There are many things that drive us towards a location for opening or purchasing a practice. Remember, we are looking for a unique purchase of a practice that has the potential of doubling or quadrupling the before sale production and profitability. We will analyze the effects on selecting the best location for the right reasons.
I would have to say that this one area of selecting a practice to buy is fraught with many underlying reasons that could sabotage your success. For most of us, if we are really honest with ourselves, it does not come down to a spreadsheet, numbers, and logic. All of us, in selecting a location, have personal proclivities of where that practice would need to be. Based on the emails and calls I have received, many of you are looking at this strategy for a first-time purchase. You tend to weight your decision heavily based on “where you want to live”, and then where in that area you would like to practice. Many are adding an additional office and wanted the proximity to be within a 20-to-60-minute drive from your existing practice. Spousal preferences on first-time practices seem to affect the number two spot. When questioned, every respondent tended to finally suggest they wanted to go where they had the greatest chance of becoming successful, but ________________.
“BUT” is pretty big subject when you finally face the reality that where you are probably isn’t the best place to be. Where you thought you wanted to go flies in the face of where your family wants you to be. Location will be no different than the topics and key factors that were stressed in the Growth Analysis Spreadsheet or Profit & Loss Statement. When analyzed, choice of location should push you towards the ideal spot, if the circumstances and numbers just don’t make sense for a profitable practice location. A couple of doctors I spoke with are realizing that the purchase of another office was just a box on a list so that they could feel successful. A few owner doctors, after looking at their own Profit and Loss Statement and Growth Analysis Spreadsheet, are finally realizing that where they are in their own practice falls far short of being a good model for a second office. In fact, one doctor decided to just table the next purchase until they could put their own house in order. Wherever you are, whatever you thought you would want or be, needs to take a back seat to location and KPIs that allow you to actually turn your initial investment into a 2X to 4X gain in profitability and productivity.
Let’s run through a few of the items that will make a difference as far as location.
- Where you want to be: I got it, this will either be a positive or for some, a huge negative. I understand that I am unlikely to dissuade you in allowing this to be number one in your needs list. With that in mind, make sure that where you want to locate has some flexibility in order to take advantage of the following areas we will discuss. We had a young doctor that wanted, maybe even felt like he needed, to be in Austin, Texas. Great town but super competitive and overpopulated with dentists that tended to be struggling when you consider the ratio of dentists to population. Basically, a pretty poor place for a startup. Because we were financing the opening of this office, we did not have that “got to be there” mentality for an Austin location, so we talked him into opening in Kyle, Texas. It was 15 minutes down the highway from downtown Austin. The small town had doubled its population three times in the last five years, had only one dentist to compete against, and no real commercial real estate to speak of. The HEB company, a large popular Texas grocery store chain, had just broken ground as the anchor tenet in a new shopping center with about 6 other rental spaces available. We took a lease there and the first month we had 70 new patients and never looked back. He got close to where he wanted to be and hit a homerun by looking at the numbers and locating in Kyle rather than Austin.
- 2. Competition: I would never locate in an area where the ratio of dentists to population dipped below 1 to 2,000. Far too often, doctors will look at their desire to be in a specific location and, even after seeing a high competition ratio, in their infinite wisdom decide that they are going to be that “one in a thousand” doctor that can overcome all the challenges and do great. This is a myth, a fairy tale. It never happens. You are not the “one”. If the numbers will not work for an average dentist, it is unlikely that it will work for you. Denial is not a river in Egypt. Having a “great self-image for no apparent reason” has sunk more startups and purchases than anything I can think of. Digging a little deeper, if the doctor to potential patient ratio goes below 1 to 2,000, you could look at the ages of the dentists within a five-to-seven-mile radius. Sometimes you can find an area where the ratio is not ideal, but most of the dentists are older and approaching retirement. Typically, they will not really provide much competition, especially in terms of new patient attraction and consumerism. There can also be a great ratio, but the population is pretty low and/or not growing. Even though the ratio says yes, if one more dentist moves into this area it could destroy a good ratio because of a low population count. Use your head and don’t think like a dentist. Every aspect of researching a purchase is critical to a successful transition and profitable future.
- 3. Signage: In any location, signage can be critical. Ideally, I would want an LED sign, on a monument base (not a pole), perpendicular to the flow of traffic on a very busy street. Far too often I see doctors with very limited signage. In addition to signage, you would want to make sure that your logo screamed dental, appealed to a female’s eye (they make 92% of all appointments), and was placed on your sign as well as anything that left your office. 89% of people are visual learners. Make sure your logo is eye catching and even at 100 yards says “dentist”. NOTE: Lose the extracted teeth as a logo. Nothing screams terror as much as an extracted tooth.
- Professional office buildings: Ideally you would never, ever, ever, want to be in a multi-story profession building. This is a 1970’s strategy. It usually has multiple dentists, no signage, poor visibility, and no natural marketing working for you. In fact, in addition to spending 3% to 5% of you net collections on marketing, you would need to add another $5,000/month for the lack of a good location. Even in the downtown area of a large city where this is the only option, you will still have to spend more to attract new patients.
- Being near where women are and go: Women make the appointments and select where they and the family go to a dentist. Be where women are: a few blocks from elementary, middle and high schools, near large popular grocery stores, gyms, nail or hair salons, etc. Location, location, location, is the key to consistent growth. Don’t trade the cost of being in the right place for a reduction in the lease. The right place is worth every penny you pay, and will create dividends your entire profession life. Pick a poor location and agree that you will most likely have an average to less than average office.
- 6. Real estate ownership vs lease: I like ownership. In the purchase of a practice, buying the real estate is usually less expensive than renting. Long term you are paying down the initial cost of owning only to create passive income later in life.
- Demographics: I will make this a two-chapter article/post so as not to make this run too long. So next time I will show you where to look for accurate demographic info on where to practice as well as how to read demographic data and its impact on location, growth, and overhead.
Michael Abernathy DDS