5 Quick Tips When Planning A Practice Purchase

We encounter thousands of potential purchasers in our daily course of business, and regardless of whether they are a first-time buyer or a multi-practice owner, there are certain considerations that they should be incorporating into their own decision-making.

Our colleague Dr. Patti-Anne Jones has reviewed with Dr. John O’Keefe the experience of associateship as preparation for ownership, and she also provides detailed advice and questions to ask about how to go about building readiness for a practice purchase here: I’m ready to embrace ownership: where do I start?

In this blog, we build on what she says with 5 handy tips that will help you be ready for a practice purchase – these are things that are easy overlooked, but they tend to cause trouble during purchase transactions.

1. Once you have selected a team of advisors, ask your accountant to draw up a 3-year business plan which shows how cashflow will trend. This is absolutely critical to help you realize how much you will eventually be able to afford, especially in the event you need to provide an inflow of cash when the practice sale goes through.

2. When you know how much you can afford, then peruse available practice opportunities. If you are receiving listings from a dental practice brokerage, request the practice appraisal, or if you are working with the practice owner directly, ensure that they have a formal practice appraisal from an independent, third-party firm. The sooner you can see the appraisal, the sooner you know if the practice is actually what you are looking for.

3. Get firm commitments of pre-qualification for credit. Verbal guarantees don’t count for much, and financing can be challenging in this current interest rate environment. The “main” bank that a purchaser is working with may not be willing to finance a practice purchase, and shopping around is the best advice for financing that we can provide.

4. Arrange personal insurance to cover illness, injury or other personal risk which will likely be required by banks depending on the size of the practice and your personal credit situation. The lead time required in some instances is in the range of 4 weeks to 2 months.

5. And if there is one underlying theme we suggest, it is to be flexible! In many parts of the country and especially in urban areas, there are far more buyers than sellers. We have seen many doctors who limited themselves to a narrow range of expectation on price, location, practice size, and practice age, only to lose out on opportunities that may have been perfect.