Acquiring a dental practice: Questions and considerations

It’s natural for dental
associates to eventually step out on their own. Whether you’re
looking to pay down student loan debt, create more lifestyle
flexibility or care for patients under your philosophy, practice
ownership remains one of the most rewarding ways to meet your
personal and career goals. But establishing your own practice often
requires acquiring an existing one.

Securing financing is most often a primary focus when an
associate considers acquiring a practice (and rightly so). But
thinking about making an acquisition should first come with some
basic considerations to ensure you find a practice that meets your
financial and lifestyle requirements, and positions you for the
best chances to succeed.

When is the right time to acquire?

Timing is a crucial consideration. If you look to establish a
practice too early in your career, you may not have all the skills
necessary to run your own business. Some associates are ready to
step into practice ownership after just a few years. Others look to
take additional time to become more efficient in treating patients,
to start a family or build a small nest egg. In BMO Harris Bank’s
experience, we’ve found that associates who acquire a practice
after at least two years are best positioned for success.

What questions should you ask before having acquisition
discussions?

It’s important to make sure you’ve considered the
following:

  • Lifestyle. Do you want to be based in an
    urban, suburban or rural area? How many days a week do you wish to
    work?
  • Practice size. Managing a practice of 1,200
    patients is less demanding than a practice of 2,000 patients.
    Consider not only the time required with your patients, but the
    attention required for additional staff. This decision will also
    drive how many days a week you’ll have to work, and the income
    available to support your lifestyle choices.
  • Transition plan with the selling dentists. Do
    you want them to stay on for a period of time to ensure smooth
    transition of patients? Or do you want to institute your own
    philosophies and approach to your patients and staff without
    significant influence from the seller? Regardless, a sound
    transition plan is critical to ensure you retain the patients and
    staff that will maximize your chances of success.

What are the right conditions for both your business and
an acquisition target?

Associates best position themselves, and the practice they’re
working to acquire, for success when they understand the
expectations and timelines of the owner selling the practice. That
means working with the sellers on issues such as patient transition
and staffing.

How can you understand the value of a practice you wish
to acquire?

There are several ways to determine a practice’s value. Having
a valuation prepared by an expert third-party should be high on
your list. In BMO Harris Bank’s experience, depending upon the
practice type, practices generally sell anywhere from 60 to 85
percent of one to three year’s average collections. Many
valuators recommend a cash flow approach, such as capitalization of
income.

What other factors should you keep in mind?

The location of the practice you’re considering — including
accessibility, demographics and competition — as well as the
quality of the facility and the equipment, are crucial in
determining whether it meets your goals.

In the end, acquiring a dental practice is as much a lifestyle
choice as it is a financial one. That’s why it’s essential to
make sure you’re making a decision that’s based on careful
consideration of both your short-term and long-term goals. 

This blog post, republished with permission, originally appeared
in the
winter 2019 issue of the ADA’s Dental Practice Success. It
was written by Kirk Dewart, director of US Healthcare Programs at
BMO Harris Bank, the only practice financing leader endorsed by ADA
Member Advantage. For more information on BMO Harris Bank financing
for dental practices, visit the website at BMOHarris.com/dentist.

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