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Guide to Buying a Dental Practice
Over at the Dental Podcast Directory, we’ve created “The Ultimate Guide to Buying a Dental Practice”
Here’s some info contained within the free guide, and at the end of this post, there’s a link to get a copy. If you have any questions, please do post them in the thread.
Why Practice Ownership Makes Sense
The Financial AdvantageDentists who own their practices typically earn about $100,000 more annually than associates. While associates average around $147,000 per year, practice owners average $244,000.
Beyond the Money
Practice ownership offers something priceless: control. You decide which procedures to perform, which insurance plans to accept, and which team members to hire.
Building Equity
An associate’s income stops when they stop working. An owner builds an asset that continues to appreciate. Think of it as getting paid twice—once for the dentistry done today, and again when selling the practice later.
Timing Your Purchase
One of the biggest mistakes dentists make is waiting too long to buy. Every additional year spent as an associate represents income and equity that’s lost forever.
What You Need to Buy a Practice
Before shopping for practices, ensure you have:
- Cash reserves (10% of purchase price or $50,000, whichever is less)
- Production history showing you can produce 70-80% of what the seller does
- Credit score of at least 680
- Clean credit history without bankruptcies or short sales
- At least one year of clinical experience
Finding the Right Practice
Practice TypesLook for practices that match your clinical skills and management style. Some dentists prefer the “well-oiled machine” with established systems, while others are drawn to “fixer-uppers” with untapped potential.
For most first-time buyers, practices with 6-10 operatories generating between $900,000 and $1.2 million in annual revenue are ideal.
Insurance Participation
Consider whether the practice is fee-for-service or PPO-dependent. Each model requires different skills and offers different advantages.
Finding Your Practice
The 80/20 RuleSpend 20% of your search effort working with brokers and 80% building relationships with practicing dentists who might be considering retirement.
Two effective approaches for direct outreach:
- Net Fishing: Send mass mailings to dentists in your target area
- Spear Fishing: Research specific practices and send personalized letters
Building Your Team
You need specialists on your side, particularly:
- A dental-focused accountant ($4,500-$12,000)
- A dental-focused attorney, preferably charging a flat fee ($5,000-$8,000)
Remember: The broker works for the seller, not you. The banker is partially on your team but benefits from larger loans.
Understanding the Numbers
When evaluating practices, look for:
- Collections of at least $800,000, preferably $1 million+
- Overhead no higher than 65% (35%+ profit)
- Staff costs between 28-32% of collections
- Lab fees and supplies totaling 10-13% of collections
- Rent costs at 7-8% of collections
How Practices Are Valued
Two primary methods:
- Percentage of Collections: General practices typically sell for about 76.8% of annual collections
- Multiple of Earnings: The practice’s EBITDA multiplied by a factor of 1.6-2.75
Beyond the Numbers
Don’t forget qualitative factors:
- Location (would you and your family want to live there?)
- Compatibility with the selling doctor
- Facility condition and lease terms
- Equipment age and maintenance
- Team dynamics and compensation
- Patient scheduling and demographics
- Production mix and recall effectiveness
The Letter of Intent (LOI)
After analyzing a practice, your first official step is submitting an LOI. This non-binding document should address:
- Purchase price
- Asset allocation
- Accounts receivable
- Closing date
- Building/lease terms
- Patient communication
- Redos and rework
- Non-compete terms
When submitting your LOI:
- Be enthusiastic about what impressed you
- Sign with a blue pen (then scan)
- Deliver directly to the seller (with broker copied)
- Detail the steps you’ve taken to prepare
Due Diligence
After your LOI is accepted, verify that the practice is what it appears to be:
- Review financials, tax returns, and production reports
- Inspect equipment, schedules, and patient charts
- Evaluate the team and facility
- Try to meet with staff before purchase
Legal Documents
Several legal documents will formalize your purchase:
- Asset Purchase Agreement (70-90 pages)
- Bill of Sale (usually one page)
- Lease or Real Estate Contract
- Partnership Agreement (if applicable)
- Associate Employment Agreement (if applicable)
Financing Your Purchase
When seeking a loan:
- Understand proposals vs. approvals
- Talk to only two or three banks
- Focus on rate (50%), fees (30%), and process (20%)
The Transition
After closing, the critical 90-day transition begins:
- Schedule time to meet with each team member
- Communicate consistently with patients
- Review charts with the seller to understand treatment patterns
- Gradually introduce changes to systems and protocols
How to Pay Yourself
As an owner, you have two payment methods:
- Payroll: Required for a “reasonable” portion (typically $100,000-$175,000)
- Owner Draws: Direct transfers that avoid payroll taxes
For a practice collecting $1 million with 60% overhead, most owners take about $150,000 as salary and the remaining $250,000 as owner draws.
Final Thoughts
Buying a dental practice is about more than numbers and contracts—it’s about people, relationships, and creating a place where you’ll spend much of your professional life.
With proper preparation and realistic expectations, practice ownership can lead to professional fulfillment, financial success, and the satisfaction of creating a dental home for your patients and team for years to come.
Want to learn more? This post is just the condensed version of our comprehensive guide. For the full details, concrete examples, and additional insights, visit: https://dentalpodcast.org/guides/how-to-buy-a-dental-practice/ where you can access the complete guide and listen to our podcast series on practice acquisition.
What questions do you have about buying a practice? Share in the comments below!
I am a general dentist and founder of Proximal Contact, LLC where we operate:
American Dental News, Embrasure Space, DentWoo. -
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