What You Need to Know About Buying a Dental Practice
Key takeaways:
- Buying a dental practice allows the owner to get started right away with the security of historical finances.
- New owners may face difficulty in adjusting policies and dynamics in an existing practice.
- New owners may need to update dated offices and equipment.
After graduating dental school, most dentists opt to become associates in the various private, corporate or public service practice settings. However, after several months or even years of being an associate, many young dentists realize they have the skills and abilities to lead their own team and decide to pursue practice ownership.
Dentists considering practice ownership are faced with a complex choice: starting up a practice or purchasing one — and a myriad of factors must be weighed. This decision invariably becomes less daunting once a dentist learns the relative advantages and disadvantages of each option and is able to determine what will work best for them.
Historically, the failure rate is twice as high in starting any small business as compared to buying one. Thus, buying a dental practice may seem like the obvious choice, but it does have its drawbacks that must be considered before taking the next step.
In this article, we will review the benefits and drawbacks of buying a dental practice, but we invite you to explore those of starting a dental practice.
Advantages of Buying an Existing Dental Practice
Get to work right away. The primary advantage of buying an existing dental practice is having turn-key operation upon purchase. This is seen in many ways. The new owner will already have an existing office and equipment, trained and tenured staff, and management and computer systems already in place.
Avoid patient acquisition and intake. Existing dental practices have established rapport with existing patients and are already a presence within the community. Beyond that, the new owner will have immediate patient records, eliminating the headache of intaking all new patients.
Have an understanding of historical and future performance. Practice characteristics and historical financials indicate sufficient demand to continue to support the practice. This can create security in knowing the practice’s historical performance and growth potential.
Utilize seller’s knowledge in transition and mentorship. Another benefit of buying an existing practice is having the seller’s assistance in the ownership transition period. The seller will be able to give you additional insight into the practice as a whole and provide post-acquisition mentorship.
Locate opportunities for increased cash flow. When acquiring an existing practice, it is good practice to consider how your services may differ from the previous owner. If the seller referred patients out for certain services but you are able to do those services, this can be an immediate increase to cash flow.
Disadvantages of Buying an Existing Dental Practice
In many respects, the disadvantages of buying a practice are the advantages of starting a new practice from scratch.
Updates may be needed. If you buy a practice that is more than a couple years old, you may need to update due to inadequate or antiquated office design or condition and the possibility of not meeting OSHA, ADA or other regulatory guidelines. Take the age and working condition of dental equipment or business systems into consideration as you determine what areas may need costly improvements.
Adapt to inherited reputation and dynamics. With an existing business comes all of its history. There are inherent risks associated with the actions of the previous owner or staff. If there is negative history, you may have to work to cast a new, positive light on the business. A buyer will have to adapt to unknown staff and/or patient conflicts.
Altering the seller’s policies and business structure. Buying an existing practice means you will inherit the previous owner’s policies and business structure that may be difficult to change immediately. You may also encounter an inadequate fee schedule in an environment where it may not be prudent to increase it. The extent of patients covered by managed care plans may be higher than desirable.
Before You Make Your Final Decision…
It is quite obvious that a dentist must closely examine all pros and cons in the framework of his or her personal situation, goals, preferences and/or constraints. However, it must be emphasized that buying an established, profitable and reasonably priced practice presents far more immediate operational advantages and financial benefits.
For many dentists, an instant patient base, a tenured staff and immediate, quantifiable cash flow is far too tempting to pass up. Especially if there is a practice for sale in the area of a dentist’s personal and professional choice, it may make more sense to purchase it rather than to pursue a start-up.
Whatever option you go with, we at Panacea Financial are here to help. If finances are the main thing holding you back from buying a dental practice, we understand the intricacies of buying existing practices and can support you every step of the way. If you are needing guidance in other areas of your purchase, visit our Build Your Team page to get connected with experts who can help you achieve your goals.
Panacea Financial, a division of Primis. Member FDIC.
