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.
Conclusion
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.
Partnership
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.
Application
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.
Underwriting
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.
Interview
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.
Learn more about Panacea
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.
Laurel Road’s ADA Member Benefits
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
Demystifying Dental Practice Loans
Free webinar: Student loan best practices with Laurel Road