How to purchase with confidence

Preparing for the sale

Set Expectations:

Identify the effect your criteria and preferences have on the number of practice options.

How easy will it be for you to find the practice where you best fit? There are several things to consider as you search for your dental dream home.

To-do: Download the assessment (XLS) and see how your criteria can affect your search

Understanding Your Score Remember that this is not a comprehensive assessment of your situation. There are many things that come into play when making a purchase and this is meant to be a simple tool to be used to provide a high-level overview of how your individual preferences may affect your ability to locate the perfect practice quickly.

Evaluation Results

Your score is 38-27

Your score indicates a willingness to be flexible in your search, which opens a whole world of options. Start thinking about what you want to learn about the many opportunities that will be coming your way for evaluation. You also need to understand the process; it starts with defining your budget and goes through the final closing documents. For detailed information, refer to our practice transitions roadmap ebook listed below. If you know which state you want to work in, you may want to start interviewing lawyers and accountants, so you have your team ready to make the transaction go smoothly when you find the perfect spot.

Your score is 26-19

You have developed a pretty good idea of what you are looking for in your ideal practice but are still showing some flexibility. Take a close look at the scores that could be increased by expanding your search options – only you can determine whether it is ok to broaden your parameters. Make sure you understand your budget and the contracting process, so you are ready once you find a great practice. Check out our ebook and start building your team now so you are ready.

Your score is 18-0

You have a very clear idea of what your requirements are for your practice – which is great! You probably have very specific wants and needs, and the perfect opportunity might be just down the block. Due to having such specific criteria, you need to understand that it can take some time to find your perfect match. If you are okay with a potential lengthy search period, no problem – just make sure you keep your eyes open and don’t let an opportunity slip by (since the perfect practice for you is likely to be in a highly desirable location). If you are willing to consider other options, you may want to evaluate your criteria and see if there are areas where you are willing to compromise. Weigh your willingness to compromise against your desire to get exactly what you want. This does not mean you will not be able to locate your ideal practice, it does mean that it may take a bit more time to find just the right fit.


Set Goals:

Ensure the practice you are buying fulfills your professional and personal goals.

Set Goals

What do you really want from practice ownership? Control over your schedule? Do you want to make the decisions about what materials and equipment you use? Are you ready to be your own boss? Take some time to understand what you want from this transition - the more you understand about your primary motivations, the better you will be able to see a great opportunity when it comes.

Financial Goals

Be sure you understand your true financial needs by taking steps now to set yourself up for a healthy future. Identify your key financial goals and build a plan that will allow you to achieve them - bring in professionals to assist you if necessary.

Putting your finances in order

Pay attention to the details now and you will be in great shape to reach your financial goals.

Visit a Financial Advisor

Start by finding a good financial advisor. Ask your friends for recommendations. Make sure you conduct your due diligence by interviewing at least three individuals and researching their credentials. You need to have someone you can trust to help you arrange your finances to ensure that you are meeting your financial milestones.

A certified financial planner, sometimes called a “fiduciary,” is licensed and regulated, and must take ongoing education to maintain their credentials. A “fee-only” financial planner typically bills only for their time, rather than earning a commission on any investments you may buy or sell – meaning that their advice is based on your best interests rather than the advisor’s bottom line. A CFP (Certified Financial Planner) can provide personal finance education, help you set goals, identify potential investment strategies, and help you navigate changing financial needs. The National Association of Personal Financial Advisors can provide more resources and connect you with CFPs in your area.

A financial advisor can help you think through questions such as:

  • What is my current debt load, and what is the best path to repayment?
  • How can I save for additional goals, such as buying a home?
  • If I want to buy a practice, how much should I be saving?
  • How much do I need to live my preferred lifestyle at my goal retirement age?
  • What does my preferred lifestyle look like?
  • Is my current income adequate to achieve my goals?
  • How do I build a household budget?
  • How many years and how much do I need to invest in order to achieve my goals?
  • How should I save for retirement? How will that change over my career?
  • While you are visiting the financial advisor, be sure to establish vital estate planning documents, such as wills and power of attorney.

The ADA offers members several retirement planning resources and life insurance options, including complimentary consultations with retirement specialists and retirement calculators. Available plans offer lower costs than many other retirement plans and access to a variety of investment funds.

Repay Your Student Loans

Your dental school debt load can be daunting – but it doesn’t have to put your life on hold. Your financial advisor can help you build a plan to pay down your loans while also saving for the future.

The ADA has partnered with Laurel Road to offer student loan refinancing and consolidation options with discounted rates. ADA members can get an extra 0.25 percent reduction in their interest rate, with no application, origination or prepayment fees. Find out how this program can help you control your finances.

Build a Budget

How are you spending your money? Does your income exceed your expenses? Where might you be able to cut spending – or reallocate savings? Are there categories where the expenses seem too high?

Several online tools are available to help you see where your money is going and where you might be able to make changes. With this information in hand, you can adjust your habits or expenditures in a way that will help you meet your goals. You will also learn how much money is required to live your current lifestyle, which can help you better identify your compensation needs.

Make sure to consider the true costs of healthcare for you and your family. If you are currently paying a lot of out-of-pocket expenses, a job with a slightly lower salary but better health insurance may be worth considering.

Know Your Practice Financing Options

If practice ownership is on your horizon – whether this year or in a decade – start evaluating your options to finance a practice. The ADA has selected Panacea as its exclusively endorsed lender for practice financing. This gives ADA members access to preferred rates at every career stage.

It can take time to get your finances in order. Start early in your practice transition and work with professionals who have dedicated their careers to demystifying complex rules and regulations. Most importantly, voice any concerns you have. Whether you talk to a family member or a professional, you can find a solution that puts your mind at ease.

Professional and Personal Goals

Why are you taking a new step in your dental career? You may be interested in professional development. Consider what your professional career might look like in the coming years. Think outside the box, set some goals and then take strides to meet them.

What makes you tick: understanding your goals

It is a good moment to consider your work/life balance and evaluate which interests you might want to devote more (or less) time to.

Continuing Education

A good dentist never stops learning. Plus, many dentists find that continual learning keeps their passion for dentistry alive. Whether you want to learn about new techniques or materials, or share your knowledge, there are plenty of opportunities. The ADA offers subscriptions to online CE to make it easy for you to access many subjects and learn at your own pace!

Continued learning does not just mean structured courses. Another way to acquire or learn more about desired skills is to work directly with specialists in your area. Often, they will be very welcoming and eager to share their knowledge and techniques with you on a one-on-one basis.

Think about which topics sound most interesting. Consider attending local, state, national or even international conferences that cover those topics. Over time, build a portfolio of your most interesting or unique cases. These could be used down the road for teaching.

Find a Mentor

A good mentor can guide you as you move through the stages of your dental career. Mentorship can take many forms, so evaluate what sounds most appealing — and realistic — to you. A mentor will require investing some time, but that investment is usually well worth it.

Would you prefer a mentor who practices in your office or someone out in the community? Having someone physically on site who can be readily available for quick consults and troubleshooting creates a more organic relationship — but there is potential for conflict if the mentor is more intrusive than you would prefer. If your mentor practices elsewhere, they are less available, but the dedicated time you spend together may be more focused rather than a rushed few minutes between patients.

If you choose an off-site mentor, you can find one through a study club, local dental society — or even through your alma mater. Many local ADA chapters have mentorship opportunities so be sure to check with your state association.

Share Your Skills to Solve Access to Care Issues

Many dentists devote some time to solving access to care issues. If that sounds interesting, begin by deciding where you would like to take on the battle: your office, another clinic, the legislature or through professional leadership. Review your options.

Access to care starts close to home — even right in your office. Through programs like Dental Lifeline Network, Wounded Warriors and others, you can provide care to underserved populations in your office, with your own equipment and supplies. You can control when you see patients and you do not need to travel anywhere. However, these programs will take up chair time, and often have a high no-show rate, with potentially high expenses.

Many FQHC's (Federally Qualified Health Centers) and CHC's (Community Health Clinics) seek volunteers who can provide care within their offices. The beauty of this model is that after you have been approved, you can typically let the clinic know what days you are available and what procedures you prefer to do — they will schedule the patients and you just show up and do dentistry! The clinic staff handles any follow-up care, so you really do only what you want, on your own terms. In most cases, because you are covered under sovereign immunity, you do not need to carry any malpractice insurance; the only cost is truly time out of your day. Search your local area for “free dental clinics” or talk to your local association to learn what might be nearby.

The American Dental Association Foundation organizes dental Mission of Mercy clinics throughout the United States, with unlimited opportunities for dentists to practice dentistry or work with their state association to organize these events.

Lastly, some dentists elect to go to underserved countries and provide care in either a clinic setting or in rural locations - picture tooth extractions done in folding chairs on the side of a mountain! There are many opportunities through organizations such as Doctors Without Borders or Haiti Outreach Ministries that organize these types of trips. You could also check with dental schools who offer these opportunities — they often need experienced dentists to oversee students as they provide care. Think about this as an opportunity to expand your horizons.

Leadership and Advocacy

Get involved with your local or state association. You can start small. Just go to a local meeting and think about running for office or becoming a delegate. Many state associations offer leadership training that will give you the skills you need — you just need the time. And if you are particularly passionate about an issue, you could join the ADA’s advocacy efforts and work with officials at the local, state or federal level.

You might also join a peer review committee or other group, such as the ADA Clinical Evaluators (ACE) Panel, which evaluates new dental products and techniques.

Life Outside Dentistry

Life is about more than just your day job! As you approach a new career role, evaluate all the other things that spark your passion. Now is the time to explore new interests or expand your commitment to activities beyond dentistry.

You can start with your community. Maybe you have been involved in a local organization and have thought about stepping into a more active role or formal leadership. Whether it is a local non-profit, church, children’s sports or other activities, there are plenty of opportunities to get more involved.

Or perhaps you have always wanted to try cooking, learn a language, run a marathon, write a book — anything. While many of these can be self-directed, you can also look for local entities — a community college, library or park district, for example — that offer classes or meet-ups for like-minded people. Websites like can also connect you with people who share your interests.

Balancing Work and Life

Once you have decided what you would like to do, strive to structure your schedule in a way that makes it possible. Working “non-traditional” dentistry hours might give you time to volunteer in your child’s school — or you might be better served by more traditional hours. Consider how being on call factors into your other obligations.

Retirement may seem very far away, but it is never too early to think about it. Discuss your ideal timeline with your family and your financial professionals. Do you want to retire early and travel? Will you want to move to another state for retirement? No matter what you want to do, make sure you are saving and investing wisely.

Valuable Resources

Free to ADA members

Build Your Team

Make sure you understand the process and protect yourself by building your experienced team early in the process. Your team for the purchase is your trusted advisors. All of the following team members will likely play an important role in the purchase of your practice.

Team Members

Fiduciary or Financial Planner

It is time to consider your personal finances.

Smart planning will help you make sure your finances are in tip-top shape before making a purchase — and give you the confidence that your needs will be met for the long run.

If you do not already have one, you may want to meet with a certified financial planner in your area. Ask your friends for recommendations and remember that it is a good idea to interview at least three individuals and research their credentials before choosing one. You need to have someone you can trust to help you arrange your finances to meet your financial milestones.


As a practice owner, you will need to consider your personal and practice finances separately.

Make sure you maximize the different aspects of the purchase, including such opportunities as appraising any equipment that may enable you to take a tax credit, by engaging the services of a certified accountant who is experienced in dental practice purchases.


Hire an attorney experienced in dental practice purchases to ensure your interests are protected and you comply with all applicable laws.

Since specific laws vary from state to state, engage a local attorney to help navigate the details and answer questions along the way. The ADA offers guidance on finding and vetting a local attorney who is right to help you manage the transaction.


Virtually every practice acquisition will involve a lender to finance the sale. As soon as you know you want to become an owner, you need to begin interviewing different banks to find the one that will be there for ongoing support. Start with the ADA’s endorsed lender, Panacea, then interview at least two more to find the right one. Look for a bank that understands the dental industry and has resources to support, not only the purchase, but also the ongoing operations. A great lender will help with your business plan, making sure you have the corporate structure to support your professional goals, and provide ongoing support for you and your family.

Do Not Forget Your Most Important Team: Your Family

Your purchase will greatly affect how you and your partner’s finances and work-life balance. Make sure you include them in your decision-making process.

Valuable Resources

Free to ADA members

Steering clear of pitfalls

Envisioning Your Ideal Practice

When it comes to finding your perfect practice, there are plenty of factors to consider.

How many dental or medical practices have you been in during your lifetime? Each one was unique. Some felt calm and welcoming, while others might have set you on edge.

Think through all the elements that make up a practice and identify which sound most — and least — appealing. Knowing what you want will make evaluating potential practices much easier. Fill out the worksheet to get started.

Remember to keep your options open, often the ideal practice can be found in an unexpected location. Rural practices may provide you with the lifestyle and work life balance you have been looking for - do not discount them.

Evaluating Dental Practice Opportunities: Key Considerations for Success

As a dentist, whether you are a new graduate or an experienced practitioner looking to change practices, evaluating potential opportunities is crucial. The decision you make can significantly impact your career trajectory and professional satisfaction. Following are key considerations that will help you assess whether a specific dental practice is the right fit for you.

Shared Philosophy of Care

One of the most critical factors in determining the success of your integration into a new practice is the alignment of treatment philosophies between you and the practice owner. This shared philosophy encompasses mission, vision, and values. When you and the practice owner are on the same page regarding patient care, the transition for patients will be smoother. They won't experience a jarring difference in treatment style, which helps in retaining them and encouraging referrals.

Assessing the Patient Experience

To truly understand a practice, start by experiencing it from a patient's perspective. Visit the practice when patients are being seen. Observe the front desk interactions and the general atmosphere in the waiting area. Are patients greeted warmly? Do they seem satisfied and comfortable? This initial impression often sets the tone for the entire patient experience. If patients are unhappy at the front desk, they may carry that dissatisfaction into the treatment room.

Evaluating the Schedule

The practice's schedule can reveal a lot about its operations. Examine the number of patients being seen and the types of procedures performed. Consider whether the pace of the practice suits your working style. Some dentists thrive in high-volume settings, moving quickly from one patient to the next. Others prefer a slower pace, spending more time with each patient. Ensure that the practice's schedule aligns with your preferred working rhythm.

Understanding Patient Flow

Ask about the new patient experience. How do new patients enter the practice, and what is their journey like? Some practices route new patients through hygiene first, while others have them consult with the dentist before any treatment. Each approach has its merits, but it's important to know whether you can adapt to the existing system and feel confident that you can provide excellent care within that framework.

Reviewing Patient Charts

One of the most informative steps in evaluating a practice is reviewing patient charts with the owner dentist. Look at treatment plans, especially complex cases, and assess the quality of care provided. This review not only helps you understand the practice's clinical standards but also offers insight into the treatment planning process. Ensure that the treatment philosophy and standards of care align with your own.

Interaction with the Senior Doctor

Perhaps the most crucial aspect of evaluating a new opportunity is your interaction with the senior doctor. During the chart review or other discussions, pay attention to how the senior doctor treats you. Are your opinions respected? Is there an open, professional dialogue? A healthy professional relationship, characterized by mutual respect and open communication, is essential, especially if you are joining as an associate or in a situation where the owner will remain involved for some time.


Evaluating a dental practice opportunity requires a thorough understanding of various aspects of the practice, from patient experience to clinical standards and interpersonal dynamics. By focusing on these key areas, you can make an informed decision that will set you up for long-term success and professional fulfillment. Remember, the right fit will not only help you retain patients but also create an environment where you can thrive and grow as a dental professional.

Practice Options

As you consider buying a practice, think about your ideal practice type. Each of the items below can significantly affect your practice fit.

Relationship-Driven or Volume-Driven

Some dentists build a practice on patient relationships, while others focus on driving volume. This approach is reflected in the practice’s policies and patient expectations.

For example, dentists in a practice built around patient relationships tend to spend more time with each patient and personally nurture each relationship rather than delegating this function to auxiliaries. These practices may be entirely fee for service and often charge in the top 1%.

By contrast, a practice built on volume may run multiple treatment rooms simultaneously by delegating as much as possible to auxiliaries. In this model, staff members are the primary relationship builders while the doctor works on doing dentistry as efficiently as possible. These practices tend to accept insurance and make up for lower fees through increased volume.

Both practice styles can be professionally and financially rewarding, but they are generally not compatible. A dentist who prefers a more relationship-focused approach will probably not be satisfied in a practice built on volume, and vice versa.

Modern or Traditional

Do you like using brand new equipment and trying out the very latest procedures, or would you rather rely on the tried and true? Are you at the cutting edge, eager to try new techniques?

Urban or Rural

A rural practice typically has lower overhead and less competition. Fewer specialists serve rural areas, which can be ideal for dentists who prefer doing all types of procedures. Small towns may even offer financial incentives to keep rural practices open.

Urban practices tend to have higher overhead. More competition keeps marketing expenses higher since patients have more choices. Urban dentists are more likely to refer patients out for specialty care.

The “Feel” of an Office

Do you prefer an office that feels casual or more sterile? Would you rather wear scrubs or business casual attire? Should the office feel homey or clinical?

Consider the practices you have been in over your lifetime. Where did you feel most at ease — when there were plush couches in the waiting room, or when there were rows of chairs that reinforced the clinical setting?

Similarly, do you prefer a long-established office, or are you intrigued by a relatively new practice with lots of room to grow?

Envision your ideal practice and how you want it to ‘feel’ for you and your patients. Remember that you will spend a lot of your time in this office. An environment that feels comfortable can inspire your best work.

Ownership Options

There are many different forms that ownership can take, each has its own unique advantages and disadvantages. Consider the following structures as you contemplate your situation.

Independent Contractor

As an independent contractor, you are contracted to provide care for some of the owner dentist’s patients. You maintain control over all treatment decisions and act as a business owner by managing your own schedule, fees, appointments and treatment planning. You also have responsibility for staffing, supplies and maintenance costs, while paying your own salary, taxes and benefits.

An owner dentist may occasionally consult with an independent contractor in their office, but this is not the norm. Typically, the two operate independently while sharing space.

Be careful if you decide to go the independent contractor route. The IRS has very specific rules about how this relationship can be structured – and is a stickler for enforcement. A local employment attorney can help you navigate these regulations, and the ADA explores some of the implications of working as an independent contractor.


In a partnership, two or more dentists share ownership of the practice. As a partner, you might own a small share, an equal share or a majority share. That ratio may change over time, particularly in a long-term buy-out scenario. You are typically compensated based on your ownership percentage, and while most decisions are made jointly, the majority owner is responsible for final decisions. The contract should establish who has final responsibility for each aspect of the practice. For example, who has final say over hiring decisions?

A partnership allows for ongoing consultation and partners can split the on-call burden. Since the patients are shared, partners often have more flexibility to take vacation or other time off.

Again, a partnership agreement should be carefully structured to spell out compensation, benefits, termination for cause and any restrictive covenants.

Full Ownership

A full owner owns both 100 percent of the practice and 100 percent of the responsibility. Everything that happens in the practice – treatment, financial, staffing, purchasing, liability – will need to be resolved by you or delegated to someone else who you manage and direct.

As an owner, you have lots of autonomy and can set your own schedule, take vacation, expand the practice or reduce hours as you see fit. You will decide what technology you want to incorporate into the practice, how/when to add (or subtract) staff, what systems you want in place, etc. While this may be daunting to think about, there are many resources that are available to you through the ADA’s Center for Professional Success that can help you as you consider each of these decisions.

Co-Ownership or Solo Group

In a co-ownership or solo group practice, two or more dentists share an office while maintaining individual practices. This can provide many of the benefits of partnership – consultation, overhead sharing – with less risk. A formal office-sharing agreement dictates how expenses, non-referred new patients and maintenance issues are handled. Co-owners typically also draft an agreement that articulates what happens if one owner departs for any reason, including the right to buy the other half of the practice. However, unlike a partnership or associateship-to-ownership situation, there is usually no obligation for this buyout.

Co-ownership allows dentists to retain their independence while sharing expenses and, potentially, expertise.

Obtaining Financing

Financing a practice involves a lot of moving pieces. Remember, banks WANT to help you borrow money. They see practice loans as relatively low risk, since dentists historically have a very low default rate.

By starting early and preparing yourself with a good team, you can make the process easier and more predictable.

What is the Application Process?

Remember, you can – and should! – interview multiple banks before beginning the formal application process. Once you have decided on a bank, getting a loan typically has three major steps.


Start by filling out an application that asks about your background, the practice, and your plans as owner. This is when you need all your documents in order, such as tax returns, and financial statements. At this point, some banks will deliver a written proposal about what they may be able to offer you. The terms will likely change, but having this proposal in hand can show a seller that you can get financing. However, be aware that, unlike a home loan, a practice loan is very closely tied to the practice’s particular finances. Just because your finances are in good shape does not mean that the bank views the potential practice as creditworthy.


This is the lender’s due diligence. The bank will weigh all the provided data against their own risk tolerance. Some banks simply compare expected revenues to expected expenses, while others may ask for additional information. After underwriting, a bank will issue a written proposal outlining the exact terms they can offer you. While underwriting can take a while, this proposal shows a seller that a bank will finance a particular practice.


After the initial analysis, an underwriter will usually speak to you to ensure you are prepared to take on the debt. They often want to know about your experience, your ideas for the practice, and how you approach your finances.

What questions will I be asked?

The bank wants to be confident that the practice will be profitable, with steady patients and cash flow. But they also want to ensure that YOU are prepared to own, both as a dentist and from a financial perspective.

About the Practice

  • What are current collections? Are they growing, holding steady, or shrinking?
  • How profitable is the practice?
  • What is the current patient base? Do you plan to grow it?
  • What is the current staffing model? Do you plan to change it?
  • Will the seller stay on to help with the transition?
  • What is the current procedure mix? Will that change when you join?
  • Do the last 5 years of financials demonstrate stable profitability?
  • Why do you feel this practice is the right fit for you? How does it fit your career goals?

About You

  • What are your other debt obligations?
  • What is your current credit score?
  • How much cash do you keep on hand? (You need a safety net, just in case!)
  • Will you need an additional line of credit for day-to-day operating needs?
  • Do you plan to upgrade or expand the practice? If so, will you need additional funds to do so?
  • Are you also buying the practice’s real estate? (This is typically financed separately over a longer time period.)
  • Can you produce at the rate required to keep the practice profitable? (Look at your current production reports and be prepared to share them with your lender.)
  • How does the practice align with your personal financial goals? Do you hope to buy a home in the near future?

Do the due diligence

Documents to Gather for Due Diligence

Due Diligence is the time for you to understand the inner workings of the practice and ensure that you are getting what you are paying for. Let's look at what your due diligence checklist should include:

Compatibility: First and foremost, does your philosophy of care align with the owner dentist’s approach? This check will drive your overall satisfaction each day. Make sure you are asking questions about how the owner would approach certain cases, or whether they share your enthusiasm for certain protocols. Additionally, do you share a work ethic and personal values? This may be harder to determine but can be very telling.

Treatment philosophy: Ask to see work in progress, including lab work, x-rays, doctor treatment plans, impressions and before/after photos. See if they align with your philosophy of care or if you notice any red flags.

Reputation: How is the practice viewed in the community? Are the owners well regarded by other dentists? How do specialists view the practice? You can even look at online reviews to get a sense of the practice’s reputation – but take them with a grain of salt. There may be an opportunity for you to help actively manage the online reputation of your dental office.

Financials: Is the practice in strong financial shape? Ask about gross production and collections by doctor and hygienist (over 5 years and year-to-date) and other financial markers.

Practice facility: What is its overall appearance? Fresh, modern, or dated? Is the equipment up-to-date or will the practice need expensive upgrades? Is there sufficient parking or is it near public transit? Ask about the length of the current lease. If things feel cramped, how will you fit in – are there expansion plans, or would you be sharing space?

Operational: How many new patients join each month? How many active patients does the practice have – and how many inactive? What is the recall system? Is the current fee schedule competitive for the area? When was it last updated? Which procedures are offered, and which are referred? Which insurance policies are accepted? Ask to review some charts (after you sign an NDA) to assess the quality of record keeping.

Legal matters: Are there any pending or threatened litigation matters? Is the practice in good standing with its liability insurance provider (and the IRS)?

Patient relationships: Call the office as a patient and see how the staff treats the average person. If you were seeking care, would you feel welcomed, or would you go elsewhere? You can also do an unannounced drop by to see how things run on an average day.

Confidentiality Agreements (NDA)

Before you can review valuation, financials or patient information, the practice owner will require you to sign a confidentiality agreement. The confidentiality agreement is a legal, non-disclosure document that disallows you from sharing any of the details you see.

Employment Agreements

If you choose an associate-to-ownership scenario, you will need a detailed employment agreement — potentially one for each party. These documents typically have several key elements, which the Dentist Employment Agreements: Key Legal Provisions guide covers in detail. The Guide (free to ADA members) includes samples you can use to structure your own agreements.

  • What type of loan do I need?

A practice transition can take on multiple types of debt, so it’s important to understand your needs. Your banker can help you think this through in more detail and find the right loan package for your needs. The ADA Center for Professional Success has a very helpful chart that outlines your options, along with what lenders require for each type of loan.

Acquisition Loan

Acquisition loans are financed with a fixed-term loan. You have options around that term that depend on your personal preferences. Are you comfortable maintaining debt while saving your excess cash to build a reserve – or do you want to pay off the loan as quickly as possible? There’s no “right” answer, but it will affect how the bank finances the loan. Acquisition loans typically require more extensive financial records than other (smaller) loans.

Equipment Loan

If your potential practice requires new equipment or technology, you may consider a separate equipment loan. This can be a relatively straightforward process, with less paperwork.

Practice Expansion Loan

Perhaps you plan to immediately expand the practice by remodeling or relocating. A practice expansion loan can fund these changes. The lender typically wants to confirm that the practice population can support the expansion. This can be with the existing patient base or through a comprehensive plan to attract new patients or add new treatments.

Practice Equity Loan

You can also use the practice’s equity to make improvements, purchase equipment, or cover appraisal shortfalls.

Real Estate Loan

The practice itself is usually financed separately from the building and/or land. A real estate loan usually has a much longer term than an acquisition or expansion loan.

Frequently Asked Questions

Remember, you can – and should! – interview multiple banks before beginning the formal application process. Once you have decided on a bank, getting a loan typically has three major steps.

When should I find a bank? What should I look for?

Start by finding a bank as soon as possible. Since getting a loan takes a lot of documentation, having plenty of time can ease the pressure. Some things are inevitably out of your control – such as how quickly the seller turns over needed documents – so having a cushion can protect against any hiccups.

Many banks have dental-specific services. These banks tend to be the easiest to work with because they understand dental practice finances. Working with one of these banks can mean a faster loan process, and even a larger potential loan amount. Plus, dental lenders can provide perspective on your potential purchase while connecting you with other experts, such as local attorneys familiar with dental practice transitions.

Each bank will offer different rates, terms, and fees. Look beyond the interest rate to understand how the term length will affect your total payoff and ensure you won’t get hit with prepayment penalties or other surprises.

Interview at least three banks and compare their offers. Your accountant can help you determine which one is best for your situation. You may be able to use another banks’ proposal as leverage to negotiate better terms. But also consider which bank is easier to work with. Building a long-term relationship with a bank can help you down the road if you want to expand or make upgrades.

The ADA has selected Panacea as its exclusively endorsed lender for practice financing. This gives ADA members access to preferred rates at every career stage.

What about my student loans?

Laurel Road’s student loan consolidation/refinancing program, which ADA exclusively endorses, provides ADA members the opportunity to refinance existing federal and private student loans from undergraduate or graduate school at a 0.25% lower rate than Laurel Road’s already low rates.

How much can I borrow?

Most banks will lend the entire purchase price of the practice PLUS additional funds for working capital or to purchase the current accounts receivable. However, note that most banks will not lend more than 85% of the prior year’s collections. While most practices will sell for less than that 85% threshold, some premium practices may go for more. You may need to bring your own money to the table if you are buying a practice that exceeds the 85% mark.

Ask your potential lenders about their policies and consult with your CPA to understand how a practice loan will fit into your complete financial picture.

Valuable Resources

Free to ADA members

Being a Business Owner

In your ideal practice, do you envision a very hands-on approach to the business side of dentistry? Or would you rather delegate this to someone else so you can focus on practicing dentistry?

Regardless of your ideal, look for a practice that fits your preferences. Understand that as a practice owner you will always have the final say on decisions that are made - making you the CEO, CFO and head of HR, just to name a few of the new hats you will wear! If you do not feel ready to take on this responsibility, do not panic - the ADA has the GPS (Guidelines for Practice Success) series that can help you navigate the new roles. Be sure to rely on your accountant and financial advisors for answers to specific questions.

Managing Staff

Managing a team can require everything from day-to-day interactions and scheduling through disciplinary actions. As an owner, you may be involved in hiring and training — not to mention potentially firing — employees.

The ADA Center for Professional Success has many resources on managing the dental team, including positioning yourself as a leader, recruiting and hiring, and managing performance.

Practice Finances

As a practice owner, you will need to learn the ins and outs of the business including how to look at the numbers and make sound financial decisions — decisions that will affect your livelihood and even the livelihoods of your staff.

Maybe you would rather let someone else take care of all the minutiae so you can focus on your patients. In this case, at the very least, you must understand the basics of preventing fraud that can hurt your office’s success.

Guidelines for Practice Financials

Understanding Basic Practice Financials

Production – What you actually produce

Adjusted Production – What you produce after the third-party discounts

Collection - The actual amount of money collected by the practice

Expenses – The dollar amount you and the practice spend

Overhead – The ratio of your expenses to your collection expressed as a percentage

Collection is often considered the most important metric. High production can be great, but it does not mean anything if you lack strong collections. Collections are greatly affected on which insurance plans are accepted, as some may only pay a reduced fee. That means you should be very strategic about which plans you accept. The ADA has suggestions on evaluating third-party payer contracts, and even offers a service to review these contracts.

If you do not accept discounts from insurance plans and do only fee-for-service work, your production and collection should be about the same, less any outstanding accounts receivable. Establishing comprehensive collection policies can lead to significant increases in collection.

As you review finances, note if receivables are greater than two months of production, receivables are in collections, and/or the practice has a high balance of accounts over 90 days in arrears. Any of these indicators can point to lose collection policies or ineffective billing systems. Also calculate your own daily break-even point. Work with staff to meet or exceed this number by scheduling enough production every day to cover the overhead.

A practice’s cash flow accounts for every dollar in and out. That means understanding the practice’s total income. Income tracks both production (before any discounts that may include third-party payers, pro bono work and staff discounts) and actual collections. Your collection rate is calculated: (Collection/Adjusted Production)*100.

Evaluating Dental Practice Expenses

When reviewing practice expenses, pay attention to the percentage of collections that each category commands. Some expenses are fixed and do not change regardless of production, including rent/mortgage, some salaries, utilities and loan payments. Variable expenses change from month to month, and include lab fees, supply costs and associate/hygiene salaries (if paid on percentage of production/collection). Industry experts recommend that expenses fall within certain ranges. The following are for a general dentistry practice. For specific specialties, consult with your specialty organization or accountant.

Payroll: Payroll accounts for a significant portion of any practice’s expenses and includes employee benefits and taxes. General practices should expect to spend 7 to 8 percent of collections for chairside assistant salaries, 7 to 8 percent for clerical staff, and 9 to 10 percent for hygiene.

If the practice is running incredibly efficiently, benefits and payroll should be about 25 to 28 percent of collections. Functioning at this level is especially important if you are seeking funding for new equipment or expansion, since most lenders prefer these expenses to be less than 30 percent.

Marketing: A good rule of thumb when budgeting for marketing expenses is to allow 3 to 6 percent for a new practice; 2 to 3 percent for mature practices, and about 4 percent for practices that are in the middle. You should anticipate a jump in marketing efforts as you enter a practice — especially if you are wanting to bring in additional patients, plan to invest 5 to 7 percent the first year.

Dental supplies and inventory: Dental supply costs should be no more than 5 to 6 percent of collections while office supply costs should not exceed 2 percent. Dental supplies are usually defined as items priced at less than $500 per item (not per invoice). Any item with a value above $500 would be classified as equipment.

Laboratory services: Most general practices should expect to spend 6 to 8 percent of collections on laboratory services, not counting CAD/CAM and orthodontic costs. Prosthodontists and dentists in mature practices will likely spend a bit more. While the patient mix will influence the amount spent on laboratory services, lab costs of 4 percent may indicate that the case acceptance rate is low. Keep in mind that if your practice is heavily restorative in nature, you may find that the laboratory expenses are running greater than 8 percent, perhaps even up to 11 percent for practices that focus on full mouth cosmetic restorative treatments.

Utilities and occupancy costs: Rent or mortgage are obvious occupancy costs, but remember that heat, power and air conditioning are also part of the occupancy costs. Financially healthy practices generally keep these costs at around 8 to 10 percent. While the term “utilities” refers collectively to the costs of heat, light, electricity, telephones, internet and cell phones, you will want to be sure each item is tracked separately in the practice annual budget. Bundling these services together makes it difficult to properly analyze expenses and identify opportunities to reduce costs.

Accounts Receivables: Looking at the outstanding accounts receivables is a great place to check the efficiency of the practices' systems. If receivables are greater than two months of production, receivables are in collections, and/or the practice has a high balance of accounts over 90 days in arrears, this can be an indicator of systems that will require a bit of cleaning up.

Current Fees: Be sure to review the current fee structure. If they are on the low side, just be aware that may need to be slowly adjusted upwards – you do not want to purchase a practice and the first thing you do is significantly raise the fees – this can alienate patients rather quickly and is probably not worth it until you build up some connection with the patients.

Making Smart Purchase Decisions

Capital expenses – typically equipment costing more than $500 – can take up a large portion of a practice’s budget. But equipment needs to be replaced or upgraded periodically. The key is to make smart, strategic decisions about the timing and amount of these purchases.

The ADA has selected Panacea as its exclusively endorsed lender for practice financing. This gives ADA members access to preferred rates at every career stage.

This is only an overview of the financial basics. If you are on a path to ownership, begin working through the ADA’s Practice Financial Health resources to understand dental fees and cash flow, learn the habits of financially secure practices, and lay a foundation for long-term growth. And build a team you can trust that includes a lawyer, accountant, bank and financial planner. Each can lend their expertise and guide you to information – and reassurance.

Valuable Resources

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