Buying a Second Dental Practice

Define what buying a second dental practice must add

A second address can make a practice group look larger without making the owner better off. The useful starting question is what the purchase adds after changes at the first office. Keep that question separate from the target's reported earnings, your borrowing capacity and the appeal of owning more than one location. Each can influence the decision, but none answers it alone.

Write a short acquisition purpose before reviewing an asking price. You might seek a different service mix, a location that fits an associate's plans, or an operation with a management team you can support. State what evidence would show that the target serves that purpose. A vague plan to expand gives you little basis for rejecting an attractive office that does not fit.

An ADA-hosted article by Panacea Financial's Michael Jerkins asks owners to examine their current practice and the demands of another location. Treat this as a bank author's planning discussion, not ADA policy or proof that expansion will pay. Its useful prompt is to test the effect on the office you already own. Read the second-location discussion.

For the broader search and purchase process, use the guide to buying a dental practice. Here, the central decision is narrower: whether the proposed group produces enough additional, supported benefit to justify the next commitment.

Set a fair baseline for the first office

Build a first-office case for the same period used in the target plan. Define whether figures represent receipts, earned revenue, operating profit or a custom cash measure. Do not compare one office's bank collections with another office's production total. Match the periods and definitions before discussing a combined result.

The baseline should show the first office under the plan you would pursue without this purchase. That is a decision assumption, not a claim that the business will stand still. Record known changes that belong in either choice. If a supplier price rise would occur with or without the deal, show it consistently rather than assigning it only to the option you dislike.

Explain how owner labor is treated. A contribution figure that excludes compensation for your clinical work cannot be compared with one that includes full replacement pay without a bridge. The same applies to associate coverage, temporary help and management time. Use the SDE and seller-net guide to keep the earnings definition separate from cash available to you.

Preserve the original reports and the adjustments in different columns. A buyer forecast should not rewrite the seller's history. The production and collections review provides the underlying report checks; this analysis starts once those inputs have a clear basis.

Trace what really moves between offices

An expansion plan may move work, people or spending from one location to another. Describe each proposed change on both sides. If the target forecast includes work previously done at the first office, identify the matching effect there. That effect might include lost receipts, reduced variable costs or new replacement work. None should be assumed merely because both sites will share an owner.

Patient choices and clinical care remain separate decisions. A spreadsheet cannot establish that patients will travel, that treatment should move, or that a dentist can cover a proposed schedule. Use only reviewed assumptions and test a case in which the expected change does not occur. Keep unsupported movement outside the supported case rather than treating it as guaranteed growth.

This short review record makes each proposed benefit testable:

Do not use a transfer percentage as a substitute for these facts. Two plans with the same receipt movement can have different cost effects. Keep the link between each receipt amount and the costs that actually change.

Work through a combined contribution example

The following invented case uses one annual period and a single owner with the full economic interest in both practices. All inputs are hypothetical amounts supplied by a reviewer. They are not market benchmarks, a patient-movement prediction or reported results from a real office. Legal structures, clinical permissions and tax treatment require their own review.

For this exercise, operating contribution means receipts less the specified cash operating costs. The figures include the reviewed clinical staffing cost but exclude acquisition debt service, taxes, capital purchases and owner distributions. They are not SDE, net income or a lender coverage calculation.

The first office's baseline contribution is $210,000. The target's proposed contribution is $155,000. That target figure already includes $80,000 of receipts that the scenario moves from the first office. Matched variable cash costs of $24,000 also leave the first office. The reviewed plan adds $25,000 of genuinely new external support cost, absent from both starting figures.

The first office loses $56,000 of contribution: $80,000 less $24,000. Its result becomes $154,000 before allocating the new support cost. Adding the target's $155,000 gives $309,000. After the external $25,000, the combined result is $284,000, or $74,000 above the original $210,000 baseline.

Simply adding the two starting figures gives $365,000. That shortcut overstates this case by $81,000: the $56,000 first-office effect plus the $25,000 new cost. Adding the shifted $80,000 to the target again would also be wrong; it is already inside the target's supplied plan.

The example supports a comparison, not a purchase recommendation. The $74,000 still must support the needs excluded from this operating measure. It also depends on the reviewed inputs being achievable. A positive answer here is a reason to continue diligence, not permission to bypass it.

Give the person checking the model the starting reports and the change record, not just the final total. Ask them to rebuild the bridge from the first-office case. They should be able to explain why the target is added once, why the first office loses receipts, and why removing a cost has a positive sign. If they cannot trace an entry, leave it open for review.

Also ask which first-office costs remain after the planned work moves. Rent or a service commitment may remain payable even if fewer receipts arise there. Do not apply a broad expense ratio to the shifted receipts and call the result saved cash. The example uses a specific matched amount. A real case needs evidence at the level of the cost that changes.

Keep internal charges out of claimed growth

Suppose the owner allocates all $25,000 of new external support cost to the first office. Before any internal bill, that office shows $129,000 and the target shows $155,000. Together they still show $284,000.

Now suppose the first office charges the target $45,000 for management. The first office records the matching income and shows $174,000; the target records the expense and shows $110,000. Adding them still gives $284,000. The internal bill changes where the result appears. It does not create another outside receipt for this whole-owner comparison.

Preserve both entries before eliminating them from the combined view. If only the income appears, the model creates money. If the expense remains after the income is removed, it loses money. Also trace whether the actual support provider's bill is already inside an office's costs. The internal allocation and the external service bill are different records; do not subtract the same external work twice.

This is an owner decision schedule, not a direction to combine legal books, move bank funds or file a consolidated return. Separate entities and ownership interests need their own accounting and legal review. A minority interest would require a different economic analysis from the full-owner assumption used here.

The SBA's financial-management guidance discusses examining business segments and putting costs and benefits in a common period. That supports a disciplined review of the inputs; it does not validate this fictional acquisition or prescribe its accounting. Read the SBA financial-management section.

Change one assumption at a time

A useful sensitivity identifies the exact input that changes and keeps the rest fixed. It should answer a decision question, such as whether an added external service cost absorbs much of the incremental contribution. Changing many inputs at once can hide the cause of a weaker result.

These are independent branches, not one combined downside case. The first sensitivity costs $15,000 more. The third removes $24,000 of expected cost relief. Neither branch changes the target's supplied receipts. If that assumption also needs testing, build a separate branch with a clear explanation of the affected costs.

Do not choose an internal billing amount to make one office look more attractive to a lender or partner. Keep the underlying facts visible and obtain the proper review. For the full-owner decision, the matched internal charge has no effect on the combined total in this exercise.

Separate operating benefit from the cash commitment

The purchase still needs a funding plan even when the operating comparison looks sound. Acquisition payments, debt service, deposits, technology changes and working capital can fall at different times. A positive annual contribution does not show that a particular bank account can meet a particular payment.

Use the working-capital guide for the dated cash plan and the financing-options guide for the funding discussion. Carry the approved operating inputs into those schedules without relabeling contribution as cash already on hand.

Ask which costs are common to both choices, which arise only from the acquisition and which remain optional. Record deposits and future commitments separately from money already spent. A fee paid during diligence may matter to your remaining cash even if it no longer changes the forward choice between two available options.

The ADA's purchase-planning resource asks buyers to define financial, professional and personal goals and involve suitable advisers. Apply that prompt to the owner as well as the offices: identify the time and household cash needs that your comparison has left out. Read the ADA purchase-planning resource.

Require an operating plan that supports the assumptions

Ask who will own each cross-office task and what work that person must stop or delegate. A proposed shared manager can have an attractive cost allocation yet lack time to carry out the plan. Review actual role coverage through the staff-retention guide. Do not treat a seller's introduction or a draft schedule as a promise that staff will remain.

Keep initial seller outreach blind. Use an NDA before identifying disclosure, and coordinate staff involvement by the participation needed and the applicable duties. An existing employee's curiosity does not itself establish a need to receive the other office's confidential details. Patient-information authority needs separate review from the commercial NDA.

The FTC's business-security guide recommends limiting access to the task and restricting administrative privileges. Use that planning principle when defining shared systems and vendor work. It does not establish HIPAA compliance or authority to combine patient records. Read the FTC access-control guidance.

Before relying on a shared report, name its owner, data source and correction process. Test whether staff can explain a mismatched transfer without overwriting the original entry. The first-90-days guide covers the fuller operating handoff. For this purchase decision, concentrate on evidence needed to support the claimed incremental result.

Common mistakes when assessing another location

One error is protecting the target forecast while letting every negative effect disappear from the first office. Reconcile both sides of each proposed change. Another is counting a cost reduction before confirming which invoice, shift or contract actually becomes smaller.

Avoid mixing a stronger long-term plan with an easier first-year cash case. Use a stated period, then show later changes separately. A plan can be attractive over time and still require more cash or owner attention than you can provide at the start.

Do not turn an unresolved item into a precise estimate merely to finish the spreadsheet. State the missing evidence and the decision it could change. A range with a clear basis is more useful than a polished single number built on an unsupported assumption.

Summary: approve the incremental case you can explain

The useful final file connects the first-office baseline, target plan, matched changes and genuinely new external costs. It also shows why internal bills do not create growth in the full-owner comparison. Preserve the original inputs, open questions and independent sensitivities beside the conclusion.

Decide whether the remaining benefit and required commitment fit your goals. Then use the due-diligence checklist to carry unresolved evidence into the transaction process. An explainable incremental case gives you a sounder basis for continuing, changing the proposal or declining the purchase.