Buying a Dental Practice: Going from Associate to Owner

At a glance

• The main takeaway: Many dental students and dental associates have dreams of starting or buying their own dental practice, but don’t know where to start.
• Impact on you: Starting or purchasing a practice is a major life decision, so it’s critical for buyers to be prepared with the right professional team, loan prequalification and the documentation necessary to prove their production abilities to lenders.
• Next steps: Aprio’s National Dental Practice provides sophisticated resources and guidance to put aspiring owners in the best possible position to start or buy a practice in today’s economy.

Start by connecting with our Dental Transitions Team.

The full story:

One of the most common questions we get asked by young dental professionals is, “How do I become the owner of a dental practice?” It can feel like a daunting dream, especially in today’s economy. What’s more, dental students are graduating with anywhere from $200,000 to $500,000 worth of student loan debt. Faced with numbers like this, the thought of simply paying back debt — let alone becoming a business owner — can feel futile.

I’m here to tell you the good news: it’s entirely possible for you to become the owner of a dental practice. But there are several key steps you should take to properly prepare yourself for the purchase process to ensure you don’t miss out on the right opportunity.

1. Find your team of trusted advisors  

Before you do anything else on your road to buying a practice, you need to hire a group of qualified and experienced professional advisors. These advisors will not only help you lay the groundwork for ownership, but they will also educate you on how to embody the role of a business owner based on their years of experience (they should have a strong background in working with dentists specifically).

Your team should include a dental CPA, an attorney and a financial advisor, as well as business-specific advisors like equipment and supply representatives. If you have this team assembled prior to initiating your search, you will have the financing ready to go and be in the best possible position to seize opportunities as soon as they arise.

2. Organize your financial house to qualify for a loan

Aprio’s dental team has worked extensively with dental-specific lenders and have assisted with billions of dollars’ worth of loans for dentists. From the dental-specific lenders’ perspective, dental practices are some of the best credit risks within portfolio. But how do you qualify for a loan to buy your target practice?

First, make sure your personal credit score is strong. Lenders typically like to see credit scores above 650 when evaluating lending opportunities. They also like to see doctors who can produce, earn, and save particularly when they are fresh out of dental school and working as an associate.

Lenders also want reassurance that your current production levels will be high enough to qualify for a practice loan. In other words: buyers need to ensure their production numbers are aligned with what sellers have historically produced in their practices.

For example, if you’re looking to buy a $1 million practice and 30% of the practice’s revenue is hygiene, that means the seller has done $700,000 worth of dental production per year. Thus, as a potential buyer, you need to prove to your lender that you can continue to produce $700,000 or more to qualify for the loan and buy the practice.

To prove your abilities to lenders, you must compile production reports from your previous years of practice. It’s a good idea to monitor and track your production reports monthly. Lenders will also want to see your personal financial statements, which includes your credit score (as mentioned above), your savings and your total current personal debt. You can also produce pay stubs to show a lender how you are getting paid and prove you have the personal finances to support a loan.

Providing lenders with this financial “paper trail” will help convince them of your credibility as both a borrower and a practice owner, which will help you secure the most advantageous deal.

Quick tips to keep in mind before a practice purchase

Before you start the preparation process, be sure to remember the following:

• Have a plan for paying back student loan debt; consult a financial advisor before making decisions.
• Avoid making large personal purchases that could drain your liquidity (e.g., buying a house or an expensive new car). If you must make a large purchase, such as a home, consult the dental-specific lender you plan to work with for practice acquisition and a financial advisor.
• Review your current associate contract and noncompete agreement; many of these contracts require you to provide a 30-, 90- or 180-day notice to your current employer before departing, which is something a lender and seller would want to know.

The bottom line

Whether you’re six months out of dental school or five years into your career as an associate, becoming a practice owner is a goal you can achieve with the right preparation and trusted team in your corner.

When you are ready to start the preparation process, reach out to Aprio’s National Dental Practice. We work closely with dentists seeking to buy into or purchase practices, as well as owners planning for practice sales, and bring decades of industry-specific experience to the table.

If you’re thinking about buying a practice and want to get started today, schedule a free consultation with our team.