QUESTION: START A NEW PRACTICE OR BUY AN EXISTING ONE? (Part 1 of 2)
There comes a time when almost every dentist ponders the decision of ownership. Should I buy or buy into an existing practice or should I strike out and open a “scratch” practice? I wish there was a clear choice but the waters are a little murky. If you are going to be an owner you will face this dilemma and asking the right questions and knowing what a good practice looks like are the cornerstones in making this work.
For most dentists, there is a predilection of being attracted to new and shiny things. Thus, when most dentists think about ownership, they initially gravitate towards the new office, perfect location, and new equipment – where everything is just right. Who wouldn’t? Buyer warning: Beware of the “Halo” effect in decision making. Far too often we make decisions that minimize or totally overlook the downsides. This “Halo” effect causes us to fall in love with our choice before we have had the time to really analyze the decision and its ramifications. So, let’s take the time to analyze these options and see if there is a clear path for you. I will assume that you’ve done your homework without bias or preference and are basing your final decision on the best business strategy for yourself at this time.
New office ownership:
The good points of new office ownership:
• It’s yours and it’s new. Let me rephrase that. It belongs to the bank, it is new, and now you get to pay for it. For most of us it is the realization of a dream we have been working towards our entire careers. It just feels right.
• You assembled the equipment you always wanted and wished you had.
• You designed the floor plan to be a perfect match to the way that you practice dentistry.
• You found the perfect location and demographic to insure steady growth now and in the future.
• You get to start with a clean slate of employees, systems, equipment, and marketing.
• You no longer have to play second fiddle to a corporate or senior owner while they get rich.
The challenging truth:
• It costs more than you thought. Most new offices that we have seen end up costing 20%-36% more than the doctor expected. It wasn’t the build-out as much as all of the ancillary items that you had not thought of but actually need to operate your practice. Now the reality of debt sinks in, over-laid with the need to make a certain amount of money every month for the next 20 years.
• The doors open at 8:00 AM the first day and you realize that you have 8 hours of staffing and facility costs and no patients to pay for it.
• You forgot to consider that the competition just around the corner has been in the same demographic for decades and has an enviable reputation with the populace and a facility that rivals your own. Most are even surprised at how much of the available clientele is already committed to another office.
• The new staff has to be found, interviewed, on-boarded and trained in systems and protocols that don’t currently exist. From day one you need dental practice management knowledge and systems that insure that the few patients that do show up are duly impressed as they compare you to every practice they have every visited in the past.
• You finally come to the realization that you never really got any practice management training in dental school and while you were a good producer when you were an associate you really didn’t pay that much attention to the nuts and bolts of daily practice management and financial strategies in that practice. You just don’t know what you don’t know.
• Marketing is expensive and, while it works, it is not an easy game to play. I would budget at least $50,000 for the first 6-9 months. Failing this will either crush your ability to grow or at the least add a decade to the path of becoming successful. Keep in mind this would be above and beyond the cost of signage. With that in mind, I probably would not select a location where I could not have a large LED sign right on the street and great drive-by visibility. Cost for this is in the $35,000 range for a two-sided, high resolution LED about four by six foot in dimensions along with the monument and/or structure supporting it.
• You joined as an in-network provider for most of the “good” PPO insurance plans in your area but have realized that no one is choosing you. Surprise! These potential clients have lived here and worked where they work for years and already have an in-network provider. The only growth you will see is from new employees that might find your location and hours convenient for them. Secondly, you will realize that you did not negotiate your reimbursement through a third party and now you see that what you are paid is below the guy next door.
• There are an endless number of small expenses that new property or practice owners never account for in their planning. You will need another $40,000+ (or at least a credit line for this amount) to cover payroll and unexpected “must have” purchases.
I know I sound like a “Debbie Downer” but there is a good side. Most new offices survive. While survival is not the goal, thriving is an uphill battle. Remember that with either choice, you are never going to find the perfect location or situation. There is never going to be perfect timing. Compromise and flexibility in the face of challenges should rule the day. So, step up and make one of these choices work. It will take a couple of years of working 5-6 days a week and constantly upgrading your business and clinical skills, but there is a light at the end of the tunnel. Do this right and you can reap the benefits for the lifetime of you practice.
Next week: Purchasing an existing office.
Michael Abernathy, DDS
PS. As announced last week, we are now actively planning a fall seminar. The tentative title is:
MYTH BUSTERS (Myths, mysteries, and facts of practice success.) We will explore: how to stand out in this era of increased commoditization; a blueprint for dental practice growth and survival; stages of practice growth; Dentist vs CEO; multiple models of highly prosperous practices; adding doctors and/or locations; and much, much more. In an effort to possibly match some earlier career doctors with some later career doctors, we will strive to have doctors from all stages of their careers present to share ideas and learn from one another. So continue to watch this space for additional details and registration information and mark your calendar for October 26 & 27.