Buying a Dental Practice in Ontario

Purchasing a business always involves risk, but there are established ways to reduce it and to improve the likelihood that the practice acquired will be profitable. In recent years the price of a dental practice in Ontario has increased substantially, driven by dentists working later into their careers, foreign-trained professionals immigrating to Canada, and the emergence of a dental investor market. More capital is competing for the same practices, which makes diligence more important rather than less.

A dental practice typically sells for around sixty per cent of adjusted gross annual income. Spending that amount does not guarantee a successful business, and several matters warrant close attention before committing.

The first is existing cash flow and what is actually included in the sale. An established practice should have a patient base and active cash flow sufficient to support salaries and service any loans required to fund the purchase. While it is common for a dentist to sell a practice together with its inventory and supplies, this is not universal. Dental technology is expensive both to acquire and to repair, and the difference between an equipped practice and a partially equipped one can be considerable. Prepare a written list of the technology and inventory included before closing. Doing so identifies what is missing, allows those costs to be calculated in advance, and avoids an unwelcome financial surprise in the first months of operation.

The second is the structure of the transaction itself. A practice may be acquired through an asset purchase or a share purchase, and the two carry materially different legal and tax consequences. Vendors frequently prefer a share sale, which allows them to exit the business entirely along with its tax and debt obligations, and which may permit them to claim the Lifetime Capital Gains Exemption where the shares qualify. Purchasers often prefer an asset purchase, because it permits them to select which parts of the practice to acquire, reduces the scope of due diligence required, and may allow acquired assets to be depreciated. The preferred structure is rarely the same for both parties, and it should be resolved early rather than late.

The third is the lease. Premises costs frequently contain expenses that only become apparent over time. Confirm how rent has increased over the past several years and track the tax and insurance amounts that accompany it. Where the selling dentist also owns the property, the sale of the real estate will proceed as a separate transaction with its own documentation and its own negotiation, and it should be assessed on its own merits rather than treated as an extension of the practice purchase.

The fourth is staff. Employment obligations differ depending on how the transaction is structured. In a share purchase the existing employment contracts of the practice are inherited by the buyer. An asset purchase will often require employment contracts to be re-drafted, and purchasers should not treat this as a formality — it is an opportunity to ensure those contracts are properly drafted and aligned with the practice's future direction, and a failure to handle it correctly can create liability for notice or severance.

The fifth is the transition itself. It is important to recognise that a change of practitioner does not guarantee the loyalty of patients. Every dentist practises according to their own philosophy, training and process flow, and patient retention can depend heavily on whether trust survives the handover. Make a point of reaching out to patients and introducing yourself. Establishing communication as early as possible helps patients feel comfortable with the change, and is considerably more effective than attempting to recover them after they have left.

A practice acquisition is among the largest financial decisions in a dental career. The agreement, the lease and the employment arrangements should each be reviewed before the purchaser is committed to any of them.