Overview

There are numerous considerations to evaluate when purchasing a dental practice. While some of these considerations are to ensure you have a successful transition, others will be driven by your dental lender. Your dental lender will want to see, among other things, that you have sufficient cash flow for your own needs (e.g., dental school loans) and to service the practice loan.

Are the collections the last few years stable and above $500,000?

Dental practice lenders will be focused on seeing consistent collections the last three years.  Of course, as a dental practice buyer, you would like to see an upward trend.  You should also look for dental practices with at least $500,000 in annual collections.  Anything less than that and you may have insufficient cash flow to pay your dental school loans, living expenses, and practice loan; thereby making it more difficult to obtain financing for the dental practice.

Is the dental practice located near or around a place you’d be happy to live?

You are effectively marrying your dental practice.  It will be difficult to extricate yourself at a future date, especially with all the time and effort you will be putting into your dental practice.  You should be sure you and your significant other would be happy to live where the dental practice is located (or the commute is reasonable).

Is the overhead of the dental practice above or below the national average?

The overhead of a dental practice can provide a meaningful data point.  In essence, it tells you the profitability of the practice.  The national average for dental practices, including all specialities, is approximately 60%. As such, as a general rule, if the dental practice is higher than that percentage, it could be a sign that the dental practice is not run well and you should investigate further.  A well run dental practice should have expenses for (a) employees and (b) lab and supplies at approximately 30% and 10% of collections, respectively. These expenses should be among the first you check when you begin digging in.

Note that understanding the profitability of a dental practice is not as simple as just asking the seller for a profit and loss statement and checking the net income.  There are dentist-specific expenses that will need to be accounted for and potentially adjusted to arrive at a fair representation of the dental practice’s net income.

Do the seller and you have similar personalities and styles?

While this may be one of the “softer” factors and hard to ascertain, it is one of the most important.  You should meet with the seller to better understand whether he or she has a similar personality, values, and clinical diagnosis philosophy.

Are your clinical skills comparable to the selling dentist?

A critical question to ask yourself is what procedures is the selling dentist performing that you cannot?  You want to have clinical skills that are comparable to the seller.  The typical rule of thumb is you should be able to perform at least 80% of the dental procedures the selling dentist has historically performed.  Indeed, most dental lenders will also be checking, based on your old production reports, whether you have similar clinical skills as the selling dentist.  Conversely, you’ll also want to know if you can perform clinical procedures that the selling dentist refers out as that is a value add proposition for you.

How is the facility and the dental practice equipment?

You must visit the dental practice to see first hand the facility and dental equipment.  How is the signage and physical appearance of the building?  Is the equipment old and dilapidated?  As a buying dentist,  you’ll want to have a firm understanding of the capital outlay that will be necessary to get the dental practice up to date.  Many dentists towards the end of their careers stop investing in their dental practices.  Changing the practice management software is one thing, but having to switch to digital or replace all the dental chairs is another.

PPO v. Cash Patients?

The patient pool will impact the profitability of your dental practice.  The blend of insurance companies and cash paying patients impacts revenue.  Are many of the patient insurance carriers on the higher end of the reimbursement scale or the lower?  If lower, then naturally you will have to perform more dentistry to keep collections stable.  If the practice is purely fee for service, which is becoming increasingly rare, you may be willing to offer a premium purchase price given how difficult it is to acquire that customer base.

Is the dental practice owned or leased?

As a buyer, you’ll need to understand if you can stay at the current location and for how long.  Location is paramount and is a principal consideration for many patients.  You do not want to acquire a dental practice and be told by the landlord that the lease expires in 6 months with no option to renew.  And if the seller owns the facility, you will want to start those discussions immediately to better understand if the practice and facility are a package deal or can be sold separately.