This article provides insights into the importance of establishing a team when acquiring a dental practice. It provides detailed information on choosing a lender and points out key considerations and potential pitfalls that can lead to a less than ideal experience.Jennifer Maschke, Vice President – Business Banking Officer at U.S. Bank, applies 10+ years of business banking experience to provide full service relationship banking services business clients. You can count on a highly qualified team to provide personalized service and sophisticated lending experience – all delivered in a manner consistent with our approach to honoring you and your unique goals.
Purchasing a practice requires — at minimum — knowledge in law, accounting, human resources, banking, and business. Dentists are experts in dentistry. Successful practice owners surround themselves with experts who can serve them well — accountants and attorneys who focus on dental practices, dental brokers who can help find, evaluate, and assist with the purchase, business associates who know human resources, real estate and practice management, and lenders who have expertise in practice finance. Buyers can avoid many problems or surprises by asking the right questions at the right time and fully understanding the nature of the business relationships forged during a practice purchase. Outlined below are some of the main team members and considerations that should be addressed when preparing for practice ownership:
* Dental practice brokers/transition specialists — assist buyers and sellers through the sale process. In addition to listing and selling practices, brokers will perform practice valuations and assist with the purchase/sale agreement. Since there is not a source to consolidate listings, buyers normally need to find practices by working with multiple brokers. Word of mouth, trade journals, Web sites and dental suppliers also are sources to find a practice that is a good overall fit for the buyer.
* Dental consultants — also assist buyers with the purchase. Dental consultants who represent the seller and/or buyer can assist with the due diligence analysis of collection ratios, scheduling, fee structures, chart reviews, and computer analysis to ensure the practice details are accurately represented. If due diligence discovers a previously undisclosed issue, buyers often times have new negotiating power to reduce the price or may even decide not to move forward with the purchase. Through their analysis, dental consultants can often recommend changes that the new buyer can implement to increase profitability and grow their business.
* Dental-focused lawyers — review the purchase/sale agreement to ensure all language is included to protect both the buyer and seller in the transition. They also review the lease and any other agreements required for closing the transaction.
* Dental-focused CPAs — analyze, assess tax impacts, and make recommendations on the buyer’s financial options from a tax perspective. They are responsible for the overall financial analysis and tax planning for the practice and will complete the payroll and tax returns for the new buyer.
* Lenders — finance the purchase. Once a location has been identified and an offer has been made, the lender evaluates both buyer and seller information to make the final lending decision. Not all lenders offer the same financing terms and conditions, so it is important to evaluate lenders and offers prior to securing financing.
* Buyer due diligence: Often times, one or more parties to a sale will offer to make a referral and be subsequently compensated for the referral. Buyers should not only perform their own due diligence on each member of their team, but since there are no disclosure requirements, should directly ask how/if they are being compensated for the referral.
Choosing a Lender
Buyers have two main options when looking for practice financing. They can use a lender that specializes in dental practice financing or they can go to a commercial lender at their local financial institution. A third option, using a seller’s note, may be considered for all or part of the financing package.
* Using a specialist in dental practice financing: This type of lender will have a deep understanding of practice finance and will use the assets of the dental practice for collateral. Due to their experience, they can more easily identify strengths and weaknesses in a potential practice, and will usually be able to render quicker decisions and close the loan faster than a standard commercial loan. They typically are able to finance 100 percent of the purchase price, plus working capital needs that may arise.
* Obtaining a commercial Loan through a financial institution: A commercial loan financed through a local bank will use the overall practice as collateral. In addition, loans of this nature usually require money down and alternative collateral such as a personal residence or other bank assets.
* Financing with a seller’s note: A seller’s note can be used in conjunction with one of the other methods of financing to provide further security or eliminate some risk. Instances where a seller’s note can be of benefit include when the buyer feels that a practice is overpriced but still wants to purchase the practice. In this case, the seller carries a note, subordinated to the bank, for a percentage of the financing. In another example, due diligence might bring a piece of information to light that causes the buyer to have reservations about the purchase. In this case, the seller can carry a note to guarantee what they are representing. Since the buyer has no leverage after the fact, this is a way to minimize the buyer’s risk. Conclusion
Buying a dental practice can be very exciting. It can also be overwhelming. That is why it is so important not only to be educated on the process but to be surrounded by a team of experts. A lender that has the expertise, stability, and commitment to help weigh the alternatives and analyze each unique situation will help to ensure a suitable practice for the buyer now and in the future. Astute buyers know, or quickly learn, that there is more to a well-structured financing package than simply the interest rate. Thorough preparation, lender selection, and offer analysis are the critical components of a smooth buying experience and well-structured loan.
There’s a reason U.S. Bank Practice Finance is a premier lender to health care practitioners – we’re committed to helping practices manage and grow their business. Our representatives have special expertise in lending to dentists, veterinarians, optometrists and ophthalmologists, and will work with you to develop a customized solution that fits your needs and budget. Building lasting relationships with customers is our top priority. It’s why we offer a full suite of financial solutions backed by exceptional service and our experience as a leading small business lender and top financial institution in the United States.
For more information on U.S. Bank’s Practice Finance solutions, please contact Jennifer Maschke, Vice President Business Banking Officer at U.S. Bank, at (952)388-3273 or at firstname.lastname@example.org. Jennifer is also a NDA member.