You have found a practice that meets your criteria for location, demographics, equipment, and profitability; should you put in an offer? Market conditions aside, it is important to take a critical look at your personal timing. 

Can you afford to buy a practice? As you might have guessed, the answer is dependent on many factors including acquisition costs, upgrades you plan to make, your own debt level, and your tolerance for risk. Here are some key factors to consider if you are interested in buying a practice. 

Profitability

A profit margin of 40 percent or more is considered a solid industry benchmark and is indicative of a well-run practice. However, net income alone is not the only factor. Strip out all doctor-related expenses, interest, amortization, depreciation, and you will see a truer picture of profitability.

An experienced dental practice broker can help you take a critical look at the practice’s Profit and Loss statements. 

Collections

While there is no magic number, $800,000 to $1 million or more in annual collections is generally considered a positive sign. It signals that a practice is healthy, with well-run systems, an adequate number of employees to meet patient needs, and an advantageous location. 

Payroll and Benefits

Dental teams account for roughly a quarter of expenses, including salaries, any benefits, and payroll taxes. It is important to examine the ratio between employee costs and total collections. If the practice’s team members are paid far more than the local average – a common way to reward longevity – decide whether it makes sense to retain them at that level, offer them a more modest salary, or start a new team. This is a thorny issue, but one that needs careful consideration. 

Lab Fees and Dental Supplies

A general rule is the lower the cost of supplies and lab fees, the better managed the practice. Both of these expenses are entirely manageable by negotiation and price shopping. Ten to 14 percent is a reasonable benchmark for these fees. 

Rental Costs

Think carefully before committing to a high rent simply because a property is impressive-looking. Ask yourself whether a fancy facade or prestigious address are critical to your success. An experienced, local dental broker will be able to shed light on how much is too much. 

Upgrades and Improvements 

Consider any alterations or upgrades you want to make and factor them into your overall expenses. Include special equipment leases, new decor, or rearranging the physical flow.  

Your Own Financial Picture

You will want to ensure you can compensate your team well, pay off practice loans and any student debt, support your lifestyle, and save for the future.

Our dental brokerage team can be an invaluable part of your transition, helping you save money on expenses and understanding the nuances of the seller’s financials. Contact our dental brokerage in Towson, MD today to schedule a complimentary consultation.