General considerations

The decision about where and how to practice can affect a dentist’s life. Reviewing personal and professional needs and goals is an important first step. Dentists must decide where they want to practice, what type of practice is appropriate for their personality, and what fits their current life situation and future life goals. Once these issues have been clarified, dentists should review staff and operating privileges, and available resources for continuing education in the preferred geographic area. These criteria are important in establishing and sustaining any new practice, and critical to professional development.

Another basic issue to consider is whether ownership or associateship would be appropriate. Although both require investing time and energy in research and preparation before proceeding, each may be appropriate for different reasons and circumstances, based largely on personality, comfort level, and overall goals. If ownership is preferred, the option of setting up a brand new practice should be weighed against buying an established practice. Both options are available for anyone wanting to establish a solo practice.

Purchasing an established practice is a good option if the right practice can be found in the preferred geographic area. However some pros and cons must be considered.

In an established practice, people and systems are already in place and a referral base and an experienced and trained staff are available. These factors can assure a shorter time to begin operating the new practice. However, the condition of existing equipment and furniture must be determined and the cost of any refurbishment incorporated in the assessment. Furthermore, the need for a transition process for the practice, staff, and patients and the sensitivities involved must be considered to assure a successful conversion from the previous ownership and establish one’s position in the new practice. Management professionals and transition coaches can assist and offer guidance in this process.

If opening a new practice is preferred, then research on the demographics and dental needs in the new area, the cost of purchasing a new site or repurposing an existing one, hiring of new staff, and establishing vendor relations are additional responsibilities that should be considered.

However, if an associateship is the initial choice, current opportunities and future options must be considered, such as an option to buy, which may be important in the longer term. Regardless of the choice, all licensing requirements must be researched and compliance guaranteed.

Once the decision is made, multiple practices should be evaluated before the choice is finalized. Creating an advisory team may be worthwhile to help guide the initial decision-making process and subsequent establishment and ongoing management. Table 1 provides a list of professionals that can assist in the valuation of a practice and assure that appropriate professional advice and guidance are obtained for various legal, financial, or management issues.

Valuation: establishing and evaluating the economic aspects of a practice

The Guide for Dentists published by the American Dental Association (ADA) notes that a dental practice’s value should be viewed as fair market value (FMV) . FMV may be defined as the cash or cash-equivalent value of a viable operating identity (ie, the practice) and is the most likely price on which a typical and rational buyer and seller will agree. The FMV assumes prevailing economic and market conditions and is calculated based on multiple factors, including practice characteristics such as location, area demographics, referral base, and cost of operations or overhead; cost of physical site and business and dental equipment; cost of software and related licenses (including transfer of existing licenses); costs related to maintenance and lease contracts (including transfer or renegotiation of existing contracts); profitability; and market considerations. It also considers other reasonable assumptions of practice performance based on the current dentist’s patient records, longevity of practice, and goodwill , which may be broadly defined as professional reputation, contacts, and relationships. Thus, valuation is a process through which a purchase price is allocated to various tangible and intangible assets, such as equipment, supplies, leasehold improvements, noncompete covenant, patient records, and goodwill.

In addition to the FMV of the practice, other considerations may impact a decision to purchase.