Buying a Dental Practice

Things to Know BEFORE You Buy

By Philip L. Kempler, DMD, Broker

What kind of practice do you want?

When I ask a potential buyer that question, all too often, the answer is, “Oh, I’m flexible.” That answer tells me they don’t have a clue. I hope the following information gives you some ideas on how to clarify the crucial decisions you need to make before purchasing a dental practice.

First and foremost is the location. 

If you were buying a house, you wouldn’t go to a realtor and ask to see homes in California. No, you’d break it down to either a city you live in or a town where you want to live. It’s the same with a dental practice. I have had to sell numerous offices for dentists who, in a relatively short time, were “sick and tired of commuting an hour back and forth to work.” Look for a dental office within 30 minutes of your home or the city where you plan to live. 

Three reasons why close to home is best:

One, emergency patients can be a great source of practice builders. But if you live too far from your office, emergencies will be more of a hassle than an asset. 

Two, being close to your office gives you more time with your family, reduces your daily stress, and makes it easy to complete paperwork back at the office, if need be. 

Three, an office close to home saves gas and wear and tear on your car. 

Pick a practice where you’ll be comfortable working.

Specifically, if you enjoy a slower-paced environment and want to see only a few patients a day, don’t even consider a practice that sees 20 patients a day. Likewise, if you enjoy the fast pace of being on roller skates all day, you won’t be happy in a small practice. Choosing a dental office that fits your style, sounds obvious, but I see it all the time. 

A practice with “your favorite kind of patients.”

If you enjoy doing implants and cosmetic dentistry, a college town would probably not be a good fit. If the typical patient is in a lower socio-economic class and only wants “necessary” dentistry performed, be sure that’s okay with you. On the other hand, if you prefer to do ideal dentistry and have a high acceptance rate of your treatment plans, choose accordingly. Likewise, if the majority of the patients are of a particular ethnic group, make sure that is acceptable to you. 

Don’t get hung up on one particular item in the budget.

Look at the entire financial picture of the practice. For example, I had a buyer all bent out of shape because the rent was $6500 per month. (He wanted lower rent.)  However, the total overhead of the practice was only 59%, and the dentist was netting $24,000 per month. Look at the complete financial statement. A good Broker can help you get an honest evaluation of the anticipated net income if you don’t have an accountant who is familiar with dental practices. 

Don’t focus on a maximum or minimum purchase price

Find the practice that best suits you, and once you find it, make sure the Broker shows you how the price was determined. Don’t purchase on the “practice potential.” Base your decision solely on the current numbers. And the appraisal should be done according to one of the accepted mathematical formulas used today, not merely a percentage of production, which in today’s dental field, has little or no bearing. No practice priced correctly should be out of your range. 

Let me give you an example. Too often dentists tell me they want to limit the purchase price to $200,000. Yet, in the next breath, they say, “I want to take home $100,000/year, have new equipment, and have digital x-rays.” Well, in a $200,000 practice, it’s not going to happen. Be realistic. Look at a lot of dental practices. And don’t be afraid to spend $300,000 or even $400,000 to buy the right practice as long as there is sufficient cash flow to service the debt and provide you with a reasonable take-home income. A savvy Broker, or dental accountant, should be able to help you make that determination. 

Finally, all Brokers are not the same

Just like all dentists are not the same, so too with dental Brokers. You should demand individual attention and be able to talk to the same person each time you call. Don’t settle for salespeople. Be sure your Broker knows not only about selling a practice, but also about Buying a practice. (It has to be a win, win situation for all.) A good Broker has knowledge of how a dental office operates and knows everything about the practice being sold. Finally, your Broker should treat the transaction as if they’re selling their own dental office, and not just looking for a quick commission.