Your career path may lead you to owning your own dental practice. Searching for a practice which suits you could take a few months to a year depending on the location you are considering. Consider the following before you buy a practice:
- Are you clinically ready?
- Are you ready to take on the management role? If not, do you have a team who can assist?
- Will you purchase the practice yourself or with someone else? If you are purchasing with someone else, do you know the advantages and disadvantages of such a venture?
- Have you registered with the various brokers so you are aware of practices for sale?
- Is the principal you are working with ready to sell his/her practice?
- Did you sign a non competition/non solicitation associate agreement? This may restrict the area you could practice and hence also the area in which you could purchase. Remember the distance is measured in a straight line rather than the driving distance. If you did not sign an associate agreement, you may be free of any constraints. Consult your lawyer.
- Do you have a team of advisors to assist in the purchase (lawyer, accountant, banker and insurance agent)? Your advisors may be aware of practices for sale which are not listed with the brokers. Also speak with your dental representative to see if they are aware of any practices for sale.
What to expect from your accountant during the search or acquisition process:
- Review your 3/5/10 year plan with your accountant so he/she knows when you are ready to purchase a practice.
When you have located a practice, your accountant will:
- review the appraisal of the vendo
- provide an opinion on the dental practice i.e., buy or pass, given your goal?
- structure the deal in the most tax efficient manner
- recommend if a professional corporation should be set up and possibly consider also the setup of a hygiene/technical services corporation and/or holding corporation
- Liaise with your lawyer or any other advisors
- Review and provide comments on the purchase agreement or any other applicable agreements including the non competition and non solicitation clause
- Perform due diligence, including chart countAttend/explain/summarize your chart count. Patient charts are key to any dental practice
- Assist in obtaining financing at the most favorable terms and interest rate; this includes preparation of banker presentation and financial forecast
- Provide/discuss with you the transition and marketing opportunity
Likely you will ask your accountant/advisor “How much should I pay for this practice?” Often, the vendor will have a third party prepare appraisals for the practice and/or building. Your offer price depends on, but not limited to, the location of the practice, demographics of patients, number of active patients, average billing per active patients, vendor/purchaser’s market, untapped revenues and whether the vendor is selling shares or assets. Your offer price may be influenced by competing bids/buyers.
Your bank will normally finance 100 per cent of the appraised value. If you offered much more than the appraised value, you will have to make sure you have a sufficient line of credit or personal funds to close the deal as well as to operate the practice.
In certain instances, you may have to “overpay” – especially when there are competing offers for the same dental practice. You have to repay the loan after the novelty of purchasing the practice has worn off. Hence, your accountant should provide a cash flow analysis showing how much money will be available after you repay the bank loan and all practice expenses.
If you are successful in acquiring a practice, here are the costs of acquiring/running a dental practice:
- Purchase price (shares or assets)
- Harmonized Sales Tax (HST) @13 per cent if you acquire assets rather than shares. The assets may include leasehold or real property. You might be able to avoid the HST on the real property if you have a separate corporation owing it. Any HST paid may or may not be recoverable, depending on the structure.
- Professional fees for lawyer and accountant to close the deal and annual maintenance
- Security deposit for rent, telephone or other applicable contracts
- Mailing costs for letter of introduction and new stationary
- Bank charges and interest
- Costs for new sign(s)
- Office overhead and property insurance
- Dental supplies and laboratory expenses
- Office salaries and benefits (Canada Pension Plan, Employment Insurance and Employer Health Tax)
- Premise rent
- Professional development courses plus travelling costs involved for yourself and your staff
- Upgrades to equipment and/or replacement of equipment.
Having a basic understanding of the buying process and a good team of advisors will make this an enriching experience.