Best Guide to Buying a Dental Practice

Buying a dental practice is a very stressful and time-consuming process. It can be a complex endeavour with many intricacies involved. Before you delve into our buying a dental practice guide, there are few things to consider and review. Considerations when purchasing a dental practice involve a lot more than just what surrounds the actual patient care. Other considerations that need to be top of mind include your geographic limitations, finances, working hours, what procedures your practice will offer, along with the corporate structure.

Before buying into a dental practice you need to ascertain your geographic limits. Distance from home to work, family commitments and how long it will take to get from point A to B. For example if you were living in Toronto or Mississauga you need to factor in rush hour traffic.   We have had clients sell their practice because the commute into the city was taking a toll on their health.  Looking for a dental practice all over a certain metropolitan area such as the Greater Toronto Area is not feasible and extremely time-consuming. This is also not practical when you start considering commute times from and to your practice as well as what the practice will cost you. What a dental practice will cost on King St. in downtown Toronto vs. the cost of buying a dental practice in Scarborough will differ greatly and will not provide you with the most relevant information as to your geographical needs. The first action to take is to determine the area you want to narrow your search down to when buying a dental practice. 

Secondly, ask yourself the debt you are willing to take on when purchasing your dental practice. Finances need to be dissected and planned well allowing for a reasonable amount of thought to take place on whether or not this is even a viable option at this time. Buying a dental practice right out of school needs to be given serious thought as many new dentists have student loans or other loans that may need to be considered first. Set up a consultation with SRJ Chartered Professional Accountants to determine where your finances stand in terms of purchasing a dental or dental speciality practice. 

Another key consideration is determining the working hours you are willing to invest in your dental or dental specialty practice. Different dental practices have various working hour requirements and this should also be considered very thoroughly. Profits from your practice can diminish if the practice is not given the time they require or need. With this also consider the procedures you will be performing and the time that requires. Will your procedures include only hygiene appointments or will you also have a number of more time consuming surgeries filling your day? How fast-paced do you want or need your practice to be to meet the minimum income earnings to remain profitable and provide you a valuable return on your investment. It is worth asking how many hours per week the existing dentist puts in to gauge if you will be able to work as many hours as well.  This may demonstrate the need for additional staff if you do not anticipate working as many hours as your predecessor which can affect the future profits of the business.  SRJ Chartered Professional Accountants can help you prepare cash flow projections on your potential practice purchase so you can better evaluate all options.  We work closely with many financial institutions such as the healthcare teams at Scotiabank and RBC.  We know specifically what information they require when financing a dental practice in Canada.

Another consideration is whether you would like to expand in the future or if you will be incorporating other services provided by other specialists. Costs of relocating a practice are very high and can be very disruptive to your clients who may find your new practice out of their reach. It’s best to consider these options beforehand. 

Guide to purchasing a dental practice: 

  1. Contact business brokers and practices to let them know you are in the market to purchase a practice. You may have to make many follow up calls as there are more buyers than sellers in most cases.

  2. Once you hear back from potential practices who may be selling they should have a professional appraisal for you to review. The report should include operational and financial data about the dental practice. In most cases, you will most likely be asked to sign a confidentiality agreement before you are provided with this appraisal. In a case where an appraisal is not available you have the right to ask for an appraisal to be done so that you and your accountant may have all the information you need before making your decision.

  3. You may also take your appraisal to another appraiser for a second set of eyes. In most cases, you may have to pay an additional fee as this is the second review of an appraisal done.   The appraisal provided by the practice owner is done so to ensure they receive maximum value for their clinic.  It is vital that you understand this bias when reviewing the information they have given to you.

  4. A consultation with your accountant specialized in servicing dentists should also be scheduled. You need to check with your accountant whether you have the financial abilities to meet the needs of your dental practice. Your budgeting should include the running of your practice as well as your personal living expenses.

  5. Viewing the practice(s) – This is usually done after hours to avoid worrying their employees and patrons. Most dentists do not disclose to their staff they are looking to sell beforehand as it can usually cause unrest and the worry that maybe the practice isn’t doing so well causing them to leave. 

  6. Verify all the information provided to date. Between reviewing the financial information provided, and an in depth viewing of the practice, all information provided to date should be verified.  This due diligence phase is extremely important and where your lawyer and accountants will add the most value.  Ensure the teams are coordinating on all aspects of the sale so they can ensure no rock goes unturned.

  7. Get the right professionals on your side. Sellers are represented by a broker and are working solely for the seller. As a buyer, you have your representation in the form of your accountant, lawyer, banker and other advisories who are working with and for you. It is not common for two brokers to be working on the sale of a practice. A professional accountant will make sure the organizational structure of your holdings is in line with your current financial situation and future goals. It is important this be discussed with an accountant prior to any offer being made to avoid surprising tax consequences later.

  8. An offer is to be drafted once you have verified all the information (appointments, charts, all other financial data) and the dental practice has been viewed. The broker will use documents commonly used and reviewed by lawyers for both the purchaser and the seller. Always seek legal advice before signing any documents.

  9. The broker is the middle man negotiating between you and the seller. They also act as the middleman between lawyers, accountants and the financial institutions involved in this transaction. 

  10. Review, verify and ascertain that you have thoroughly done all your research and investigations for buying your dental practice. Be completely sure that this is the best decision for you.  You generally have a specified time frame for your dental practice purchase due diligence.  You want to ensure your team is set up before the due diligence period begins for your dental clinic purchase.

Follow the steps in our buying a dental practice guide and make those preliminary decisions. For an in-depth consultation speak to SRJ Chartered Professional Accountants, located in Toronto and Mississauga to assist you with your financial planning. Contact us at 647-725-2537 or send an email to info@srjca.com.

Frequently Asked Questions:

What should I look for when buying a dental practice?

There are many factors to be considered when purchasing a dental practice. Geographic limits, costs, location and the time you want to put into your practice. Are you willing to travel an hour every day to get to your practice or do you want something close to home? Consideration also needs to be given to whether you would want to expand your practice and if the practice you have chosen can accommodate that growth or will you need to move? This can affect the number of clients coming in. For a more detailed idea of what goes into buying a practice speak to SRJ Chartered Professional Accountants.

Should I buy a dental practice?

Your finances have a huge impact on whether you should be buying a dental practice. Consult your financial advisor on whether this is a viable option at this time or are there other higher debts that should be first focused on.

How profitable is a dental practice?

How profitable a practice is may be dependent on many factors. Some factors that play into this are the location of practice and the number of clients that practice serves. Before purchasing a practice you should have an appraisal done on the business and potentially look into getting a second opinion. Review, verify and confirm the numbers of that particular practice and prepare cash flow projections for future potential income. 

How do I start a dental practice?

One way to start a dental practice is to purchase an existing practice. Follow our buying a dental practice guide to assist you with this process and speak to SRJ Chartered Professional Accountants for a consultation and how buying a practice will affect your finances.