So, you’re thinking about making the leap from associate to practice owner? Congrats—you’ve officially entered the deep end of the dental internet. You’re probably binging podcasts at 2x speed, devouring every article with the phrase “practice acquisition” in it, and interrogating every friend who’s ever owned a handpiece about what to do (and what definitely not to do) when buying a practice.

But before you dive headfirst into practice ownership, let’s hit pause for a quick reality check.

The Reality of Practice Ownership

Caveat emptor—buyer beware. This move isn’t just big; it’s life-altering. We’re talking right up there with buying a house, signing student loan paperwork, or deciding what tattoo adequately commemorates the purchase. (Okay, maybe not the last one—but you get the idea.)

If this article landed in your lap during your search for answers, welcome. You’re in the right place. Let’s cut through the noise, debunk a few common myths, and help you step into ownership with eyes wide open and confidence intact.

Myth 1: I Should Buy a Dental Practice Because Dental Loans Never Go Bad

Let’s bust this myth with a little dose of truth and a pinch of reality.

Yes, banks love dentists. A well-run dental practice can boast juicy margins of 35-50%, and even a wobbly economy can’t stop people from seeking help when they’ve got a toothache. But here’s the part no one puts in the glossy brochure: Just because dentists repay their loans doesn’t mean they’re thriving.

Many practices scrape by with gritted teeth (pun intended). When things go sideways, repayment often involves draining retirement accounts, juggling high-interest loans, or returning to associate work just to stay afloat.

If someone who benefits from your purchase starts citing the “success rate” of dental loans, that’s your cue to raise an eyebrow. Buying a practice isn’t like buying a well-oiled machine; it’s more like adopting a moody teenager—you never know what you’re getting until you’re in the thick of it.

With the current economic forecast, dentistry’s historically healthy margins are getting leaner daily. So take your time, do the homework, and build the right team.

Lesson: Due diligence isn’t just a suggestion–it’s survival.

Myth 2: My Bank Declined My Loan… So This Must Be a Bad Practice

Not so fast. Buying a dental practice isn’t like buying a house. There’s no “pre-approval” magic letter. Banks are balancing two big puzzle pieces: you (the borrower) and the practice (the asset). A strong borrower can still be denied due to the practice’s risk profile.

If one bank passes, it’s a sign to try another lender. Banks have their own credit boxes and risk tolerances. The right bank is the one that aligns with your vision.

Lesson: One bank’s “no” isn’t the end of the road.

Myth 3: I’m Nervous About Running a Practice, so a Partnership Is Probably My Best Option

Let’s talk about partnerships. In dentistry, the “ships” that often sink are relationships, entrepreneurships, and partnerships.

Partnerships can complicate decisions, create conflicts, and turn into a tug-of-war between personal priorities. A stable solo practice often beats a complex partnership. If you’re going to bet on anyone, bet on yourself.

If the leap from associate to owner feels scary, that’s normal. But don’t make decisions out of fear. Hire a good consultant instead to build your confidence and teach you the ropes.

Lesson: Simplicity beats complexity.

Final Thoughts: Choose Wisely, Doc

The journey to practice ownership isn’t just about the numbers. It’s about strategy, preparation, and having a clear vision of what you want. Keep your focus, learn from others, and don’t rush.

If this article can help you avoid even one “I should’ve known better” moment, that’s a win. And if you do end up thriving, feel free to call me with the good news. I’d love to hear it.

The post Caveat Dentist: What No One Told You About Buying a Practice appeared first on Menlo Dental Transitions.

Acquiring a dental practice requires careful planning to ensure a smooth transition. By preparing early, buyers can avoid last-minute stressors and ensure everything is ready for a successful closing. Here is a checklist of essential steps for dental practice buyers:

Set Up Your Business Entity

To get started, set up a legal entity, such as an LLC or corporation; your CPA or attorney can help you determine the entity type that is right for you. You’ll also want to obtain an Employer Identification Number (EIN) from the Internal Revenue Service. When you set up your business bank account, use the exact name listed on your entity’s articles. When filling out important documents, don’t put the address of the practice you’re buying until after close.

Open a Business Bank Account

Choose a reputable bank and open an account. This account will manage business funds, automatic payments and transactions related to your new acquisition. Be prepared to provide the minimum deposit requirement as specified by your bank. The lender you select will likely require you to have a business account at that institution, so open an account with the lender you will likely use.

Execute Important Agreements

Finalize the practice purchase agreement, including any employment agreements with non-compete clauses as required by lenders. Lenders often require the office lease length to match the loan term, so ensure you have renewal options in your lease. You should also finalize an operating agreement if you are entering into a partnership. Reviewing lease documents, operating agreements and practice purchase agreements should be done with the attorney of your choice.

Review the Beneficial Owner Report

The Federal Government recently passed a law to better identify the individuals who own businesses. As a result, the U.S. Treasury Financial Crimes Enforcement Network now requires business owners to submit the Beneficial Ownership Information Report. Work with your CPA to accurately complete this new requirement, sharing correct information about your business and ownership structure.

Organize Funding Details

Coordinate closely with the escrow company and your lender to ensure loan documents are signed on time and that all payoffs have been accounted for by the escrow company.

Coordinate with Your Landlord

Work with a dental-specialized broker to establish a new lease or a lease assignment of the existing lease. Most banks require certain lease terms, which they will review prior to funding. For example, your lender may require you to obtain and sign a Landlord Waiver before closing.

Order UCC Searches

Work with the escrow company to check for liens on the practice. Most U.S. states have public records that you can search yourself, but the escrow company will likely order a Uniform Commercial Code (USS) search to check for existing liens. Address any discrepancies with the seller that may arise from these searches.

Set Up Merchant Processing

Complete an application with a merchant processor, which will enable you to start accepting payments as soon as the business is operational. Once again, make sure you don’t use the practice address until after you close. Most lenders provide merchant processing, but you will want to check if see if their merchant processing system integrates with your practice management software.

Verify All Required Insurance Policies

Coordinate with your insurance agent to ensure the following policies are active and meet the lender’s requirements:

• General Liability and Property Insurance for the business premises. Your lender will give you minimum amounts.
• Disability Insurance for income protection. Your monthly benefit needs to match the payment amount.
• Malpractice Insurance with coverage requirements as specified by the lender (if applicable).
• Life Insurance Assignment that meets the loan requirements. The policy amount usually needs to match loan amount.

Each of these steps contributes to a seamless closing process, helping ensure you’re prepared for day one. Taking these actions well in advance of your estimated closing date will help you avoid common pitfalls and pave the way for a smooth transition.

To learn more about buying a dental practice, check out our Buyer FAQs.

The post Essential Steps for Dental Practice Buyers: How to Prepare for a Smooth Transition appeared first on Menlo Dental Transitions.

Buying a dental practice and buying a home are two of the most important purchasing decisions a dentist will make. This blog post outlines how homeownership can affect your ability to buy a dental practice.

Prospective Homeowners

Many dentists desire to purchase a house at about the same time that they purchase a practice. They have graduated from dental school, they are perhaps moving to a new city, and they are ready to put down roots in the place where they will be growing their business. 

Buying a home and practice simultaneously can be difficult. If you close on a house first, you will drain your liquidity and create increased debt service with your mortgage payment, which can make it more difficult to underwrite your practice loan.

If you buy your practice first, you will now be considered the owner of a new business. Since many banks don’t underwrite to new businesses, you may have a more difficult time finding a mortgage lender shortly after purchasing your practice. 

We recommend you purchase a dental practice first and then buy your dream house a year or two later. By that time, you will have years of work experience and cash flow to secure a favorable mortgage loan.

Current Homeowners

If you already own a house, you are able to purchase a practice almost immediately assuming a few factors: First, you must have proper liquidity, and second, your mortgage payment must not be too large that your debt service ratio is too low for the bank to underwrite. With a mortgage payment locked in place, you are viewed as a riskier candidate for banks since they don’t know what your cash flow will be until you identify a prospective practice and present its financials. Your years as an associate will also be crucial to demonstrate production history and build up your savings.

Through strategic financial planning, dentists will be able to eventually buy both their dream practice and home. If you’re looking to buy a practice, check out our available listings and reach out to us for lender recommendations.

The post How Does Homeownership Affect Your Ability to Buy a Dental Practice? appeared first on Menlo Dental Transitions.

Assessing Financial Feasibility

Being pre-qualified with a dental-specialized lender provides a comprehensive assessment of your financial standing. This step helps you understand if practice ownership is a feasible option for you at this point in your career. Pre-qualification offers insights into your borrowing capacity and potential loan terms.

Determining Your Budget

Armed with pre-qualification, you gain clarity on your budget and the specific characteristics of practices you should be targeting. This not only saves you time but also ensures that your search is focused on practices that align with your financial capacity and strategic goals.

Setting You Apart from Other Buyers

In a competitive market, you need to stand out among the buyer pool. Being pre-qualified sets you apart from other buyers who might not have taken this essential step. By demonstrating financial preparedness, you are a more attractive prospect to sellers.

Demonstrating Readiness to Sellers

Sellers are cautious about sharing confidential practice information. Pre-qualification serves as tangible evidence that you are not just a curious browser but a serious and qualified buyer. This demonstration of readiness can positively influence sellers’ perceptions of you.

Accessing Exclusive Opportunities

Some sellers won’t even entertain conversations or share detailed practice information with buyers who aren’t pre-qualified (or can show proof of liquidable funds equal to the purchase price). By being pre-qualified, you open doors to new practices that might otherwise not be available to you. This access can be a game-changer in a competitive market. 

You will see many advantages by being pre-qualified with a dental-specialized lender before embarking on your dental practice search. If practice ownership is on your horizon, take the crucial step of being pre-qualified. The team at Menlo Dental Transitions would be happy to introduce you to dental-specialized lenders who are active in the current market.

The post Why Dental Practice Buyers Should Be Pre-Qualified appeared first on Menlo Dental Transitions.

As 2023 came to a close, we reflected on the exciting activity we have seen in the Arizona dental market. Looking forward, we also wanted to dive into the current state of affairs and share insights into what the future might hold for dental professionals in Arizona.

Economic Factors

Rising interest rates have had one of the biggest impacts on the dental transitions market. The Federal Reserve has raised interest rates multiple times to try to curb inflation without tipping the economy into recession. If the Fed successfully achieves a soft landing, we should hopefully see rates start to come back down by the end of 2024.

The economy is always a bit unpredictable, so if unemployment begins to rise or other unexpected events take place, we could see a harder landing, prompting rapid rate cuts. These conditions could cause adverse effects for valuations in all industries, including dentistry.

Valuations

In 2023, dental practice valuations held fairly steady. Due in part to rising interest rates, practice valuations are not rising at the same rate as they did in the past, but we also have not seen a decrease in valuations.

Going into 2024, valuations will depend on general economic conditions, as outlined above. Barring any black swan events, we will likely see valuations maintain their current levels.

Financing

Buyers’ ability to procure financing is a helpful way to gauge the health of an industry. To date, financing is still readily available. In particular, dental-specific lenders continue to offer a variety of products, including acquisition and start-up loans, with terms of 10, 15 or sometimes even 20 years.

For the time being, interest rates have plateaued; further, practice cash flows net of debt service still remain strong, despite the higher rates. We expect this trend to continue into next year.

DSOs and Corporate Groups

Over the last 12 to 18 months, capital markets for DSOs have tightened substantially. This has limited and/or delayed the ability for some DSOs to successfully recap, which is an important step through which DSOs provide value to their investors and doctor partners.

The current state of the market has shed a light on which groups are the strongest and most resilient. These groups are still acquiring practices as aggressively as ever, which is favorable for selling dentists.

Consolidation of dentistry has proliferated nationwide. If this trend continues as expected, dentistry is likely to encounter results similar to those seen in more mature medical verticals (hospital groups, veterinary, pharmaceuticals, etc.). In other words, rather than experiencing “peaks” and “troughs” that fluctuate with economic cycles, resale values for solo practices could reach a single “peak” in the coming years, once DSOs have saturated enough of the market.

Advice to Sellers

Despite the changing economy, now is still a good time to sell. The demand for dental practices remains higher than the supply. This means there is a surplus of active buyers, even if some of them have become a bit more selective. The minor dip we saw in interest rates in Q4 led to a slight uptick in buyer activity, illustrating just how quickly the market responds to change.

If you are looking to sell in the next three to five years, engage a transition broker as soon as possible. By initiating conversations early, you will have plenty of time to evaluate your options and find your ideal buyer. The market currently offers a favorable landscape for sellers, but it’s important to be prepared for every scenario.

Advice to Buyers

Starting a dental practice is still difficult due to low inventory, so many aspiring practice owners focus on acquisitions. To set yourself apart from other buyers, get prequalified with a dental-specific lender. Despite potential softening in valuations, you should not expect a significant dip in sales prices. By acquiring a practice sooner rather than later, you will be able to build equity in an asset you control and take advantage of the numerous tax and other benefits obtained through practice ownership.

Whether you are buying or selling, navigating the current market landscape requires a strategic approach. Contact us to discuss your practice goals for 2024.

The post State of the Arizona Dental Market 2024 appeared first on Menlo Dental Transitions.

Step 1: Get Pre-Qualified by a Lender

The first step in buying a dental practice is obtaining pre-qualification from a lender. This process helps gauge your financial standing and confirms if practice ownership is a feasible option for you. Lenders will set parameters on the amount they can lend you, helping you determine your practice budget. 

Pre-qualification also demonstrates to sellers that you are a ready and able buyer. Many sellers require pre-qualification before sharing confident practice information, making it essential to have financing in place to set yourself apart from other buyers.

Step 2: Search for Your Ideal Practice

Armed with pre-qualification, you can begin your search for the ideal dental practice. Location is a key consideration when evaluating potential practices. How far are you willing to commute? Do you want to relocate? If so, how do you feel about rural markets? 

Other important factors to consider include practice reputation, patient demographics, practice size and services offered. You should tour potential practices to get a firsthand feel for the environment and operations. Be patient during this process, as finding the perfect fit may take time.

Step 3: Make an Offer

When you find the right practice, it’s time to make an offer (often called a Letter of Intent). Work with your dental broker to create a competitive offer that aligns with the practice’s value and market conditions. Negotiations may occur between you and the seller until both parties agree on the terms of the deal.

Step 4: Close on the Practice

Once your offer is accepted, the closing process begins. With Menlo Dental Transitions, the timeline for closing, from having your offer accepted to receiving the keys to your new practice, typically takes 30 to 60 days. This period involves opening an escrow account and submitting your earnest money. During this time, you will also work closely with your broker, legal advisors and the seller to complete due diligence and finalize the purchase agreement.

Utilities and licenses will be transferred into your name. The seller will usually announce the transition to patients and staff and assist in the transfer of goodwill. With careful planning and the right advisors, you will soon be the proud owner of a dental practice, ready to serve your patients and make a lasting impact in the dental industry.

The buying process can vary in duration, taking anywhere from several months to several years. The timeline depends on factors such as your desired location, market competitiveness and the strength of your offers. By following these essential steps to buy a dental practice, you can confidently find and build a thriving dental practice that aligns with your vision and career goals.

For additional resources to assist in your practice buying journey, check out Menlo Dental Transitions’ available dental practices and buyer FAQs.

The post Steps to Buy a Dental Practice appeared first on Menlo Dental Transitions.

Financial Readiness

Owning a dental practice requires financial preparedness. Do you have the necessary resources to start or buy a dental practice? Prospective practice owners should have some cash on hand and be prequalified by a lender. By having your finances in order, you will be able to secure financing, manage expenses, and navigate the financial aspects of practice ownership.

Clinical Readiness

Clinical readiness is a fundamental aspect of practice ownership. Ensure you have obtained the necessary education, training and experience to deliver high-quality dental care. Confidence in your clinical abilities will instill trust in your patients and lay a solid foundation for your practice’s success.

Emotional Readiness

Practice ownership brings autonomy and the opportunity to shape your professional destiny. You need to be prepared to not only deal with complex treatment cases but also handle the day-to-day responsibilities of running a business. Successful practice owners have a vision for their practice. Ask yourself if you have a clear understanding of the type of dental practice you want to build, including target patient demographics, services offered, and the overall experience you want to create for your patients.

Dental practice ownership requires an entrepreneurial spirit, a willingness to work hard, determination and resilience. How well do you tolerate risk? Are you excited about finding new ways to improve patient care, implement innovative technologies, and drive the growth of your practice? Are you prepared to navigate challenges and seize opportunities in the evolving dental landscape?

As a practice owner, you will also be responsible for leading a team and creating a positive and productive work environment. Assess your leadership qualities, such as communication skills, the ability to motivate others, and the capacity to make tough decisions.

So, are you ready to own a dental practice? If the answer is yes, you have two common paths to ownership: start a practice or acquire an existing one. Contact our commercial real estate team if you are interested in establishing a new practice and check out our available practice listings to start searching for your ideal practice.

The post Are You Ready to Own a Dental Practice? appeared first on Menlo Dental Transitions.

• Moving back to your hometown or your partner’s hometown

• Moving back to where you went to school

• Looking for a change of scenery (weather, cost of living, political landscape, etc.)

Relocating and purchasing a dental practice simultaneously can create some challenges that you should be aware of.

Challenge #1 – Searching for the Right Dental Practice

When looking for a dental practice, you may not know exactly what part of town you’d like to be in, causing your search parameters to be too broad. Some buyers are even torn between more than one state, which can lead to decision paralysis. We have also seen spouses be interested in different locations, resulting in a lack of commitment to a practice.

We recommend you live in the area for some time to ensure you actually like it. Some places may seem desirable, but they may not be the best for practicing the type of dentistry you desire. You may not realize that the area is incompatible with your goals until you live there for a while. Purchasing a dental practice is generally a minimum commitment of 5 to 10 years, so you don’t want to feel stuck in the wrong location.

Challenge #2 – Timing

Timing a move can be challenging in and of itself, and adding a practice purchase into the mix can cause even more issues. For example, obtaining state licensing can take time, and sellers won’t generally accept an offer if you haven’t seen the practice. You will need to be flexible and travel quickly to attend showings; otherwise you may miss out on some practices. Practice sales can move fast, and sellers won’t likely delay another opportunity with a strong buyer just so you can see the practice.

In addition, transition timelines from offer to closing are typically no more than two months, and many sellers are not interested in working back for more than a few weeks, usually just to help transfer goodwill and wrap up cases. Practices currently on the market may not be a good fit for you if you need more time (waiting until summer to move, finishing your current contract or military service, etc.)

Challenge #3 – Financing

If you are planning to buy a house and a practice, you might run into issues depending on the scale of the house. A home purchase can reduce liquidity, increase expenses, decrease your debt service coverage ratio, and temporarily lower your credit. All of these factors affect the amount a lender may offer you.

Our advice to relocating dentists is to move into a rental home, and once you’re settled and know exactly where you want to be, then you can purchase a home.

Due to their financing parameters, some lenders are limited in what they can lend to buyers who are purchasing out of state. Some lenders even require you to live within the state of the practice prior to funding the deal.

If you are set on purchasing a practice before or while relocating, here is our advice:

1. Determine exactly what you want for your practice and where you want to be. Be committed to these goals.

2. Be prepared to move quickly and make a strong, competitive offer. Present yourself well to the seller. If you need a longer workback or transition period, be prepared to offer additional funds and/or earnest money to entice the seller to agree to your terms.

3. Connect with lenders who have experience lending to out-of-state buyers. Be upfront about your plans, so they can appropriately guide you through the process and let you know what is and isn’t possible. Please contact our team if you need lender recommendations.

If you are looking to relocate to the Southwest, Menlo Dental Transitions has many dental practices available for sale. We wish you the best in your practice acquisition and hope to be a resource for you now and throughout your career.

The post The Challenges of Relocating and Purchasing a Dental Practice Simultaneously appeared first on Menlo Dental Transitions.

Practice Availability

Dental practice availability in your desired market may influence your decision to buy or start a dental practice. As of writing this article in early 2023, we are seeing a seller’s market in many parts of the country, meaning there are not enough practices to keep up with the demand. In other words, there are more buyers than sellers.

Your ideal practice may be even harder to find if you are looking for specific specialties, practice sizes, patient demographics, etc. If you are struggling to find an existing practice that matches your requirements, a startup may be a better option for you.

Timeline

Your timeline may also affect your decision. Prospective buyers should anticipate their acquisition to take a few months, as you find a practice and negotiate a purchase contract.

Startups take significantly longer, sometimes up to 18 months. The startup process includes many steps, such as developing business plans, locating and building out a space, marketing, and hiring and training new employees.

Autonomy

Many dentists who highly value their autonomy prefer to start their own practices. They get to choose the location, patient demographics, financing terms, budget and employees.

On the other hand, if making all those decisions is overwhelming, you may prefer to buy an existing practice and inherit its facility, equipment, systems and legacy.

Owning a practice is an exciting step in any dentist’s career. If you are looking to buy, check out our current practice listings. If you are looking to start a practice, please contact us to get connected with our dental real estate experts.

The post Should You Buy or Start a Dental Practice? appeared first on 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.

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