Advantages of Dental Practice Ownership
January 13, 2022
Can I Own a Practice After Dental School?
February 16, 2022
By David Haynes, MBA, Vice President of National Practice Sales
The ability to buy a dental practice depends on a variety of financial factors. In this article, we will outline tips for preparing your credit and liquidity for your future practice purchase.
Credit
Your credit can impact your ability to purchase a dental practice. Ideally, your credit score should be above 700, and you shouldn’t have any derogatory marks such as late payments or short sales. If you do have some marks on your credit history, you should write a letter to your lender explaining the situations and circumstances. Oftentimes, sharing the stories behind those marks can make a big difference in your ability to receive a loan.
I also suggest that you start monitoring your credit years before you decide to buy a dental practice. You may check your score regularly or utilize an automatic credit monitoring service. By being proactive, you can prevent unforeseen circumstances (such as identity theft) from negatively affecting your credit and possible derailing your practice purchase.
Liquidity
Liquidity is also important as you go to buy a dental practice. You will need to have 10 percent of the practice’s purchase price in cash. For this reason, many dentists need to work for a few years following graduation to save up that amount.
If you don’t have those funds on hand, you may be tempted to borrow from a family member or friend. These situations can be a bit tricky when it comes time to apply for a loan. Oftentimes, banks consider liquidity from a family member or friend as a form of debt. So you will want to ensure that the money received from a family member or friend is a gift instead of a loan, and I recommend you get it in writing.
Credit and liquidity are two areas of your finances to focus on before buying a dental practice. If you have more questions about financing a dental practice purchase, please check out the following video, visit our practice buyer FAQ page or contact me directly at david@menlotransitions.com.
