How to Buy a Dental Practice: A Step-by-Step Guide

Buying a dental practice can be beneficial for the dentist as it avoids the hassles of a brand new start-up and instead acquires all sorts of patients and cash flow as well as the infrastructure of a dental practice that is already up and running.

By buying a dental practice, you can easily compete with 202,304 in the USA ( according to the American Dental Association.

However, it is nothing close to a simple procedure. It needs careful planning, financial preparation, and a good understanding of the practice’s operations, culture, and profitability.
To walk you through this process, we have outlined in the guide how to buy a dental practice step by step.

How to Buy a Dental Practice? 11 Potential Steps to Consider

Let’s break down the steps to buying a dental practice to help you go through the process with confidence.

Step 1: Preparation and Research

Before beginning the purchase process for dental services, it’s crucial to establish solid foundations through thorough research and preparation

This is a method to ensure you make the right choices and avoid costly mistakes in the process. Let’s take a look at this in detail

Determine Your Desired Practice Area

Before you begin your search, make sure to select:

Understand the Types of Acquisitions

There are multiple  ways to approach the acquisition of dental practice:

Step 2: Start Your Search for Dental Practices

Once you have identified your goals and conducted your initial research the next step is to look for dental practices that meet your preferences. This is the process of exploring different ways to discover possible opportunities and the evaluation of them for their viability.

Where to Start?

Key Considerations Before Buying a Practice

Connect with Private Practice Owners Looking to Sell

Networking can lead to private sales that aren’t publicly listed. Some owners prefer direct negotiations to avoid brokerage fees and ensure a smoother transition for their patients.

The Role of a Practice Transition Consultant or Broker

Engaging a dental transition expert can help you determine the most effective methods, negotiate terms, and avoid costly errors.  A broker has access to listings and industry connections that can give you an insight into the trends in the market.

Finding a Dental-Specific CPA, Attorney, and Lender

A specialist CPA as well as an attorney can help you in analyzing legal and financial agreements, whereas dental lenders can provide the most suitable financing options. These experts will make sure that the purchase is legal and financially feasible.

Using Mailers and Networking

Sending direct mail to dentists in your preferred area can uncover off-market opportunities. Personalized letters expressing your interest can lead to potential deals before they hit the open market.

Step 3: Evaluate the Practice’s Financial State  Before Purchase

A deep financial dive will ensure the practice is profitable and sustainable.

Perform Due Diligence in the Practice

Due diligence is a critical phase in buying a dental practice, where you verify all claims made by the seller. Areas to focus on include:

Analyze:

Analyze Patient and Treatment Information

Evaluate Growth Potential & Room for Expansion

Look for:

Step 4: Determine Practice Value

The value of the dental practice is essential to ensure that you pay a fair amount and make an informed investment.

Quantitative vs. Qualitative Practice Valuation

You can determine the practice’s value by using both quantitative and qualitative metrics. 

Quantitative valuation takes into account revenue, cash flow, and asset valuation

Qualitative factors include patient loyalty, location desirability, and brand reputation.

Cash Flow as an Indicator of Practice Valuation

A consistent cash flow can provide insight into a practice’s overall health. Practices with consistent cash flows tend to be more desirable since this ensures long-term stability post-acquisition

Dental Practice Valuation Rule of Thumb

When estimating the value of a dental clinic, many professionals start with the dental practice valuation rule of thumb. It offers a quick, general idea before diving into a full financial analysis.

Basic Rule of Thumb

• 60%–80% of annual gross revenue, or
• 1.5x–3x of net income or EBITDA

These dental practice valuation multiples vary based on location, specialty, and profitability.

Why Use a Valuation Worksheet?

A dental practice valuation worksheet helps refine your estimate by factoring in:

• Net income
• Equipment and lease value
• Staff costs
• Dental practice goodwill values

Quick Valuation Formula

Here’s a simplified dental practice valuation formula:

Practice Value = (Net Income × Multiple) + Assets + Goodwill

Example:
If net income = $300,000, multiple = 2.5, assets = $100,000, and goodwill = $200,000
Estimated Value = $1,050,000

Don’t Forget Goodwill

Dental practice goodwill values often make up 60–80% of the total value. This includes patient trust, brand reputation, and referral relationships.

Common Valuation Methods Used in Dentistry

• Market Approach: Comparing sale prices of similar practices.
• Income Approach: Projecting future earnings and applying a valuation multiple. 
• Asset-Based Approach: Calculating the total value of tangible assets such as equipment or real estate.

Avoid Overpaying for a Practice

Conduct careful due diligence, evaluate valuation methods, and seek expert guidance to prevent overpaying for a practice. 

 An overpriced practice could take years for its initial investment to return profits.

Step 5: Secure Financing for Your Practice Acquisition

The process of securing financing is an essential step in the process of acquiring a dental practice.

How to Find a Bank?

Not all lenders are the same. Finding a bank that specializes in dental practice acquisition financing is important. Many national and local banks offer healthcare-specific loans, which come with better terms tailored to dental professionals.

Best Banks for Dental Practice Loans

Consult Three Banks, But Why?

Consult at least three banks to compare lending options, rates, and terms before choosing a financial partner. Different lenders may offer varying loan structures and benefits tailored to dental practice acquisitions.

Choose a Dental-Specific Lender

Dental-specific lenders understand the unique financial landscape of dental practices. These lenders typically provide:

Loan Structure and Interest Rates

Understanding how your loan is structured is critical. Loans can have:

Consult your CPA to determine the best loan structure for your acquisition.

Step 6: Make an Offer and Negotiate the Purchase

After you have found a dental practice that fits your criteria and you have secured financing, your next step is to submit an offer to the practice and then negotiate the conditions of the purchase

Writing and Submitting a Letter of Intent

A Letter of Intent (LOI) is a non-binding agreement that outlines your offer for the practice. It typically includes:

Step 7: Lease Negotiation or Real Estate Purchase

Choosing the best site for your dental practice is a critical step. If you decide to lease or purchase the property and negotiate favorable terms, it will determine the long-term success of your dental practice.

Should You Buy or Lease Commercial Space?

Depending on your long-term business goals, you may choose to lease or buy the property where the practice operates. 

Buying offers long-term equity benefits, while leasing provides flexibility and lower upfront costs.

Key Considerations for Lease Negotiation

If leasing, consider:

Step 8: Finalize the Purchase

At this point, you must examine the legal contract, verify financing, and ensure that all necessary due diligence has been completed prior to officially assuming ownership.

Close on Your Practice and Becoming an Owner

Once due diligence is completed and financing is secured, you’ll sign the final purchase agreement. This legal contract transfers ownership and ensures all terms are accepted.

Transitio Ownership Smoothly

For a smooth transition, consider:

Step 9: Hire and Manage Your New Dental Team

The hiring and management of a skilled dental team is essential to the achievement of your new dental practice.

Retain Existing Staff While Making Necessary Changes

The existing staff is an essential part of the practice. Retaining them while making gradual improvements can help ensure continuity and a positive workplace culture. 

1. Meet with Current Employees: Introduce yourself, learn about their roles, and discuss your vision for the practice.
2. Evaluate Strengths and Weaknesses: Identify key team members and assess whether additional training or restructuring is necessary.
3. Offer Competitive Compensation and Benefits: Retain valuable employees by ensuring they are fairly compensated and provided with incentives.
4. Encourage Open Communication: Address concerns and provide reassurance about the transition.

Hire New Team Members

If staffing changes are needed, follow these steps:

Manage Your Team Effectively

Step 10: Grow and Manage Your New Practice | Post-Purchase Action Plan

Now that you have bought the dental practice and gathered your staff, the next step is to grow and manage your business efficiently.

The success of your practice depends on a keen concentration on patient retention marketing strategies, as well as operational efficiency.

Enhance Patient Experience

Advertise Your Practice to Attract New Patients 

Financial and Operational Management

Step 11: Tech and Software Upgrades to Consider

Making the right investment in technology can enhance the experience of patients and operational efficiency. It can also ensure long-term success. Consider upgrading:

Checklist for Dental Practice Buyers

This checklist helps keep the process organized and ensures you don’t miss critical steps:

Avoid Common Mistakes When Taking Over a Practice

Is It Worth Buying a Dental Practice?

Many dentists choose to buy instead of starting with a blank slate, which is a wise one. An established practice already includes:

However, purchasing dental practices will require a substantial budget, a thorough study, and professional guidance.

Knowing the risks involved will ensure that you make the right decision. If it’s done right, the acquisition of a dental practice could be a profitable investment that can kick-start the career path of a dental practice owner.