Purchasing An Established Dental Practice
The decisions you make in early career may very well control your future destiny. How you feel, what you decide to do, and ultimately what you will contribute, all help to create what you will become. Too often, early-career dentists make unconscious decisions about the initial approach to practicing dentistry. Many face the challenges of significant student loans, family obligations and survival, jump into early career without ever deciding where they want to end up. In a short period of time, they get caught up in current events. For many, these events overshadow the ability to stop and decide which direction is actually right for the future.
SHOULD I TAKE A JOB, DO A SCRATCH START, OR PURCHASE A PRACTICE?
Purchasing an already established dental practice can be one of the most important decisions you will make in your entire career. You will be glad to know that the track since the overwhelming majority of dentists that purchase and established practice are economically light-years ahead of those who enter (or remain in) job-only situations or attempt to set up practices from scratch. With that in mind, the following information should help you with the decision-making process.
Where do you want to live? Do you enjoy city life or rural, big city or small, suburban or downtown? I deal with many dentists each year who after many years in practice, have decided to sell their practices and move to the area that they always wanted to be, but for some reason did not. Location, then is definitely an important consideration when examining your personal needs. One thing that has been true since I started in the transition consulting business over 33 years ago, and that is doctors who acquire practices in small (or even rural) areas do better economically than the vast majority of dentists who practice “elsewhere”. There’s far less competition, a
lower cost of living, and many doctors in the serious tell me that patients appreciate and respect them as professionals perhaps more so than in areas that seem “flooded” with dentists. It’s just something to think about.
FINANCIAL OVERVIEW OF THE PRACTICE
Make sure that the purchase price of the practice reflects fair market value. In fact, a formal valuation of the practice is a good investment for a purchaser to consider prior to purchasing, and can be provided through using services of an experienced transition consultant. It’s rarely possible to look strictly at a doctor’s tax returns or profit loss statements to determine whether the appraised were selling price being asked will “work” for you as a buyer. I spend a great deal of time going back-and-forth with selling doctors in requesting more information regarding certain expense items shown on their various practice financial reports. It’s crucial for you to know how much net income you can expect to make after paying all of the real and necessary practice expenses, including the cost of the payments on the practice.
HOW MUCH INCOME DO YOU NEED?
A useful “rule of thumb” for buyers as to seek practices that are currently (or potentially) collecting 4X the amount of net income needed to pay current living expenses & live a reasonable lifestyle in the process. This specific formula-multiple may very from one practice to another (depending on the real-net income of the practice), but in general the formula works well. If for example your annual income needs to be 150K, then you should focus on practices collecting 600K or more annually.