Quick answer: Before buying a dental practice, review at least three years of tax returns, financial statements, production and collections by provider, receivables aging, payer mix, staff costs and leases. Confirm the numbers behind the appraisal hold up, and agree on the purchase price allocation before closing.
Buying a practice is often the biggest financial decision of a dentist’s career. The clinical side may feel familiar, but the numbers deserve just as much attention. Here is what to review before you sign.
How dental practices are valued
Practices are usually valued by a broker or appraiser using a mix of methods, often based on collections and on cash flow after expenses. Two practices with the same collections can be worth very different amounts if one has much higher overhead.
An appraisal tells you what the practice is worth. Your own review tells you whether the numbers behind it hold up.
Financial documents to request
- Three years of business tax returns
- Three years of profit and loss statements and balance sheets
- Production and collections reports by provider
- Accounts receivable aging, including insurance and patient balances
- Payer mix and fee schedules
- Staff list with pay, benefits and hire dates
- The office lease and any equipment leases
- An equipment list with ages
Red flags to watch for
- Tax returns that do not match the profit and loss statements
- A low collections ratio or large balances over 90 days
- Production that depends heavily on the selling dentist
- Personal expenses mixed into practice expenses with no clear add back list
- A lease that ends soon or cannot be transferred
- Old equipment that will need replacing right away
Asset purchase and price allocation
Most practice sales are asset purchases. The price is allocated among equipment, supplies, patient records and goodwill, and both buyer and seller report that allocation to the IRS on Form 8594.
Allocation affects your taxes for years. Equipment can be depreciated quickly, while goodwill is generally deducted over 15 years. Agree on the allocation before closing, not after.
The day you take over
- Form your entity and decide whether an S corp election makes sense
- Open new bank accounts and set up QuickBooks Online with a dental chart of accounts
- Set up payroll and register for Virginia withholding
- Record the purchase and loan correctly from day one
- Start a monthly close so you can compare results to what the seller reported
Buying a dental practice FAQs
How much does a dental practice usually sell for?
Rules of thumb often put general practices at roughly 60 to 80% of annual collections, but cash flow, overhead, location and demand from buyers can move the price well outside that range. An appraisal based on the practice’s own numbers is more reliable.
Is goodwill tax deductible when buying a dental practice?
Yes. In an asset purchase, goodwill and patient records are generally amortized over 15 years, while equipment can usually be depreciated much faster.
What is the difference between an asset purchase and a stock purchase?
In an asset purchase, you buy the equipment, records and goodwill and start fresh with your own entity. In a stock purchase, you buy the seller’s entity itself, including its history and any hidden liabilities.
How do most dentists finance a practice purchase?
Most buyers use a loan from a lender that specializes in dental practices, and some use SBA loans. Lenders will review the same financial records you do.
Do I need a new EIN when I buy a dental practice?
Yes, if you buy through a new entity, which is typical in an asset purchase. The new entity needs its own EIN, bank accounts, payroll setup and Virginia withholding account.
Support from a local team
We help new owners review the financials, set up the books and payroll, and plan taxes for the first year. Learn more about our dental practice accounting and business formation services.
This article is general information and not tax advice for your situation. Tax rules change, so talk with a qualified professional before making decisions.
