Let’s Buy a Dental Practice – Part 1

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Buying a dental practice

Most people who are applying to a health professions program have come across Student Doctor Network at some point in their journey. Dating back nearly 20 years, SDN has tens of thousands of threads about applying to all kinds of health programs including dental school. Although many threads are repetitive or misleading, there are a few gems. Today I plan to cover one them, a thread titled “Let’s Buy a Dental Practice,” by user The Hammer.

The Hammer takes a step-by-step approach to buying your first dental practice. I’ll admit that this thread is one reason I decided that becoming a dentist was feasible. The thought of opening a business makes a risk averse person like me nervous, but reading through The Hammer’s posts was both reassuring and insightful.

Seven Paths

After you graduate, there are seven different paths you may take. Hammer only listed six in his original thread, but I think his neglect to include corporate employment may have been an oversight.

  1. Advanced Education in General Dentistry (AEGD) or General Practice Residency (GPR)
  2. Specialty training (Endodontics, Periodontics, Oral Surgery, Prosthodontics, Orthodontics, Pediatrics, etc.)
  3. Practice under a family member
  4. Associateship
  5. Employment at a corporate office
  6. Buy an existing practice (I cover this in another article about dental practice acquisitions with George Hariri)
  7. Open your own de novo practice

AEGD / GPR

Hammer isn’t a fan of this option. His opinion is that they may allow you to get faster and build your confidence, but that’s about it. He argues that despite their advantages, these programs fail to do the following:

  1. Service your debt
  2. Provide you the real-world experience of owning a dental practice
  3. Build your future patient base
  4. Teach you about practice management
  5. Establish you and your practice in your future community

His opinion is that much of what you can learn in a GPR or AEGD program can also be learned through good continuing education (CE) courses.

Specialty Training

Obviously specialists will travel a separate path from general dentists. Hammer didn’t point this out, but many of the principles for owning a successful dental practice apply to specialists as much as they do to general dentists.

Practice Under a Family Member

Hammer points out that this can either be a huge advantage or a hellish experience for a new graduate. I know a practicing dentist through a friend who has experienced a great deal of trouble working for her father. He has violated the contract they had together more than once and it has led to a lot of tension between the two of them.

She had planned to buy the practice from him soon, but now he is going back on their agreement. He wants to hold onto the practice and continue to employ her as an associate far below the salary she thinks is commensurate with her ability.

I know this is merely an anecdote, but I mention it to show that working for family can be a blessing or a curse. On the other side of things, one of my current instructors sold his practice to his son-in-law for less than half its market value. The son-in-law is doing exceptionally well at this location and was able to buy a well-established practice with a large patient base for a steal.

Associateship

A bit like working under a family member, associateships can be heaven or they can be hell. You are practicing under a more experienced dentist who can help you out and teach you how to run a dental office. This can be particularly useful if you associate at the practice you plan to eventually purchase.

Associates are typically paid pretty well, and you get a chance to further hone your dental skills. If you do plan to buy the practice down the road, then it also affords you the opportunity to get to know the staff and see how they well they work (or don’t).

Hammer suggests that a reasonable expectation for income is 20-25% of your collections minus lab fees. Being paid a percentage can be risky though. If you aren’t making much because the owner dentist saddles you with all of the medicare patients, then you stand to make less than if you are salaried.

In the event you find yourself seeing mostly Medicare patients, Hammer recommends that you ask for 25% of collections if you exceed your guaranteed monthly salary. This ensures that the front office keeps your schedule full because that should not be your job. You are also freeing the owner dentist up to take on more profitable cases, so they should appreciate your contribution to the practice.

How much should I ask for?

Hammer suggests that you total up your monthly debt service including educational loans, auto loans, rent / mortgage, utilities, malpractice insurance, disability insurance, health insurance, licensing fees, taxes, gas, etc. Add to that how much money you will need to live comfortably. That is how much you should expect to be paid. Be sure to break down your costs so you can show the owner dentist why you expect that salary.

Lawyer Up

Before you sign anything, be sure to review your contract with an attorney. Don’t trust just any attorney, or your friend who is in law school. You need to find an attorney who practices contract law and is experienced with dentistry. It doesn’t usually cost a lot, and will potentially save you a lot of time and trouble down the road.

Hammer gives his own experience as an associate as an example. He worked for another dentist for two years after dental school. The owner dentist promised to sell half of the practice within two years. They never signed a contract, which Hammer says was a good thing because he and the owner did not get along.

Hammer claims that the owner had taken advantage of him. He says that after he left a former classmate went to work for the same doctor and signed a bad contract. Two years later Hammer says his classmate declared bankruptcy. Hammer warns that exploitation of new dentists is very common and that recent grads should be cautious.

A second user added that he had seen only one associateship with a plan to buy actually work out. That he said was from a sample size of 20-25 young associate dentists. He claims that many older dentists simply don’t want to give up their practice and change their minds.

The moral of the story is this: you need a contract.

Where to find associateships

Hammer gives a list of options when trying to find a good dental associateship:

  1. Your school’s own placement service if it has one
  2. Your local ADA chapter
  3. Practice brokers
  4. Websites like www.ihiredental.com and www.dentalpost.net
  5. Dental sales reps
  6. Call doctors where you want to work and see if they or someone they know is looking to hire an associate. You can send a CV after.

Tips for writing a great CV

Below is the format that Hammer recommends for a good CV:

  1. Personal contact information
  2. Licenses (with status)
  3. Short personal statement (one sentence and concise) 
  4. Education 
  5. Continuing education 
  6. Professional experience
  7. Community service
  8. References (available upon request)

Print your CV out on high quality resume paper. Hammer says that because dentists are tactile, the impression they get when touching your CV matters. Do not put your CV into an envelope! Get a nice portfolio folder with a cutout on the front cover to place your business card. 

Pack your CV and 2-3 letters of recommendation into the folder. Don’t use personal references unless they are a person of exceptional notoriety (i.e. the President). Also include a brief letter, a thank you note, 2nd business card paper-clipped inside, and place it inside a white mailing envelope with the words “Personal and Confidential” on the outside. 

Hammer advises that you call the dentist five business days later to thank them for their time and for their opinion on your CV. Invite them to pass your CV along to anyone they may know. 

Corporate Employment

Hammer thinks that corporate employment can be a good thing, especially as a new graduate. Corporate chains will keep you busy and allow you to hone your skills. Another poster on the same thread recommends that new grads avoid corporate chains that tell you how to treatment plan and double or triple book your schedule.

Be particularly careful to avoid companies that claim to be full Medicaid offices. They are notorious for overbooking as a way to deal with the high no-show rate of Medicaid patients. Reimbursements are low, they are often delayed by months, collections percentages are lower, and accounting errors can easily lead to fines or worse.

Buying a Dental Practice vs Starting One

Hammer recommends purchasing a practice over starting a new one for a variety of reasons:

First, at that time it was a buyer’s market. I can’t say whether that is true now, or if it will be that way on the short-term. In 2010 he said that more dentists were retiring than were graduating from dental schools and that many were just walking away from their practices. He also said that dentists were more likely to help a new grad with financing than at any time he knew of.

Second, banks prefer that you buy a practice over starting a new one. Lenders prefer a proven and reliable business with a financial history. Banks can be sure that you will be able to service your loans more reliably than if you start from nothing.

Third, it often costs about as much to purchase a practice as it does to build a new one. Dentists will often give you a good deal on equipment because they already took advantage of using tax write-offs for the depreciation on it. Many dentists have been trying to sell for a while and are just looking to make a quick sale. Again, this thread dates back eight years ago, so things are different today. Moreover, regional markets vary, and what is happening in one location may not be happening elsewhere.

Lastly, practice acquisitions make you money immediately. You have none of the startup costs that can years to overcome. Remember, you will have staff who expect paychecks even when you don’t yet have any patients. Any money spent to attract patients is more money you have to sink into your new business before you collect anything for yourself.

A Safe Bet

Hammer points out that loan companies see dental offices as a safe bet. Dentists rarely default and they are a reliable source of income for lenders. He says that established dentists may expect lower interest rates on their loans than recent graduates, but that is highly variable. As George pointed out in the practice acquisitions article I wrote last week, lenders will give you better rates if you transition ownership and the current owner helps you.

When markets are great for buyer’s, banks are competing for your business. This makes buying a practice a no-brainer, but again, timing and location matter.

Getting Started

When you should start looking depends on what path you decide to take. If you are deciding to buy into a practice straight out of school, Hammer recommends beginning around Christmas break of your fourth year. Most dentists won’t want to wait six months or longer to sell to you.

George got started much earlier. In my opinion, you can’t begin researching soon enough. The more you know about practice acquisitions before you hit the market, the better off you will be.

Things were different when Hammer made this SDN thread. At the time he said it was a buyer’s market. He was offered four associateships and he considered buying five practices in less than a month.

Making the Transition

Hammer feels that your new staff should feel empowered and like they are contributing to something bigger than themselves. He advises against firing and re-hiring all of the staff when taking over a new practice. He says that your employees should have a say in running the practice and helping it grow. This, as he says, is the “difference between a leader and a boss.”

The Fundamentals

The SDN thread this article is based on was a long read. There are more than 21 pages in total, and The Hammer’s posts are sprinkled throughout. He starts by covering a new graduate’s options after dental school which is where this article picks up.

There are still 20 more pages to sift through. Hammer covers everything from selecting a location to writing a good CV. Obviously, not everything he discusses pertains to buying a dental practice. I have tried to distill his posts down to something more readable for this article. This must be how it felt for HBO’s writers to turn A Song of Fire and Ice into Game of Thrones. Well, that may be a bit of a stretch, but I hope that you will find these posts as informative as the original SDN thread was!

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