As a buyer, the most important asset you are purchasing with a dental practice is goodwill. In our experience, if a practice buyer understands the process of a dental practice transition, the entire transaction will be easier and the transfer of the practice goodwill will be successful. Most dental practice sales proceed through the following steps:

STEP NO. 1:  Decide what type of practice you are looking for.

Most dentists have a certain type of practice that best fits them. It is essential to decide what the best type of practice for you is BEFORE you start your search. It is not in the buyer’s or seller’s best interest to spend time and energy discussing or even pursuing a transition for a practice that is not a good fit for both the practice seller and the practice buyer.

What do I mean by not a good fit? If a certain dental practice is mostly focused on very basic single-tooth restorative procedures and the buyer is committed to full mouth reconstruction and sleep dentistry, the pursuit of this practice by the buyer may be doomed from the start. As a buyer, you are purchasing goodwill. It can be challenging to completely change the attitudes of the patients and staff in a dental practice if your style is significantly different from the seller’s. It would be wiser to find a practice that is more in line with your professional vision.

STEP NO. 2:  What practice locations are you willing to consider?

The location of your future dental home is a very personal decision. It is best to determine what areas you will consider before beginning the process. By deciding ahead of time where you are willing to live and work, you will save considerable time, money, and effort.

While deciding on your potential practice location keep in mind areas that are further away from city centers will increase the chances for you to find a practice to purchase. This is because there is usually very considerable competition for practices to purchase near major cities. If there are multiple locations you are willing to consider, your chances of finding the practice of your dreams will increase significantly.

Many rural practices are lucrative financially and, in most cases, there are more of them on the market at any one time. We encourage buyers to be open to as many possible locations as they can. It is said, that it is much easier to find a good practice to buy and make your dental home than to find a good place to live. We at The Houlihan Group have found that to be a fact.

STEP NO. 3:  Where can you find out about practices for sale?

Once you have decided what type of dental practice you are looking for and where you would be willing to look, the next step is to find out about them. It is important to note that the best practices in the most desirable areas, usually never make it to the “market.” These practices are sold through previous relationships with Practice Transition Consultants most of the time. Transition specialists generally have a large list of dentists looking to buy dental practices that we have already talked to. When a practice is going up for sale, we usually have a group of potential buyers in mind. So, our advice to potential dental practice buyers, once they know what they are looking for, is to make sure to stay in contact with dental consultants that specialize in practice transitions.

Some good practices can be found through advertisements in dental journals or on websites, but your chances of finding the practice that is the right fit for you are substantially higher if you have relationships with Dental Practice Transition Consultants.

STEP NO. 4: How do you evaluate a dental practice?

Evaluation of the right fit:  We have discussed fit previously. Fit is an intangible feeling you get when you evaluate a practice. A simple question to ask yourself as a buyer is “Can I see this practice as my dental home?” If the answer is yes, more than likely you have the right fit.

The right fit is critical because, with the right fit, you are almost assured of a successful practice transition. Look for fit before you start to evaluate the financials of any practice you are interested in buying.

Financials:  Evaluating the financials of a practice can be a complex process and we, at The Houlihan Group, would advise you to get professional help, whether that is a Practice Transition Consultant, CPA versed in dental practice transition, or another financial expert.

An expert can calculate what potential profit you will experience from the practice after the purchase and what costs you will have in the form of debt service on the purchase loans. Once you have those amounts you can calculate what your after-debt service profit will be. Then and only then will you be able to evaluate whether this particular practice is right for you financially. Different profit amounts will be desired by different dentists, but you need to know “what you are buying” before you can decide if this is the right practice for you from a financial standpoint. And as with fit, you are wasting time and effort if you are looking at practices where it is impossible to meet your financial needs and goals.

STEP NO. 5: Buying the practice.

Once you have completed Steps 1-4 you will go through the following steps in the actual purchase of a dental practice:

The Letter of Intent (LOI):  After you have done your preliminary evaluation of a potential practice the next step is to make an offer to the selling dentist to purchase the practice. This usually takes the form of a Letter of Intent. A Letter of Intent is a document that says you will pay a certain price to buy the seller’s practice provided some specific conditions are met. These conditions are usually called contingencies.

The Due Diligence:  Once a formal LOI is agreed to by both seller and buyer a due diligence period usually follows. This is a time in which the buyer can and should do a more in-depth evaluation of the practice for sale.  Most times this takes the form of visits to the office and the analysis of additional reports and documentation. Reports on Production, Collection, Dental Procedures Completed, and Practice Demographics are most commonly reviewed. This Due Diligence period usually lasts between 4-6 weeks.

Financing:  Virtually all dental practice sales are financed by a bank at 100% of the sales price.
This requires substantial information gathering on the part of both the buyer and the practice for sale. This can be a very tedious process and requires cooperation on the part of the seller to gather and disburse all of the requested information.

The Legal Phase:  All dental practice sales require a formal Purchase Agreement most often called an Asset Purchase Agreement (APA). These should always be drafted by an attorney well-versed in dental practice sales. Both the seller and buyer need an attorney to review these documents before any signatures are affixed.

The Closing:  The closing is the transfer of funds that takes place between the buyer and the new practice owner. A dental practice sale is not complete until the funds are in the bank account of the seller.