Buying Your First Dental or Medical Practice

The Path to Practice Ownership

For many doctors and dentists, purchasing your first practice represents the culmination of years of education, training, and planning. Practice ownership offers clinical autonomy, wealth-building potential, and the ability to create the patient care environment you envision.

The good news: healthcare practices are among the most financeable businesses, with specialized lenders who understand the industry and offer favorable terms. The challenge is navigating the process while maintaining your clinical responsibilities.

Understanding Practice Valuations

Dental and medical practices are typically valued based on a combination of revenue, cash flow, and asset values. Common valuation approaches include:

What Drives Practice Value

Several factors influence what a practice is worth and how much you'll pay:

• Collections: Higher revenue generally means higher value
• Profitability: EBITDA margins vary widely (20-40% typical)
• Fee schedules: Practices with strong private-pay mix command premiums
• Patient base: Active patient count and recall compliance matter
• Provider dependency: Single-provider practices have more transition risk
• Location: Demographics, competition, and real estate factors
• Equipment: Age and condition of clinical and office equipment
• Staff: Quality team that will stay through transition

Financing Options for Practice Acquisition

Healthcare practice acquisitions typically use conventional bank loans from healthcare-focused lenders, SBA 7(a) loans for acquisitions up to $5 million, seller financing as part of the deal structure, or a combination of these sources.

Many transactions combine multiple financing sources. A typical structure might include 70-80% bank financing, 10-20% seller financing, and 10% buyer down payment.

Conventional Healthcare Practice Loans

Several banks specialize in healthcare practice financing and offer competitive terms: up to 100% financing for qualified buyers, terms of 7-10 years, interest rates typically 6-9%, and fast closings (30-45 days) from experienced lenders.

These lenders understand practice cash flows and typically require less documentation than general business lenders. They're comfortable with the unique aspects of practice acquisition.

SBA 7(a) Loans for Practice Acquisition

SBA loans work well for practice acquisitions, particularly when real estate is included. Benefits include up to 90% financing, terms up to 10 years for the business (25 years for real estate), competitive interest rates (Prime + 2.25-2.75%), and lower down payment requirements.

The SBA process takes longer (60-90 days typical) but offers advantages for buyers with less capital available for down payment.

The Importance of Seller Financing

Including seller financing in your deal structure serves multiple purposes. It reduces bank financing required, demonstrates seller confidence in the practice, keeps the seller engaged during transition, and may provide more flexible terms than bank debt.

Typical seller notes run 3-7 years at 5-7% interest. Many are structured as "standby" notes where payments pause if practice performance declines, protecting both parties.

Due Diligence Essentials

Thorough due diligence protects your investment. Key areas to investigate:

• Financial review: 3 years of tax returns, monthly production reports, A/R aging
• Patient analysis: Active patient count, new patient flow, recall compliance
• Fee schedule review: Reimbursement rates by procedure and payer
• Staff evaluation: Wages, tenure, any employment agreements
• Equipment inventory: Age, condition, upcoming replacement needs
• Lease review: Terms, assignment provisions, renewal options
• Legal/compliance: Any outstanding issues, HIPAA compliance
• Insurance contracts: Participation agreements, credentialing requirements

The Transition Period

Most practice acquisitions include a transition period where the selling provider continues to work in the practice. This critical period helps transfer patient relationships to you, allows staff to adjust to new ownership, maintains production during the learning curve, and provides mentorship for the new owner.

Transition periods typically run 3-12 months, with the seller working reduced hours over time. Structure compensation carefully to align incentives.

Timeline and Process

From initial interest to closing, expect the acquisition process to take 3-6 months:

• Month 1: Initial discussions, NDA, preliminary financials review
• Month 2: Letter of intent, detailed due diligence begins
• Month 3: Financing applications submitted, appraisals ordered
• Month 4: Underwriting, legal document preparation
• Month 5: Final negotiations, closing preparations
• Month 6: Closing, transition begins

Building Your Advisory Team

Successful practice acquisition requires professional guidance. Your team should include a healthcare-focused CPA for financial analysis and tax planning, a healthcare attorney for contract review and negotiation, a practice broker or consultant (if working with one), and a lender experienced in healthcare practice financing.

These professionals pay for themselves by identifying issues, negotiating better terms, and ensuring a smooth transaction.

Taking the First Step

Practice ownership is achievable for most qualified healthcare providers. The combination of favorable lending terms, predictable practice cash flows, and strong professional networks makes acquisition financing more accessible than most business purchases.

Start by getting pre-qualified with a healthcare-focused lender. Understanding your purchasing power helps you search for practices with confidence and act quickly when the right opportunity arises.