Buying and Selling a Dental Practice

When buying or selling a dental practice, there are many factors both the Buyer and Seller must consider carefully. Some of the most difficult, from both Seller’s and Buyer’s prospective, are determining the value of the practice and purchase price, the value of the Accounts Receivable, and Seller’s and Buyer’s obligations after the sale.

Purchase Price

There are two areas that have the most impact on Purchase Price:  (1) the hard assets being bought and sold, and (2), the practice’s existing book of business.

When considering the hard assets, Buyer’s look at the location of the practice in relation to the target market:  is it aesthetically pleasing, is it in a high traffic area, is it in a section of town that is growing or a section of town that is shrinking? How much work does Buyer need to do to the physical facilities to bring them up to Buyer’s standards? Will Buyer lease or own the building? What are the terms of the Lease? What financing can the Buyer obtain? Is the equipment state of the art 1985, or is it new? Will Buyer lease or own the equipment?

Next, Buyer investigates the existing book of business. Is the active patient base sufficient to keep Buyer busy or must Buyer add to the patient base? A higher active patient base leads to a larger purchase price. On the other hand, a lower active patient base can be attractive to many buyers because it provides them an opportunity to grow a practice. Second, what is the current new patient flow? Is it sufficient to keep up with the natural attrition or must Buyer market the practice?

Post-Closing Funds

Once Buyer and Seller settle on a purchase price, they need to address how much future money is Seller entitled to receive. The two primary factors to consider are accounts receivable for work completed by Seller and the warranty work Buyer completes to correct Seller’s work.

There are multiple solutions to each of these issues, but Buyer and Seller must agree before the final deal is inked. Buyer could pay in lump sum for the Accounts Receivable or merely receive a percentage of the AR collected to cover administrative costs. For warranty work, Buyer could require Seller to maintain an escrow account for a fixed period or give a lump sum to compensate Buyer for the warranty work.

Ongoing Relationship between Buyer and Seller

Finally, there is the on-going relationship between Seller and Buyer. If Seller is retiring to another state, it is easy to resolve. However, where Seller will live in the same area, is not of retirement age, or wants to continue to work for Buyer after closing, Buyer and Seller must agree on the terms of a Non-Compete Agreement before the closing. This protects Buyer’s investment from Seller opening a new office or joining a nearby practice and taking the patients to the new location.

If you have any questions about these or other issues related to buying or selling a dental practice or other business transactions, please contact one of our professionals.