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Written by Kent Harlan, CPA
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 When you've been given an opportunity to buy a dental practice, you should perform an adequate amount of due diligence beforehand. It is advisable to retain the services of a competant CPA and attorney to review the historical financial statements and purchase agreement. In addition, choosing the right financing option is critical to long term success.
Your first priority as a dentist is to provide the most professional and effective treatment possible to your patients.. To do that, you must keep up with the latest technical advancements. Of nearly equal importance is a working knowledge of the business aspects of the practice. Whether you are considering starting a new practice, buying a practice, or becoming a partner in one that already exists, you need to have a working knowledge of the financial options available to you. You must also align yourself with professionals that can help steer you the right way.
DUE DILIGENCE REVIEW
Before you buy a practice, you should thoroughly review all the documents provided by the seller. Don't be shy about asking questions concerning all areas of the practice: marketing programs, personnel, supply vendors, accounting functions, and a review of patient records. With the help of a CPA, you should analyze the practice's tax returns and financial statements. Perform trend analysis not only of revenues, but patient count as well. Carefully review the equipment list. Is the equipment up to date or will you have to earmark funds for newer equipment? Is the equipment you're acquiring connected to a lease obligation?
FINANCING OPTIONS
How you finance your practice, whether it is a start-up or an existing one, is paramount to your long term success and cash flow. You should carefully examine all the options available to you.
Financing from a specialized funding source
There are firms in the marketplace that are devoted to providing financing for dental practice acquisitions and  start-ups. These firms, such as Ozarks Capital Funding, are able to offer up to 100% financing for the purchase of a practice. Financial institutions like these will also provide working capital and funds for additional equipment or remodeling costs. Another advantage to working with these types of companies is the knowledge and expertise they bring to the table in the way of dental practice financing.
Seller financing
When a practice is for sale, the owner will often agree to provide financing. This can be a great arrangement for several reasons:
1. Flexibility: The seller will likely be more flexible as far as payment arrangements than would a bank. For example, he might agree to an interest-only payment structure the first few years while you get on your feet. 2. Low or no down payment: As a motivation to sell the practice quickly, the seller might not require a large down payment. This allows you to use your capital reserve for other needs.
3. Seller consultation and assistence: Needless to say, the seller will have a vested interest in the success of the practice after the sale. Because of that, he will probably lend as much support as possible to the new owner(s) in the way of consultation and operations.
Bank financing
The banking industry is highly competitive, not only in terms of national institutions like Bank of America, but local banks as well. Banks usually view dentists as good credits and will go out of there way to provide the funding they need. If you go this route, a down payment equal to 20% of the purchase price will be required. Also, if you're buying into an existing practice, a bank will probably require that the prior entity be disolved and a new one be created. The loan would then be in the name of the new entity.
Buying a practice can be one of the most rewarding experiences of your career. You must make the effort to perform a thorough review of the asset you're buying. Choosing the right financing option can be of equal importance.
Need funds to expand or remodel your dental office? Click here or call us at (417) 849-7394.
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