In a previous blog, we addressed some important first steps you’ll need to take once you decided to purchase a dental practice. Once you have lined up a team of advisors, decided where you want to practice and the type of practice you want to buy, you’ll want to determine how you will finance the purchase.
What is your budget? How much of a loan do you want to take on? The answers to these questions will help determine how much you’ll need to earn from the practice now and in the future
There are two ways to finance the purchase—through a lender and through seller financing. Most dentists choose a traditional lender.
It will benefit you to decide on a lender early in the process. Evaluate two to three lenders and ask your team for recommendations—they will know who will give you the attention you will need. Be prepared to support your loan application with at least two years of tax returns, a statement of your net worth and a copy of your dental license. The lender won’t let you move forward until you have that valuable license. Do you have student loans? Although not weighted as heavily as other unsecured and/or revolving lines of credit in determining your creditworthiness, you may be asked to show your plan and ability to service these loans.
The lender will also want to review a copy of the seller’s practice valuation, two prior years of tax returns, building lease agreement, equipment depreciation details and profit and loss statements that support the tax returns provided. The lender may also want to see the practice’s business plan, budget, and forecasts.
At this point, you’ll also want to line up life, disability, and malpractice insurance policies. Your dental CPA will also help you determine which business entity makes sense for your practice, something else the lender will want to know. In the past it was more common for dentists to operate as C corporations; now, most new dental practices operate as S corporations or other pass-through entities. Your dental CPA will make sure all the required filings are done with the state of incorporation, in addition to filing all the necessary elections with the IRS commensurate with how you have decided to treat your business from a federal income tax perspective.
It is important to note that once you buy a practice, you will need to make sure your credentials are in place. While you are purchasing an existing practice, you will be considered a new business entity and will need to become established as a provider with insurance carriers and Medicaid—if you plan to accept insurance and/or Medicaid patients. In other words, don’t make the mistake of assuming that the seller’s carriers will automatically become yours.
- Preparing for the Purchase
- Financing the Purchase
- Asset Allocation
- After the Sale
This guide outlines the steps you need to take and the resources you need to put you in the best position to buy a dental practice. The dental accounting team at Goldin, Peiser & Peiser is available to help guide you through the process.
To learn more about growing your dental practice, contact the dental CPAs at Goldin Peiser & Peiser or Erick Cutler at 214-635-2541.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.