I get this type of phone call almost every week and it goes something like this:

Caller: My name is Dr. Smith and I am looking for a dental practice to buy”

Me:  What type and size of practice are you looking for and in what area are you looking?

Caller: Well, I’d like a practice that is collecting between $750,000 – $1,200,000/year, that has room to grow and has the building for sale. Oh, it also needs to be near West Bloomfield”

Me: I really don’t have any practices that fit those parameters right now. Are you wed to the size requirements or more importantly, the location of West Bloomfield area?

Caller: I would be willing to look at a different size practice but I live in West Bloomfield and I can’t see myself moving and I don’t want to drive more than 20 minutes to my office

Me:  As I said, I don’t have anything like that now, but you may want to consider being more flexible in your buying criteria. A practice like the one you want may pop up in a month and may not for 5-7 years.

At this point the caller and I usually start to have a discussion of the current state of the dental practice sales. Today, we are looking at a depressed stock market since Covid and this means that many dentists are choosing to practice an additional couple of years to ensure they have enough money for retirement. This means fewer practices are being sold.

The other huge factor when searching for good practices to buy are the DSOs, DDSOs, and dentists that want to own multiple practices. DSOs (Dental Service organizations) and DDSO (Dentist owned Dental Service Organizations which are really just “want to be” DSOs) are true corporate entities and they exist in order to make money. The method they use to accomplish this is to buy a very large portion of the practices that are being  sold. Hard statistics are hard to come by, but it is thought that about 50% of practices collecting over $1,000,000/year and are in the metro areas (Detroit, Grand Rapids, and Lansing) are being sold to corporate entities, instead of to individual dentists.

Fortunately, DSOs are not very interested in practices that are not in larger metropolitan areas. The reason for this is simple. DSOs make about 50% their money on economizing on the management of the practices they own. Management becomes very difficult if the practices they own are not clustered together. So, the more rural the practice the less that a DSO is interested in buying that practice. This means that while there are less practices on the market in metropolitan areas, there are many more in rural areas.

Dentists that want to own multiple practices are another competitor for the individual dentist who wants to buy a dental practice. These are entrepreneurial dentists that want to amass between 3-10 practices and then sell them to a true DSO for a significant profit. These types of practice buyers are also buying practices but they are less discriminating in the type and size of practices they purchase. They will happily buy an office that is collecting between $500,000-$750,000 if it is profitable and shows an ability for growth. This then takes a lot of these practices off of the market. Dentists that have bought practices before can move faster than an individual dentist and they have established bank relationships which makes financing any purchase easier.

So, where does this leave the individual dentist that wants to buy a dental practice. Fighting more competitors over fewer dental practices that ever make to the market. When you couple this with the unavoidable fact that the sales prices for dental practices are at an all-time high, it is easy to see that even if you do find a practice that meets your buying parameters, you will need to pay more, sometimes a lot more in order to be able to purchase it. How the value of a dental practice is determined is too complicated to go into in this article (there is a separate article on the website on this topic), but it is not uncommon today to pay over 100% of annual collection for a highly desirable practice. I am seeing 110%-125% right now.

What options does an individual dentist who wants to buy a dental practice have to find the practice that they desire? My list includes:

Think long and hard about the locations you are willing to look to find a practice to buy:

If you will expand your search to areas outside of the metro areas your chance of finding a practice to purchase will increase dramatically. Keep in mind that the truth of the matter is that it is much easier to find a good place to live than it is to find a good practice to buy. Think about areas you are willing to live and then try to find a practice within driving distance of those areas.

As an example of what I am talking about, a practice that I am working on right now, is in Jackson, Michigan, which is about 75 miles from West Bloomfield. But it is only 30 miles from Ann Arbor, Michigan and only about 20 miles from Chelsea Michigan. This practice is collecting over $1,000,000/year with a profit of $435,000. It has 8 days of hygiene and works only 4 days per week, Monday-Thursday, no evenings or Saturdays. It gets about 30 new patients per month without doing any marketing. The office is paperless and digital including the pan. The asking price is $675,000. A Buyer that paid full price could expect to make about $350,000/year AFTER they had paid the debt service cost that they incurred to buy the practice. In short it is a great practice. If you didn’t want to live in the Jackson Area, could you live in Ann Arbor? If you could find this type of practice in the West Bloomfield area, which would be very rare, it would be priced at well over $1,000,000 and many DSOs would be offering between $1,200,000-$1,500,000. If that buyer paid $1,000,000 for that practice their after-debt service net would shrink to $290,000 per year.

You can see why practices in the most desirable areas are hard for the individual buyer to find and purchase and even if the are found, they will have to pay a very dear price for them. So, think very carefully about what you are willing to do to find the practice that you desire.

As a corollary to no. 1: Try to be flexible in your desired location. Have more than one area you are considering.

Once you decide that you will look outside of a given area, be open to several different areas. Using our earlier example, if you determine that you will look at practices within 30 minutes’ drive time of Ann Arbor, expand the cities that you will look at. Would you be willing to look at practices within 30 minutes’ drive of Grand Rapids, or Lansing, or Brighton, or Troy. If you take this approach, you will have a much greater chance to find the practice you desire.

If moving is not an option and you have to be close to where you are living right now, then pack your patience and do the following:

• Understand it could take a long time to find the practice you want
• Be diligent in contacting and recontacting practice brokers. I can tell you from experience that we all have lists of dentists that are ready to buy a good practice in a highly desirable area. So, if I have just talked to you last week, you are more likely to get a call from me about a good practice that comes on the market.
• Look in the MDA Journal ads, but I have to say that almost all practices that are advertised in the Journals are flawed in some significant way. That is because, as I said, we all have lists that we use. About 75% of the practices that I sell are never advertised in the MDA Journal or anywhere else because they are offered to someone on my list first.
• Be ready to move fast. If you find a good practice and it is in a desirable location, you need to evaluate it quickly and proceed to an offer pretty quickly. How quickly, it depends, but think in terms of days not weeks. Have your evaluation team ready and educate yourself so within 30 minutes of seeing the financial data, you can determine if that practice will fit your needs. Then after you visit the practice, be prepared to move to an actual Offer or LOI within a few days.
• Have your financing semi-lined up. I say Semi because you will never have approval on a specific practice until the bank has the information about the practice to consider. But definitely you should have a relationship with a couple of bankers prior to looking for practices. The process just takes too long if you wait to contact bankers until after you have visited a good practice. At present, there are 3 big players out there now in Michigan, Bank of America, Provide, and PNC. There are always new banks popping up all of the time but my advice is to ask for financing only from banks that do a lot of dental financing. This will speed up the process. There is also a separate article on DENTAL PRACTICE FINANCING on this website.

A successful transition is all about “fit”. Fit in what the buyer wants in a dental practice and fit between the selling dentist and the buying dentist. If the fit is good the transition will be successful if the fit is bad a successful transition is very difficult. So, think long and hard about what your priorities are and how current market conditions affect them. Then once those are really clear in your mind, look for the dental practice of your dreams!

Good luck with your search!