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7 Mistakes to Avoid When Buying a Dental Practice

For many dentists, buying a practice is a major career goal. Most dentists will take the step into ownership at some level, whether it be independently or through a partnership. We have developed a comprehensive list of mistakes to avoid when buying a dental practice.

Talking too much.

There is a lot of excitement that circulates during a practice transition. It is very similar to purchasing a new home. Our natural reaction is to share the good news out of excitement for this new chapter. However, when it comes to purchasing a practice, sharing the good news too early can damage the transition process. Buyers are often asked to sign a non-disclosure agreement (NDA) before obtaining detailed information on a practice. Once signed, the buyer is legally obligated to prevent the disclosure of that information to others not covered by the NDA.

The confidentiality of a practice sale is important for many reasons, the most important being the prevention of the patient base and practice staff learning of the sale prematurely. If knowledge of the sale becomes widespread, patients and staff may decide to find another practice. This could damage the value of the practice for the seller and erode the patient base and staff for the buyer. So, who needs to know about the sale? The buyer’s advisors are the only people that absolutely need to know the details of the sale. Resist the temptation to tell friends and colleagues about your plans to purchase a dental practice until after the transaction is complete. 

Over negotiating.

Everyone likes to feel like they got a good deal, and buying a dental practice is no different. New buyers will often over negotiate the deal in pursuit of that feeling. Meaningful & successful negotiations are common, especially those around the purchase price, but buyers should be cautious with their offers. Is there a good reason for the below-asking price offer? Maybe the practice has high overhead and does not cash flow properly. Perhaps there is a previous associate doctor that is opening a practice next door. These are valid reasons for negotiating a practice price down, but simply negotiating for a discount without a valid reason can breed a contentious relationship between parties. Buyers should keep in mind that the majority of what they are purchasing is goodwill. The relationship with the seller post-closing is very important. Making a strong offer on a practice shows the seller that the buyer can see the value in the practice. It truly is an investment in the future success of the practice. Additionally, another reason not to over-negotiate is to avoid losing a potential practice to a higher offer. Paying an additional $40,000 to get the ideal practice, will be $40,000 well spent.

Not establishing a firm timeline.

There is a very wise saying in dental practice transitions, “time kills all deals.” When purchasing a dental practice, establishing a firm timeline and sticking to it is essential. When the offer is tendered, be sure to include a firm closing date for all parties involved to work towards. A soft closing date, or lack of a date, will only create delays, which can cause big issues for both the seller and the buyer. Keep in mind that the seller must make firm preparations to transfer the ownership, and the buyer often has lending commitments that will lapse at some point. Establish a timeline, stick to it, and be sure your advisory team does the same.

Failing to work with a professional transition team.

If buyers want to be positioned for success and survive the hurdles of a practice purchase, they need guidance. Trustworthy guidance should be sought by building a team of advisors and professionals that work and are experienced in the dental field. Who should be part of this team? Establishing a relationship with a dental specific lender is a big help in making sure the process runs smoothly. A dental specific attorney and CPA are also a great addition to the team, not to mention dental insurance groups, financial planners, and others. Buyers must be aware of pitfalls such as local banks that over promise and under deliver financing. Attorney’s and CPA’s with no dental background that overwork a deal and leave the buyer with the bill for time spent learning how dental deals work. Perhaps the single largest action a new buyer can take to protect themselves when buying a dental practice is to work with knowledgeable advisors.

Letting the location dictate the practice purchase.

Location, location, location. Buyers often have a location in mind for their practice, that may be a hometown, where a spouse wants to live, or a totally new dream location. Often, this is in an area where many other dentists have also chosen to have their practices. Large cities and metropolitan areas have always had a draw for professionals. With that draw comes lots of competition, higher practice prices, and higher expenses. Buyers that are willing to purchase a practice that is twenty miles or so outside of these high demand areas will find that practice values are lower, patient bases are a higher mix of fee for service, and the overall expense of the practice is lower.  For those buyers that do not mind a commute, living in the desired area and commuting to a more remote location is a great option. Don’t let location be the deciding factor; good market research and competitive analysis can help you identify an opportunity.

Making big changes post-closing.

New buyers bring new energy and ideas to a practice, and that’s a good thing. These new ideas can turn into additional revenues in the practice. However, sometimes new ideas or changes can be detrimental to a practice, most commonly when it comes to staff. Staff is an integral part of the practice and the goodwill. The employees are the faces patients are used to seeing, and that is something that should be kept constant if at all possible. When a buyer evaluates a practice, they should pay close attention to staff composition, compensation, and benefits. If the staff is vastly over-paid or has a large benefits package, the buyer should evaluate if they can maintain that after closing. If not, that may be a great reason to pass on the practice. The worst mistake a buyer can make is to purchase the practice, knowing the staff is overcompensated, and proceed to fire key staff members or cut benefits back, causing staff to leave. In order to ensure a smooth transition and future success, the buyer needs the backing and assistance of the established staff. Changes to staff can be made as the practice moves past closing, but a plan to keep the existing employees in place for at least a year should be considered.

Underestimating the potential to grow the practice.

What happens to the practice will be completely up to the new owner, so getting creative is a plus. Reviewing and understanding what the practice currently offers and determining if there is potential to add new, more advanced services is a good start. New practice owners should consider the online marketing of the practice and envision how it can be updated. Adding a website, improving social media marketing, offering specials for new or existing patients can also help capture new growth. New owners benefit from showing the community that they are there to provide the best possible care for them and their families. Having a clear vision for how to navigate this new chapter often creates a higher investment rather than just sticking to what is currently working.

Practice ownership is challenging, and the process of buying a dental practice is just the beginning. These are only a few of the common mistakes that buyers make. Finding, negotiating, and ultimately purchasing a practice can be an emotional and nerve-wracking process. By relying on the expertise of a well-curated team of dental professionals, and being realistic with expectations, the road to practice ownership can be navigated safely and successfully.

About the Author

Joseph D. Jordan, JD, is the president and founder of JPA Dental Transitions, an ADS member that provides assistance with transitions in the dental community. Mr. Jordan is also the founder of the Jordan Law Group, a dental specific law firm which represents clients throughout the transition process. Mr. Jordan may be reached at 704-461-8711 or at [email protected]. The company’s websites are JPAtransitions.com and www.dental.law.