Points to consider when buying a dental practice

June 13, 2023

Buying an existing practice is usually the best option

It is important to understand the differences between starting a dental practice and buying an existing dental practice. While starting up from scratch may come with a lower price tag, buying an existing practice will usually end up costing less in the long run. This is because you have the advantage of purchasing an already operational dental practice with an immediate patient base and the revenue that comes along from day one.

Gone are the days when you merely had to open the doors and patients would flood in. Over the past year or two the business environment has become much more competitive. It is almost foolish to think that a dentist with no business experience will be able to attract sufficient patients over a short period of time so that he has a viable practice whilst experienced practitioners cannot even grow their practice and are struggling to maintain their existing patient base.

Starting a practice from scratch will generally mean you get exactly what you want in exactly the location you want but the disadvantage is that you will have a huge learning curve in making the practice operational. You will need to set up dental patient management software, accounting software, employ staff, come up with HR policies, established procedure manuals, establish banking arrangements such as credit card/HiCaps , determine your billing/collection policies and organise your accounts with dental supply companies and labs. Even though you may change some of these they are already there when you buy an established practice.

Buying an existing practice where you are currently or formerly worked has some distinct advantages. You know how the practice operates, understand the staff dynamics, have met some of the patients and the patients are also aware of you.

You can’t do it on your own – you need a team

To purchase an existing practice you need to assemble a team of trusted advisors. As a minimum you will need a dental accountant, a dental lawyer, and a dental lender. This professional team should be assembled before you begin looking at practices as they will be able to attend to and advise on the following; a) specialist dental accountant will be able to evaluate the practice, assist with negotiating the best price for a practice, advise and set up the appropriate corporate structures, introduce you to other specialist professionals, advise on bookkeeping and accounting systems, and advise on tax, legal and other compliance issues.  b) specialist dental lawyer will be able to review the sale contract, advise and prepare shareholder, associateship, partnership, practitioner and other agreements, review documents relating to the transfer of the rental lease agreement for the practice premises and assist with the transfer/retention/redundancy of employees. c) specialist dental lender will usually be able to lend more than a nonspecialist because of their understanding of the industry, can provide lower cost and more tax efficient borrowings by separating the amount financed into loans, leases and lines of credit as required and can allocate the borrowings to different entities as dictated by the client’s corporate structure.

You should also extend your team so that you have contacts in the following areas; a) ADAVB which has counsellors who obviously understand your business and can give practical and valuable information on practice management, HR and PI insurance. b) dental supply and equipment companies as well as labs should be contacted so that you can build a relationship with one of their representatives. c) specialist dental insurance companies are not easy to find however it is necessary to get the right advice when it comes to income protection and business insurance. d) dental practice brokers can help with locating practices for sale and you should consider being placed on their buyers list. Compared to any other way of sourcing a potential practice, those practices that are with brokers will at least be able to provide you with reasonable financial information regarding the practice.

What should I ask for?

So that you can properly evaluate the dental practice you should ask for both a dental practiceprofile and evaluation report so you know the details of the business. Also request the historicalfinancial information for the past 2 to 3 years so you can see what the financial results have beenforthe practice. The historical financial information should be no more than 6 months old. Further information that you will be looking for includes patient demographic information from the patient management software, fee schedule, listing of furniture and equipment, lease agreement or whether the premises are also available for sale.

 After reviewing the information and possibly visiting the dental surgery and meeting the practitioner, it is crucial that you get a second opinion from a qualified professional. It is always prudent to involve a specialist dental accountant before you commit to buying as you do not want to find yourself having made a purchase to then learn that the transaction was not properly structured and you paid too much or that your purchase has become a losing proposition. Equally important is also to get a feel for how the dental practice actually operates and the atmosphere or   “personality” of the practice. You want to be comfortable that the environment of the practice fits with your goals, philosophies, abilities and personality.

With a professional team behind you, you should be able to successfully purchase a dentalpractice. Before you start you should be thinking ahead on things like becoming familiar with the dentalpatient management software and on choosing the type of bookkeeping software you want to useand get it set up. Get your banking arrangements established and all accounts set up as well is youronline links. Look at your HR policy including internal controls and employee remuneration andtraining. Get your vendor accounts established for your routine needs such as dental supplies, labs, telephones etc. You want to be prepared to hit the ground running the day you complete thepurchase so you can be working at the chair and not spending all your time on administrative set up issues which should have been completed well in advance.

If you are seriously considering starting or buying a practice, contact Albert Gigl at TADA Services and he will assist you in coordinating your specialist dental team.  There is no charge for your initial consultation and all you need to do is call  0414 928 800 or email albert@tadaservices.com.au for a convenient appointment time.