7 Strategies for Buying a Dental Practice: Expert Tips for Dentists

Dental Practice

Acquiring a dental practice means wearing a multi-faceted professional cape. Suddenly, you’re not just a dentist but a multifaceted business leader. You’ll find yourself juggling the roles of CEO, CFO, HR director, and lead clinician simultaneously. A well-established practice needs to adapt quickly to this new reality, balancing the complexities of running a business with the main goal of patient care.

To navigate this process successfully, it’s crucial to be prepared and informed. In this blog post, we’ll highlight some tips to consider before purchasing your dream practice.

1. You’ll need expert guidance

You probably started making connections in the dental world right after you finished dental school. These people can be really helpful now if you’re thinking about buying a practice. It’s a major step, and you’ll want a solid team in your corner.

Who should be on your team?

Practice Transition Consultant or Broker:

A good practice broker knows the dental market inside and out. They can help you find the right practice and guide you through the buying process. It’s important to remember that a significant portion of a practice’s value is its reputation and patient loyalty, often referred to as “goodwill.” A smooth transition is crucial to preserving this value. Brokers typically have a vested interest in ensuring a positive experience for both buyers and sellers, as their reputation depends on it. To get a feel for the market, talk to several brokers and explore different practice options.

Dental CPA:

Having a CPA who specializes in dentistry is like having a personal financial coach with a deep understanding of the dental industry. They’ve done it all – from tax strategies to managing practice finances. A dental CPA can provide invaluable insights into areas like practice valuation, tax planning, and financial forecasting. They can help you make informed decisions about everything from equipment purchases to hiring new staff. Essentially, they’re your financial compass, guiding you toward a prosperous dental practice.

Dental Attorney:

Remember, the broker is looking out for the seller’s best interests. That’s why you need your own advocate – a dental attorney. Their expertise encompasses contract negotiation, lease terms, non-compete agreements, corporate formation, and lender coordination. Engaging a dental attorney ensures your interests are protected throughout the transaction. And because they work with dentists all the time, they can often offer a package deal with competitive rates.

Dental lenders:

When it comes to financing your new practice, dental-specific lenders are your best option. Unlike traditional banks, they understand the unique value of a dental practice, including its patient base and reputation. This means they can offer more flexible loan terms, allowing you to invest in your practice’s growth. Sure, your local bank might be convenient, but they often focus on short-term loans that aren’t ideal for building a dental practice. You need a lender who understands the dental world and can support your long-term goals.

2. Understanding your loan options

You’ll typically have a loan term between five and fifteen years. Aim for a longer term to make your monthly payments more manageable, especially in the early days when you’re building your patient base. Five years is a good minimum to plan for, so look for a loan that lets you pay it off faster if you want to. Many lenders offer options to pay extra or even pay off the whole loan early without penalties. This can be a big advantage as your practice grows and you have more cash flow.

Loan Structure and Interest Rates

You have options when it comes to structuring your loan. Some lenders offer interest-only payments for the first six to twelve months, which can help with cash flow initially. As for interest rates, you can choose between a fixed rate or a variable rate. A fixed-rate locks in your interest for the entire loan term, providing stability. While a variable rate might start lower, it can fluctuate over time. Given the potential for rising interest rates, a fixed-rate loan is often the safer bet for long-term financial planning.

3. Be prepared in case of potential pitfalls

While buying an existing dental practice can be a strategic move, it’s essential to recognize potential challenges. You’re essentially acquiring someone else’s business model, complete with its systems, staff, and patient base. Be prepared for potential patient attrition as loyalties shift, and consider the possibility of staff turnover or the need for significant investments in outdated equipment or office space. Understanding these risks upfront will help you make informed decisions and develop strategies to mitigate them.

A well-crafted contingency plan is your insurance policy against these unexpected challenges. It’s not just about reacting to problems; it’s about proactively preparing for them.

Key elements of a contingency plan include:

  • Identifying Potential Risks: This involves a thorough assessment of your practice, considering factors such as economic downturns, natural disasters, equipment failures, staff shortages, and patient loss.
  • Developing Response Strategies: For each identified risk, create detailed action plans outlining steps to be taken in case of an emergency.
  • Building a Crisis Management Team: Assemble a group of key personnel responsible for executing the contingency plan during a crisis.
  • Regular Testing and Updates: Conduct drills and simulations to ensure the plan is effective and up-to-date.
  • Communication Protocols: Establish clear communication channels for both internal and external stakeholders during a crisis.

4. Your vision must align with the practice

A successful practice acquisition hinges on finding a business that aligns with your professional goals. Carefully evaluate whether the practice’s philosophy, patient demographics, and treatment focus resonate with your own. Consider factors such as the practice’s fee structure (fee-for-service, PPO, capitation), the balance of cosmetic and restorative procedures, and the reliance on referrals to specialists. Thorough due diligence will empower you to make informed decisions and ensure a seamless transition. Remember, knowledge is key when making such a significant investment.

5. Determine the right value

There’s often a gap between what a seller thinks their practice is worth and what a buyer is willing to pay. Most practices sell for around 70 to 90% of last year’s income, but this can vary. For example, specialty practices might be worth less due to factors like relying on referrals. It’s important to see things from the seller’s point of view. They’ve likely built their practice over many years, and it’s often a big part of their life. Plus, the sale might be a significant part of their retirement plans. So, there’s often an emotional side to the deal, in addition to the money. To learn more about practice valuations, read our insightful article X.

6. Take Your Time to Transition

It’s easy to get carried away,  but it’s often better to take a slower approach, especially if the previous owner isn’t sticking around. Take time to understand the practice’s systems, routines, and patient relationships. Remember, patients can feel unsettled when their dentist changes, so maintaining familiar aspects of the practice can help ease the transition. Having both the old and new dentists working together for a period can be invaluable. It helps you learn the ropes, keeps patients comfortable, and prevents misunderstandings.

7. Conduct a due diligence

When buying a dental practice, due diligence is non-negotiable. It’s more than just a formality; it’s your insurance policy against unexpected surprises. Beyond the financial statements, delve into the practice’s patient demographics, staff retention rates, and even the layout of the office. By conducting a thorough investigation, you can:

  • Verify the seller’s claims: Ensure the practice is as profitable as advertised.
  • Identify potential risks: Uncover any hidden issues that could impact your investment.
  • Make a more informed offer: Negotiate a fair price based on the practice’s true value.

This post has covered some essential factors to consider as you explore this opportunity. From understanding the practice’s financials to building your team, there’s a lot to think about. To assist you in making informed decisions, we have

About Our Experts

Fazel Mostashari is a dental practice expert whose specialty is financial accounting, tax planning, and practice purchase and set up for the dental industry. For over 10 years, Fazel has been the driving force behind the success of many dental practices.

As a proud husband to a dentist, he understands the unique challenges of running a dental practice. Together, they run a thriving, multi-specialty practice in the sunny city of Woodland Hills, CA.

If you’re looking for expert advice, set up a consultation with Fazel.
Fazel Mostashari: Dental Practice Financial Expert

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