Buying a Dental Practice? 5 Things to Do Before You Close

If you are buying a dental practice in the next few months, listen closely. Most dentists look at collections, trust the broker packet and assume a busy practice means a safe investment. It does not. A busy practice can still be run poorly, overleveraged or set up in a way that costs you tens of thousands in taxes and headaches. The five steps below are designed to protect cash flow, reduce taxes and keep you from becoming a cautionary tale.

1. Create the right entities and tax structure

Before money starts moving, you need the right legal and tax setup. At a minimum, plan on two entities: one for the practice operations and one for the real estate holding company. They should be separate.

• Practice entity: LLC, PC or PLLC. Tax election depends on profitability and timing.
• Real estate entity: almost always an LLC, never an S corp, because real estate needs different planning and liability protection.
• If you buy the building, create a formal lease between the practice and the holding company.
• Do not flip the S corp switch on day one unless year-one profitability is predictable.

S corporation status can save taxes, but timing matters. Year-one profits are often unpredictable because of transition issues, staffing changes, equipment repairs, marketing ramp and cash-flow smoothing. Sometimes the smartest move is to start as a disregarded entity, then elect S status once profitability is stable and payroll can be set up correctly. Also, electing S corp status in year one may limit your ability to take a loss because of basis rules.

2. Talk to a payroll provider early

Payroll is usually the biggest expense inside a dental practice. It touches cash flow, compliance, tax strategy and team morale. Do not wait until the week of closing to figure it out. A good provider can also help secure state withholding IDs, unemployment insurance accounts and other state registrations.

1. 01Do you handle state registrations and payroll tax accounts?
2. 02How do you handle new-hire reporting?
3. 03Can you integrate with workers' compensation?
4. 04How do you handle PTO, benefits and deductions?
5. 05Can I pull reports that actually help me manage the business?
6. 06Do I have a dedicated rep when something breaks?

Most practice owners pay roughly $100 to $300 per month depending on headcount and add-ons. Reliability and support matter more than a low price. Set it up during the purchase process, not after.

3. Hire a dental CPA before you close

Do not have your office manager do the accounting. Do not hand it to a relative. And do not plan to DIY it. Separation of duties matters. When one person collects payments, makes deposits, reconciles the bank account, runs payroll and pays bills, money can disappear. I have seen embezzlement go on for months or years because there were no controls and no oversight.

Your office manager should focus on schedule optimization, collections, patient experience, team performance and case acceptance. Accounting is not a high-ROI use of their time. A strong dental CPA should handle your personal and business returns, send monthly financials by the 12th of each month and meet with you regularly to talk payroll, taxes, profit and KPIs.

• How many dental practices do you currently serve?
• How fast do you close the books each month?
• What reports do I get and by what day?
• Do you track overhead categories like staff, supplies, lab, rent and marketing?
• Do you help plan taxes or just file returns?
• How many strategy meetings do I get each year?
• What does success look like in the first 90 days?

A strong dental CPA relationship typically runs $1,500 to $2,500 per month depending on scope. Bookkeeping alone is not the goal. You want someone who understands dental metrics and can guide decisions.

4. Open the right bank accounts and track startup expenses

More accounts is not better. Too many accounts create confusion and messy books. Start with three: one business checking, one business savings and one business credit card. Simple makes cash flow visible, keeps books cleaner and makes it easier to spot problems early.

During startup, you may pay for business expenses out of your personal account before the business account is open. Attorney retainers, software subscriptions, supplies, marketing and training are common examples. Do not panic. Track them in a simple spreadsheet with the date, vendor, amount, business purpose and account used.

5. Understand your deal before you sign

The purchase price is only one line in the story. You need to understand the structure, what is included and what happens after closing. Once you sign, your leverage is gone.

1. 01Asset sale or stock sale? Most dental deals are asset sales, which changes taxes and liability.
2. 02What is included? Accounts receivable, inventory, equipment, software contracts and subscriptions.
3. 03Is there working capital, and how does it affect day-one cash flow?
4. 04How is the purchase price allocated between equipment and goodwill? More tangible assets usually means more tax savings.
5. 05What are the transition terms? Seller stay, staff retention, lease handling, renewal options, non-competes.

Beyond the contract, prepare for the non-clinical transition. Passwords, software access, patient lists, Google Business profiles and vendor relationships all need to move cleanly to you. The best deals are boring on day one because the groundwork was done before closing.