North Texas Dentistry Volume 9 Issue 3 2019 ISSUE 3 DE - Page 14

practice models PRACTICE ACQUISITION 101 by Amanda Mombert and Ben Mombert ne of the biggest decisions that a dental professional may grapple with is the decision to acquire an estab- lished dental practice, or not. A big part of this deci- sion entails understanding the financing options available to make this dream a reality. O There are a few main types of financial institutions to consider for a dental loan: community banks or large national banks and some – like us – that are community banks but with a large national dental portfolio. It is important to understand which option is a good fit for you and your long term goals on a holistic level. When considering the type of financial institution, think about the following things when deciding who you want to start this long-term relationship with: g g g g g g g Does the banker and bank have experience in healthcare and specifically, in the dental industry? Where are the lending decisions being made? Is there flexibility regarding repayment schedules? Are there prepayment penalties? Will the financial institution provide sufficient working capital to you as you ramp up operations? What are the rates, are they fixed or floating, and what is the fee structure? What other intangible benefits can they offer you? Does the financial institution support your industry? As you are weighing your options, you’ll want to understand what the requirements are for the loan. Will they require liq- uidity in the bank, a down payment, or the seller to finance some of the purchase? How transparent are they in communi- 14 NORTH TEXAS DENTISTRY | cating these requirements? Effective communication with your banker through this process is critical. You will likely want to ensure that your banking partner is accessible and consultative. Once you’ve made a decision, there are several items that you and your team of advisors (including your banker) will want to review as you move forward in your due diligence process. From a lending perspective, we are in the business of assessing risk and mainly assessing risk in the cash flow that you will expect to purchase. Here are some questions that will be evalu- ated: g g g g g g g g g How much cash flow is available to service the proposed debt, your existing personal debt, and your living expenses? How does the practice overhead stack up to industry standards? How do you compare clinically, from a treatment planning perspective and chairside manner, to the seller? What opportunities are there for growth through either new patients or keeping additional procedures in-house? How do the demographics and competition stack up in the area where you are looking to purchase? What percentage of revenue comes from PPO, fee for service, or Medicaid/HMO? Will you be able to be credentialed with all the same plans and with the same fee schedule? What does cash flow look like if there is patient attrition? This sensitization exercise is a good way to understand the risk to your future cash flows. Is the staff aware of the sale and are they expected to remain with the purchaser after the sale? What type of future improvements will you need to invest in?