When you decide to acquire an existing dental practice or learn that a dentist has decided to put their practice up for sale, the cost of buying the practice will likely become the most important consideration when negotiating a transaction. But how much does it cost to buy a dental practice? Understanding the expenses that buyers incur in acquiring a practice can help you assess the total cost of a proposed deal.
Factors in the Cost of Buying a Dental Practice
The cost to purchase a dental practice can depend on various factors. Some of the primary elements in determining the total price for buying a practice include:
- The size and structure of the practice (e.g., solo dentist vs. multi-provider practice)
- The valuation method used (typically, a variation of the income method)
- The geographic location of the practice and the market conditions in the community
- Additional out-of-pocket expenses incurred to complete a purchase
What Does the Purchase Price Include?
When parties negotiate a purchase price for a dental practice, they typically allocate the price among various assets that the seller and buyer will exchange. Common asset categories include:
- Practice equipment and technology, such as exam/treatment chairs, X-ray machines, and treatment tools
- Furniture and fixtures, such as waiting room chairs and tables, office desks and chairs, and shelving
- Supplies, such as dental cleaning solutions, toothbrushes, toothpaste, and personal protective equipment
- Real estate, such as lease interests (if the seller can assign its lease to the buyer) or ownership of the practice’s location (if owned by the seller)
- Intangible assets, including trademarks, trade dress, patient lists, and goodwill
Additional Costs That Buyers May Overlook
Beyond paying the seller for the dental practice, the transaction will also involve other costs for buyers. Some buyers may not account for these additional costs, which can leave them struggling to afford the acquisition. Other expenses associated with purchasing a dental practice include:
- Professional advisor fees, including for brokers to identify practices available for sale, attorneys to advise on the transaction and associated regulatory issues, accountants to audit the practice’s financials, appraisers to set a valuation for the practice, financial advisors to assist with financing, and tax advisors to address any tax implications
- Financing-related costs, including loan origination fees and ongoing interest payments
- Legal and regulatory compliance expenses, including filing fees to secure required credentials and licenses or insurance costs
- Transition expenses, which may include staff retention bonuses, rebranding costs, and marketing expenses
- Capital investments, including replacing outdated equipment or technology and renovating facilities
How Financing Affects the Cost
Financing the purchase of a dental practice usually occurs through a specialized commercial loan from a financial institution, an SBA loan, or seller financing. Some financial institutions offer programs tailored to financing purchases of professional practices, such as dentists’ offices. Some dental practice purchases may qualify for an SBA loan, which can offer lower interest rates and longer repayment terms than typical commercial bank loans. Some sellers may agree to finance the purchase by receiving payment of all or part of the purchase price in installments, with additional interest on those installment payments.
Financing a purchase can affect the total cost to the buyer due to various factors, such as:
- Down payments required by a lender or a seller who agrees to seller financing
- The applicable interest rate and loan duration, which typically depend on the buyer’s creditworthiness, the practice’s financial health, and general economic conditions
- The practice’s cash flow, as disruptions or uneven cash flow may require a buyer to seek operational loans to ensure they cover their purchase loan or seller financing payments
Contact Our Firm Today
Before you decide to purchase a dental practice, understanding the costs you may face can help you assess your financial suitability for the transaction. Contact Polished Legal today for an initial consultation with an experienced dental attorney to learn more about how much it can cost to buy a dental practice.
