Ten Steps to Buying a Dental Practice for Sale in Texas or New Mexico

This is the second in our 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’ll go through the major steps of a dental practice transition. While the process can seem overwhelming, once you’ve reviewed these steps, you may find it’s not as difficult as you think, especially once you’ve enlisted a team of trusted advisors.

Before we get into the details, however, we’ll briefly address the question of why to buy a dental practice for sale in Texas or New Mexico as opposed to starting a new practice. The main answer is because of the existing patient base. A successful practice that is up and running has a steady stream of patients, which means you have cash flow from day one. If you start a practice, you have to build it yourself. And if you start a practice in an area where there is already a dental practice on the market, someone else is going to buy it and you will be competing with them and their built in patient base. Depending on your career goals, you might not want to have to deal with the headaches of building a practice from the ground up, especially if you are a new doctor without an established reputation.

Step One: Put Together a Team of Trusted Advisors

As a doctor, you no doubt are a smart and capable person with a strong skill set. That said, no one person has all of the knowledge and experience to manage every detail of a dental practice transition. You need professional advisors who can help you make what is likely the most important (and complicated) decision in your career. You will need the following specialists:

  • Dental Attorney: you will need an attorney with experience in dental practice transitions. There are issues, and potential liabilities, that are unique to dental practices, so do not assume that a general practice or general business attorney will have the expertise. If they have to get up to speed, it will slow down the process, cost you more money, and you still won’t be certain that they aren’t overlooking important details. Find an attorney, with solid recommendations, that has counseled other doctors in the sale of dental practices. 
  • Dental CPA: as with the dental attorney, you need an accountant who understands the specifics of dental practice finances. You will need to rely on this accountant to understand the financial records they are reviewing in advance of making an offer and closing the deal. You need to know that they won’t misunderstand any details that may not be apparent to an accountant without dental practice experience.  
  • Dental Practice Transition Specialist: a practice transition specialist can be extremely useful for consulting on matters such as employee management and patient retention.
  • Dental Banker: dental practices are somewhat unique among business from a banking point of view. They require a lot of capital but are also very good investments for banks. A banker without experience with this type of business may not offer as favorable terms, failing to understand the particulars of dental practice valuations, where “goodwill” accounts for the bulk of the value. 

Step Two: Make an Offer with a Letter of Intent

This is your formal offer to buy a dental practice for sale. Before you make the offer, you should have reviewed the practice’s financial disclosures with your advisors and be comfortable with what is being offered. A letter of intent is non-binding, but it is a strong signal to the seller that you are serious about this deal. The letter should specify: 

  • The assets to be included in the sale
  • The assets to be excluded from the sale
  • The price offered for the practice
  • The closing date for the sale

Any item not addressed in the letter of intent should be negotiated and reduced to a written agreement before the closing date.

Step Three: Apply for a Practice Purchase Loan

Ask your dental CPA or dental practice transition specialists for recommendations to banks with professional practice lenders that have dental practice experience. You should submit applications to multiple banks so you can choose the terms that will be most favorable for your deal. The earlier you get started on this process, the better, so there is no holdup on your end in closing the deal. 

Step Four: Insurance Policies

What insurance you will need will depend in part on the other parties. If you have a landlord, they may have business liability insurance requirements you have to meet. The seller may have their own requirements, as will the bank. Generally, when you buy a dental practice for sale in Texas or New Mexico, you will likely need:  

  • Malpractice insurance
  • Life insurance
  • Disability insurance
  • General business liability insurance
  • Personal property insurance

The application processes for these may take some time, so, again, the earlier you get started, the better. Your team of advisors can also help you know what you should be looking at and may recommend some insurance companies to go to for coverage.

Step Five: Establish a Business Organization

If you haven’t already, you will need to set up a company. What kind of company you organize will vary from state to state, as local laws will govern what kinds of business organizations can operate what kinds of businesses. You’ll also want to consider how you will be personally liable for taxes or liability in lawsuits with each organization. Discuss your options with your attorney and CPA and pick the type of organization best suited for your situation. These are typically pretty easy to set up yourself and it can often be done online through the state government website. 

Step Six: Have Your Dental Attorney Review the Practice Purchase Agreement

This is the document that details the terms of the purchase. If a detail is not in this document, it is not a part of the deal and, therefore, not enforceable. Review this document closely and have your dental attorney explain its provisions, making sure you understand each part. This document should address:

  • The seller and buyer’s respective representations and warranties
  • The assets that are included in, or excluded from, the sale
  • Who will control the patient records
  • The scope of the non-compete covenant (time and geographic distance)
  • The collecting of the seller’s accounts receivable and patient credits
  • Procedure for handling any repair of defective dentistry
  • Allocation of the purchase price for tax purposes
  • Ongoing contractual obligations or liabilities
  • The firing and hiring of staff
  • The transition letter notifying patients that the practice has been sold

Step Seven: Office Space

If you are buying an existing practice, the selling dentist is either leasing the office space or owns it. You will be either taking over the lease, buying the space, or leasing it from the seller. In any of these circumstances, these are details that need to be worked out with your dental attorney and are separate from the practice purchase agreement. It is important to understand that the purchase of the practice does not include any rights to the office space. That needs to be negotiated on its own.

Whether you want to lease or buy the office space will depend on the practice, the location, and your goals for the practice. Discuss these matters with your attorney, CPA, and practice transition specialist. They can each help you understand that benefits and drawbacks of your options.

Step Eight: Sign the Documents and Take Ownership

Once all of the details are solidified and you are in agreement with the terms of the deal with the buyer, you sign the documents and submit them to your lender. Once the bank has the signed documents, they can finalize the lending process and transfer funds to the seller. When that happens, you can take ownership of the practice. 

It’s not uncommon for the sale to remain confidential to this point. Therefore, after this point, you can have a meeting with the dental office staff and start the process of taking over the practice. 

Step Nine: Send a Transition Letter to Patients

As mentioned above, a major advantage of buying a dental practice for sale is having a built-in patient base. Once the sale has closed, that is the time to let patients know that the dental practice will have a new doctor. This is the opportunity for the selling doctor—who has the trust and confidence of the patients—to endorse you as the new doctor. This letter can be drafted and agreed to before the deal closes, which may be a good idea so there is no conflict when it comes time to send the letter. Your dental practice transition specialists can provide guidance and advise as to how to compose the letter and its contents.

Step Ten: Staffing, Billing, and Licenses 

Once the deal is closed, all of the things owned and controlled by the seller’s company have to be transferred to yours. This means the seller will terminate his employees and you will hire them to your company. Utilities and other service contracts will have to be assigned and decisions made about pro rata payments, if necessary. You will need to make sure that you are in compliance with all local, state, and federal licensing and registration requirements. Again, your dental attorney and practice transition specialist can help you identify these details.

ddsmatch Has Dental Practices for Sale in Texas and New Mexico

If you are looking to buy a dental practice for sale in Texas or New Mexico, ddsmatch Southwest has several appealing options. Check out our available matches online. If you are considering transitioning your practice in the next five years, contact us today for a free, no-obligation Practice Transition Assessment and find out what we can do for you.