Buying a dental practice – 5 things to consider
Is 2015 the year for you to buy a dental practice?
2014 has been considered a “sellers market” regarding dentistry practices and the forecast is looking for this to remain the case in 2015 too. This can be attributed to the number of dental associates looking to buy a practice – demand is high. As a buyer, make sure you have all bases covered and you have asked all the right questions before taking the plunge. Here we look at five key steps to the process of purchasing a dental practice.
Why buy a dental practice?
The average income of a UK dental associate has dropped in recent years due to an excess of associates compared to practice requirements.
Associate dentists are therefore looking for ways to increase their earnings and perhaps fulfil personal goals to run their own business. If this fits how you are feeling at the moment then this could be your year of change!
Alternatively, you may already be an established practice owner looking to expand your empire.
How to buy a dental practice
Generally, when buying a dental practice
, the following steps apply:
- Find the right practice and the right deal for you
- Ask the right questions with preliminary research
- Carry out your own dental practice valuation to ensure the price is right
- Source competitive dental loans to finance the transaction
- Give yourself time to learn to manage a business as well as treat patients
Step 1: Finding the right practice for you
This really depends a lot on your personality. Are you a risk taker or do you err on the side of caution? Do you often follow your gut instinct as this can play a key factor?
It may be that you have been approached by your principal to take over their legacy, which is common now with more practice owners considering their exit plan earlier in life and most would usually rather sell to a trusted associate than let their practice fall into the hands of the corporates. It may be that you don’t have to look further than your “own back yard” for the right practice.
If you are looking further afield, try to remain open minded to all possibilities. Buying a dental practice can be a long-winded process that requires patience.
Consider the following to help you along the way:
- Seek specialist advice from professionals who can help; accountants, solicitors and financial advisors – their expertise is invaluable as they will have seen the transaction many times before.
- Register with an agency with a good reputation that can get to know your requirements and notify you of new practices for sale.
- Get connected. Often the best deals come via contacts, colleagues, friends and family. It really is a case of “who you know”. Frequently these days, many associates club together to buy a practice.
Step 2: Ask the right questions and carry out preliminary research
If you have your eye on a practice, get a copy of the last financial accounts and review these with your accountant.
You need to consider:
- Do the financial figures match up to the asking price?
- Where are there gaps for exploitation and further profit enhancement?
Be thorough in your research.
- Check the reputation of the seller
- What specialisms does the practice have, if any? Does this fit your own style and experience?
- Calculate and review the key ratios to see if costs can be managed better. A couple worth noting are:
- Gross Profit %
- Wages as a % of Income
- Materials & Lab Costs as a % of Income
- Net Profit %
- Are there opportunities to increase the income?
- How busy is the hygienist? “Hygiene potential” is often a stone that can be overturned giving instant access to more revenue.
Figurit help analyse financial statements and practice valuations for both dental practice purchase and sale. Don’t forget to ask for help!
- Is the principal planning to stay on as an associate following the sale? This is often a key deciding factor, one way or another, depending on your personal preference, experience and confidence. If they stay it can help with patient retention.
This is just a very short list. Spend time in advance writing out all your questions and then explore who can help you with the answers.
Step 3: The dental practice valuation
Whilst it is highly likely that the seller will have had a professional valuation carried out to determine the sale price, it is essential that you, as the buyer also get your own, independent valuation, using a reputable agency to work out the dental practice value for you.
Since 2008, when the market dipped, there has been a steady increase in the value of both private and mixed practices. Don’t necessarily expect a bargain in this current market. However, the practice valuation of the seller and your own practice valuation give a strong place to start negotiations.
Step 4: Obtaining dental loans
Dental practice finance is easier to get than it was in recent years with over 10 high street banks now lending for a dental practice purchase. Make sure you shop around before deciding though. High street banks aren’t the only finance option.
Figurit can put you in contact with dental specialist financial advisors and loan brokers who can find the best rates of commercial finance for dental practice purchase transactions from a range of trusted lenders.
Step 5: Learning the rope
Finally, assuming everything goes to plan and the transaction completes, set aside time to discover all the extra things involved in running your own business. There is a lot, so take it easy on yourself and ensure to ask for help and guidance where needed.
If you are interested in buying a dental practice in 2015 then speak to our specialist dental accountants. We can help you unravel the financial figures to ensure it’s the right practice for you. We can also connnect you with other professionals and even dentists to help you on this important and exciting journey.
020 7376 9333