Top 10 Issues To Consider When Purchasing A Dental Practice

Ontario Dentist – March 2000

The purchase of a dental practice is a time-consuming and demanding process, and complex beyond most other purchases made in one’s lifetime. This article is for those who have decided that it is time to look at purchasing a practice rather than setting up those who will be selling a practice in the future as it offers insight into the buying philosophy of the potential purchaser of your practice.

But, even before you embark on an active search for a practice to purchase, there are preliminary steps you need to take to make the search itself as stress-free as possible.

Firstly, it is important to determine your geographic limits: considerations such as needing to be within 30 minutes of home because of family commitments, wishing only to drive against rush hour traffic, or wanting to be near family or friends. Many dentists are limited in their ability to relocate and this has prevented many from looking at the thriving practices for sale outside of Toronto. The sooner you commit to an area, the more precise your search will be. Driving all over the province to look at practices is very time consuming and it can be difficult to find a basis of comparison when evaluating practices in different regions. So – set your sights on one or two areas and stick to your plan.

Ask yourself how much debt you are prepared to incur – $200,000, $300,000 or more? Plan your finances ahead. Many new dentists have student loans, car loans, new families, mortgages, etc., and they do not wish to borrow a large sum of money for a dental practice at this stage in their career.

It is also important to decide how many days or hours per week you will want to work. Some practices offer part-time hours, which may be more suitable for you if you have other obligations such as parenting or another associateship. Others will demand that you work 50 to 60 hours per week plus some evenings and weekends. Think these issues through carefully. If you buy more than you can handle, you will essentially purchase a practice and watch it become smaller over time.

As well as deciding on the hours you want to work, be aware in advance of the procedures you are willing to perform in your practice; that is, what treatments you perform (endo, ortho, perio) and what must you refer out? Do not overestimate your skills. Problems can occur when dentists take on treatments that they should have referred out.

Once you have established your procedures, decide upon the number of operatories you would prefer to have. How many hygiene appointments can you check per day? What is your daily pace? How much full-time experience do you have? Then, look to the future. Will you be expanding your practice in the future to include other services, dentists or specialists? If you want to own a large practice, think well ahead. Relocating is very expensive and has the potential to be a serious disruption to practice income.

Once you have established this foundation, you will be ready to commence your search for the perfect practice.

And so, I offer my top 10 list of considerations when actually purchasing a dental practice.

  1. Begin with telephone contact with every broker in the business. Many companies can be found in the classifieds section of dental magazines. Call to let them know you are in the market and express your level of commitment to thoroughly investigate practices in the city or town you prefer. Please understand that brokers have more purchasers than practices for sale. In order to receive information quickly, you must make an effort to meet at their offices to get started.
  2. Each practice you consider should have a professional appraisal ready for your viewing. Most brokers ask that you sign a confidentiality agreement stating that both your personal information and the data supplied to you about the other dentist will be protected. This is usually done just prior to viewing the appraisal report, which should include an abundance of operational and financial data on the practice. If a proper appraisal is not available (complete appraisals are usually 50 to 75 pages in length) you are entitled to request that one be performed in order to gather the data you, your accountant and your banker will require to make an informed decision.
  3. A professional appraiser does not mind if you take their report to another appraiser for a second opinion as long as you inform him/her that you are doing so. You will likely pay a fee for this service, as the other appraiser party will not be involved in the sale.
  4. The next phase of your search should include a visit with your accountant. This is the most important step to determine your ability to manage the practice financially. Accountants will also prepare a budget for your personal living expenses and income taxes over and above the expenses of the practice.
  5. You will then be ready to view a practice. This is performed after hours in most instances. Most dentists do not tell their staff the practice is for sale due to the risk of damaging the goodwill you are thinking of buying. Staff and patients have been known to leave practices when rumours about an owner are started because people think the owner has personal, health or financial problems.
  6. You would be wise to verify the information found in any appraisal or report given to you. For example, counting charts in a practice is something you should do. Chart counts will determine how busy you will be in the future; however, it is an unreliable way to value the goodwill of a practice. The revenue earned from patients is a far superior indication of value.
  7. Brokers usually work for, and are paid by, the seller. Accordingly, their duty under agency law is to represent the seller exclusively. This does not mean the buyer goes without representation. You have an accountant, lawyer, banker and other advisors who work for you. It is rare for two different brokers to be involved in the sale of dental practices.
  8. Once you have seen the practice and you have performed your own verification of charts, appointment books, etc., its time for an offer to be drafted. Most brokers use a form that has been reviewed by many lawyers for both sellers and buyers; however, you should seek legal advice before signing anything. Remember that the document is designed to be fair to both parties as most brokers want your business in the future too. Under agency law you are entitled to “full disclosure” of all meaningful business facts about the practice you are purchasing.
  9. The broker will perform most of the negotiations between both dentists. He or she acts as the intermediary between the lawyers, accountants and the financial institution if necessary. This saves the dentist a great deal of time.
  10. Be certain that you have investigated the entire process prior to signing the final offer. If you are not sure, walk away. Do not act too quickly or be put under pressure by anyone who threatens that you will lose the practice. Be absolutely certain that you are ready to act or let it go. There will be many other practices for sale in the future. Do not compromise your career for a poorly made decision.