Katie Collins, a Practice Integration Advisor with Buckingham Strategic Wealth, helps dentists order their financial lives and reach financial peace of mind so they can better focus on what truly brings them joy.
What an exciting time! You have been looking for a dental practice to purchase and you’ve found it! The location is perfect. The philosophy of the selling dentist is completely in line with yours. The staff has been very welcoming and is excited for you to come on board. You’ve signed a letter of intent, and the train is leaving the station.
As you embark on the journey to complete this transition, you start wondering how much it will cost to purchase the practice. Let’s explore some common expenses you should expect to pay:
- The price of the practice will be your biggest expense. If the seller has listed the practice with a broker, a practice appraisal has most likely been completed and paid for (by the seller). A report accompanies the appraisal that you can review to see how the price was determined. You do have the option to have your own appraisal completed. The cost typically runs around $2,000 to $5,000. If the purchase price is approximately 65 percent to 80 percent of collections, it is considered a fair price. It is your choice whether to spend the money to order another appraisal or accept the purchase price and move on.
- The next expense you may encounter is attorney costs. Anytime you are signing legal contracts, we recommend that you have an attorney review them. How involved in the transition you want your attorney to be is up to you. We suggest that you set parameters for his or her involvement so you have an idea what the expense will be. Will they help you negotiate the deal or simply review the contracts? Will they work off a retainer or charge you by the hour? Hourly fees for attorneys can add up quickly, which is why we suggest discussing the parameters of your attorney’s involvement right from the start.
- You should also be working with an accountant. Their expertise is invaluable through this transaction and as you get started as a business owner. They will help you determine what tax entity your business should be. You’ll need this information as contracts and documents are drafted. (Your attorney may also weigh in on entity selection). They can help you review the allocation of the purchase price and the tax impact.
- If there is a practice broker involved in the transition, their fee is typically paid by the seller. But a few firms allocate part of the broker fee to the buyer because they represent both the buyer and the seller in the transition. The buyer’s portion of the broker fee could be anywhere from 1 percent to 3 percent of the purchase price.
- You will most likely obtain a practice purchase loan from a bank to buy the practice. The fees associated with the loan will depend on what institution you are working with. Most of the time, fees can be rolled into the loan. We still caution you to review the overall fees. The banks our clients work with typically don’t charge origination fees and may waive some of the incidental fees (UCC lien search, for example).
This is a high-level outline of some of the fees you may encounter when buying a practice. It doesn’t cover any fees that may arise as you become the business owner and start managing the business. If you have questions about any of the above fees or about your specific situation, please reach out to us!
In our next post, my colleague, Tom Bodin, will discuss what expenses you should expect to pay when selling a practice. As always, if there are specific topics you’d like us to tackle in Finance32, please send us an email!