So you’ve finally finished dental school and are looking for somewhere to practice your hard-learned trade. Building a space for your dental clinic appeals to you because you would be able to have everything just the way you want it. But that would take time and resources (i.e. money) that you don’t have at your disposal.
Although you wouldn’t be able to design everything, buying an existing practice comes with some benefits. Follow this step-by-step guide to buying an existing dental practice to feel confident in your new investment.
It takes a lot of brains to make it through dental school, but it might not train you to be a savvy business person. You may be extremely focused on helping patients achieve better dental health, however, there’s a litany of issues that need to be addressed that you may not realize. For that reason you need help. Once you have a place or two picked out to buy you need a dental attorney, a dental accountant, a transition consultant, and a professional practice lender.
These experts will assist you in reviewing what is called “the practice prospectus” and identify problems in the practice or business side of things. They will also smooth over the practical, logistical, legal and financial aspects of the transition.
Come Up With a Budget
This doesn’t only pertain to what you will spend to buy the practice, building, equipment, although those things need to be considered. Think about how much you will have to earn from the practice to put food on your table and cover those pesky student loans. If you have your eyes set on a few practices to make an offer on, this can help eliminate the ones that aren’t economically feasible.
Other expenses, like paying former dentists or staff to ease the transition, are also common. Discuss your budget with your dental CPA and a banker to come up with supplemental financial flexibility.
Look for Potential Spaces
While the chances of finding a dental practice that completely fits the image in your head are very slim, it doesn’t mean that adjustments can’t be made. But first, you’ll have to tour your prospective spots, ideally toward the end of the day or after hours.
At your initial meeting ask the seller questions about what the place is like when it’s busy, how many patients have the practice seen over the last two years, and how many staff members there are. This will give an idea of what a day working there would be like and whether that location is growing, stable, or shrinking. While a failing business might come cheap, it also might need more work in the area of promotion.
You will get a better sense of whether your budget is realistic or if you need to reevaluate.
Make the Seller an Offer
Once you and your advisors have signed off on the practice’s prospectus, you will need to draft and sign a letter of intent to the selling dentist. This non-binding declaration shows the selling dentist that you are serious about purchasing their practice. In the letter of intent (LOI), you and the seller should at least agree on what assets will be included and excluded in the sale, the closing date, and the price tag. Depending on what you and the seller have previously discussed, more details can be included in the LOI.
Additional terms not stated and agreed to on the LOI can be ironed out by the two sides before the signing of the final practice purchase agreement.
Get a Practice Purchase Loan From Your Bank
Your CPA or attorney will know the best institutions with experience lending money to dental practices. These banks will probably have specialized lenders dedicated to this type of loan and will assist you in the application process. Apply to a few banks to get the pre-qualifying process rolling so you can meet the closing date negotiated in your LOI.
Different banks also require different documents and conditions you’ll need to hand over. Most commonly, you’ll have to provide a signed Dental Practice Purchase and Sale Agreement, a signed lease agreement or assignment, corporate documents (articles of incorporation, tax ID number) and life and disability insurance policies.
Find the Insurance Policies That Work Best for You
Speaking of insurance policies, the dentist you are buying the practice from, the landlord (if different from the selling dentist), and the bank from which you took out your Practice Purchase Loan, all require you to get insurance to secure the practice and your ability to pay them back. In addition to the aforementioned life and disability insurance, these parties may require you to obtain malpractice, liability and personal property insurance.
You can buy some policies over-the-phone while others require a physical inspection of the building and practice. Getting insurance can take a while so it’s advisable to get on the ball as soon as possible. This way it will be possible to compare options, choose the most cost-effective one, and still be on track for the closing date.
Review the Practice Purchase Agreement
The contract that details and defines all of the terms of the purchase is known as a Practice Purchase Agreement. This agreement is drafted by the seller’s attorney with all of the conditions previously agreed upon and then is reviewed by you and your attorney.
This will be your opportunity to have all of the terms explained to you and your attorney should take the time to make sure you understand the ins and outs. A few things you and your attorney might discuss are assets included and excluded in the sale, who handles patient records, respective representations, and warranties, among many others.
Your accountant should also work with your attorney on the purchase price allocations and to make sure the financial due diligence has been completed.
Close on the Sale and Take Over Your New Dental Practice
Once the terms of purchase are agreed upon, both sides will meet and sign the agreement. These documents will then be sent to your bank so it can finish the process on their end and transfer the funds to the seller.
The seller will confirm the funds in their account and once all other outstanding terms of the agreement are met, the place is yours. The seller may have kept the transaction private from the staff so the two of you might need to have a meeting with the staff to do introductions and address questions, concerns or comments that might be on their mind.
Notify Existing Patients of the Change in Ownership
Once the sale has been finalized, send out a transition letter to all active patients. Have it ready before the closing date and include it with the final documents so the seller has the opportunity to look it over and raise any issues about the content of the letter.
The letter should state that the practice has been sold and introduce you as the new owner. The letter should highlight your dental experience and background, convey the confidence the previous owner has in you, and most importantly, express appreciation for their continued support. Changes to be made should be clearly stated so that patients are prepared for them by their next appointment. Keep the tone light, friendly and include a nice, smiling photo of you.
Making the Place Yours
You might love the way the practice is set up but hate the paint color. Change it, the place is yours! The previous owner should fire the previous staff and arrange to give the benefits they are owed. You can then retain whomever you want by rehiring them on the day of termination.
Unless the purchase was made on the first of the month, there will be unpaid bills to handle. A great practice purchase agreement will take this into account and state who is responsible for them.
Lastly, you’ll want to update all local, state and federal licenses and registrations so they are all in your name and to be sure you comply.