Selling a Dental Practice

The patient base is what is being bought

A buyer pays for the patients who will stay after you leave. They look at the number of active patients, usually defined as those seen within a set window, along with new patients each month, the rate at which recall appointments are kept, and how many patients have not been seen in a long time. A chart count that includes thousands of people who left years ago is not the same as an active base, and the buyer's software report will show the difference.

Hygiene is the center of most practices. A full hygiene schedule feeds the doctor's chair with restorative work, and buyers read the schedule closely. They will ask how many hygienists work, how many days, how long the hygiene appointments are booked out, and how much of the practice income comes from hygiene versus restorative work. A practice where the doctor does everything and hygiene is thin has a different profile from one where two hygienists fill the book and the doctor treats what they find.

Production and collections are the two numbers every buyer asks for. Production is the value of the dentistry done. Collections are the money that came in. The gap comes from insurance write-offs, adjustments and unpaid balances, and a buyer will want to see that collections track production without a growing pile of unpaid accounts. Our post on what is seller's discretionary earnings explains how the earnings figure is built from those numbers.

Payer mix and the type of dentistry

Practices differ in how they are paid. Some are mostly fee-for-service, some are in network with several insurance plans, and many are a mix. A buyer wants to know which plans you are in, how reimbursement compares with your fees, and what would happen if a large plan dropped the contract or cut rates. Practices in network with plans that pay poorly will see that reflected in the buyer's math. Practices out of network keep higher fees and tend to have patients who pay for choice, though they also have a patient base that can shrink if the doctor leaves.

The mix of procedures matters too. General practices that do crowns, implants, endodontics, clear aligners and sedation themselves keep that revenue in the building. Practices that refer much of it out leave money on the table, and a buyer with additional training may see room to grow. A buyer will ask what you do, what you refer, and why. Specialty practices like orthodontics, oral surgery and pediatrics are valued on different measures, and the buyer pool is smaller.

The doctor, the associates and the team

The doctor is the largest piece of any practice, and buyers know patients have a relationship with the person in the chair. A transition period, where the seller stays on part time and introduces the new owner, is common. Our post on how long you stay after selling discusses what is typical. A practice with associates already treating patients is easier to hand over, since the patients are used to seeing someone besides the owner.

Team stability gets as much scrutiny. Buyers ask who the office manager is, how long the hygienists, assistants and front desk have been there, and what they are paid compared with the area. A long-serving office manager who runs scheduling, insurance billing and collections is worth a lot, and a buyer wants to know that person will stay. Telling the team at the right moment is a decision of its own, and our post on when to tell employees is worth reading first.

Equipment, technology and the office

A buyer will walk the operatories and look at chairs, delivery units, handpieces, the sterilization area, compressors and vacuum systems, imaging equipment such as digital sensors, panoramic units and cone beam scanners, and any intraoral scanners or milling units. They will ask how old each one is and what the maintenance history looks like. Older equipment is a negotiating point, since the buyer will need to replace it. A newly updated office with digital records and imaging helps, because the buyer will not have to spend after closing before seeing patients.

Practice software matters. Buyers will pull reports from it, and they will want to know that the data are clean, that insurance claims are posted correctly and that recall is working. The number of operatories compared with what you use is also telling. An office with six operatories and three in use leaves room for another doctor or more hygiene, and a buyer will price that growth potential.

Records a buyer will ask for

Expect requests for tax returns, monthly profit and loss statements, and practice management reports that show production, collections, adjustments, accounts receivable and new patients. Buyers will ask for payer contracts and fee schedules, the equipment list, the lease, employee records with pay and tenure, and malpractice and claims history. Dental practices with associates also have employment agreements that matter to the buyer. Our guide on getting your financials ready shows what a buyer wants to see on the books. Add-backs deserve careful treatment, since many owners run personal costs through the practice, and the post on add-backs explains which ones a buyer will accept.

What has to transfer

Dental practices carry licenses, registrations, insurance enrollments and patient records, and each one follows its own path. The buyer needs their own license to practice and their own enrollment with insurance plans, which can take weeks. Credentialing delays are a common reason for a slow start, so the buyer will want to begin early. Patient records have rules for storage, transfer and notice, and those differ by state. Rules vary by state and your attorney confirms what applies. The lease is the next item, and a buyer's lender will want enough term left to cover the loan. See the lease is part of the deal for how landlords respond.

What tends to sink a sale

The patient base turns out to be smaller than reported. Production is propped up by one large case. The lease cannot be extended. The associate leaves after the announcement. Equipment is older than the buyer was told. Insurance enrollment for the buyer is slow. Most of these can be spotted a year ahead.

How to prepare

Clean the patient list, so that active means active. Make sure collections are posted and accounts receivable are current. Check payer contracts and see whether any are worth leaving. Update records and note which equipment will need replacing soon. Talk to your landlord about the lease. Consider bringing in an associate before you list so patients get used to another face.

If you want to see how buyers view your office, start with selling a dental practice. At Business Advisors of America we value the practice from your numbers, screen buyers for financing and keep the process private, since a rumor in a small office travels fast.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.