{"id":248457,"date":"2023-03-27T22:55:51","date_gmt":"2023-03-27T22:55:51","guid":{"rendered":"https:\/\/www.drilldownsolution.com\/?p=248457"},"modified":"2023-03-30T15:17:59","modified_gmt":"2023-03-30T15:17:59","slug":"buying-a-dental-practice","status":"publish","type":"post","link":"https:\/\/www.drilldownsolution.com\/buying-a-dental-practice\/","title":{"rendered":"Financial Considerations For Buying a Dental Practice"},"content":{"rendered":"

Buying a dental practice is the natural next step for many dental associates looking to advance their career.<\/span><\/p>\n

Working for someone else is part of the journey, but it\u2019s usually not the end goal.<\/span><\/p>\n

If you want to build a thriving business, invest in your future, and have control over your time and money \u2013 then buying a dental practice is a great solution.<\/span><\/p>\n

However, the purchase process is quite complex. In this article, we\u2019ve outlined what\u2019s involved in buying a dental practice.<\/span><\/p>\n

Before Buying a Dental Practice<\/b><\/h3>\n

Before you buy a dental practice, it\u2019s important to think about whether you actually want to own a practice. Are you willing to shoulder management responsibilities?<\/span><\/p>\n

When buying a dental practice, it\u2019s also important to consider your goals. Then you can determine the best type of dental practice to invest in \u2013 considering the type of patients and procedures that match your skills and interests.<\/span><\/p>\n

Financing Options<\/b><\/h3>\n

 <\/p>\n

The first step is to investigate financing options to buy your dental practice.\u00a0<\/span><\/p>\n

Bank loans<\/span>: lenders evaluate your loan application based on your credit score, your industry experience, your personal finances, and the finances of the target practice. We can introduce you to dental-specific lenders.<\/span><\/p>\n

SBA loans<\/span>: SBA-backed loans are available for small businesses. This reduces lender risk, making it easier for small businesses to get approved funding.\u00a0<\/span><\/p>\n

Seller financing<\/span>: This is where the seller offers financing to the buyer. In this case, you would pay off the business over time with interest, similar to a bank loan.<\/span><\/p>\n

Analyzing a Dental Practice<\/b><\/h3>\n

Finding the Right Dental Practice<\/i><\/b><\/p>\n

Finding the right dental practice can be difficult and time-consuming. You can reach out to dentists directly, or join industry associations to network with other dentists. You can also speak to dental product reps, or a reputable dental broker.<\/span><\/p>\n

Here at DrillDown we have a large network of dental practice sellers that we can connect you with.<\/span><\/p>\n

Choosing a Specialized Accountant and Attorney<\/i><\/b><\/p>\n

When buying a dental practice, it\u2019s important to choose an accountant and attorney that specialize in dental practice transitions.<\/span><\/p>\n

There are many nuances and complexities that are specific to the dental industry. If missed, it could end up costing you a lot more money.<\/span><\/p>\n

Examining the Practice\u2019s Financial Statements and Tax Returns<\/i><\/b><\/p>\n

When buying a dental practice, it\u2019s important to review the financial data, specifically \u2013 financial reports, tax returns and patient management system data. Make note of any large discrepancies in income, expenses, profit margins, or tax debts.<\/span><\/p>\n

Understanding Key Financial Metrics<\/i><\/b><\/p>\n

Next, you\u2019ll want to review specific business metrics, including asset values, active patients, scheduling, overhead percentage, procedure counts, production by procedures, salary levels, pricing and more.<\/span><\/p>\n

This will give you insight into the dental practice\u2019s financial performance and health.<\/span><\/p>\n

Identifying Potential Red Flags<\/i><\/b><\/p>\n

When reviewing the dental practice data, it\u2019s important to check for any <\/span>red flags<\/span><\/a> or warning signs.<\/span><\/p>\n

Common red flags are low patient retention rates, declining sales, overdue tax returns, large recurring expenses, high-pressure sales tactics, lease terms, staff turnover, and outdated equipment.<\/span><\/p>\n

Understanding the Practice Valuation<\/i><\/b><\/p>\n

When buying a dental practice, the valuation can be calculated in various ways.<\/span><\/p>\n

Although rules of thumb are common, the most reliable is the Capitalization of Earnings method and the Discounted Cash Flow method. Both of these are based on net earnings and future cash flows.<\/span><\/p>\n

Submitting the Letter of Intent<\/i><\/b><\/p>\n

A letter of intent<\/span><\/a> is the next step in buying a dental practice. It outlines the terms and conditions of the agreement between the buyer and the seller.<\/span><\/p>\n

In the LOI, you can request what you need from the seller to perform due diligence, before moving forward with the official contract.<\/span><\/p>\n

Buyer Due Diligence<\/i><\/b><\/p>\n

Due diligence is where you review all the information about the dental business, and check that it\u2019s accurate.<\/span><\/p>\n

If you uncover any problems or concerns, you can address them with the seller at this stage, before proceeding further.<\/span><\/p>\n

The seller may also have questions for you as a buyer.<\/span><\/p>\n

Negotiating the Price<\/b><\/h3>\n

Have your dental CPA or valuation specialist review the purchase price for reasonableness.<\/span><\/p>\n

You may be able to request concessions from the seller, including seller financing, term of seller transition, responsibility for rework, and lease terms, all of which influence the price.<\/span><\/p>\n

Execute the Purchase<\/b><\/h3>\n

What Happens After the LOI is Signed?<\/i><\/b><\/p>\n

After the LOI is signed and due diligence has been performed, the next step is to negotiate the final terms of the purchase agreement. This is the formal contract, and any non-compete clauses or consulting agreements should be discussed.<\/span><\/p>\n

Common Purchase Mistakes and How to Avoid Them<\/i><\/b><\/p>\n

    \n
  1. Not having enough cash to operate the business. In addition to purchasing the dental practice, you\u2019ll need a surplus of cash to pay ongoing expenses like staff wages and rent.<\/span><\/li>\n
  2. Not using specialized advisors \u2013 which can lead to contractual mistakes, or overpaying on the purchase price. This is where a specialized dental CPA and attorney can assist.<\/span><\/li>\n
  3. Rushing through the purchase process without performing due diligence. Take your time to review all the sale information, review patient files, and understand the seller\u2019s reason for selling.<\/span><\/li>\n<\/ol>\n

    Tax Considerations When Buying a Dental Practice<\/b><\/h3>\n

    Choosing the right business structure for tax and liability purposes<\/span><\/a> will help you save money, and protect you as a business owner.<\/span><\/p>\n

    Common structures include: sole proprietorships, partnerships, S corporations, and limited liability companies (LLCs). There are advantages and disadvantages to each.<\/span><\/p>\n

    The business purchase price is allocated based on assets, liabilities and goodwill. This breakdown determines what you can claim as tax deductions.<\/span><\/p>\n

    A specialized dental CPA can help you maximize tax deductions now and in the future with <\/span>tax planning<\/span><\/a>.<\/span><\/p>\n

    You\u2019re an Owner \u2013 What\u2019s Next?<\/b><\/h3>\n

    Now it\u2019s time to hire a great accountant. By using a dental CPA, you can ensure you\u2019re in the best tax and financial position, and ready for the future.\u00a0<\/span><\/p>\n

    In the beginning, we recommend keeping the existing systems in place if possible. That way, you can see what works and what doesn\u2019t work, and then make changes.<\/span><\/p>\n

    We also recommend protecting yourself legally and financially from liability. You can do this by making sure you are current in all of your tax obligations, business insurances, and selecting a business structure with limited liability.<\/span><\/p>\n

    Once you\u2019re up and running \u2013 you can set up an investment plan for your dental profits.<\/span>\u00a0<\/span><\/p>\n

    If you start with one dental practice, with time, you can expand to multiple practices.<\/span><\/p>\n

    Conclusion<\/b><\/h3>\n

    As you can see, buying a dental practice is a complex process. It\u2019s important to work with a specialized dental CPA and other key advisors that you can trust. That way, you can ensure you buy the right dental practice.<\/span><\/p>\n

    If you\u2019re ready to take the next step and buy a thriving dental practice, we\u2019re here to help.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

    Buying a dental practice is the natural next step for many dental associates looking to advance their career. Working for someone else is part of the journey, but it\u2019s usually not the end goal. If you want to build a thriving business, invest in your future, and have control over your time and money \u2013…<\/p>\n","protected":false},"author":1,"featured_media":248480,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[58],"tags":[],"yoast_head":"\nFinancial Considerations for Buying a Dental Practice<\/title>\n<meta name=\"description\" content=\"Buying a dental practice is the natural next step for many dental associates looking to advance their career. 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