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Is Buying a Dental Practice Worth It?

Business Development

Do you want to buy an existing dental practice?  

Whether you just got out of dental school or you’re looking to expand your practice to a new location, buying a dental practice might be the right path for you.  

But before you do, you need to understand what to look for when evaluating dental practices for purchase, as well as the pros and cons. You also need to know the essential steps to take to ensure a smooth sales process.  

In this article, we will discuss the pros and cons of buying a dental practice and go over some tips on how to ensure a successful purchase.  

Pros and Cons of Buying a Dental Practice

There are a couple of good reasons why you should buy a dental practice as well as some potential risks you should know about.  

Here are some of the benefits of buying an existing practice:

  • You don’t have to start from scratch. You can inherit an established brand, presence, and patients from the previous owner, meaning you can make money from day one.  
  • You'll know what to expect in your first year based on the profit & loss statements.
  • You will acquire experienced staff, which allows you to run the practice smoothly and provide continuity for patients.  
  • You can make use of existing equipment or systems.
  • You don’t have to advertise as hard compared to if you started from scratch.  

Below are the downsides:

  • Expect to experience patient turnover from 10% to 20% during the transition.
  • Expect some employees to leave.  
  • Prepare for unexpected expenses that will be used to cover office systems, equipment, and dental website.  
  • You will have to deal with your employees' attitudes, poor company culture, low patient compliance, and existing treatment plans.  
  • You will inherit the previous owner’s reputation. If their reputation was bad, you’ll have to rebrand.  

6 Tips To Ensure a Successful Dental Practice Acquisition

1. Ask for Advice from Industry Experts

Dental expert give advice to dentist about practice acquisition.

Before you buy an existing dental practice, ask for advice from industry experts.  

Here’s a list of key experts you’ll want to consult before deciding to buy an existing practice:

  • Practice transition consultant or broker – Talk with multiple brokers in your target area to understand the current market price of your desired location. Although you can buy directly from the owner, a broker can help make sure that there’s synergy between you and the previous owner and that the transition is as seamless as possible.  
  • Dental-specific CPA – Have a conversation with a CPA who specializes in working with dental clients. Ask for their advice on the best tax strategy, best practices from existing clients, cost analysis on hiring and equipment acquisitions, and expense averages. CPAs can become lifelong advisers and planners for your practice's financial goals.  
  • Dental-specific Lender – Dental-specific lenders exist and are experienced in lending money for dental practice acquisition. They know what you need, they're more flexible with terms, and they don't see the goodwill aspect of your practice as invaluable. Local banks, on the other hand, will demand a shorter term, which gives you little flexibility to grow your practice with new technology or other upgrades you want to do.  
  • Dental-specific Attorney – During the transaction, it’s good to have an attorney to represent you. But if you don’t have a budget for that, you can also ask for advice about the buy/sell agreement, establishing your corporation, office lease negotiations, and lender requirements. A dental-specific attorney will provide you with the best advice at the right price.  

2. Think About The Term and Structure of Your Loan

Most terms range from five to 15 years. Depending on your goals, think about how long you’d like your term to be.  

Usually, dentists prefer a longer term because it has minimal impact on cash flow. Plus, it gives you the ability to invest more of your revenue into growing your practice.  

Keep your loan plan for a minimum of five years and consider a loan plan with flexible payment options. Depending on the lender, some offer six to 12 months of interest-only payments.  

Think long-term. The more you can grow your practice the more you can increase your cash flow and the more you can make additional principal payments.  

It’s also important to consider your loan’s interest rate. Rates can be fixed or flexible with a prime rate. It's smart to lock in a fixed rate today for the next seven to 15 years than going for an adjustable rate.  

Although your payment now may be lower with an adjustable rate in the future it will eventually rise. So, you might end up paying more.  

3. Keep Your Values, Beliefs, and Philosophy in Mind

Dental staff taking a photo.

Acquiring a dental practice is not easy. To ensure a successful acquisition and smooth transition, it’s important to lean on your beliefs and experience to help you decide which practice is right for you.  

If you already have a practice in mind, ask yourself the following questions:

  • Does the practice you want to acquire match your professional vision?
  • Do you and the previous owner practice the same quality care?
  • What is the percentage of the practice’s capitation? Is it fee-for-service?
  • Do you and the practice believe in the same quality care?
  • Do the practice's professional values and vision align with yours?
  • Can you continue to provide the specialty care that this practice has been providing?
  • How many patients are referred to specialists?
  • What is the lifetime value of their existing patients?

The more you know about the practice you want to acquire, the better.  

4. Consider Your Options for Practice Acquisition

There are different types of acquisitions you can choose from, including the following:

  • 100% buyout – You purchase 100% of the practice from the seller. The previous owner can stay during the transition period or exit right after the sale.  
  • Buy-in – In this type of sale, you would buy in for 25% to 50% of the practice, and the rest you will buy when the seller decides to retire.  
  • Room to expand – This is when you buy an existing practice to expand your practice and take it to the next level.  
  • Associate with the option to buy – This type of acquisition is when a practice owner sees the value in keeping you as an associate and offers an option to buy in the future.  

5. Determine the True Value of the Practice You Want to Buy

More often than not, there’s a difference between what a seller believes their practice is worth and what you feel it's worth.  

It’s best to determine the market value of the practice you want to acquire. Usually, they sell for 70% to 90% of their last year’s revenue.  

Specialty practices, on the other hand, sell for less because of unpredictability when it comes to the sources of referral.  

However, some sellers put sentimental value to their practice. Put yourself in their shoes and imagine it being their key connection to the community and livelihood for many years.  

Think about how they have patients who are the children or even grandchildren of their patients.  

Maybe you and the seller can meet in the middle and agree on a reasonable price.  

6. Don’t Rush Your Transition Period

Dentist takes his time to ensure a smooth dental clinic acquisition  transition.

Whether the previous owner stays during post-sale or leaves right away, never rush the transition period.  

Take a slow approach to change. Take the time to understand their existing system and processes so you can identify areas to optimize and best practices to keep.  

This will also better inform your plan on how to upgrade the practice you’ve acquired.  

During this time, the practice’s existing patients may go through some form of anxiety because they lost their trusted dentist.  

It’s very important to maintain familiar faces and continue some of the traditions for the sake of familiarity.  

It's also important to make it clear to the practice's existing patients that they're under your care now.  

However, assure them that although they're under your care now, you will strive to provide the quality care they’ve been provided before – or even better.  

Be open to questions and allow patients to reach out to you via email, phone, or a customer feedback form at your clinic.  

This will prevent any confusion and keep existing patients from leaving.  

What’s Next After You Buy a Dental Practice?

After successfully buying a dental practice, the next step you need to take is to create a robust marketing strategy that will help you attract new patients!

It’s best to partner with digital marketing experts who specialize in helping small dental practices achieve business goals and expand.  

At Digital Resource, our digital marketing specialists and SEO experts will work with you to create a custom dental marketing strategy that will put your practice ahead of your competitors and attract more new patients to grow your practice.  

Contact us today to know how we can make this possible!

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