A growing dental practice is the combined result of high-quality patient interactions and thoughtful business ownership. As you focus on providing beneficial outcomes for patients and a prosperous environment for staff, it may be time to consider the best way to bolster your practice success in the years to come.
Acquisitions are a valuable mechanism for dental practices to take their business to the next level, whether you are considering a first-time acquisition or the next in a succession of acquisitions to expand your practice. Understanding acquisition planning now will make the process easier as you weigh which financial and operational decisions are the best fit to set your practice up for success.
Create a detailed financial plan
No two businesses are the same, and that includes dental practices that are looking to expand. Work with your banker to design an acquisition strategy that accounts for your business goals, risk mitigation, and financial agreements you need to support expansion.
Your banker can lay out the details of financing and ownership transfer to ensure the smoothest transaction possible. They may even raise questions you didn’t know you needed to ask, which will strengthen your ability to make informed decisions.
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While many commercial and business banks offer traditional financing products, it’s important to partner with knowledgeable bankers who have a wider variety of options and can find the right financing solutions for your plans. Small and midsize businesses often have needs that fall outside traditional loans, making creative lending options and programs worthwhile to explore, such as Small Business Administration loans or tax credits. Bankers who specialize in professional practice finance can evaluate your unique circumstances to assemble a loan package customized to meet your needs.
Whether it’s your first acquisition as a buyer or you are returning to the process, communicating about risk with your bank can help protect your practice and ensure you’re entering into an agreement that aligns with your risk appetite and considers your other business and financial goals.
Accurate negotiations and comprehensive protections will require both buyers and sellers to be prepared with information about their businesses. A full picture of the business can answer critical questions before, during, and after deciding on an acquisition. Keep updated financial records and be forthcoming with financial advisors to account for any assets or priorities that should be taken into consideration when formulating plans.
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Mitigating risk during an acquisition is best addressed by thorough due diligence. It may take time to address significant questions before the financial transaction occurs, but this outweighs discovering important information after the fact. In addition to your attorney, accountant, and consultant, your banker will serve a critical role in reviewing details of practice earnings, tax history, management decisions, and more.
Depending on findings, important adjustments to negotiations and agreements may be needed to account for risk.
Collaboration is critical
Mergers and acquisitions (M&A) are a collaborative effort, from staff to owners to the transaction services the deal relies on. The ongoing relationship between a business leader and their bank plays a central role and can help support the other moving parts in a significant transaction. Consider how each of these entities can support the practice acquisition process:
- An accountant: Work with your accountant to prepare your finances and vet financial documentation about the business you’re considering acquiring.
- A lawyer: A lawyer who is versed in M&A will formulate critical aspects of contractual documents at multiple points in the process. They can review terms, prepare letters of intent, and make sure requirements are being met by each business.
- A banker: By working with a banker who specializes in professional practice purchases, you can consult with them for financing, valuation details, transaction steps, and a determination of your own readiness for the acquisition. If you have an existing banking relationship outside the dental practice space, consider adding a banker experienced in dental practice acquisitions to help manage this type of transaction.
- A consultant: Small or midsize business consultants or organizations can offer valuable advice during M&A, which can be essential for first-time buying. Consultants can also provide useful process management and execute help across many steps throughout a purchase.
- A broker: Finding the right business to acquire through a broker can help simplify negotiations and provide more options. In particular, brokers can especially help identify off-market deals or details that are better suited to your plans, especially when seeking reputable practices that are considering a sale.
Acquisitions can be an exciting milestone for your business, and preparing for the process can set your practice up for a smoother transaction. Determining your readiness, priorities, and plan will lead to a more satisfying experience as you invest in the future success of your dental practice.
Editor's note: This article appeared in the January 2024 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.
Howard Boles is senior vice president, director of practice finance, leading the professional practice finance division of Enterprise Bank & Trust. He has served the practice finance lending niche for more than 25 years, specializing in commercial lending to licensed professionals, including, but not limited to, dentists, doctors, pharmacists, veterinarians, CPAs, optometrists, physical therapists, and chiropractors. Boles has deep expertise in all facets of commercial lending, from business development and sales to operations (credit, documentation, and funding).
