ByDrew Hinrichs, CPA, CEO of Engage Advisors
As of 2019, over 76.1% of dentists owned their practices, making it the overwhelming career choice within the industry. While those numbers have declined somewhat over the years, it’s safe to say that the majority of young dentists today will continue to choose to buy a practice. When that time comes, here are some tips that will help lay the groundwork for finding and purchasing a dental practice that will allow you to meet your financial and professional goals.
Tip #1 – Start Early by Managing Student Loan Debt
Whether you know you want to buy a practice or are still thinking about it, preparing for the possibility early on will give you more options no matter what you end up doing. For recent graduates, the best way to prepare is to implement a student loan debt strategy that puts you in a good position to finance a practice sooner than later. To do this, consolidate all your student loan debt into one loan with the federal government, then apply for the Income-Based Repayment Program which will set your monthly student loan payment based on your income and family size. You can choose among several repayment options, but all of them will allow you to lower your monthly payments which will make you a more appealing applicant when you are qualifying for a loan to purchase a practice.
Tip #2 – Systematically Save
One of the advantages of the suggested student loan strategy is that it increases your ability to systematically build your savings so you can meet the liquidity requirements necessary for a loan. Before a bank will agree to finance the purchase of a practice, they’ll want to know how much cash you have on hand. If you’ve been making regular contributions to an IRA, that will look good on your balance sheet and increase the potential of getting your loan approved at the best possible interest rate. Start saving early and contribute often.
Tip #3 – Live Where You Work
The most profitable and productive dental practices are owned by dentists who live in the community where their practice is located. That means you should decide where you want to put down roots before you start your search. The reasoning here is simple – when you work in the community where you live, you have instant credibility and building your practice becomes a natural extension of living your life. The people you meet and interact with every day, whether it’s through your children’s school, neighborhood get-togethers, your church or civic organization, even a trip to the grocery store – all create interactions with people who are more likely to become clients because you are a trusted member of their community.
Tip #4 – Know What You’re Looking for in a Practice
Do you want a small practice or a large practice? Do you want two hygienists on staff, or would you prefer to have three or four? Do you want a practice that already offers specialty procedures, or would you prefer to introduce specialty procedures of your choosing? As you answer these questions, you also need to understand the financial implications. By having thought through your options in advance, you’ll save time during your search by quickly filtering out practices that aren’t a good match.
Tip #5 – Don’t Underestimate the Value of Professional Guidance
Most people who buy a home don’t think twice about getting a real estate agent to help them navigate the process. Given that buying a practice is far more complicated than buying a house, don’t try to do it on your own. When the time comes to take action, you’ll need to assemble a team that includes a practice transition broker, along with a dental-specific CPA, attorney, and lender. Plus, even with the preparation you’ve done, there will be a long list of decisions you’ll still need to make; everything from the terms of your practice loan to details about how the previous owner will transition out. Buying a practice is something most dentists will only do once in their life and it represents a major investment in your career. With professional guidance, you can avoid making rookie mistakes that can hurt your earning potential down the road.
If you’re thinking about buying a practice or have questions about how to begin searching for a one that’s a good fit for you, schedule a call with our team at Engage Advisors. We have served as trusted advisors to hundreds of dentists as they transition into practice ownership and we’re ready to help you find and purchase the practice that’s right for you.