Buying a Dental Practice: The Financial Steps Before You Sign

Review at least three years of production, adjustments, collections and overhead, and reconcile the numbers to tax returns and bank records so the earnings being purchased are real. Payer mix matters because it determines what a new owner will actually collect, and patient base, new-patient flow and the stability of the clinical and front-office teams support the earnings story.

The practice's own reporting quality matters too. If production and collections are tracked inconsistently or overhead categories are unclear, the seller's numbers are less reliable, and the purchase price should reflect that uncertainty. The analysis should also separate the practice from the owner: how much of the value depends on the selling doctor's relationships and schedule, and what the transition plan does about it.

SBA 7(a) and 504 loans are common paths for practice purchases, alongside conventional bank financing and seller financing. The SBA 7(a) program can finance acquisition and working capital, and the 504 program covers fixed assets such as real estate and major equipment, each with its own eligibility, down payment and guarantee terms.

The financing structure interacts with the deal structure. Lenders want to see the practice's cash flow support the debt, so the buyer's model of collections, overhead and post-acquisition compensation is part of the loan conversation. Buyers should have financing arranged before they make an offer that depends on it, and should understand what the debt service does to their own income in the first years.

Dental practice purchases are typically structured as asset purchases, with the purchase price allocated among equipment, leasehold improvements, patient records, goodwill and any covenant not to compete. The allocation matters because different assets depreciate or amortize on different schedules, and the buyer's tax result depends on how the price is assigned.

The buyer's entity choice also matters: the structure affects how the practice income is taxed, how the owner is compensated and how the eventual sale of the practice is taxed. These decisions are interdependent and fact-specific, so they should be modeled with an advisor on the buyer's own circumstances, not copied from another deal.

Many practice acquisitions include real estate, either as part of the deal or as a separate purchase by the buyer. Owning the building can build equity and add a retirement asset, but it changes the financing, the tax picture and the risk profile, and the building is usually held separately from the practice entity.

In Pagac's dental case study, a specialty dentist relocated the practice and acquired the real estate for the new location as part of a coordinated financial plan that also covered tax strategy and a long-term succession to the dentist's son. That is the level of coordination a practice acquisition deserves: the practice purchase, the building, the financing and the tax structure planned as one picture rather than as separate transactions.