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Why You Should Consider Purchasing a Sub $600K Dental Practice

Image of dental chair and equipment in sub $600K dental practice

By Marc Schubert, Vice President at Menlo Dental Transitions

Some dental practice buyers immediately disregard any practice listed at less than $600,000. However, we have seen practices in this price range become increasingly desirable in recent years. Here are a few reasons you should consider purchasing a sub $600K dental practice.

Pros and Cons of Sub $600K Dental Practices

Pros of purchasing a sub $600K dental practice include:

  • Lower sales price
  • Smaller need for financing
  • Opportunity for growth
  • Less financial risk

Cons include:

  • Lower initial collections
  • Less initial revenue/owner discretionary income
  • Potential operational changes

What Are the Opportunities for Sub $600K Practices?

The new dentist has the opportunity to take an existing practice, brand and patient pool and nurture them into productivity. Oftentimes, sub $600K practices may have under trained/under utilized staff, lack of treatment planning, or owners with personal reasons that prevent them from putting as much time/effort into the business. For this reason, the new owner may need to invest in office upgrades, new technology and additional marketing. They can also focus on making improvements to insurance contracts to increase fees, collections processes, and staff training to maximize efficiency. While it can seem like a lot to take on, these expenses and efforts can pay dividends over the lifetime of their career.

How Is Financing Handled for These Practices?

While ideally a sub $600K practice will qualify for 100 percent financing, that isn’t always the case and can become increasingly less likely the further away you move from the $500K-600K purchase price range. It is always advisable to have sizable savings available when purchasing a practice and more may be required for these types of practices. Alternate options that buyers can explore are SBA loans, HELOC loans, paying cash or utilizing a seller carryback, if the seller is willing. Sometimes creativity is needed to finance a sub $600K practice, but it is often worth it for the benefit.

How DSOs Affect the Market

The dental industry has seen a rise in dental service organizations (DSOs) in recent years. These corporate and private equity groups purchase practices and manage the operations of the businesses. DSOs tend to have specific criteria for which practices they target, often those with significant collections. As a result, the market has seen a slight decrease in the pool of $800,000+ practices, making lower cost practices more available and attractive to private buyers.

Cost Breakdown

Assume a dentist is purchasing a $350,000 practice and has taken out a 10-year loan (or wants to pay herself back within 10 years if she paid in cash). This scenario requires the dentist to produce $2,916 per month, which comes out to $182 per day (assuming the doctor works 16 days per month). Most dentists can easily produce $182 per day and will likely produce considerably more to cover overhead and other expenses, making the practice a worthwhile investment.

We once worked with a buyer who purchased a practice for less than $100,000. Within less than two years, the practice was collecting over $450,000 on only three clinical days per week.

Menlo Dental Transitions has dental practices of all types and sizes available for sale. Please contact our team if you have any questions about your purchasing journey.