Late last year we encountered a situation which left us baffled. We had an associate dentist wanting to buy the practice they were working in for around 2 million dollars. They came to us very excited about the opportunity. However, the owner had only provided financial statements from the 2024 and 2023 financial years. The excuse for not providing the 2025 financial year and 2026 pro rata figures was that the accountant would not have them ready until a few months later and the owner did not want to pay for “special” ones to be done now. The owner wanted the associate to commit to purchasing based on the 2023 and 2024 financial years and the associate was ready to do this.
It is common for formal financial statements to be finalised ~9months following the completion of the financial year. However, when the practice is being sold, this process can be sped up and pro rata figures produced as well. Any financiers will also insist on this. We eventually obtained the 2025 and 2026 pro rata figures after convincing the associate this was in their best interest.
What was interesting for this practice was that the 2023 and 2024 financial years showed a healthy profit. However, the 2025 and 2026 pro rata figures showed a major decline which had a material impact on the sale price. We’re not sure if the owner was deliberately trying to mislead or they just didn’t realise. What was baffling was that the associate was willing to buy without analysing the recent figures.
When analyzing a practice for sale it is important you receive certain important pieces of information. The purchase of a dental practice is a significant financial outlay and you must have the appropriate information in order to analyze it critically. The standard things such as the location, opening hours, information about the current clinicians, BAS statements, demographics, competition and asking price should be known or can be researched. Further, you should also have an understanding of the physical appearance and layout of the practice by visiting it.
We will discuss the other critical pieces of information below.
- Types of work being done (items fee report):
The items fee report is perhaps one of the most underutilized pieces of information when considering whether to purchase a practice. Each practice management software calls this report by different names but it basically shows the amount of each item number being performed over a certain period of time. Much can be revealed about a practice from this items fee report. Often many people ask what happens if the practice has manual records and no software? Obviously, it is difficult in these scenarios. However, we typically suggest to collate a 2-week period of items being performed and use this as the basis of the report.
As Dentists we’re well placed to read these reports. For example, a large number of 419s being done and a lack of 415s/417s being done would likely mean that there is a demand to save teeth in the practice but the vendor is referring most out of the practice. If the purchaser has an interest in Endodontics, then this represents a considerable opportunity. Conversely, if there is a large amount of removable prosthodontic item numbers (711s/712s etc.) or orthodontic item numbers (8XX) being done and the purchaser has no interest in dentures or orthodontics then this poses a risk to the purchaser in terms of being able to maintain the practice billings going forward. These are just a few examples of what this report can reveal. It’s about finding opportunities but at the same time being careful of procedures, billings and goodwill that can’t be replicated.
- Profit and Loss Statements for at least the past financial year (the 3 past financial years is better)
It is important these are proper accountant provided reports for tax purposes specially for clinics exceeding an asking price of ~1 million dollars where profit plays a significant role. At times due to timings, accountants can produce interim reports. Reports from previous years should also be viewed. These statements are important in comparing expenses and profitability to industry benchmarks and calculating an accurate earnings before interest, tax, depreciation and amortization (EBITDA) figure. These statements can provide great insight into a practice and reveal opportunities to improve profitability or reveal items that cannot be changed and make the practice unviable. For example, if rent is significantly above industry benchmarks this cannot be changed post-sale (in most cases) and will always weigh heavily on profitability and make the practice unfeasible to purchase. The opposite may be true if the practice has a higher than industry norm consumables percentage. Any savvy potential purchaser may be able to lower this with better and more efficient ordering processes and increase profitability.
- Payroll summary report for at least the past financial year (the 3 past financial years is better)
The payroll summary allows you to compare auxiliary staff (DAs/Receptionists) wages to industry benchmarks. Further, it also allows you to decipher how the vendor is being paid (if they’re a clinician). In order to calculate an accurate EBITDA the vendor should be paid their market wage. All too often we see vendors not take a market wage which artificially boosts profitability and the eventual sale price of the practice. It is critical to understand this and include the vendors market wage as an expense.
- Information about the equipment
Ideally you would want a list of the major equipment. This list should include the brand and age of the major equipment. When we talk about major equipment we refer to the chairs, xrays, autoclave, CADCAM systems, lasers, endo/implant motors, compressor/suction (basically all equipment above about 5K). This should give you an indication of the need for replacement of these items. For example, dental chairs >15 years old probably will need replacement (not always) shortly following the sale.
- Information about the current lease
Your lawyer will go through the fine print. However, items such as the total rent, outgoings, yearly increases along with the time remaining on the lease and options are important to understand. For example, if you’re purchasing a practice with only 2 years remaining on the current lease and no options available. Then it is imperative further options are negotiated prior to the sale contract going unconditional. Your financier will also need to ensure there is security of tenancy and a certain length of lease remaining (generally the same length of time the loan is taken over) in order for you to gain finance.
Most times these documents will be provided to you by the vendor or broker. However, if they are not or certain items are missing we cannot stress the importance of asking for more information.
Our next start-up and buying seminars are coming up in Brisbane on Thursday 24th and Friday 25th of September 2026 and Melbourne on Friday 6th and Saturday 7th of November 2026. This is a popular course. Please register asap using the link below.
https://practiceownership.com.au/dental-practice-startup-and-buying-seminar-2026/
We also offer expert guidance in various areas of practice ownership. Please see the below link for more information.