Purchasing your dental practice can be challenging and exciting, especially if you buy it for the first time. For the acquisition to be complete and successful, you need to put many things and parts together. You need to know a lot about the dental practice before you decide to buy it.
Many things are involved in the buying process, and you need to be familiar with them. If you are planning on buying a practice, we have a checklist to follow that guides you in the process. Learn how to buy a dental practice with the checklist below.
What is Due Diligence?
When buying a dental practice, due diligence is the process of evaluating and investigating financial, legal, and operational aspects of the practice.
Performing due diligence is a critical part of buying a dental practice. It confirms whether your expectations align with the asking price of the dental practice. Without due diligence, you increase your risk during the buying process. Unlike other business entities with inventory and tangible assets, a dental practice is unique. When considering buying a dental practice, here’s what you should evaluate:
- Income – this is based on the practice’s cash flow. Practices are priced based on their net cash income.
- Assets – this includes new equipment and technology owned.
- Staff – don’t forget to factor in the current staff, including office managers, dental hygienists, and billing.
- Name and contact info – this not only includes business info, but also your website, social media, and other marketing assets.
Your Checklist for Buying a Dental Practice
Here’s what your checklist should include when buying a dental practice:
Hire a dental consultant
One of the best professional and financial decisions you can make is buying a practice; you need someone to evaluate everything before you make the purchase. You might not know how to buy a dental practice and what to check, especially if it’s your first time doing this. Hire a well-versed dental consultant in dental law, accounting, and business transitions. These professionals will assess everything about that dental practice, and if they find anything wrong, they will inform you. The consultants will see you through and keep you and your seller on track and ensure that you follow all legal and financial regulations.
Determine your budget or your capital
It is essential to include this on your checklist for buying a dental practice. You need to know whether you have enough capital or you will need to take a loan for you to purchase the practice. If you don’t have enough capital, you need to know which bank will lend you that money. Since you already have a consultant to handle accounting, you will ensure that he gets you in touch with various banks where you can get a loan for your dental practice. You need to start the application immediately.
Visit the Practice
Physically visiting the practice can help you get a first-hand look at the business. Here’s what to take note of
- The building and office – make sure you take a look at the conditions, the layout, and whether any construction needs to be made.
- Current staff – is the staff appropriate staffed as it is?
- Patients – how happy do patients seem with the service? You can notice this through customer interactions.
Investigate the financial state of the dental practice
Do not leave this consideration out of your checklist for buying a dental practice. You ensure that you get to know about the financial state of the practice before purchasing it. Through the help of a consultant, you will be able to know about the cash flow of the practice and obtain all their financial details. Some of the financial details you should include:
- Their current balance sheet.
- Previous month’s cash flow (profit and loss).
- Employees’ salaries.
- Retirement and payroll taxes.
- Three-year income return tax.
In addition to financials, it’s essential to get data on customers. Request data on the number of patients over the past 24 months to see a trend in business.
Seeking professional advice is critical. When an offer is made, investigate whether it is a good investment to buy the practice. Review the financial details listed above to see whether they match the asking price.
The dental practice purchase agreement review by the lawyer
The purchase agreement can be confusing as it contains all the terms of the purchase and that you have agreed with each one of them. The seller’s attorney can represent you with it, or the seller can give it to you. Once you get the contract, take time and go through every detail. It is better when you do it with your lawyer such that if you don’t understand anything, he will explain it to you.
In Closing: Buying a Dental Practice
After doing your due diligence and checking off the things mentioned above, and you decide on a price with the seller, you can sign the agreement and close the purchase of the dental practice.