Buying Tutorial
Everything you need to know about buying a dental practice
Buying a practice is one of the biggest steps you’ll take during your career as a dentist. As with any life-changing decision, there’s a lot to know beforehand so you can make the right choice. Unlike buying a car, you absolutely have to get it right on the first time.
We know this because we’ve lived it. IPS was formed by dentists FOR dentists so that they can have someone walk them through this process so they can get the practice best matched to them.
Over the years, we’ve produced a ton of content to help buyers figure out what they should look for -- and how to create an environment that breeds success after you transition. We thought it’d be a valuable resource to have all these tips and lessons in one, easy-to-search place.
How to use this guide
If there’s a topic that speaks to you (say, learning the best clinical style for your new practice, or setting financial goals), click the link at the end of that section. There, you’ll find an even deeper dive on that subject -- with plenty of useful info that might not have been able to fit in the bigger blog.
Are you ready to buy a practice?
Whether you’re a new graduate, you’re tired of working as an associate, or you simply want to buy another practice, finding the right practice can be a challenge. The data supports this. The ability to own their own practice is one of the top three factors that attract people to the profession. In fact, a 2016 study showed that an overwhelming number (87.5%) of dental school seniors listed the opportunity for self-employment as an important factor in their reason for pursuing dentistry.
Yet the rewards of ownership are clear. Dentists who own their practices enjoy greater flexibility in their schedule, the autonomy to direct their ideal treatment plans, and increased opportunity for financial reward. Despite these advantages, many dentists we meet feel overwhelmed by the process of evaluating and purchasing a practice. Only 12% of those same seniors we mentioned earlier felt well prepared for running a practice. So why the mismatch? It’s because most of what you learn in dental school doesn’t focus on the business side of owning a practice.
If you’re looking for more information, download our FREE, 45-page Ultimate Buyer’s Guide E-book.
1.0 FOR PRACTICE BUYERS
1.1 SELF-ASSESSMENT: ARE YOU READY TO BUY?
Before you can start looking for a practice, there are a number of important questions to ask yourself. Depending on where you are in your career, these questions will be slightly different.
In some rare cases, a dental practice may be purchased by a recent graduate (less than two years out of school). If you are highly confident in your clinical skills and you have access to financing, then perhaps you’re ready to buy a dental practice.
Many of the dentists looking to buy practices today are currently practicing as associates and looking to purchase their first practice. Most lending institutions require that a dentist have at least two years of clinical experience before financing a practice acquisition, and most doctors want this experience to learn and gain confidence in their clinical skills.
1.2 IDENTIFYING YOUR GOALS
Here are a few questions to help you think through your goals. For a more detailed discussion of these goals, download our FREE, 45-page Ultimate Buyer’s Guide E-book.
PERSONAL GOALS
- Have you found a location you could live and work for the long-term?
- Would you be flexible about relocating?
- How important is a flexible schedule that you control?
FINANCIAL GOALS
- Do you have a budget?
- Will your current practice situation meet your long-term financial goals?
CLINICAL STYLES
- What are your most important clinical beliefs?
- What, if any, specialty areas would you like to focus on?
- Does your current practice situation allow you to focus on your desired clinical goals?
Of course, these questions don’t cover everything. Other considerations include whether you want to operate a solo practice or buy into a partnership with another dentist (or dentists). At the end of the day, you have to carefully consider whether you’re ready for practice ownership! Speak to your trusted mentors and advisors.
Want to learn more?
This post will teach you
- How to budget
- What your monthly income needs to look like
- The right credit score to apply for a loan (and how to get there)
The financial goals you’ll need to reach before buying a practice
1.3 THE DENTAL PRACTICE AS A BUSINESS ENTITY
When you purchase a dental practice, the value of the equipment and the build-out (dental-specific improvements to the space) is only a small percentage of the price.
Generally, intangible aspects account for 60% to 80% of the practice. These intangible aspects include reputation in the community, relationships with patients, goodwill (the value of the patients’ continued patronage of this particular practice), and restrictive covenants (so that the seller cannot open a new practice across the street and take her old patients).
As you will see, what you are really purchasing is a revenue stream based on aspects that cannot be measured directly.
This is why trusting your gut is so important. If you don’t believe in the transaction, then the value of the practice for you is very low. As a dentist, a consultant, and a broker, I have seen dentists transition successfully into a new practice so many times that my confidence is very high. But you must believe in the deal as well!
1.4 HOW DENTAL PRACTICES ARE VALUED
The value of a dental practice is what a willing buyer would offer a willing seller under the prevailing market conditions at the time of the transaction. This is simple but profoundly true.
In practical terms, however, those who appraise practices can generally predict with a high level of accuracy what a willing buyer would be willing to pay. There is an art and a science to valuing a dental practice. On the science side, we use several fairly straightforward guidelines and formulas. You can plug the numbers in and…voila! The art side of the equation is where things get tricky.
Want to learn more?
In this post, we’ll teach you
- How to value your dental practice
- What ‘multiples’ means (and why it’s extremely relevant to you)
- Additional considerations when listing your practice
1.5 HOW CAN I BE SURE THAT I’M GETTING A GOOD DEAL?
At the end of the day, cash flow is king. It only makes sense to buy a dental practice if you can make enough money in the practice to pay the overhead, pay the bank, and still generate a reasonable income for yourself and your family. If a practice is valued correctly, it will support you and your family.
2.0 BEGINNING YOUR SEARCH
Now that you’re ready to look for a practice, here are the first things you need to do to put yourself on the path to finding your ideal practice!
2.1 PREPARING YOUR FINANCES
When you buy a house, you need to know how much you can afford. Of course, unlike a house, the point of buying an existing dental practice is that it’s already profitable, so you can take home an income immediately.
It is a good idea to speak to a banker who specializes in dental practice finance as you begin your search. They can help you get your finances in order, deal with any potential problems (like a low credit score), and give you a good idea about the size of practice they would be willing to finance for you.
Relationships are key. It’s better to have a relationship with a banker (and a broker) before you find a practice than flipping through the journals trying to find someone when you absolutely need them.
Want to learn more?
In this post we’ll teach you
- How to budget
- What your monthly income needs to look like
- The right credit score to apply for a loan (and how to get there)
The financial goals you’ll need to reach before buying a practice
2.2 SOLO OWNERSHIP VS A PARTNERSHIP
When you’re thinking about buying a dental practice, there are two primary paths to ownership: a solo dental practice or partnership. Will you buy 100% of the practice or less than 100%?
We are all familiar with these ownership models, especially as group practices gain popularity. 30 years ago, nearly all practices were operated by a solo dentist. Today, as practices grow, the owner dentist may decide to bring on additional dentists to continue growing the practice.
As such, you’re likely to have the opportunity to purchase part of a practice. This blog post compares the two most basic forms of dental practice ownership.
Want to learn more?
In this post you’ll learn
- The pros and cons of solo ownership and partnerships
- Which model may be right for you
- How to decide
Deciding between Solo ownership and a partnership for your dental practice
2.3 START LOOKING FOR YOUR IDEAL PRACTICE
Look through every resource. The Dental Trader and Dental Shopper, the CDA and local dental societies websites, and, of course, www.integritypracticesales.com.
There are many brokers with many practices, and many journals and dental magazines that list hundreds of potential offices. We suggest you contact one of our agents in the area you are focusing on. This way you have someone to answer your questions AND someone to keep you in mind if they find a nice practice for you to look at BEFORE we start marketing the practice.
Be the first to hear about practices that meet your criteria by joining our ‘inside buyer’ list. To join the list, simply fill out the form here and give us some information about what you’re looking for.
2.4 EVALUATING A DENTAL PRACTICE
Once you identify a practice that might work well for you, here’s what we suggest you review prior to making an offer.
Keep in mind that the actual “due diligence” phase of buying a practice (verifying the cash flow, charts, lease, bank approval, etc.) comes after you submit a letter of intent.
Want to learn more?
This post will teach you
- What charts to look at BEFORE you buy
- Understanding other circumstances NOT on the chart
- How to integrate your style of dentistry
How to review patient charts before buying a dental practice
2.5 SIGN A NON-DISCLOSURE AGREEMENT
Once you identify a potential practice (and often well before), you will probably need to sign a Non-Disclosure Agreement (NDA).
Rumors have a way of spinning out of control, and proper introductions to patients, staff, and the community can go a long way in making a transition successful. The NDA protects the seller and future buyer’s reputation and supports the foundation of trust central to every successful practice sale.
2.6 READ THROUGH THE PROSPECTUS
Most brokers provide a prospectus with practice information and pictures. This information will be correct to the best of the broker’s knowledge – but you should always verify the information in the due diligence phase.
At this stage, discovering the facts is only half the challenge – the other half is interpreting the facts.
Consider buying a house. You’re touring homes with your real estate agent and you come across a decrepit home with peeling paint and a severely overgrown yard, but it’s in a great neighborhood. What do you see? Do you see the worst home in the neighborhood and demand an explanation from your real estate agent? Or do you see a fixer-upper with tremendous potential for you to put your stamp on?
There is no right or wrong answer here. It’s completely up to you.
Perhaps you want the move-in practice that cash flows well, has every system in place, looks amazing and would require very little effort on your part except for showing up and seeing patients. Or maybe you’re hoping to buy a real fixer-upper practice with tremendous potential for growth at a value price.
Most likely, you want somewhere in between. The fundamentals need to be strong, but some issues can be seen more as missed opportunities than fundamental problems with the practice.
Think about your ideal practice. At this stage, you should look at the practice like you might initially evaluate a house for your primary residence. Does the practice meet your requirements?
- Could you picture living and working in this area? How’s the commute?
- How does it fit your “buyer profile”?
- Do you like the look, and feel of the practice? Remember that old flooring, paint, and landscaping can be replaced, but parking and layout are typically hard to change.
- Does the estimated buyer’s net income meet or exceed your budgetary requirements?
- Does the number of practice days per week match your preferred schedule?
2.7 VISITING THE PRACTICE WITH THE BROKER
Once you decide that the practice meets your basic criteria, it is time to view the practice. This is generally done after hours because of the confidential nature of most practice sales.
2.8 MAKING AN OFFER
This letter spells out the basic details of the sale including a good faith deposit, price for the practice, contingencies, and expected close date. Again, this letter is often required before the seller will give you all of his or her personal financial information and begins the official due diligence period.
2.9 DENTAL PRACTICE SCHEDULING
Once you have a signed Letter of Intent, it’s time to take a closer look at your potential new acquisition’s dental practice scheduling. After all, due diligence is one of the most important aspects of preparing for a successful dental practice acquisition.
There are several important indicators that offer insight into practice performance. In this post, we’ll look at how to assess the dental practice scheduling of your new acquisition. As part of reviewing the schedule, you should take a look at both the appointment book and the recall system.
Want to learn more?
This post will teach you
- How to analyze the existing schedule
- What most dentists miss when looking at a schedule
- How to assess hygiene appointments
2.10 BUILDING YOUR TRANSITION TEAM
The most important piece of advice across the board is to hire experts who specialize in working with dentists. Every professional who specializes in working with dentists can tell you horror stories about dentists who had their family attorney get involved with a practice sale.
We know dentists, and we work with their issues every day. We know how to help you be successful.
- Bankers: If you’re not already working with a lender, get in touch with a banker who specializes in practice transitions. (We have a helpful list of trusted lenders here.) The banker’s first obligation is always to you as the buyer and not to the broker, at least insofar as financing a bad deal would be bad for their bank. They are in your corner.
- Dental CPA: Consider retaining a dental CPA to assist with financial and tax details. The bank will do this at “no additional fee”, but if you want extra protection you can hire an accountant for a second look.
- Dental Attorney: Retain an experienced dental attorney to review the transition details.
Want to learn more?
In this post we’ll teach you
- How to rehire your staff
- Why listening is such an important first step
- How to handle unused sick days, vacation, etc
2.11 DUE DILIGENCE
nce you have a signed Letter of Intent, it’s time to take a closer look at your potential new practice. Due diligence is one of the most important aspects of preparing for a successful transition.
To get a detailed run down of the due diligence process, download our FREE, 45-page Ultimate Buyer’s Guide E-book.
Financial Review: The first step in evaluating a practice that you think you want to purchase is to review the practice financials You should already have determined that – based on the practice prospectus – this practice could support you and your family after you pay all of the practice expenses and the bank loan. Now it’s time to double check all the figures.
Patient Charts and Clinical Review: The next step in evaluating the practice is to review the patient charts. Charts can tell you what type of dentistry the seller performs, how the practice cares for and follows up with patients, how patients are scheduled, and how the practice makes financial arrangements.
Advertising and New Patients: Evaluating the marketing of the practice can tell you what kind of potential the office has and how much investment, if any, you’ll need to make to keep the new patient flow going.
Scheduling: Review the Appointment Book and Recall System. Look at how the day is scheduled. Would you be comfortable doing that dentistry? If they place a crown every 15 minutes, do think you could keep up? Can you picture yourself working their schedule? While schedules are flexible, this can be a deal killer.
2.12 PURCHASE AND SALES AGREEMENT (PSA)
As you complete due diligence, your attorney will be working with the seller’s attorney to finalize the terms of the deal. Once you are happy with the practice, it’s time to sign the Purchase and Sale Agreement.
The traditional terms for a covenant not to compete (the restrictive covenant) prohibit the seller from practicing within 15 miles for 5 years after the sale, but this will vary greatly depending on whether it’s a rural or urban environment and other factors.
2.13 CLOSING THE DEAL
As you prepare to close the deal, you’ll need to set yourself up as a proper business entity. At Integrity Practice Sales, we will assist you with getting up and running in your new practice.
Buying a dental practice is a big step to take, but the personal and financial rewards are great. We have seen it work so many times and are confident that you too can succeed as a practice owner.
Be the first to hear about practices that meet your criteria by joining our ‘inside buyer’ list. To join the list, simply fill out the form here and give us some information about what you’re looking for.
3.0 SO YOU'VE BOUGHT A DREAM DENTAL PRACTICE: NOW WHAT?
3.1 Clinical styles, confidence, and how they fit together
Understanding successful dental practice acquisition means also understanding that we all have different clinical styles and beliefs. Finding a practice that is close to your style can make the transition much smoother. That being said, in my experience, almost any dentist can work in almost any practice … and transform almost any enterprise to their style over a few years after a dental practice acquisition.
Want to learn more?
In this post, we’ll teach you
- How to build clinical confidence
- How many chairs to work out of
- Setting clinical non-negotiables
- How specialties and special training should be integrated
4.0 COMMUNICATION WITH YOUR PATIENTS
Communication is like cologne, a little goes a long way. You don’t want to overwhelm your new patients with a ton of information, but ensuring that you’ve got at least some report with them IS important as you move forward with your new practice. That doesn’t always come naturally, is it best to talk to them as they schedule appointments? Do you send out gifts? While these might help in some ways, overwhelmingly the most powerful tool at your disposal is a great transition letter.
4.1 How to write a perfect practice transition letter in 8 steps
We’ve created an easy-to-follow, 8-step process so that you can write a transition letter that will help introduce yourself to your new clients, ease the transition, and assuage any fears that they may have. It’s an instrumental piece at the start of your practice.
Want to learn more?
In this post we’ll teach you
- What you’ll need to include in your letter
- What photo you’ll absolutely need to include
- What to include in a SECOND transition letter -- and when to send it.
How to write a perfect practice transition letter in 8 steps
Buying Guide
1.0 For Practice Buyers
1.1 Self-Assessment: Are You Ready To Buy?
1.2 Identifying Your Goals
1.3 The Dental Practice As A Business Entity
1.4 How Dental Practices Are Valued
1.5 How Can I Be Sure That I'm Getting A Good Deal?
2.0 Beginning Your Search
2.1 Preparing Your Finances
2.2 Solo Ownership VS A Partnership
2.3 Start Looking For Your Ideal Practice
2.4 Evaluating A Dental Practice
2.5 Sign A Non-Disclosure Agreement
2.6 Read Through The Prospectus
2.7 Visiting The Practice With The Broker
2.8 Making An Offer
2.9 Dental Practice Scheduling
2.10 Building Your Transition Team
2.11 Due Diligence
2.12 Purchase And Sales Agreement (PSA)
2.13 Closing The Deal
3.0 So you’ve bought your dream dental practice: Now what?
3.1 Clinical styles, confidence, and how they fit together
4.0 Communication with your patients
4.1 How to write a perfect practice transition letter in 8 steps
Do You Have Other Questions?
Be sure to visit Buyer FAQ to answers to the following questions
- Why should I buy a practice rather than start one?
- How are dental practices priced?
- What happens when I find a practice I want to buy?
- Why should I go to a business broker?
- Do I need an attorney?