Are you afraid of getting burned when you buy a dental practice? Good. You should be.
Over the years, I’ve purchased 17 different dental offices. Some were home runs from day one, profitable and smooth. Others were a struggle from the moment I signed the papers, filled with surprises I wish I had seen coming.
Buying a practice is an exciting, emotional process, which is exactly what makes it so dangerous. It’s easy to get caught up in the dream and overlook the red flags that can turn that dream into a financial nightmare.
This is your guide to avoiding the most common and costly pitfalls. Think of it as a pre-flight checklist to ensure your acquisition takes off successfully.
Red Flag #1: Poor Cash Flow & an Overvalued Price Tag
This seems obvious, but it’s the most common trap. Dentists get desperate or emotional and overpay for a practice that isn’t actually profitable.
Dental practices are often valued as a simple percentage of annual collections, regardless of their actual profitability. This is insane. Do not assume that just because a practice collects $1 million, it’s making money. I can’t tell you how many times I’ve seen practices that are just breaking even.
Your Action Plan:
- Define Your “Box”: Before you even look at a listing, create a written document with your non-negotiable boundaries. What is your minimum requirement for current cash flow? What is the maximum facility cost as a percentage of revenue? What procedure mix must be present? Stick to this box to keep emotion out of the decision.
- Look for Profit First: The primary reason to buy an existing practice is because it already makes money. If it isn’t profitable, you might as well do a startup. Your first calculation should always be the real, take-home cash flow after all expenses and debt service.
- Identify Upside Potential: The ideal practice is already profitable and has clear, achievable upside. Look for a practice with low fees, room to improve insurance contracts, and a seller who under-diagnoses perio or restorative needs. If you have a broader clinical skillset than the seller, that is a massive green flag.
Red Flag #2: Disorganized or Dysfunctional Team Dynamics
A stable, well-trained team that stays through a transition is invaluable. A chaotic team is a ticking time bomb.
I once took over a practice where the seller had merged two separate offices into one building but never integrated the teams. They operated as two warring tribes under one roof. I spent the next 18 months in a constant cycle of turnover, trying to establish a cohesive culture. It was a tremendous amount of work that absolutely hurt the practice.
Your Action Plan:
- Look for Systems: Is there clear delegation? Do team members have defined roles? Or does it feel like disorganized chaos?
- Watch for Family: Be cautious if the team is filled with the seller’s family members. This can create complex dynamics and loyalty issues after the sale.
- Analyze Turnover: A long-tenured, stable staff is a great sign. High turnover is a major red flag that points to poor management or a toxic culture you will inherit.
Watch the full, in-depth guide on these critical red flags.
Red Flag #3: High Facility Costs
Your facility cost (rent or mortgage) is one of the few expenses you are locked into for the long haul. You only get one chance to get this right.
Your Action Plan:
- Know the Magic Number: Aim for a total facility cost that is 7% or less of the practice’s annual collections. This is a healthy, manageable number.
- Beware of 10% or More: If the facility cost is creeping up to 10% or higher, be extremely cautious. That extra 3%+ has to come from somewhere, and it’s usually stolen from your marketing budget or your personal income. The only exception is a prime, high-visibility location that essentially acts as its own marketing.
Red Flag #4: Hidden Liabilities and Vague Contracts
You are buying the practice’s assets and goodwill, not its past problems. Your purchase agreement must protect you from this.
Your Action Plan:
- Scrutinize Service Contracts: Be aware of ongoing contracts for everything from printers and laundry services to marketing. Your agreement should clearly state that you are not liable for any contracts not explicitly disclosed and assigned to you.
- Get Granular on Redos: This is a huge one. Your contract must have a detailed, crystal-clear plan for who is financially responsible for redos and patient complaints for at least 2-3 years post-sale. This is especially critical if the seller does complex, high-ticket procedures like implants, ortho, or large cosmetic cases. Almost every practice I’ve purchased has had a few problem cases come out of the woodwork. Make sure they are not your financial problem.
Red Flag #5: Poor Financial Policies
Some things are easy to change in a practice; financial culture is not one of them.
Your Action Plan:
- Investigate Time-of-Service Collections: If the current practice has a culture of billing patients after insurance pays, this is a major red flag. This habit is incredibly difficult to break and can lead to huge accounts receivable problems.
- Devalue Accordingly: I would personally devalue a practice based on this factor alone. It represents a significant operational and financial challenge that will take months, if not years, to correct without losing a substantial number of patients. Treat a lack of good financial policies with the seriousness it deserves.
Buying a practice is an incredible journey, but it’s a business transaction first. Approach it methodically, stick to your predefined criteria, and don’t let the excitement of the moment blind you to the red flags that could cause years of headaches.
