Purchasing a dental practice can be a strategic move that accelerates career growth, increases income potential, and allows for greater autonomy. However, it’s not a straightforward decision. The process involves extensive due diligence, financial analysis, and legal review to ensure that what seems like a great opportunity doesn’t become an unmanageable burden.
This guide outlines key financial and legal factors aspiring dental practice owners must evaluate before finalizing a purchase — with insights from industry professionals.
1. Understand the Practice’s Financial Health
Before any agreement is made, a comprehensive financial analysis should be conducted. This is not limited to just looking at top-line revenue. Buyers must assess:
- Net income and EBITDA (earnings before interest, taxes, depreciation, and amortization)
- Overhead ratio (what percentage of revenue is spent on rent, staff, supplies, etc.)
- Accounts receivable aging (how long it takes to collect payments)
- Historical financial trends (growth, stagnation, or decline)
- Profit per operatory or per patient
These insights help determine whether the practice is actually profitable and sustainable or if there are underlying operational issues.
A dental-focused accounting firm like Ash Dental CPA can provide specialized financial due diligence services to uncover details that generalist accountants might miss — including insurance reimbursement patterns, dental-specific cost structures, and regulatory risks.
2. Evaluate Practice Valuation and Price Justification
Valuing a dental practice is both a science and an art. Common valuation methods include:
- Market-based approach (what similar practices have sold for)
- Income-based approach (future projected earnings)
- Asset-based approach (value of equipment, technology, and leaseholds)
It’s crucial to determine whether the asking price aligns with the practice’s true value. Factors that can influence value include:
- Patient base stability and demographics
- Number of active patients over the last 12–24 months
- Insurance mix (fee-for-service vs. PPO vs. Medicaid)
- Local competition and saturation
AW Business Brokers offers full-service practice valuation assistance, using both financial and market data to ensure buyers pay a fair price for what they’re acquiring.
3. Analyze Lease Agreements and Location Risks
The location of the practice — and its associated lease or property — plays a significant role in future performance. Key questions to ask include:
- Is the lease assignable or will a new one be required?
- Are there hidden clauses that increase rent over time?
- How long is the lease term, and are there renewal options?
- Is the property in a high-traffic, visible area?
A poorly negotiated lease or one with short-term restrictions can negatively impact the long-term viability of the practice, regardless of patient demand.
4. Review Staff Contracts and HR Liabilities
A practice’s support staff is critical to its day-to-day function and patient experience. When buying a practice, you inherit not just the staff, but their:
- Employment agreements
- Compensation structure and benefit plans
- Paid time off accruals and potential bonuses
- Employee classification (W-2 vs. 1099)
- Workplace culture and team dynamics
You’ll also need to ensure compliance with labor laws and OSHA standards. Having HR and legal professionals review employment arrangements before the purchase can prevent post-acquisition conflicts.
5. Identify Patient Transition Risks
One of the biggest assets in any dental practice is its patient base. But continuity of care can be disrupted if the transition isn’t handled properly. Ask:
- How will the transition be communicated to patients?
- Will the seller remain for a period to aid continuity?
- What is the risk of patient attrition after the sale?
A structured transition plan, possibly including a “handover period” with the seller, can reduce churn and reinforce patient trust in the new ownership.
6. Structure the Deal Wisely
There are several ways to structure a dental practice purchase, such as:
- Asset purchase (buyer purchases equipment, lease, patient lists, etc.)
- Stock purchase (buyer acquires ownership of the seller’s legal entity)
Each has tax, liability, and operational implications. Asset purchases are more common in dentistry, as they allow buyers to avoid inherited liabilities and customize their new entity. However, the choice depends on goals, state laws, and financial strategy.
Accountants at Ash Dental CPA can advise on which structure provides the best tax advantages and legal protection for the buyer’s specific situation.
7. Secure Financing and Plan for Working Capital
Dental practice purchases are often funded through:
- SBA loans
- Conventional bank loans
- Seller financing (fully or in part)
However, it’s not just about getting the purchase price covered. Buyers must also secure enough working capital to fund payroll, supplies, and marketing during the early months of ownership.
AW Business Brokers can help buyers assess financing options and negotiate payment terms that don’t strain post-acquisition cash flow.
Buying a dental practice can be a rewarding step for any dentist, but success depends on understanding the full scope of the transaction. From financial due diligence and valuations to lease reviews and staff integration, every element must be carefully reviewed.
Professionals like Ash Dental CPA and AW Business Brokers provide dental-specific guidance that helps buyers make informed decisions and transition into ownership with confidence.
