Is Now a Good Time to Buy a Dental Practice?

Brian Hanks General

“I want to own my own practice, but is now the right time?”

I get this a lot, especially in informal conversations at conferences and the like. for most of you the answer is “absolutely,” while for a few of you, it might be better to wait. Which are you? Let’s break it down.

At any particular moment, you’ll easily be able to think of reasons NOT to buy a practice. The economy hits a bump. There’s a health emergency. Your confidence is shaken. A particularly nasty patient sat in your chair yesterday.

The list is long indeed. But it’s in those moments you have to keep your long term goal of ownership, control (and yes, more money) in mind. Don’t get trapped in the poverty of intentions.

To start, let’s look at the three most common (and perfectly valid!) concerns people have when thinking about buying a dental practice:

  1. “I don’t have the money.”
  2. “It’s not the right time in my career.”
  3. “The market is too high / too low.”

Let’s take each concern in turn and see if these reasons are good ones for YOU to delay a practice purchase, or not. (Hint: probably not.)

I don’t have the money

Good news here — you probably don’t need to pay for it. Now, at least. As a rule (with very few exceptions), banks are willing — even eager — to lend 100% or more of the price of a dental practice purchase. You will need some cash, however. The good news is that you get to keep the cash in your account even after you buy the practice. So to purchase a practice at $750K, you don’t need to have $750K in the bank, or half that, or even a third.

As a rule, to secure funding for your purchase, the bank will want you to have on hand 10% of the purchase price, or $50,000, whichever is greater. Buying a $400K practice? You’ll need $40K. Buying a larger, $2M practice? No need for $200K in your accounts; the $50K threshold will do just fine in this case.

So if the bank is funding 100% of the purchase price, why do you need these funds at all? After all, you’re not handing any of this over to the bank at closing.

Instead, the bank looks for this money as a way to reassure themselves that you’re a responsible person. You’ve worked as a dentist for a while at this point (more on this in a bit), making good money. But have you made good decisions with it? Are you the type of person who blows his big paychecks on equally big (and unnecessary) expenses? Or were you wise enough to save a good chunk of money for the future?

So, do you have the money to purchase a dental practice? If the answer is no, then the power to turn it into a yes is entirely in your hands.

It’s not the right time in my career

Again, this one is pretty straightforward to answer. Are you at least a year out of dental school? Do you have a strong production history that shows that you hand speed to keep up with the daily needs of a practice? If so, then you’re good to proceed, whether you’re in your 20s or your 50s.

“Wait a minute. I’m good, but I’m not good enough to keep up with the senior dentist I’ve been working alongside for the last couple years!” No worries. When you’re buying a dental practice from an experienced seller, you need a production history that shows that you can keep up with the departing dentist to the tune of 80% of their production, and that you can handle the biggest money-making procedures that the selling practice does.

So if you’re fresh out of dental school, or if you need to get quicker with your hand speed, then be patient and diligent, and you’ll be in a good place to purchase a practice in about a year. Most people wait a LOT longer than a year, though. You likely don’t need to wait that long. The “right time” to buy your practice was probably a few years ago, which makes the second-best “right time” … right about now!

The market is too high / too low

This one is not in your hands. Markets fluctuate, costs and revenues go up and down, and no matter how much CNBC you watch, you can’t predict when this will happen. So you’ve got to wait for the perfect moment, right?

Wrong.

Whether the market is up or down, if you have the cash on hand and the production history, it’s almost certainly a good time to get into ownership. (With the caveat that if the economy is in absolute chaos, making any sudden moves may be a bit risky. Be sure to consult your financial advisor for your specific case.)

If the market is high, you may pay a bit more for a practice, but the wind in your sails at the start of your ownership voyage will allow you to save, invest, and put practices in place to ensure that when the economy does eventually cool, you’ll be in a place to weather the downturn.

If the market is low, you may deal with lower-than-average collections for a while. But when you’re buying during a down market, the three-pronged due diligence process will give you a reasonable degree of assurance that you’re buying a practice that will make it through the tough times. And when you do, the discipline you learned will have you in a great place to capitalize on the eventual uptick in the economy.

So, are you ready to buy a practice? If you have the requisite cash on hand and a compelling production history, and the desire to purchase, then yes, it’s probably time. Don’t let the myth of “perfect timing” get in the way of stepping into your future. And when you’re ready to do so, give me a call.