Buyer Articles

With so few practices on the market, I often get the question “Should I just start a new dental practice?”  Since I am a commercial real estate broker specializing in helping dentists find new locations as well as being a practice broker, I can give you an educated answer.  That answer is “it depends”.

Here are 10 questions to ask yourself to see if you are a candidate to do a scratch start practice:

1. Do the demographics support another dentist in the area?  (1,500 people per 1 dentist)
2. Do you have the patience to do a startup?  (ADA says it takes 24 to 36 months to break even)
3. Do you have another income, or 12 months of cash reserves, to support yourself while you get your new practice going?
4. Are you good at project management – managing contractors, designers, vendors, etc., to get things going?
5. Have you hired staff before?
6. Are you good at self-promoting and marketing?  You may need to go door to door to get recognition and to get patients coming in.
7. Have you set up insurances, bank accounts, patient financing, etc., before?
8. Do you have good credit and some cash reserves in the bank to obtain a loan?
9. Do you have enough experience (minimum of 2 years) to jump in and get things going?
10. Do you have the fortitude to succeed?  There will be down times when you want to throw in the towel.  You need to fight through those down times to achieve success.

I have helped over a dozen practices get started in their new practices in the past few years.  From finding locations to consulting on the entire setup.  Each practice has achieved break-even in less than 18 months.  If you are on the fence on whether to do a startup, give me a call, and I can help with analyzing your situation.

The very first recommendation I have is that you should be at least 2 years out of school.  I have seen dentists buy a practice right out of school, but I’ve seen the majority of them struggle for two years until they finally figured things out.  Now that I’ve got that out of the way, here are your steps:

• Contact a bank that finances dental practice acquisitions and make sure you can qualify for a good loan.  The days of just having a D.D.S., or D.M.D. and being qualified are gone.  Banks now require decent credit scores, cash in the bank, and in some cases a current associateship.  Try to avoid SBA loans if you can as they can be expensive with early payment penalties.
• The next step is to understand a little bit about practice valuations.  You don’t want to go into a sale not knowing if the practice is worth the price listed or not.  A “rule of thumb” is that a practice is typically worth between 65% and 75% of its’ last 12 months production.  Remember, that’s a rule of thumb.  I’ve seen practices go for as high as 110% of production and as low as 50% of production.  For a book on Practice Valuations, contact me and I’ll send it to you.
• Think about where you want to practice.  You’re probably going to be there a while, so you might as well like the area.   Also, research demographics.  There are excellent demographic sites that sell great dental demographic information for about $500.  It will tell you where the best locations to practice are.
• Put together a good team.  Get referrals for a good dental attorney, a good broker, and a good accountant.  They’ll help you analyze the practice, do the legal work and help you find a practice.
• Study up on practice management and dental financial ratios.  You should know that lab fees should not be any higher than 10% of the practice production.  Or, that staff expense should be between 20% to 25% of production.  Be an informed buyer.
• Be prepared for your due diligence.  You need to know what to look for when you do get to the point of buying a practice.  Is it an older dentist selling that hasn’t done much treatment in the last 5 years?  (buyer beware) or Is it a conveyor belt dentist that has done very spec of dentistry, and then some, on all the patients, so there’s none left for you.  Know how to spot these things.
• Finally, spend some time with a broker before you go look at the practice.  Understand what the practice you are looking at is all about.

Does the broker think it’s honestly a good practice?  Why?  Once you’re comfortable with the numbers, then go take a look at the practice.
By being an informed buyer, you will avoid a lot of headaches and potential problems down the road.  There are practices that are gold mines and practices that you should not touch.  Being educated and knowing the difference is critical in your practice acquisition success.