Practice Purchase Perfection

You found the perfect practice and you are ready to buy. But before you sign, do your homework.

You found the perfect practice and you are ready to buy. But before you sign, do your homework. Many young dentists choose practices that look nice, have great locations and charts on the wall, and the senior doctors are good people. But they forget to ask more than 70 questions before buying.

Another mistake they make is not hiring dental-specific advisors who can help them quickly work through practice-transition issues. In our dental CPA practices, we enjoy working with new buyers from the beginning of their practice searches so we can save them a lot of heartache and money.

By selecting a dental CPA - not just a CPA who works with a handful of dentists - potential buyers gain access to checklists and questions that help them find the right practice.

So what steps are musts?

  • Find a good dental CPA in your area. Discuss your vision. Request recommendations for a trustworthy dental broker and a good dental lender.
  • Talk to a qualified dental-practice lender to determine whether you have limitations on the amount of financing you can receive. Some dental lenders base loans on practices’ potential. Some lenders want collateral. Before you potentially fall in love with a practice you can’t afford, find out your lending capacity.
  • Ask your dental CPA and advisor to review the financial books and records. Typically we ask for the number of active patients a practice has, the history of production vs. collection, and three to five years of financial information and tax returns. We want to look at the history of the practice and see what the trends are. Are the trends typical for the area? Are the numbers typical for the type of practice?
  • Perform a patient chart audit on at least 10 percent of the practice. You could hire a dental consultant to do this for you, but you are the one who will be living with the practice and you are best qualified to examine the charts. We recommend that you do not pass this off to anyone else. Charts should be randomly selected from the files. Keep a checklist of the following:
  • Doctor and RDH treatment notes are complete, thorough, and readable.
  • Dentistry recommended but not done is clearly noted and tracked.
  • X-rays and treatment notes validate that treatment billed to insurance is complete and accurate.
  • Dentistry performed by the doctor matches the type of dentistry you do or intend to do. In other words, can you walk into this practice and replicate what the senior doctor is doing, or will you need to invest in a lot more education?
  • Patterns of patient treatment acceptance appear solid and predictable.
  • There appears to be a sufficient amount of dentistry left for you to do on the patients of record.
  • Observe at least one full day in the office. Study the doctor-patient-staff interactions.
  • Check with the dental board for any outstanding issues against the doctor. Are there any complaints? Has the doctor’s license been revoked or suspended?
  • Review the dental-fee structure and find out when the doctor last raised fees and how patients reacted to the increase. Are you comfortable with the current fee structure? See below for more discussion on fees.
  • Inquire about the staff. Ask if the doctor has personnel policies in writing and whether the staff has copies of the policy. Read the policy manual.
  • Ask when the most recent salary increases were and what the increases were for each staff position. Make notes of salary compensation by person.
  • Think about managerial styles. Is yours similar to the senior doctor’s? If not, are you confident your managerial skills will be effective during the transition? If not, consider working with a dental consultant.
  • Ask for a detailed list of adjustments for the past 12 months. Review it to see what types of adjustments the senior doctor allows. How much free dentistry is he or she giving away?
  • Review scheduling and patient flow:
  • What is the average number of cancellations and unscheduled time for the past 12 months? Does the office use block scheduling?
  • What is the average number of emergencies seen per day for the past 12 months?
  • Are hygiene appointments pre-booked three to six months in advance?
  • Verify new-patient flow by comparing the number of new-patient exams in the schedule to the information provided by the doctor.
  • What are the doctor-patient visits in the past 12 months?
  • What are the hygiene-patient visits for the same time?

Take a breath. Now let’s dive into the advisors you should consider for your team:

  • Dental attorney: to represent you in the preparation and negotiation of a purchase-and-sales agreement and lease agreement (if applicable). Have your attorney obtain the federal and state identification numbers for your new practice.
  • Dental CPA: to negotiate with the seller’s CPA regarding the allocation of the purchase price. The specifics of the allocation can make a huge difference in your tax situation for years. The allocation must be agreed upon between the buyer and the seller and must be reported to the IRS. Visit www.adcpa.org.
  • Payroll service: will write all of your payroll checks and complete payroll tax returns. Consult with your dental CPA to find out the best payroll services (cost, timeliness, responsiveness, flexibility).
  • Fee analysis consultant: to help you set your fees and determine the appropriate service mix to provide in your area. Many states allow separate fee schedules for patients using insurance and those paying fee-for-service.
  • Dental supply representative: to inspect all dental equipment you purchase from the senior doctor. Decide if you need additional equipment. Your dental supply representative can also review your inventory prior to closing to make sure you have a 30-day supply. Discuss ordering procedures with the employee responsible and determine any necessary changes.
  • Insurance agent: some specialize in dentists and can help you shop for the best life and disability insurance. This is usually needed to obtain financing. Again, your dental CPA can recommend a reliable agent who will work for your best interests. Set up your workers’ compensation insurance and office-property insurance to start the day your practice opens. Get your malpractice insurance in place prior to opening.
  • Banker: to set up a business checking account. It is standard to supply the banker with the articles of incorporation and state approval of the incorporation. Request that the bank make an endorsement stamp for checks made out to the seller after the closing (if you purchase the accounts receivable). Your business will need an endorsement stamp too.
  • Bent Ericksen: to start off with an employee manual that describes your benefits, etc., and to bring your practice into compliance with all federal and state employment laws. Ericksen is the leader in human resource compliance for the dental profession. This area is not an area to try to cut corners because high employee turnover, as well as possible lawsuits, can be costly.

Although you may not need all of this information today, save this checklist and refer to it when you begin looking for your ideal dental practice. Your diligence will pay off with the high production, collections, and manageable overhead that successful, thriving practices experience.

Here’s one last piece of advice: Enjoy your new, well-chosen practice.


Sue Ureda, CPA, and Kate Willeford, CPA

Ureda is a partner at Coleman & Ureda, PA, and Willeford is a partner at Willeford Haile, CPA, PC. Both companies advise more than 150 dental practices a month and offer financial strategies ranging from transitions to accounting/tax work to human resources implementation. They are proud members of the Academy of Dental CPAs. E-mail Ureda at sue@cu-cpa.com and Willeford at katew@willefordhaile.com.

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