Buying a dental practice: look beyond the asking price

Medical & Dental

Before buying a dental practice, establish what it is likely to earn after paying fairly for the clinical work, maintaining equipment and meeting its ongoing costs. Then assess the purchase price alongside finance, transition costs and the cash needed after settlement.

It is easy to become attached to the location, the fit-out or the potential. The harder work is deciding how much of that potential is supported by evidence.

What are you actually buying?

Begin with the proposed transaction. Are you acquiring business assets, shares in an operating company or an interest alongside existing owners? What is included, what stays with the seller, and which obligations could come with the arrangement?

The government's guide to buying an existing business recommends reviewing financial records, operations and legal documents before committing. For a dental practice, the records need to show how the business functions chair by chair and practitioner by practitioner.

A busy diary is relevant, but it is not a guarantee of future income. Ask how patient activity, recalls, treatment plans and practitioner availability support the reported results. Handle any patient information through appropriate privacy and confidentiality arrangements.

Separate the seller's labour from the business return

If the selling dentist performs much of the clinical work, the accounts may combine the reward for being a dentist with the reward for owning the practice.

You need both numbers.

Review the seller's remuneration and the cost of maintaining that clinical capacity after the sale. If you intend to do the work yourself, allow a reasonable commercial cost for your time. Otherwise, the acquisition may appear attractive because your future labour is effectively being treated as free.

Examine proposed adjustments to reported profit individually. A genuine one-off expense is different from a recurring cost described optimistically as something the buyer can remove. Ask for the underlying evidence.

For illustration, suppose reported annual profit is A$360,000 before allowing for A$220,000 of owner clinical remuneration. That leaves A$140,000 before any further normalisation, acquisition finance or tax. The figures are hypothetical, but the distinction can materially change an affordability assessment.

Walk through the equipment and the lease together

A practice with functioning equipment can still face meaningful replacement spending soon after settlement. Review maintenance records, finance agreements, warranties and the likely timing of major replacements. Obtain technical input where necessary.

The ATO's tax treatment is only one part of an equipment decision. Cash cost, reliability, service arrangements and the life you expect from the asset matter too. The government's equipment finance guide outlines the commercial differences between buying and leasing.

Now put the equipment plan beside the lease. Ask your solicitor to examine the remaining term, options, rent reviews, permitted use, assignment requirements and end-of-lease obligations. A substantial fit-out investment deserves a clear understanding of how long you can occupy the premises and on what terms.

Fund the months after settlement

The deposit and purchase price are visible. The less visible commitments can include professional fees, initial stock, employee obligations, systems changes, insurance and working capital.

Build a month-by-month forecast for the first year. Model a slower patient transition and a period when the seller is no longer available. Test what happens if a key team member leaves or an important piece of equipment needs replacing earlier than expected.

Your lender's willingness to fund a purchase does not settle the separate question of whether the repayments leave enough flexibility for you. Read the security and guarantee requirements carefully with your advisers.

A transaction can be commercially promising and still be too tight for a particular buyer's household position.

Agree the handover while there is time

A useful transition plan explains what the seller will actually do, for how long and on what terms. It should address introductions, staff communication, operational knowledge and responsibilities during the handover.

Ask which relationships depend heavily on the seller. Consider how the practice would operate if the handover finished earlier than planned.

You should also understand the employment position. The Fair Work Ombudsman explains that business transfers can affect employee entitlements. Get advice on the proposed transaction before assuming that an obligation disappears or automatically transfers.

Decide what the practice needs to do for you

Write down the personal outcome you want: higher income, more control, a platform for several locations or a gradual move away from full-time clinical work. Each objective changes what a good acquisition looks like.

Is a multiple of profit enough to value a practice? It can be one reference point. The quality of earnings, practitioner dependence, assets, lease, liabilities and transaction terms still require assessment.

When should an accountant become involved? Before you commit to binding terms. Early advice can shape the information requested and reveal whether the proposed funding and structure suit you.

If you are considering a purchase, talk to EFS before the numbers become a negotiation you feel committed to winning. We can bring Medical & Dental advice and finance advice together around the practice and your personal position.

General information only. Obtain financial, tax and legal advice for the proposed transaction before acting.

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