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Successful Practice Acquisitions by John Fiore

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Overnight you've become the CEO, CFO, HR director and lead clinical director of a practice. With an established practice, you'll need to adapt to wearing multiple hats and adjust to your new environment while focusing, maintaining and growing your patient base. These are some aspects you should consider and tips to solve the problems that arise.

1. Cash Flow

Unlike a start-up practice, an established practice already has an existing patient base, and just as important, an existing cash flow that allows you to support the practice debt load, including your new loan payment, your salary and your personal expenses (car payments, house payments, student loans, credit card debt, etc). Typically lenders will look for the practice and doctor's personal income to cash flow at a ratio of 1.20 percent, which means the practice is expected to generate $1.20 in revenue for every $1 spent between the practice expenses and the doctor's personal expenses.

Determining cash flow is similar from lender to lender, however, there are variables such as allowable expenses that might differ. For example, a seller has a $5,000 charitable contribution that was being paid out of the practice and the buyer decides he doesn't want to continue contributing at that level, or the seller was writing off $10,000 per year in entertainment expenses and the buyer might not see the need to entertain at the same level. By reducing these types of expenses, a lender may "add back" the expense into the practice's profitablilty, resulting in a higher cash flow. Your lender can help you with understanding the most accurate cash flow and other important practice metrics as you move forward.

2. Trusted Advisers

Chances are you started as an associate soon after you passed the boards and started conversations with industry experts regarding the possibility of acquiring a practice. I would not recommend that you acquire a dental practice without the advice of one or more of the following key advisers:

Practice Transition Consultant/Practice Broker: Similar to a house, dental practices can be sold by owner or via a business broker who may have multiple buyers waiting for the right practice to come along. Although the broker is representing the seller, it is important for a broker to make sure synergy exists between the buyer and seller and the transition is as seamless as possible. The value of a broker resides in his or her reputation being at stake should he or she sell you a practice that fails due to reasons beyond your control. Therefore, brokers are excellent resources who have vetted their listings, completed their own appraisal and established a fair selling price. Speaking with multiple brokers can provide you with a variety of practices to review and will help you understand what exists in the marketplace.

Dental-specific CPA: There are thousands of CPAs who would like to earn your business and you might already have a CPA you trust. I am not recommending you make a change, but interviewing a dental CPA who currently works with a minimum of 25 dentists will provide you valuable perspective as it pertains to your particular industry. Your CPA will provide you with the best tax strategy regarding allocations of the selling practice, best practices from existing clients, expense averages and a cost analysis on hiring and equipment acquisitions. Strong dental CPAs could be lifelong advisers and planners for your professional and personal financial goals.

Dental-specific Attorney: As previously mentioned, the practice broker will typically represent the seller and you need to find a reliable source to represent you (the buyer) during the negotiations for many aspects of the transaction. Your dental attorney should be engaged in the terms of the buy/sell agreement, office lease negotiations, non-compete covenants, establishing your corporation and lender requirements. As with your dental CPA, these attorneys have created a niche among many dentists, and will typically provide the best advice at a packaged price.

Dental-specific Lender: As with dental specialty advisers, dental-specific lenders exist and are experienced with your needs and how to evaluate the financial aspect of your request. Most dentists will try their local bank to fund their practice loans and although this is always an option, local banks are often generalists and are collateral lenders that see little value in the goodwill aspect of the practice. They will demand a shorter term (three to five years) which provides you with virtually no flexibility to grow the practice with new technology or remodeling.

3. Loan Terms

The term of your loan will range from five to 20 years. Longer terms are preferred, as it does not impede your cash flow and minimizes the risk inherent in patient attrition in the first year of your practice. You should plan on keeping your loan for a minimum of five years, so a loan with flexible pre-payment options will typically come into consideration at this point. Pre-payment options will vary from lender to lender and your loan pre-payment terms are less important in the earlier years of practice ownership. Pre-paying your loan or making additional principle payments might become an option as you grow your practice and increase your cash flow. Consider loan structure if you prefer loans with the first six to 12 months of interest-only payments. These are easily available in the marketplace. Also consider interest rates. Rates can be fixed for the term or adjustable with prime or other rate indexes. Although your payment might be less with an adjustable rate, rates will eventually rise, and locking in a strong fixed rate today for the next seven to 15 years is your best solution.

4. Advantages

One of the biggest advantages to acquiring a practice is the established patient base and patient flow. To retain these patients, the practice broker will walk you through the best transition strategy and will also help with an introduction letter, ideally signed by the seller, if you haven't previously worked in the practice.

Another advantage is staff retention. The seller was the pillar of the practice for many years and has now left. The staff is an integral face of the practice and has a good rapport with patients, which means you might need to retain the staff for at least the first year.

Pre-existing cash flow and established insurance relationships are also benefits.

5. Risks

From investing in the stock market, buying real estate or buying a practice, there are risks to every financial investment. Although buying an existing dental practice provides low risk to the buyer, it is not entirely risk-free. As you go down the path of practice ownership, it's important to understand you are buying someone else's practice which, at the start, involves philosophy, flow, treatment planning, staff training, systems, etc.

Although you hope many will stay, there is always a possible loss of patients during the transition. Many patients have remained loyal to the seller and might look for a dentist closer to their homes.

The risk is also present with staff. Existing staff might be paid very well based on the length of employment and tenure; you might feel they are overpaid based on their skill level or other market-based reasons. For many reasons, the staff might not bond with the buyer and voluntarily leave the practice.

In addition, the equipment and office may be outdated or old, which will require cash investment.

6. Philosophy

Does this practice match your professional vision? Your due diligence up front will prove to be very crucial to a successful transition and all your beliefs and experience, up until now, will need to be evaluated and measured when you are considering which practice is right for you. Do you and the seller practice with the same quality of care? Is the type of dentistry the practice is known for aligned with your practice vision? Is the practice fee-for-service? What percentage of the practice is capitation? What is the percentage of PPO patients? What is the ratio of cosmetic or restorative dentistry versus hygiene? How much business is referred out to specialists? Can you perform the specialty care if it has been kept in-house? Knowledge is power, and the more you know about the big investment, the better.

7. Types

There are multiple options with a practice acquisition. The first is 100-percent buyout which is purchasing 100 percent of the practice with the seller who may exit right after the sale or stay on for a period of time to transition the practice. The second option is buy-in. Dentists can buy in for 25-50 percent with the condition of buying the rest of the practice in a pre-determined period when the seller decides to retire. The third option is to associate with the option to buy. A practice owner may see the value in retaining a quality associate and offer a future option to purchase. In these cases, before you sign and agree, consult with one of your advisers on the details of such an agreement.

8. Expansion Possibility

Chances are this is your first practice and you are ready to conquer the world. If your production meets your ambition, do you have the room to expand? If not, as you begin to take your practice to the next level, a future alternative site may be an option if the existing space is holding you back.

9. Practice Value

Oftentimes there is a discrepancy between what a seller believes the practice is worth and what the buyer feels it is worth. While there are several methods used to value practices, the market value (what a buyer is willing to pay) is the most common. Practices usually sell for 70 to 90 percent of last year's revenue, while specialty practices may sell for less due to possible volatility with the referral sources for the practice. As a prospective buyer, put yourself in the seller's seat and imagine that you have owned the practice for the past 20 to 30 years. It was your livelihood and one of your key connections to the community. You now have patients who are the children, perhaps even grandchildren of your patients. There is a high probability that the proceeds from the sale of your practice will be a significant piece of your upcoming retirement. There will often be an emotional aspect to the sale, regardless of the monetary value.

Take it slow, especially when the seller immediately leaves post-sale and does not stay on for the transition period. Take your time to understand the existing systems and processes before you decide to make changes. Your patients might go through some anxiety with losing their trusted dentist, so maintaining familiar faces and practices in the office is important. A true transition period, with both doctors working, can make or break a transition. It's beneficial to everyone involved and also helps curtail any confusion the new buyer might have about the environment and philosophy.

Pay due diligence. If there is a broker involved in selling you the practice, the broker will have done the proper due diligence to represent the seller and will have a good idea of what you are buying. I recommend taking it one step further by hiring an independent practice consultant who will spend time in the practice to analyze the staff and the systems, and perform a complete chart audit/patient count. Consultants may be helpful during the transition as well. Hiring, firing, customizing and establishing your systems without rocking the boat too much are all their areas of expertise.

Author's Bio
John Fiore is currently a senior vice president at Bank of America Practice Solutions and has been entrenched primarily with dental practice financing since 1992. Over the years, John has held several key positions within Practice Solutions, including sales management, product development and, most importantly, portfolio management. John has seen, first-hand, the key disciplines successful practice owners live by, why certain practices struggle and how crucial it is to be surrounded by the right set of resources to ensure a successful outcome. John currently lives in Southern California with his wife and children.
Dentaltown Magazine
September 2025
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