Buying a dental practice can be a challenging process. Is it best to associate prior to an eventual buy-in or buy-out? Can a direct purchase of another dentist’s practice be successful? Can a dentist own right out of dental school or a GPR program? Would a “start-up practice” be the best choice? Let’s explore the options.
An associate process for a partnership or eventual buy-out can be very rewarding. When handled “correctly,” the process can create a seamless transition for a new owner. In situations where the owner-dentist still enjoys practicing dentistry, has several years left before retirement, and wants the opportunity to mentor someone else, it can be ideal for both parties. Associate transitions give the new graduate business experience and may also help him or her pay down school debt while earning the money for the eventual purchase.
However, having an associate is not an option when a practice cannot financially support two dentists and the owner-dentist is not in a position to adjust his or her income until the practice is sold. Another consideration is that it may be an unreasonable expectation for a dentist to work closely with another dentist after working as a solo practitioner for 20 years or more. Associateships create new dynamics in managing team members and patients. Even with the best intentions, these factors can cause the relationship to fail.
With a direct practice purchase, the success is much better than many buyers expect. There is still a transition period available to assist the buyer with the management of the business. A post-acquisition period can take place with the seller in-office for two weeks to 30 days with an additional support period of four months to a year of outside-the-office contact support. Another option to support the transition of patients is a “reverse role” arrangement. This option is where the buyer purchases the practice and becomes the new owner but the dentist selling the practice remains as an independent contractor or associate of a part-time basis. However, it is important that the previous owner be willing and able to handle the shift in responsibility, control, and leadership.
From a lending perspective, there are specialized dental lenders who understand and support the buyer’s financial position. If considering an associate buy-in or buy-out, the time spent working in the practice will be valuable to the lender’s security to fund. There are a few new financing programs for graduates, but the purchase amount is usually limited to $350,000 or less. A buyer with two years or more experience will find many lenders that are able to provide up to 100% of his or her financing needs. The buyer will need a credit score of 640 or better, two years or more of active clinical experience (GPR can count as one of those years), and, if possible, some liquidity (around $25,000 to $30,000). The lender can also provide working capital over and above the practice purchase price to help the buyer purchase the receivables, upgrade equipment, add computerization, and more!
If the buyer has a specific practice model in mind and a high need to “do it himself or herself,” a practice start-up may be the best choice for a purchase. Lenders will look for a viable business plan and are supportive of start-ups lending from $350,000 to $1 million plus real estate in some cases. Always consider that “location” becomes incredibly important if choosing to begin a practice from scratch and hoping for a successful result. A new practice is counting on volume or high numbers of people who need a dentist in the area to build the practice rather than the reputation and stability of a previous owner.
Each method has its nuances that should be considered before deciding the “best” way to purchase. Which one works best for you?
Editor's Note: For more information on the Academy of Dental Management Consultants, please click here.