When considering the buying a dental practice checklist, it’s crucial to understand the significance of careful planning. Acquiring a dental practice is a major decision that goes beyond financial investment. It involves crucial aspects such as choosing the right location, understanding the patient base, and ensuring the practice aligns with your professional goals.
Here’s a quick rundown to address your search intent:
- Determine desired practice area: Choose where you want to live and work.
- Find a practice you want to purchase: Use brokers or personal networks to locate opportunities.
- Hire professional consultants: Engage with brokers, accountants, and attorneys.
- Research the practice’s financial state: Review profit, loss statements, tax returns, and overhead costs.
- Analyze patient and treatment information: Understand the patient demographics and types of treatments provided.
Approaching the acquisition process methodically ensures you set up a business ready for long-term success. Are you overwhelmed by the business side of running a practice? This guide, curated by Duckett Ladd, helps simplify every step of buying a dental practice so you can focus on what you do best: treating patients.
I’m Jared Duckett, co-founder of Duckett Ladd, LLP. With extensive experience guiding dentists through acquisitions, I understand the complexities and strive to make your journey smoother. Now, let’s dive into the details.
Pre-Planning Stage
Before diving into the process of buying a dental practice, you need to lay the groundwork. This pre-planning stage is crucial for ensuring your purchase aligns with your personal and professional goals. Here’s what you need to consider:
Financial Assessment
First, take a close look at your finances. Understand how much money you can afford to invest and what kind of financing you’ll need. This includes:
- Personal Savings: Determine how much you can put down as an initial investment.
- Debt Load: Consider any existing debts, like student loans, and how they affect your borrowing capacity.
- Credit Score: Ensure your credit score is in good shape to secure favorable loan terms.
A real-life example: Dr. Jane was excited about a practice but realized she couldn’t afford her mortgage alongside the practice expenses. She adjusted her budget and found a more affordable practice, ensuring her financial stability.
Location Preferences
Choosing the right location is vital. Think about where you want to live and work, and consider the following:
- Quality of Life: Evaluate the area’s amenities, schools, and overall lifestyle.
- Market Saturation: Check the number of competing dentists. The local Chamber of Commerce can help with this.
- Demographics: Understand the population’s needs. For instance, if you specialize in pediatric dentistry, ensure there are enough families in the area.
Dr. Jennifer Kent chose her practice location for its neighborhood feel and high visibility, which naturally attracted new patients.
Partnership Considerations
Decide if you want to go solo or bring on partners. Both have their pros and cons:
- Solo Practice: Full control but higher responsibility.
- Partnership: Shared responsibilities but requires compatibility and clear agreements.
Reflect on your long-term goals. Do you want to expand and bring in associates later, or prefer to keep the practice small and manageable?
Increase Your Hand Speed & Total Production
To maximize your practice’s profitability, focus on improving your clinical efficiency and offering high-compensation procedures. This means:
- Refining Clinical Skills: Continuously improve to handle more patients efficiently.
- High-Compensation Procedures: Incorporate services like implants or orthodontics, which can significantly boost your income.
Know What Kind of Dentistry You Like
Identify your passion and specialties. This will help you find a practice that aligns with your clinical philosophy. For example, if you love cosmetic dentistry, look for a practice with a strong patient base in that area.
Save Cash
Financial discipline is key. Aim to save a significant portion of your income to prepare for the down payment and other initial costs. Also, ensure you have a good relationship with your bank, as this can help in securing loans.
Build Your Network With Other Dentists
Networking is invaluable. Attend alumni events, join dental associations, and connect with local dentists. This can open doors to potential practice purchases and provide insights into the local market.
Work With Brokers
A dental practice broker can be a great asset. They have access to listings and can help you find a practice that fits your criteria. They can also assist in negotiations and ensure you get a fair deal.
Hire an Accountant
A dental-specific accountant will help you analyze the financial health of potential practices. They can also advise on tax implications and ensure you understand the financial commitments involved.
Do Summary Analysis of Practice
Evaluate potential practices by looking at:
- Location: Is it accessible and visible?
- Equipment: Is it up-to-date and well-maintained?
- Patient Base: Is there a steady flow of patients?
Meet the Selling Dentist
Compatibility with the selling dentist can ease the transition. Ensure their clinical philosophy aligns with yours and that they are willing to assist during the handover period.
Hire an Attorney
A dental-specific attorney will handle the legal aspects of the purchase. They will review contracts, ensure compliance with regulations, and protect your interests.
Draft a Letter of Intent
A letter of intent (LOI) outlines the terms of the purchase and shows the seller you are serious. It typically includes:
- Assets Included: Equipment, patient records, etc.
- Purchase Price: Agreed-upon amount.
- Closing Date: Target date for the transaction.
Find the Best Bankers at the Best Banks
Work with bankers who understand the dental industry. They can offer better terms and understand the unique financial aspects of running a dental practice.
Apply for Financing
Submit applications to multiple banks to compare rates and terms. Ensure you start this process early to secure funding in time for closing.
Choose a Loan Only Half Based on Rate
When selecting a loan, consider not just the interest rate but also the origination fees, repayment terms, and any additional services the bank offers.
Perform a Chart Audit
Review patient charts to understand the types of procedures performed and ensure they align with your clinical skills and interests.
Perform an Equipment Audit
Assess the condition of the equipment. Determine if any updates or replacements are needed and factor this into your budget.
Meet the Team, If Possible
If allowed, meet the existing team. Their experience and compatibility with your working style can significantly impact the practice’s success.
Delegate Financial and Legal Due Diligence
Rely on your accountant and attorney to handle the financial and legal due diligence. This ensures all aspects are thoroughly checked and mitigates risks.
Choose the Right Business Entity
Decide on the business structure (e.g., S Corporation) that best suits your needs. This impacts taxes, liability, and operational flexibility.
Obtain Asset Purchase Agreement Draft
Work with your attorney to draft the asset purchase agreement. This document formalizes the sale and outlines all terms and conditions.
Get Legal Help on Lease or Building Purchase
If you are leasing the practice location, have your attorney review the lease agreement. If purchasing, ensure all real estate transactions are legally sound.
Set Up Insurance
Ensure you have the necessary insurance policies in place. This includes business insurance, liability coverage, and any required credentialing.
Develop Transition Plan
Plan for a smooth transition. This includes business operations, personnel changes, and marketing to retain existing patients and attract new ones.
Choose a Dental CPA
A dental-specific CPA provides ongoing financial services and advice, helping you manage the practice efficiently and profitably.
Meet the Staff
Form good relationships with the existing staff. Your first impression can set the tone for future interactions.
Draft Letter to Patients
Communicate the ownership change to patients. Reassure them about continuity of care and introduce yourself to build trust.
Close
Finalize the purchase and transfer ownership. Ensure all legal and financial aspects are completed.
Celebrate
Acknowledge this significant milestone. Celebrate your achievement and look forward to a successful future as a dental practice owner.
Next, we’ll discuss Identifying the Right Practice, including how to evaluate patient base, location, competition, and expansion potential.
Identifying the Right Practice
Choosing the right dental practice is crucial for your long-term success. Here’s a detailed checklist to guide you through the process of evaluating a potential practice:
Patient Base
Understanding the patient base is vital. You need to know who your patients will be and whether they match your specialty and practice style.
- Demographics: Look into the age, income levels, and dental needs of the current patients.
- Payment Methods: Check how patients pay—insurance, cash, etc. This impacts your cash flow.
- Patient Loyalty: Assess patient retention rates. High turnover might indicate underlying issues.
Case Study: Dr. Eli Thornock emphasizes the importance of reviewing patient charts to get a true picture of the practice’s health. He suggests auditing a random sampling of charts to understand patient demographics and their regularity of visits.
Location
Location is everything when it comes to a dental practice. A good location can mean the difference between a thriving practice and a struggling one.
- Visibility and Accessibility: Is the practice easy to find and access? Proximity to main roads and public transport is a plus.
- Neighborhood: Consider the quality of the neighborhood. Are there schools, parks, or other amenities that attract families?
- Market Saturation: Use resources like the local Chamber of Commerce to find out how many competing dentists are nearby.
Example: Dr. Jennifer Kent chose her location for its neighborhood feel and high visibility, which naturally attracts new patients.
Competition
Evaluate the competition to understand your market position and potential for growth.
- Number of Competitors: Identify how many dental practices are in the area.
- Services Offered: Check what services competitors provide and identify gaps you can fill.
- Reputation: Look into the reputation of competing practices. This can give you insight into what patients in the area value.
Fact: Areas with fewer dental practices often offer better opportunities for growth.
Expansion Potential
Consider the expansion potential of the practice. You want a practice that not only meets your current needs but also offers room for growth.
- Physical Space: Is there room to expand the office or add new equipment?
- Service Expansion: Can you introduce new services or specialties that the current practice does not offer?
- Patient Growth: Look at new patient numbers and the potential to attract more patients through marketing and community engagement.
Quote: Dr. Samuel Kwon advises taking things slow and steady. He believes that while you may want to grow your practice quickly, it’s important to do everything in order and ensure long-term stability.
Conclusion
Identifying the right practice involves a thorough evaluation of the patient base, location, competition, and expansion potential. By focusing on these key areas, you can make an informed decision and set your practice up for success.
Next, we’ll discuss Increase Your Hand Speed & Total Production, including how to improve your clinical skills and efficiency.
Buying a Dental Practice Checklist
Increase Your Hand Speed & Total Production
The size of the practice you can buy—and your success after you buy it—will be largely determined by your ability to perform highly-compensated procedures efficiently. Clinical skills and efficiency are key.
Tip: Build a strong record of fast, effective dentistry from the start. This creates a solid foundation for a lucrative career.
Know What Kind of Dentistry You Like
Where does your passion lie? Dental school should help you answer that question. In your first year or two out of school, explore new specialties and cement your clinical philosophy.
Fact: Dentists who focus on their passion and specialty often find greater fulfillment and success in their practice.
Save Cash
After you graduate, your paychecks will likely be larger than anything you’re used to. Resist the urge to live large. Save as much as you reasonably can—you’ll need at least $50,000 in deposits to prove to the banks that you’re ready to buy.
Tip: Financial discipline is crucial. Start saving early to reach your savings goal and be bank-ready when the time comes.
Build Your Network With Other Dentists
In searching for a practice, spend 80% of your time connecting with other dentists. Alumni events, phone calls, or mailers to introduce yourself to experienced dentists can open doors.
Example: Dentists who network effectively often find great practices to buy through personal connections.
Work With Brokers
The other 20% of your search time should be spent with brokers. A good broker can connect you with the right seller.
Tip: Establish strong broker relationships. They may introduce you to sellers looking for a buyer like you.
Hire an Accountant
The second most important hire you’ll make when building your buyer’s team is the accountant. The numbers have to make sense, and that’s what accountants do.
Tip: Hire a dental-specific accountant to help you with financial analysis. They understand the story behind the practice’s numbers.
Do Summary Analysis of Practice
Beyond the numbers, evaluate the practice’s location, equipment, and patient base.
Fact: Your unique insights as a buying dentist are crucial in this summary analysis.
Meet the Selling Dentist
Do you and the seller mesh well? Having a similar clinical philosophy means your transition into ownership will likely be smooth.
Example: A good relationship with the selling dentist can ease the transition and help retain patient loyalty.
Hire an Attorney
A dental-specific attorney is the most important person on your transition team. They have seen it all and will ensure a smooth transition.
Tip: Legal guidance is crucial. Hire an attorney who specializes in dental practice transitions.
Draft a Letter of Intent
The Letter of Intent is legally non-binding but sets the tone for the rest of the purchase process.
Tip: Clearly outline your expectations and get it right with the help of a good attorney.
Find the Best Bankers at the Best Banks
The banker usually matters far more than the bank. The right banker can save or cost you tens of thousands of dollars over the long run.
Tip: Focus on banker importance. They play a critical role in your financial savings.
Apply for Financing
Before the bank can do financial due diligence on a practice, they need to do some on you. Apply for financing to know what you can afford.
Fact: Many dentists find they can afford more than they initially think.
Choose a Loan Only Half Based on Rate
The rate matters, but there are many other factors in choosing the right loan, like origination fees and service requirements.
Tip: Consider all loan factors, not just the rate.
Perform a Chart Audit
Through a chart audit, understand what kind of procedures the practice does most often and whether your clinical philosophy fits.
Example: This step helps gauge how much strain the practice will be under during the transition.
Perform an Equipment Audit
Assess the equipment condition. Is it ancient and in need of an update or state of the art?
Tip: Identify what you can live with until you can get the equipment you’re most comfortable with.
Meet the Team, If Possible
Meeting the team before the purchase is finalized helps ease the transition.
Tip: Team introduction is crucial for a smooth transition, but don’t worry if it’s not possible initially.
Delegate Financial and Legal Due Diligence
Your accountant, attorney, and banker will handle the numbers and legal aspects. This allows you to focus on clinical and managerial stuff.
Tip: Trust your team to perform thorough financial and legal due diligence.
Choose the Right Business Entity
Most dental practices are S corporations, but your attorney and accountant may guide you differently based on your situation.
Tip: Choosing the right business type is crucial for tax purposes and liability protection.
Obtain Asset Purchase Agreement Draft
The Asset Purchase Agreement transfers ownership of the practice to you.
Tip: Have a dental-specific attorney review this document to avoid any surprises.
Get Legal Help on Lease or Building Purchase
Understand the ins and outs of the purchase or lease agreement, whether you’re buying or leasing the practice real estate.
Tip: Legal guidance is essential here to ensure you’re fully aware of your commitments.
Set Up Insurance
Begin the credentialing process with each insurance provider early in the transition. Also, set up your business insurance coverage.
Tip: Ensure you have general liability, workers comp, disability, and life insurance.
Develop Transition Plan
Have a plan for running each aspect of your business. Change almost nothing for the first 90 days, then start making the changes you want.
Tip: A well-thought-out transition plan ensures smooth business operations.
Choose a Dental CPA
This could be the same CPA you used for the transition process if they offer ongoing services.
Tip: A dental-specific CPA can provide valuable ongoing financial guidance.
Meet the Staff
Take your relationships with the staff seriously and make a good first impression. Assure them that this purchase won’t upend their life.
Tip: Building strong staff relationships is key to maintaining a stable practice.
Draft Letter to Patients
Notify patients of the change in ownership. A letter is the most common way to do this.
Tip: Have the selling dentist introduce you positively to maintain patient trust.
Close
Sign on the dotted line. Get the keys. Walk through the door on day one as the new owner of your very own practice.
Tip: Finalize the purchase and ownership transfer smoothly.
Celebrate
This is a significant milestone in your career. Celebrate this achievement with your family and friends.
Tip: Acknowledge this milestone and enjoy your success.
Next, we’ll discuss some Frequently Asked Questions about Buying a Dental Practice Checklist, including how to estimate the value of a dental practice and what it means to buy into a dental practice.
Frequently Asked Questions about Buying a Dental Practice Checklist
How do I estimate the value of my dental practice?
Estimating the value of a dental practice involves several factors. Here are the primary methods:
1. Earnings Multiple Method: This is the most common. It uses a multiple of the practice’s earnings before interest, taxes, depreciation, and amortization (EBITDA). Typically, this multiple ranges from 50% to 100% of the average annual discretionary earnings over the last three years.
2. Capitalization Rate: This method involves dividing the annual earnings by a capitalization rate (cap rate). The cap rate reflects the risk and return of the investment. For dental practices, a typical cap rate ranges from 20% to 25%.
3. Market Approach: This compares the practice to similar ones that have been sold in the area. This method requires access to a database of recent sales, which can be provided by a dental CPA or broker.
4. Asset-Based Approach: This method adds up the value of all tangible and intangible assets, including equipment, real estate, and goodwill.
What does it mean to buy into a dental practice?
Buying into a dental practice means purchasing a percentage of ownership rather than the entire practice. This is common when entering a partnership or transitioning into ownership gradually. Here’s how it works:
1. Ownership Percentage: You buy a stake in the practice, such as 25%, 50%, or another agreed-upon percentage. This gives you a share of the profits and decision-making power.
2. Partnership: You become a partner in the practice. Partnerships can have various structures, such as equal partners or senior/junior partners, depending on the agreement.
3. Buyout: Over time, you may have the option to buy additional shares, eventually becoming the majority or sole owner. This gradual approach can make the financial burden more manageable and allow for a smoother transition.
How much cash should a dental practice have on hand?
Having sufficient cash reserves is crucial for the financial stability of a dental practice. Here’s what you need to know:
1. Financial Reserves: Aim to have at least three to six months’ worth of operating expenses in reserve. This cushion helps cover unexpected costs and ensures smooth cash flow.
2. Cash Flow: Monitor your cash flow closely. Regularly review your accounts receivable and payable to maintain a healthy cash balance. Efficient billing and collections processes are essential.
3. Financial Stability: A well-managed practice with adequate cash reserves can better handle unforeseen expenses, such as equipment repairs or staff turnover. It also provides peace of mind and allows you to focus on patient care.
By understanding these key aspects, you can better steer the process of buying a dental practice and ensure a successful transition into practice ownership.
Conclusion
Buying a dental practice is a significant step that requires thorough preparation and careful planning. Each stage, from assessing financial readiness to finding the right practice and conducting due diligence, is crucial for a successful acquisition.
Due Diligence is Key
Performing due diligence is essential to avoid costly mistakes. As Dr. Loren Anderson noted, failing to understand the patient base or financial health of the practice can lead to a loss of patients or unexpected financial burdens.
Expert Guidance Matters
Having the right team of experts by your side can make all the difference. A dental-specific accountant, attorney, and broker can provide invaluable insights and help you steer the complexities of the acquisition process. As Dr. Samuel Kwon advises, taking things slow and doing them properly can prevent long-term issues.
Smooth Transition for Success
The journey doesn’t end with the purchase. Effective management and a well-thought-out transition plan are vital for long-term success. Retaining staff, maintaining patient relationships, and updating your marketing strategies can ensure a smooth transition and help your practice thrive.
You don’t have to do it alone. At Duckett Ladd, we specialize in dental practice mergers and acquisitions. Our team is here to guide you through every step, ensuring your investment yields the best possible returns.
By following this buying a dental practice checklist, you can confidently steer the acquisition process and set the stage for a prosperous dental practice.
Ready to take the next step? Contact us today to start planning your dental practice purchase!
