Planning a Dental Practice Purchase? Consider These Things First

First Things First

There’s no easy way around it; dental practice transitions are a life-altering experience, both financially and emotionally. Whether you’re fresh out of dental school or a several-year veteran, the prospect of owning your own dental practice may feel like the right step in maximizing your career, perhaps the only step. But, if you’re like many aspiring business owners, you’re likely anticipating the challenges involved and can’t help but wonder what you should do to bolster your chances of success.

The first question to ask yourself is, “Where do you want to be?” It’s difficult to identify potential opportunities if you haven’t decided where you would like to live and work. Researching and understanding the demographics of your desired location can (and will) impact your level of success when looking to buy. Additionally, consider what areas of dentistry you specialize in as this carries direct influence over where your services will be desired most.

Funding Your New Practice

The idea of buying a practice sounds like an expensive proposition, so naturally, you may have a few concerns about how you’re going to pay for everything. On average most practices sell for roughly 55-85% of collections, and many factors can influence where your opportunity falls within that range.

If you’re offering less than the asking price, then understand why you’re offering that amount. Are there specific reasons for the lower offer, or are you merely “seeing what you can get?” How you interact with the seller and what you offer them in response to their asking price carries more weight than almost any other facet of this process. It’s important to keep in mind that the emotion of the number can derail the transition.

Assuming you plan on financing the transition, you’ll need to interact with a bank at some point. Simply put, banks are in the business of managing risk. When considering you for a business loan, they’re going to weigh a myriad of factors:   

  • What experience do you have in practice management? What is your production history?
  • Is the existing dentist remaining with the practice? If not, how long will the transition time be?
  • How much cash do you have saved and what is your personal lifestyle expense?
  • What is the potential cash flow of the practice when you are involved?

Patient Turnover

Patient turnover may also be a worry on your mind. Many prospective buyers fear losing a significant portion of the seller’s loyal customer base. However, Dental Economics Magazine estimates that on average, less than two percent of patients leave following an ownership transition. This of course, depends largely on your service and how you decide to handle the transition, but know that your initial cash flow really shouldn’t take the hit you’re fearing.

The Buyer-Seller Relationship

Understanding some of the realities regarding ownership are all well and good, but what does pursuing ownership actually look like? If there’s one takeaway from this, it’s that the buyer-seller relationship is crucial, and it is the most important aspect of a successful transition.

Earlier we talked about how your production and work history could impact your lending. It can also impact the seller’s view on selling to you. They could be looking to hand their lifelong work over to a local, recent graduate with a fresh take on the future of dentistry, or perhaps they are looking for an established owner who’s in the market to expand.

Either way, remember that the current owner has likely poured decades of their life into the business you are proposing to enter. At the end of the day, you will go further by ensuring strong communication skills, remaining humble and representing yourself as a prepared professional in your interaction with them.

Your Transition Team

As an extension of your own efforts, make sure you have surrounded yourself with the right people. Often these deals can include a CPA or financial advisor, attorneys (on both sides), a broker (if the deal was listed), a lender and ideally, a consultant with experience in dental-specific transitions. Regardless of who you choose to engage, make sure you are in control of your team and that they are all dental-specific professionals. This will ensure a seamless transition as one bad team member can have a significant influence on a deal.

The Fear of Failure

One of the greatest hurdles to overcome is the fear of failure. Whether this fear is fueled by a lack of funding, poor planning or simply not knowing where to begin, any business owner must contend with this idea. However, the reality is that very few dental transitions flame out when the buyer acquires a financially stable practice with a well-planned transition. This comes down to the factors discussed above as well as many others.

NDP guides dental professionals across the United States through the process of preparing for and completing practice transitions. Take advantage of our free educational resources or reach out to a member of our team so that we can support your transition goals.