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.

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