You’ve arrived at a point where you are ready to take the next step in your dental career.
Whether you are looking to expand your current practice or acquire your first one, there exists at least some implied risk with assuming more overhead. From increased labor and facility expenses to establishing a footprint in a new market, dentists face a series of challenges that can create operational roadblocks toward achieving desired business goals.
If you are a dentist that is considering acquiring another dental practice, there are a few questions that you should consider before arriving at the final decision to complete or not complete the transaction. Today, we are going to explore these in-depth to help you enter the process with greater confidence.
Question 1: Why Do I Need to Acquire This Practice?
As with almost anything else in life, the decision to acquire a dental practice should start with a definitive answer to “why”.
Are you purchasing it for the sake of doing so, or is there a greater motive behind the mission?
For example, many common “why’s” for acquiring dental practices can include:
- Buying a competitor’s practice to increase your footprint in your local market
- Expanding into a new geographic area closer to a significant portion of your current patient base
- Transitioning from working at another dentist’s practice to owning one yourself
- Stabilizing your capacity and workflow through multiple locations instead of one
- Wanting to market your services to more demographics and populations
These are just a few examples of why many dentists decide to buy a dental practice. Once you have determined the “why” that drives your decision to search for new opportunities, you can more closely hone in on the right dental practice for sale that aligns with your overall end goals.
Question 2: Are There Any Outstanding Debts Tied to the Current Practice?
If you are buying a dental practice, the lease agreement may include terms that the new owner assumes the business debt of the previous owner.
Oftentimes, these details are included in fine print or worded creatively to avoid explicitly saying “you take on my debt if you acquire my practice” and risk deterring potential buyers. Having an attorney or an accountant review the financial terms of your purchase agreement can help to avoid any potential trappings that could result in you undertaking more debt than you are able to afford when planning your expansion.
Any healthy business typically has some debt attached to it. When searching for the right dental practice to buy, expecting to find one with absolutely zero outstanding payments associated with it is not entirely realistic.
Instead, work with your accountant to determine how much debt you could reasonably expect to take on as a result of the purchase. If you already have another profitable practice, you may be able to assume these debts more easily than someone looking to purchase their first one.
Question 3: What Investments Will I Need to Make Immediately?
When you are purchasing your new dental practice, you will undoubtedly want to make your own improvements to the facility and its operations. From something as significant as renaming the practice or upgrading all of the equipment to a simple new coat of paint on the waiting room walls, these decisions do require a monetary investment.
As you are exploring your options, be sure to review photos of the practices you are interested in and tour them thoroughly. Be sure to make an itemized list of the investments you anticipate needing to make following the completion of the purchase. You can use these figures to calculate how much you will need to spend out of pocket or obtain a loan to furnish.
Keep in mind that if you do decide to obtain a loan to cover the initial expenses following your acquisition, this will add to any debt that you inherit in the sale from the previous owner. Be sure to consult with an accountant or other financial professional to determine if the total expenses are within your operating budget or unaffordable to sustain the long-term growth of your new practice.
Question 4: What Investments Will You NOT Need to Make Immediately?
As much as immediate investments can factor into your purchasing decision, expenses that you will not need to pay for immediately are another consideration as well. This will provide more insight into how ready an existing practice is to resume operations under your new ownership.
For example, the practice may already have skilled, experienced staff that have an established rapport with current patients. If so, you will not need to spend more on recruiting, hiring, and training new employees.
Question 5: Is the Location Right for Me?
Quite simply, location can cause many practices to sink or swim. If you are operating a dental office on a remote backroad far away from the majority of vehicle and foot traffic, you will miss many opportunities to attract new patients.
While that is a hypothetical example, one that is more concrete is the geographic distance between locations.
If both of your locations are too close to one another, you can risk one location cannibalizing the other. In essence, you become your own arch competitor in your local market, and one location will eventually beat out the other.
Are you buying a new location to add to your existing practice? If so, consider where it is located. You may want to look for offices in neighboring counties rather than one or two towns over.
As a general rule of thumb, higher-populated communities can more easily support multiple practices in closer proximity. Theoretically, one dentist could more easily own two profitable offices in New York City that are less than one mile apart.
In more rural geographic areas, the lower population density is better served by locations that are situated further apart from one another.
Consider the region where you desire to buy a practice. Determine if its proximity is too close to your existing location(s) that it could risk creating too much supply for local market demand. You could also reach out to a consultant with expertise in the type of markets you wish to serve to help provide you with another opinion.
Buy Your Next Dental Practice with Confidence
Our team of CPAs at Duckett Ladd are committed to exclusively providing the dental profession with financial guidance and general business consulting to help dentists like you operate their practices with confidence.
If you are planning to purchase a dental practice in the near future and would like to learn more about how we can assist you, please contact us today.
