Top 3 Considerations for Starting or Buying a Dental Practice
April 14, 2021
At a Glance:
- So, You Want to Start a Business: How will you pay for your new practice? The bank and lending options are unlimited, which can be intimidating.
- Achieve Your Goal: You can better navigate the process of starting or purchasing a dental practice by answering three, key questions.
- Don’t Go it Alone: Partner with an experienced dental CPA team, like Aprio, to fulfill your dream of becoming a practice owner with no hassle. Contact us today to get started.
The full story:
One of the most daunting aspects of becoming a dental practice owner is finding a way to pay for it. With so many banks and lenders out there, the options are unlimited, which can be overwhelming. As you move toward this goal, here are three questions to consider:
Does having experience as a dental associate help?
Yes! Working a few years as a dental associate allows a potential lender to feel comfortable that you’ve gained “real-world” experience that translates into production, leading to greater revenue. Associate experience also gives you practical knowledge about the business side of dentistry, such as managing a team and other daily aspects of operations.
Will my student loan debt make getting a loan more difficult?
The answer is no. Most banks understand that the typical dentist has roughly $200,000–$400,000 in student loan debt, so this won’t automatically exclude you from lending opportunities. Banks will review your overall credit history to look for confirmation that you’re a credit-worthy borrower. However, red flags in your credit history could prevent you from qualifying for a loan; some examples include frequently missed payments, excessive debt or poor asset-to-liability ratios.
What items do banks consider when determining if they will fund a loan?
Banks review several items before releasing funds for a dental practice purchase or acquisition. The first item they review is the borrower’s credit history. As mentioned above, banks want to see that you’re a reliable borrower to lessen the risk of loan default. Next, your bank will want to know more about the practice you are starting or acquiring. Here are the points you should be ready to speak on or provide documentation for:
- Your potential practice location’s demographic information (if you are starting your own practice)
- Financial information from the previous period (if you’re purchasing an existing practice)
- The cost of founding a startup, which includes equipment, computer systems and the build-out of your space
- The sale price (if you’re acquiring a practice)
Ultimately, banks want to ensure that they are taking on minimal risk by lending to you. Fortunately, banks who specialize in lending to dentists know that the default rate on dental loans is minimal and dental offices often generate large cash flow to cover future debt payments.
- 3 Big-Picture Steps to Take When Starting Your Dental Practice
- Selling a Dental Practice? Here’s How to Keep the Most Money from the Deal
- Webinar: Leveraging Liquidity for Your Dental Practice
The bottom line
The path to becoming a business owner is equal parts exciting and rewarding. With the help of a professional team like Aprio — one with deep experience and expertise in serving the dental industry — you can achieve your entrepreneurial goals. Contact us today to start the conversation.
About the Author
Mary Kathryn Williamson, CPA, is a tax manager with Aprio’s National Dental Practice. In her role, Mary Kathryn manages dental clients within professional services and business development within the dental industry. Mary Kathryn’s personal approach helps her build close relationships with her clients; she is known to be exceptionally responsive and detail-oriented. Mary Kathryn brings a dedication and willingness to work, ensuring that her clients succeed.