Acquiring a Dental Practice: Questions & Considerations
- business acquisition
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 and 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 Commercial 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 Commercial 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 article originally appeared in the ADA quarterly magazine, Dental Practice Success.
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