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.