Think you’re ready to buy a practice? As this doc discovered—twice—it’s important to be cautious and make sure it’s a good fit
by Dr. John H. Foley
One of the most difficult decisions for orthodontists is choosing to strike
out on their own and purchase a practice: The financial risk is significant, the
stress on family is profound and there is no playbook for managing staff or
patients. The work of adapting an existing business to fit a new provider is not
to be taken lightly.
Of course, the rewards of being your own boss, directing your own schedule
and having autonomy in treatment planning and case management are
substantial positives. I’ve had the opportunity to make this decision not once,
but twice—first by purchasing a solo practice in 2012 after graduating from
residency, and again in the summer of 2020 after relocating to another state.
Each purchase had its own unique
challenges and unexpected frustrations.
Navigating the details of a practice buyout
can be an emotional roller coaster, and there
are always circumstances that make you
question whether this is the right practice
for you. In hindsight, there were a number of
things I’d approach differently now. I’m by
no means an authority on the complexities
of practice acquisition, but my experiences
have taught me some valuable lessons in
taking the reins of an existing practice.
Finding the right practice takes time
It can be difficult to be dispassionate
when you’re negotiating to buy a practice.
Once you’ve decided to acquire your
own practice, that excitement can lead
to significant anticipation. It’s natural to
compare yourself to colleagues who have
climbed their way out of student debt and
are finally realizing the potential of their
careers. When I first left residency, I was
intent on a buyout and anxious to find an
office. Looking back, this eagerness led me
to look past some long-term considerations
in evaluating my options.
For example: Consider your family—or
future family—in your choices. Living in
the community in which you practice is
essential for many doctors, but not all. If the
commute isn’t a concern, you can consider
options that are farther away from where you
want to live. In my first practice purchase, I
had yet to meet my wife and had not fully
envisioned how she’d influence my career
choices: My practice was far suburban and
she worked as an attorney in the heart of
downtown. Regardless of where we chose to
live, one or both of us would end up with a
grueling daily commute.
Your partner’s career will always be a consideration,
depending on how your practice
location will affect their work-life balance.
Take the time to sit down and consider these variables with each opportunity that
presents itself. No situation will be perfect,
but weighing these factors will help to frame
what is most important to you.
Also: A practice should be congruent
with your vision of the future, even if
it requires some temporary sacrifices. If
circumstances don’t align with your goals
and aspirations, then consider continuing
your search. Purchasing an older practice
may mean practicing with older technology
until profitability allows for upgrades. A
startup may have brand-new equipment but
will sacrifice immediate cash flow as a result.
The first practice I purchased was still using
paper charts, and while I would’ve loved to
upgrade to computer charting immediately, I
knew that maintaining positive cash flow in
the practice was more important at the time.
Associateship is a good option if an
acceptable practice sale is not available,
and can provide valuable experience both
clinically and administratively. After relocating
to the East Coast, I was employed
as an associate in a busy practice, which
allowed me to get to know the area and
the other dental professionals around me.
This was a hugely beneficial experience for
me and provided a new perspective on the
rigors and benefits of practice ownership.
My associateship enhanced and developed
my understanding of staff training, the
importance of targeted marketing and
reputation management, as well as work-life
balance in a busy practice setting.
Again, no situation will be absolutely
perfect, but compatibility with the considerations
that are most important to you is
essential to your prosperity and happiness.
Trust the process and be patient.
Be your own champion
Very few orthodontists have a significant
business background; as a result, each
orthodontic practice is uniquely evolved
and managed over time. Orthodontics can have that “cottage industry” feel and most
practices are still small businesses operated
by individuals who are heavily invested in
them, both financially and emotionally.
As a buyer, you will need to be flexible,
investigatory and persistent. You will take an
office tour with the seller, who is an esteemed
colleague, and assume they want a win-win
resolution to the practice transfer. While you
may very much like the person who is selling
the business, the only person who will be
looking out for your best interests is you.
Understandably, any practice owner
will be emotionally invested in the business
that they have built and nurtured. He or she
will be concerned about the future for the
practice and their staff. Respect the value
of their goodwill and their attachment. It is
important to understand their motivation,
too: Why do they want to sell? Some are
moving on to retirement, others are scaling
back or moving on to different positions.
Do they view the practice as an entity
with a long future of patient care, or as a
declining asset to be unloaded and rebuilt
by a new owner?
Recognizing their intent will help you
understand if they have invested in the future
of the practice by keeping systems current
or if the office has not seen any changes in
recent years. The immediate and future
needs of the office can—and should—weigh
into the value of the practice.
The more time you invest in learning
about practice management and transitions
before you start this process, the better
prepared you will be. Read journal articles
and network with people you know who
have acquired offices recently. Find out what
worked well for them and what they wish
they had done differently. An accountant who
works with dental offices and understands
the way they operate is an essential resource.
Attorneys who are familiar with dental and
small business acquisitions will provide
valuable insights. Just as you would hope a
patient would seek you out as a specialist,
enlist the help of professionals who are very
familiar with dental practice transitions to
lend their expertise.
Understand the movement of money in the practice
It may seem obvious, but your first
consideration will always be, “Is the practice
profitable?” Your success will depend on
its ability to provide enough income to cover expenses, pay staff members, invest
in marketing and compensate you as the
owner. Without the basic assurance that
the office can reasonably sustain success,
you must consider other options.
A deep dive into the financial reports is
a critical first step into understanding the
practice’s economic health. You’ll need access
to tax returns, profit-and-loss statements and
employment records. As you consider the
purchase price for a practice, understanding
the complete picture of owner compensation
The great benefit of purchasing an existing
business is the potential for immediate
income. This will all be for naught if the cost
of servicing your loan consumes most of your
earnings. There are great resources available
for comparing the average overhead expenditures
in individual categories, including staff,
marketing and supplies. Your accountant or
practice management consultant should be
able to provide these for you and help you
break down any bookkeeping. A review of employment records should highlight the staff
turnover in the practice: If staff are leaving
at a high rate, you’ll want to investigate if
this is consistent with industry norms or if
there are specific reasons for the attrition.
As sellers prepare for the sale of the
practice, they will have spent months or
years organizing themselves for an eventual
transition. Review the finances to identify
any reduction in overhead or sudden upticks
in collections in recent years. Sellers will
want to maximize the profitability of their
practice and may make different decisions
than they would in other circumstances.
Scaling back on marketing and equipment
purchases or offering larger discounts for
paid-in-full accounts might be two easy
ways to inflate a practice’s value on paper.
It is important to probe the seller and
ask pointed questions. Simply asking the
seller what changes they would make in
the next five years or which equipment
they would upgrade or replace can reveal
valuable insights into the practice’s needs
Spend time in the office
It is critical to spend time in the office
when patients are being seen. A beautiful,
clean office after hours can be transformed into
chaos with a busy schedule of patients. You’ll
want to see the staff in action and observe
their effort and enthusiasm in providing
care. Make sure that the team is following
appropriate infection control and proper
sterilization procedures. The atmosphere of a
practice can swing wildly on the happiness of
the patients, the ability for the team to operate
in a timely fashion and the environment
created by the office leadership.
This is your opportunity to size up the
equipment as well. When you’re buying
a house, you flip light switches and turn
on faucets, and an office should be no
different. Check the vacuum and compressor,
the radiographic equipment, how quickly the computers are running, and if
the instruments are in need of significant
repair or replacement. Perform a chart
audit to evaluate the thoroughness of the
office record-keeping and the quality of the
treatment outcomes. Ask the staff about
how much bracket inventory is routinely
kept in the office and how often new orders
are placed. Inquire about maintenance logs
and who’s responsible for maintaining the
units. Expenses can climb quickly if a
practice needs to be substantially updated
Your subjective appreciation of the
situation is just as important as your pragmatic
evaluation of a practice in operation.
Determining whether your practice approach
and treatment philosophy will be compatible
with the seller’s is crucial. Trust your
instincts. No matter how many checklists
you complete, if you feel uncomfortable
with your observation of the practice, there
is probably a good reason to consider moving
on to a different opportunity.
Determine the value of the business
The valuation of an orthodontic practice
is as much an art as it is a science. A seller
can expect to pay as little as $5,000 to as
much as $30,000 (or more) for the dissection
and valuation of their practice. As a buyer,
the valuation document you’re given to
review will be impressive and sizable. A
description of formulas and explanations of
the valuators’ approach to practice analysis are
included. There are comparables to similarly
sized practices in similarly sized areas. You
must remember that every practice evolves
differently and there are always things that
affect the value of a practice uniquely.
Sellers can be unrealistic in setting
their purchase price and may make use of
the market analysis of a large firm or dental
supplier as validation for their desired
purchase price. You must use your own market assessment and the advice of professionals
and advisors to come to your own conclusion.
Of primary consideration is whether you can
afford the practice loan repayment and still
service yourself with a reasonable income.
All other decisions will be predicated on
that initial and essential conclusion.
In my experience, one of the most
challenging aspects in a practice’s value
is the facility. The monthly lease can be a
nonstarter if it’s exorbitant, if it doesn’t have
transferability or if the rate of increase is
unfeasible. Some sellers may own the property
in which they operate and might be paying
themselves an overly generous rent every
month. Look at comparable commercial
lease rates for the area to see if the expected
rent makes sense. The cost to relocate and
build out an office space is considerable, but
saddling yourself with an unfair lease will
also hinder your growth potential.
Staff will almost always be the largest
component of an office’s overhead and are
worthy of a lengthy discussion with the
seller. If the staff will be staying on after the transition, a review of their compensation
and benefits is an important conversation.
Existing personnel can be powerful advocates
for a new doctor in a practice because they’re
familiar with the patients and their families.
Their approval will resonate strongly with
current patients and can be critical to
your early success. Be cautious, however,
not to restrict your ability to reevaluate
the team, their salaries and benefits. Your
“new” practice will have a contrasting
financial footing and you will have to assess
it differently as a result.
Patience is a virtue
In my second practice purchase, I found
myself much more confident in my approach
to both patients and staff. Because I had
been through the process once before
already, I was better able to insert myself
into an existing office atmosphere, handle
the transition of patients in treatment,
and prioritize the things that needed to be
addressed immediately versus those that
could be adjusted in the future.
Any time you start a new venture, there
is a desire to do everything immediately and
all at once. Most people like to have things
set up they way prefer as soon as possible. Experience has taught me that it’s critical to
understand the way the practice currently
operates and the systems it employs before
attempting to make any changes that will
be felt directly by staff or patients. There is
a great deal to gain from observing how a
successful practice runs. No two offices are
the same, and learning from colleagues and
team members is one of my favorite ways
to grow as a provider.
Your plans for the practice may include
a new logo, different marketing strategies,
updated paint and instruments or completely
different systems. While these are all good
goals to have, understanding the cost of
these from a financial standpoint and from
a team buy-in aspect are critical. Making
wholesale changes to office systems without
your team having a chance to get to know
you and your personality can be a recipe
for frustration and resentment. Giving
individuals time to adjust and accept the
idea of change, and for them to become
comfortable with you and your approach
to treatment are important first steps.
The vision you have for your “perfect”
practice will undoubtedly change as you
advance in your career. There will never
be a time when everything is operating
seamlessly and there are no challenges to be
addressed. Success will always be making
the most of your opportunities and finding
happiness in the work that you do, and when
you choose happiness, your team and your
patients may find it as well.
Earn CE credit and learn more
about buying your own practice
“Buying a Dental Practice: There Is More to It Than Price” is
one of Orthotown’s most popular CE courses for a reason:
CPA and certified value analyst Tim Lott explains all about due
diligence before buying a practice.
To watch the video for the
chance to earn 1.5 CE credits, click here.
Dr. John H. Foley grew up in Lake Zurich, Illinois, a northwest suburb of Chicago. The son of an orthodontist and a dentist, Foley was exposed early to the world of dentistry. After attending Saint Louis University for undergraduate studies, he earned his dental degree from the University of Illinois College of Dentistry, then studied orthodontics at the Mayo Clinic hospital in Rochester, Minnesota.
Foley worked for three years in suburban Chicago before
relocating to Raleigh, North Carolina, with his wife five years
ago. In 2020, during the pandemic lockdown, he completed the
purchase of his practice in Cary, North Carolina, establishing Foley Orthodontics. Outside of work, he enjoys spending time with his
wife, Heidi, and their two boys, Tadhg and Knox.