. Obviously, what I’m referring to here is taxation. As you come up with the purchase price, and it’s an asset sale, inside that sale you would have two different buckets to place things in that the IRS expects you to fill out on a certain form. How much of the price is going to be assets? And, how much of the price is going to be goodwill? Those two buckets are very important. For the goodwill side on the seller’s side, amount that is going to be potentially subject to capital gains. Capital gains is a big deal because the difference between that and ordinary income can be significant. We can talk about over ten percent difference here. That’s a big deal for a million dollar price. Ten percent is a hundred thousand dollars. It could be that important. The asset side is anything that’s called an asset in the sale. That would be more advantageous to the buyer. That means they can depreciate those assets quicker than goodwill. Goodwill they can amortize over fifteen years as under current law. To the seller, goodwill is important. To the buyer, assets are important.  It’s a little bit more important to a seller though. To a seller, that difference between capital gains and ordinary income can be quite significant. To the buyer, it’s a difference of when can I depreciate something; when do I get the tax write-off for this asset or goodwill. It’s the difference between five years to 15 years. They still get it. It’s just a question of when. For a seller, it’s a one-time deal. It’s either goodwill or it’s either assets. The more that’s goodwill, the better for the seller. And really, that is just subject to negotiations. It’s not really mandated by the IRS in any way. It’s based on what are the negotiated rates allocated to each bucket.

AE: What would you advise a young dentist in an associate for a couple of years, or two to five years out of school, paying off debt? They came to you saying, “I think I’m ready to look at purchasing my first practice.” What would you review with that dentist and how would you prepare him to be ready to engage with Randy and myself to find him a practice?

MH: Some of the first things here is have you spent the time clinically to get your hand speed up, to make sure, that whatever you’re looking at buying, you can actually do or can you document that you can do that in the that new practice? Something else or the bank will be looking at is have they been able to produce at the levels of the practice that they’re buying. That’s one important element. The second important element is taking a look at what does their world look like. Have they gotten in a couple years out of school. Have they been able to create some sort of emergency fund? Do they have some sort of margin in their life? That sounds very logical but a lot of times a buyer is not a good candidate because they don’t have any kind of safety net in their life. So, the third thing that I would talk about is do you know what you’re looking for? Do you know a geography? Have you really studied what area you want to be in and what that practice might look like? Having a clear direction and intentionality about the practice that you’re buying I think is an important thing for a dentist to address to a broker at ddsmatch Southwest because they really need to know that you’re fully vested in buying in a certain area, for a specific purpose, with a certain clinical skill set. Does that answer your question?

AE: Yeah, Absolutely I think that’s great. There’s a lot of young dentists out there that are just kind of on the edge, “am I ready?” It’s scary to start your own business.

MH: No doubt about it. I walk through maybe twenty buyers a year. and Some of the same elements that you’re just discussing here come up often. It can be a terrifying thing. You just need a really good board of directors to walk you through. I mean a great CPA like myself and a great attorney to help you understand the logistics of the transaction and how to structure it. Beyond that, if you have the right people on your team as advisors, we’ve been through this a hundred plus times just helping you through that is part of what we do.

AE: Well, thank you very much, and again we appreciate you taking the time today. You’ve been a huge partner and a huge help not only for us but especially for our clients, so thank you, very much, Matt.

MH: I think that this has been a great conversation and great questions. I think these are key elements to any transaction as these will come up at some point in the process. It’s nice to have a heads up for your sellers or even the buyers out there to understand the dynamics at play. Again, ddsmatch Southwest is a great brokerage. They really walk their clients through everything. It’s an open process. They invite your advisors in to help you through it. I’m a big fan.

To find out how ddsmatch Southwest can help you with your practice, call today.