The first step in buying a practice is deciding it’s time and that you want to buy a practice. You know it’s time when you’ve had a couple of years of experience under your belt. You’ve observed a doctor manage his practice. You’ve obtained a little knowledge of the management side of practice ownership. You also know a bit about the financial aspect of owning a practice. You have contacted a bank that specializes in dental practice financing. You can also meet with an attorney and accountant who specialize in dental practice transitions. Having your dental banker, attorney and accountant on your team will give you a good start in beginning your quest to find a practice.
You typically find practices for sale through practice brokers. You can search on the internet for various brokers. Brokers advertise their practices for sale on their website. They also advertise in the state dental association websites and other locations.
A professional practice broker can be helpful in many ways. They can provide you with a selection of different and, in many cases, unique practices, including many that you would not be able to find on your own. Approximately 90 percent of those who buy businesses end up with something completely different from the practice that they first inquired about. Practice brokers can offer you a wide variety of practices to look at and consider.
Practice brokers are also an excellent source of information about the practice buying process. They are familiar with the market and can advise you about trends, pricing and what is happening locally. Your practice broker will handle all of the details of the practice sale and will do everything possible to guide you in the right direction, including, if necessary, consulting other professionals who may be able to assist you. Your local professional practice broker is the best person to talk to about your practice needs and requirements.
When you find a practice, the practice broker will be able to answer many of your questions immediately or will research them for you. Once you get your preliminary questions answered, the typical next step is for the broker to prepare an offer based on the price and terms you feel are appropriate. This offer will generally be subject to your approval of the actual books and records supporting the figures that have been supplied to you. The main purpose of the offer is to see if the seller is willing to accept the price and terms you offered.
There isn’t much point in continuing if you and the seller can’t get together on price and terms. The offer is then presented to the seller who can approve it, reject it, or counter it with his or her own offer. You, obviously, have the decision of accepting the counter proposal from the seller or rejecting it and going on to consider other practices.
If you and the seller agree on the price and terms, the next step is for you to do your “due diligence.” The burden is on you – the buyer – no one else. You may choose to bring in other outside advisors or to do it on your own – the choice is yours. Once you have checked and approved those areas of concern, the closing documents can be prepared, and your purchase of the practice can be successfully closed. You will now join many others who, like you, have chosen to become self-employed!
improvements you want, along with maintaining some reserves in case things start off slowly. You need to be willing to work hard and, in many cases, to put in long hours. Unfortunately, many of today’s buyers are not willing to do what it takes to be successful in owning a practice. A practice owner has to, as they say, be the janitor, errand boy, employee, bookkeeper and “chief bottle washer!” Too many people think they can buy a practice and only practice dentistry. Practice owners must be “doers.”
Obviously, you want to consider only those practices that you would feel comfortable owning and operating. “Pride of Ownership” is an important ingredient for success. You also want to consider only those practices that you can afford with the cash you have available. In addition, the practice you buy must be able to supply you with enough income – after making payments on it – to pay your bills. However, you should look at a practice with an eye toward what you can do with it – how you can improve it and make it more productive and profitable. There is an old adage advising that you shouldn’t buy a practice unless you feel you can do better than the present owner. Everyone has seen examples of a practice that needs improvement in order to thrive, and a new owner comes in and does just that. It all depends on you!
We quite often hear doctors asking “what is the rule of thumb for valuing a practice?” We let them know that the rule of thumb is based on a percentage of the last 12 months collections. However, that is not professional valuation analysts nor banks value a practice. The value is predicated on the cash flow of the practice. It’s how much you take home versus how much you produce. If you manage your expenses well in addition to have a well producing practice, your value will be higher. That being a case, there are instances where a practice collecting $750,000 per year and bringing home $325,000 will be worth more than a practice collecting $1,000,000 and bringing home $200,000 per year. That’s because of the cash flow being higher for the well run practice doing $750,000 per year.
An existing practice has a track record. It also has tried and true systems, staff and a patient base in place. The failure rate for taking over an existing practice is very small. In fact, it’s less than 1%. The existing practice has demonstrated that there is a need for a dental practice in that particular locale. Financial records are available along with other information on the practice. Most sellers will stay and help mentor a new owner.
If you cannot find an existing practice in the location of your choice, then we suggest going to plan B and opening up your own practice. In fact, some doctors don’t want to inherit someone else’s staff, systems and patients. They want to develop it all on their own. There’s nothing wrong with this as long as you have the expertise and knowledge in how to do this. Using the right team of experts – dental commercial broker, designer, startup consultant and contractor will help make starting up a new practice much easier.