Purchasing a Dental Practice? Things to Consider

Adam MarshallWhether you are a recent Dental School graduate, will be graduating in the near future, or have been working for some time in another practice, the decision to purchase an established dental practice may be your biggest career decision. It is important that you do your homework and assemble a competent team of advisors, such as an experienced CPA and attorney, to help make sure that you have a successful transition into owning your own business.  The following is a list of items to consider in the purchase process:

  1. Finding the Practice: Before you ever approach your attorney about purchasing an existing practice, it is likely that you will already have identified the practice you want to purchase. For buyers that have been practicing for some period of time before the purchase, they may have a preexisting relationship with a selling dentist. Newly minted dentists may want to explore a private broker or business that helps to pair sellers and buyers.
  2. Valuation of the Practice: Valuation of the practice can be one of the more complicated parts of the purchase transaction.   You should engage a competent CPA who has experience in determining the value of the dental practice. Your CPA can help determine the suggested purchase price of the practice as well as how to allocate the purchase price among items such as assets, goodwill of the practice, and the covenant not to compete, in order to have the most favorable tax implications.
  3. Financing: Purchasing a dental practice is a large monetary commitment. It is highly likely that you will need to secure financing in order to complete the transaction. You should contact various lending institutions to compare services offered and interest rates.
  4. Forming a Corporate Entity: Most dentists who are purchasing a dental practice will want to form a corporate entity. This should be done at the beginning of the process so that any Assets purchased can be in held in the entity’s name. A purchasing dentist must decide whether to form a Professional Corporation/Association (“PC/PA”) or a Professional Limited Liability Company (“PLLC”). Both types of entities aim to protect business owners personally from the debts and liabilities of the business. There are very real differences between these types of entities, especially in terms of corporate formalities that must be observed and taxation. A comprehensive comparison of the types of entities that can be formed is beyond the scope of this blog entry, however both your CPA and attorney can guide you towards the corporate entity that will be the most advantageous to your situation. Whichever entity you decide works best for your business will require a certification from the North Carolina State Board of Dental Examiners that you are a licensed dentist, in good standing.
  5. Purchase Agreement: The Purchase Agreement is really the meat of the process. This is the document in which all terms of the purchase are outlined. This agreement is typically prepared by the seller’s attorney (although the buyer’s attorney may prepare the agreement) or representative, so you should have your attorney review the agreement thoroughly in order to appropriately advise you and suggest any changes or additions that may be necessary.
  6. Purchasing Real Estate:   There are instances where you may also want to purchase the dental practice’s real estate. This is often a separate transaction, usually with its own financing. A title search on the property is always recommended prior to purchasing any real property.
  7. Lease: If you will be renting office space, a lease will be required. Your attorney can help you review and negotiate the lease terms.

Every dental practice purchase is different and every dentist has their own vision of how they would like to do business. If you are considering purchasing a dental practice, the experienced corporate attorneys at Black, Slaughter & Black, P.A. can offer our counsel and advice to help navigate the often complicated purchase process.