Dental practice acquisition calculator
https://2147finance.com/dental-practice-acquisition-calculator/
Method version acquisition-1.0.0.
These figures are your own entered assumptions. They are not a lender offer, an approval, an appraisal, or a prediction of results.
Funding and surviving a purchase
Dental practice acquisition calculator
How much cash would this acquisition require, and what remains after debt service?
Hypothetical example Every figure here is an example you can edit. None of it is a lender offer, a market average or a customer result.
Live calculation needs JavaScript. The worked example below, the method and every explanation are part of this page and remain readable without it.
| Item | Amount | What this is |
|---|---|---|
| Practice purchase price | $900,000 | The price for the practice itself, excluding property. |
| Transaction expenses | $30,000 | Your entered costs of doing the deal. These are a use of cash, not part of the price. |
| Initial improvements and equipment | $20,000 | Capital you expect to spend at or shortly after closing. |
| Initial working-capital reserve | $150,000 | Cash set aside at closing. It is a use of cash once, not an annual expense deducted again below. |
| Total uses of funds | $1,100,000 | The full amount that has to be funded at closing. |
| Funded by the proposed loan | $800,000 | Modeled at 7.00% over 120 months (10 years). A loan amount you enter, not an offer. |
| Funded by buyer cash | $300,000 | The balance you would need to contribute at closing. |
- Practice purchase price
- Transaction expenses
- Initial improvements and equipment
- Initial working-capital reserve
Show the uses of funds as a table
| Component | Amount |
|---|---|
| Practice purchase price | $900,000 |
| Transaction expenses | $30,000 |
| Initial improvements and equipment | $20,000 |
| Initial working-capital reserve | $150,000 |
| Total | $1,100,000 |
| Step | Effect | Amount | Running cash flow |
|---|---|---|---|
| Annual collections | Starting point | $1,200,000 | $1,200,000.00 |
| Variable cash operating costs (20% of collections) | Subtract | $240,000 | $960,000.00 |
| Fixed annual cash operating costs | Subtract | $560,000 | $400,000.00 |
| Market compensation for owner clinical and management work | Subtract | $220,000 | $180,000.00 |
| Recurring maintenance capital spending | Subtract | $20,000 | $160,000.00 |
| Cash flow before debt service | $160,000.00 | ||
| Modeled annual debt service | Subtract | $111,464.14 | $48,535.86 |
| Ownership cash after debt service | $48,535.86 |
| Scenario | Collections | Cash before debt service | Debt service | Ownership cash after debt | Coverage | Return on buyer cash |
|---|---|---|---|---|---|---|
| Base | $1,200,000 | $160,000.00 | $111,464.14 | $48,535.86 | 1.44x | 16.18% |
| Collections down 10% | $1,080,000 | $64,000.00 | $111,464.14 | -$47,464.14 | 0.57x | -15.82% |
| Collections down 20% | $960,000 | -$32,000.00 | $111,464.14 | -$143,464.14 | -0.29x | -47.82% |
| Rate 9% instead of 7% | $1,200,000 | $160,000.00 | $121,608.74 | $38,391.26 | 1.32x | 12.80% |
- Cash before debt service
- Ownership cash after debt service
Show the scenario cash flows as a table
| Scenario | Cash before debt service | Ownership cash after debt service |
|---|---|---|
| Base | $160,000.00 | $48,535.86 |
| Collections down 10% | $64,000.00 | -$47,464.14 |
| Collections down 20% | -$32,000.00 | -$143,464.14 |
| Rate 9% instead of 7% | $160,000.00 | $38,391.26 |
What moves this model
- Because fixed costs and owner-work compensation do not move with collections, a 10% collections shortfall removes much more than 10% of ownership cash. That asymmetry, not the headline number, is usually the useful output of this model.
- The working-capital reserve is funded once at closing. Whether it is enough depends on how long collections take to arrive after the transition, which this model does not attempt to predict.
- Nothing here is a lending decision, a credit approval, a prequalification or a projection of your results. Coverage ratios are illustrative: every lender defines and tests coverage its own way, using its own adjustments and thresholds.
- Transition risk, patient retention, payer mix, provider and hygiene capacity, lease terms, equipment condition and working-capital timing all affect the outcome and none of them are modeled here.
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How this calculator works
total_uses = purchase_price + transaction_expenses + initial_capital + initial_reserve
buyer_cash_required = total_uses - proposed_acquisition_loan
cash_before_debt = collections*(1 - variable_cost_share)
- fixed_operating_costs - owner_work_compensation - maintenance_capital
annual_debt_service = new_loan_scheduled_payments_in_year_one + retained_business_debt_service
illustrative_coverage = cash_before_debt / annual_debt_service
ownership_cash_after_debt = cash_before_debt - annual_debt_service
cash_on_cash = ownership_cash_after_debt / buyer_cash_requiredOwner pay is pay, not profit
Market compensation for the clinical and management work is deducted before ownership cash, and it is never added back into the coverage figure. If you do that work, that money is compensation for your labour. What is left after it, and after debt service, is what ownership itself produced. A model that treats owner pay as profit will make almost any practice look like it works.
The coverage ratio here is not a lender's DSCR
This coverage figure divides cash before debt service (already reduced by owner replacement pay and by maintenance capital) by annual debt service. That is deliberately more conservative than most lender formulas, which commonly add back some owner compensation and ignore maintenance capital. It is an illustration, not any particular lender's calculation and not an approval threshold. When there is no debt, coverage is reported as not applicable rather than as an infinite ratio.
Principal paydown is not spendable cash
The principal repaid in year one is shown separately from ownership cash because it is not money you can spend: it converts cash into a smaller loan balance. It is also not guaranteed wealth creation. If the practice is worth less in three years than it is today, a smaller loan balance can be entirely offset by a lower business value.
How the scenarios move
- The collections downside cases hold fixed operating costs, owner-work compensation and maintenance capital constant, and scale variable costs with collections. That is the point: a revenue shortfall lands almost entirely on ownership cash.
- The rate stress case is an alternative loan assumption, what the same purchase looks like if the financing is priced two percentage points higher. It is not a forecast that a fixed rate resets.
- The purchase-price slider changes total uses and buyer cash while holding the loan you entered constant. It does not quietly raise the assumed advance to preserve a down payment percentage, because a lender's advance is a lender's decision.
- Changing the proposed borrowing changes buyer cash and debt service. It does not change the practice's operating earnings.
What is excluded
- Income taxes of any kind, at the entity or the personal level.
- Personal debt, personal living costs and the global cash flow a lender will actually examine.
- Receivables and payables timing. This is an annual cash model, not a month-by-month working capital forecast.
- Changes in staffing needs, associate arrangements or hours as the practice changes hands.
- Any cost you did not enter. The model is arithmetic on your assumptions and does not reconcile a complete set of accounts.
- Real estate. The property is handled in the linked property tools rather than folded into practice value here.
Nothing here is a maximum approved purchase price, a statement of lender eligibility, or a recommendation to buy or not buy a practice.
Questions to ask during diligence and with a lender
- Which expenses in the seller's accounts will actually change under your ownership, and by how much?
- What is the real cost to replace the seller's production, whether by your own time or an associate?
- What working capital does the practice need at closing, and who collects the pre-closing receivables?
- What does the lender include and exclude in its own cash-flow test, and what coverage does it require?
- What personal guarantee, collateral and global cash-flow review apply?
- What conditions remain before funding, and how long will they take?