Learn more about the basics of purchasing a dental practice.
For many dental professionals, launching a practice of their own is the ultimate dream come true. Starting up your own practice gives you the freedom to be your own boss, set your own hours and rates, and focus on your favorite specialty.
Many providers feel that they earn more as practice owners, as well.
There are, however, some things that buyers should first consider before taking the plunge – such as initial start-up costs for starting your own dental practice, which typically hovers around $500,000.
Purchasing an existing dental practice helps cut down on costs that come with starting from scratch, such as purchasing equipment and supplies or applying for permits. A pre-existing dental practice also provides buyers with the convenience of a built-in staff and customer base.
Read on to learn more about the basics of purchasing a dental practice.
Pricing for Purchasing a Dental Practice
A practice’s pricing and overall purchase cost are largely determined by the state of the marketplace. In most cases, the average sale price of a pre-existing dental practice is approximately 65% of the past year’s gross receipts, though it may vary anywhere from 50-100%.
With this information in mind, you may still be wondering: what is the value of a dental practice? No two practices are alike; surely the sale price can not rely solely on gross receipts.
Truthfully, the sale price is affected by a myriad of factors, such as:
- Equipment value
- Treatment room setup
- Location
- Demographics
- Net profits
- Historical performance
- Number of patients served regularly
- Square footage
- Growth potential
- Experience and credentials of existing staff members
- Overall cash flow
What to Consider Before Buying a Dental Practice
Location
Like any business, a dental office’s location plays a key role in its overall success. A practice in a rural area with a stagnant or declining population will likely make considerably less than a practice that operates in an up-and-coming urban or suburban area. Moreover, a dental office that is situated in a bustling area that has direct access to public transit, enjoys plenty of foot traffic, and boasts off-street parking does very well in comparison to an office that is located in a small, rural area that can only be accessed by personal vehicle.
Visibility from the street plays a large role, as well; a building that is easily identified from the street is typically preferred over one that is tucked back away from the road and a bit difficult to access. Your visibility can actually serve as a form of valuable exposure from both vehicle and foot traffic.
Consider if the location is convenient for your patients; for instance, a private parking lot is much more convenient than finding street parking, paying a meter, and having to walk a considerable distance. As the buyer, you will also want to take a look at other dentists in the immediate area, as they will be your competition. Do some research on the services they offer, their rates, and online reviews. Take note of what people like about their practice – as well as what they don’t. This is all valuable information that you can use to your advantage. If there are numerous dental practices in the immediate area that will be close competitors, you may want to consider opening your practice in another region where there will be less competition.
Demographics
Examining the demographics of your prospective new practice will help you determine what sort of ROI (return on investment) you can expect to see, as well as your projected long-term growth. Consider your plans for the practice and apply them to your research as you examine the demographics. If you plan on opening a pediatric dental practice, you’ll want to choose an area that has lots of young families. If you wish to focus on denture patients, an area that has a large community of 65+ individuals would suit you best.
Unfortunately, many older individuals avoid pursuing the care they need due to a lack of coverage under Medicare, but that may be soon to change. This could make a big difference for both practice owners and patients alike. It’s also important to take a look at the average income level; you will need to be sure that your patients will be interested in (and can afford) the services that you have to offer.
Cosmetic dental treatments like dental implants and dental veneers tend to be quite pricy and are rarely covered by insurance. Consequently, if you plan on focusing on cosmetic dentistry, you will want to target a wealthy area rather than an area with lower income levels, where people will be less likely to pursue expensive optional treatment.
Staff Training
Your staff members are the face of your business; it’s important to ensure that they uphold your standards and have the experience and education they need to perform their job duties. If you plan to purchase and take over a pre-existing dental office, it is highly likely that the staff members will come with the practice. Employee turnover can be quite a headache, and in the dental industry, seasoned and experienced employees are worth their weight in gold.
The quality of staff is typically reflected in the overall sale price; a practice that boasts experienced employees that hold credentials is likely to cost more than a practice that experiences frequent turnover and has less experienced employees. Of course, you always have the option of helping your new staff receive the required training and education. The dental industry is constantly evolving, making continuing education (CE) courses a necessity.
Here at Safco Dental Supply, our resource center proudly provides free CE courses, industry guidelines and articles, webinars, and educational industry videos to help you acclimate and train your staff. We will ensure that both you and your staff are able to stay up-to-date with the latest protocols, training, and information in the industry. Our courses can be exceptionally beneficial for specialty or niche practices; for instance, if you specialize in endodontics, you and your staff may benefit from our course in bioceramic sealers or vital pulp therapy.
Historical Financial Performance
The historical financial performance of the practice will perhaps be one of the most important determining factors for your purchase. For this process, you may want to consider hiring an accountant to ensure that a thorough professional evaluation can be carried out. If you are confident in completing the assessment on your own, check out this comprehensive dental accounting manual.
Examine and review the financial statements of the practice at length to complete a cash flow analysis. This will give you a solid understanding of the financial trends and will help you determine if there is sufficient cash flow to turn a profit. Consider the types of insurances accepted, as well.
Buyers should also take a look at the collection ratio, which examines the relationship between production and income. A high collection ratio is a positive indicator; it shows that the practice is well-managed and avoids profit loss due to bad debt. Use the practice’s historical performance to envision the financial potential for the future. Is there potential for reducing overhead? What can you implement or change to increase profitability?
Safco is Here for You, At Every Stage of Owning Your Practice
Whatever stage of practice ownership you find yourself in, Safco Dental Supply is here for you.
Check out our site to browse our extensive inventory of dental supplies and equipment for your new dental office. For more information about our products, feel free to give us a call at 800.621.2178.
Looking to bolster your COVID-19 protection for your new practice? We’ve got you covered.