Are you considering buying a dental practice but unsure where to begin?
Whether you’re a recent graduate, an associate, or expanding your current practice, buying a dental practice can feel overwhelming, regardless of your experience. Multiple factors must align for a successful acquisition, so having an experienced dental attorney is crucial.
Despite the challenges, buying an existing practice offers immediate access to an established patient base, potentially translating into instant cash flow.
Here Are Some Key Questions to Consider:
Consult your dental professional team to answer these questions. Once you’re satisfied with the answers, you can proceed with the purchase. Remember to keep the purchase confidential until the closing.
In the rest of this guide, you’ll learn about each step in buying a dental practice.
Purchasing a dental practice involves more than acquiring a business; it’s about owning an established entity with its assets, liabilities, and operations. When you buy a practice, you’re acquiring:
This process requires a thorough review of the following:
Starting a practice from scratch involves building everything—location, staff, equipment, and patient marketing. In contrast, buying an existing practice offers:
Odgers Law Group is invaluable in this area. We can guide you through dental transactions, help you avoid pitfalls, and secure a beneficial purchase.
Here are the key types of dental practice acquisitions to consider:
Solo Practice Acquisition:
Overview: Buy a practice where a single dentist operates.
Benefits: Full control, intimate patient relationships, and ownership of all practice aspects.
Partnership Buy-In:
Overview: Buy a portion of an existing practice, becoming a co-owner.
Benefits: Lower upfront costs, shared responsibilities, and a gradual transition to full owner.
Associate with Option to Buy:
Overview: Start as an associate with an agreement to buy the practice in the future.
Benefits: Learn the business gradually, build rapport with patients and staff, and transition smoothly into ownership.
Buying an existing dental practice offers strategic benefits that streamline market entry and boost long-term profitability, including:
Purchasing a dental practice is a significant decision that requires careful planning and expert guidance.
To ensure a smooth acquisition, keep these key steps in mind:
Buying a practice may be your most important financial and professional decision, requiring an in-depth evaluation of a wide range of issues.
Due to the multitude of factors that you must consider, this can be a daunting process. So, after finding a practice to buy, the first step is to gather the following team of specialized advisers:
These professionals will initially help you review the practice prospectus and point out any possible red flags.
As the transaction develops, these professionals will also help keep you and the seller on track and take care of the practical, legal, and financial due diligence.
Role of a Dental Attorney For Buying a Dental Practice:
Even the most experienced general business attorney may be unfamiliar with the dental industry’s legal standards and conventions.
An inexperienced attorney can slow down the acquisition process and/or expose you to unnecessary liability after the purchase has been made.
Your attorney should be familiar with California laws and dental industry standards related to the following:
Dental CPA for Buying A Dental Practice:
Your dental CPA should be intimately familiar with accounting for dentists. He or she will then be able to spot any discrepancies in the seller’s books when conducting the financial due diligence.
Dental Transition Consultant for Buying a Dental Practice:
To ensure a seamless transition when buying a dental practice, an experienced dental transition consultant is crucial. They anticipate and resolve potential issues, negotiate terms that satisfy both parties, and provide expert guidance on essential aspects such as:
This expertise minimizes risks, saves time, and helps maintain the practice’s success post-purchase.
Professional Practice Lender For Buying a Dental Practice:
A dental-specific lender will better understand your needs than a conventional bank. While many dentists start with traditional banks, specialized lenders are more flexible, often requiring less collateral and accommodating high student loans. They also collaborate with your advisers to ensure timely practice acquisition.
After you and your advisers are comfortable with the dental practice advisors, the next step is to submit a signed letter of intent.
A letter of intent , which is typically non-binding, is a way of communicating to the seller that you are serious about buying their practice.
You and the seller should address the following terms in your LOI:
Any terms that are not agreed upon in the letter of intent will be negotiated by the parties before signing the final practice purchase agreement.
The next step is to get pre-qualified for a practice purchase loan. Your dental attorney or CPA should be able to put you in touch with several local banks who specialize or have experience lending to dental or other medical professionals.
Securing the right loan is crucial when purchasing a dental practice, as it impacts your financial stability and success. Key considerations include:
Here is a short list of some of the most common documents that banks requests in the underwriting process when buying a dental practice:
The landlord, seller, and lender may require you to secure various insurance policies to protect your practice and meet obligations.
When buying a dental practice, the insurance policies typically include, but may not be limited to:
In California, you are allowed to set up your practices as either a sole proprietorship, a dental partnership (with another dentist), or a professional corporation.
By setting up your practice as a dental professional corporation , you can limit your personal liability and take advantage of beneficial tax treatment.
The Dental Practice Purchase Agreement is the contract that defines all of the terms of the purchase. It will typically be provided by the seller’s attorney and reviewed by your own dental attorney to make sure that the terms are fair.
You and your dental attorney will then go over the agreement together to make sure that you understand all of the details.
Some of the details that are addressed in the purchase agreement are:
Your dental attorney and CPA should work closely together to verify that the purchase price allocations are acceptable and that all financial due diligence has been completed.
Concurrent with reviewing and negotiating the practice purchase agreement, you and your advisers should review the seller’s dental office lease or negotiate to purchase any real estate associated with the practice.
It is not uncommon for a commercial lease to require the landlord’s written consent prior to any assignment.
With that said, the seller should notify the landlord of his or her intent to sell the practice as early as possible and verify that the landlord will consent to your assumption of the lease.
If the lease is at the end of its term (or if the seller is the landlord), you and your advisers will need to negotiate a new lease. The term of this lease must be equal in length to that of your purchase loan.
If the real estate is included in the sale, then you and your advisers will need to negotiate the terms of the real estate purchase agreement.
After you and the seller have agreed on all of the terms of the purchase, you will meet and sign all of the agreements.
Once signed, these agreements will be submitted to the bank so that the bank can finalize the underwriting for your practice loan and transfer the funds to the seller.
Once the seller has received the purchase funds, and all other conditions under the practice purchase agreement are met, you will be allowed to take possession of the practice.
As soon as the purchase has been finalized a transition letter should be mailed out to all active patients and referral sources.
The transition letter should inform the practice’s active patients and referral sources that the practice has been sold and present you as the new owner.
It should also inform them of changes (if any) they should expect in the service they will receive on their next and subsequent appointments.
Most importantly, however, your transition letter should accomplish the following 3 things:
After buying a dental practice, focus on these key due diligence tasks to ensure a smooth transition:
If you are buying a dental practice for the first time, you will suddenly be exposed to a variety of business and legal issues that go along with owning a practice and being your own employer.
The benefits that you enjoy afterward will be substantially greater if you seek the advice of an experienced dental attorney when negotiating the deal and before signing the purchase agreement.
At Odgers Law Group we have developed a tailored approach to meeting the needs of dentists and physicians with our specialized knowledge of their practices.
If you are interested in purchasing a practice, reach out to our team of experienced dental attorneys at 858-869-1114 for a free consultation, or visit us online to schedule an appointment.
