After graduating dental school, many dentists opt to become associates at a dental practice, but it often isn’t long before they consider private practice ownership. Most dentists do not wish to remain associates for their entire careers, and they recognize the unique opportunity practice ownership represents, from creating higher annual income, more control and greater independence to achieving long-term personal and professional satisfaction.
Once set on pursuing ownership, the decision must be made between buying an existing practice and starting a dental practice from scratch. However, it is critical that a dentist carefully consider the many intrinsic intangibles and variables that manifest specifically in start-up scenarios, while also weighing the relative risks or dangers.
There is perhaps no greater source of pride and accomplishment than creating a new dental practice from scratch and then watching it spring to life and evolve ultimately into a successful and fulfilling business venture.
In this article, we review the benefits and drawbacks of starting a dental practice, and we invite you to explore those of buying an existing practice.
Although purchasing a practice can have many inherent advantages over starting one from scratch, the allure of pursuing a start-up cannot be understated. It is perhaps a once-in-a-lifetime process, in that each decision made is aligned with the future owner’s standards, desires and vision.
Make the business your own. From selecting a desired location, to the implementation of proper processes and protocols, to floor plan design, branding, marketing, staff hiring and development — all are approached with the values and personal touch of the future owner. Choosing and creating a customized clinical office environment uniquely represents a dentist on both a professional and personal level.
Place the business in your ideal location. Perhaps the most important advantage of establishing a start-up practice is the ability to locate the practice wherever the dentist so desires. The area and community in which the dentist resides and practices is perhaps one of the most important determinants of long-term personal and professional satisfaction.
Invest in new equipment and technology. Starting a dental practice from scratch allows you to purchase brand new equipment and technology. Though this can be pricey, expensing the depreciation can help offset the cost.
Starting from scratch allows the owner to have total control over the practice from day one, but with that freedom comes downsides that must be considered.
Creating a new business has a high risk of failure. Small business failure is typically due to undercapitalization and struggling to build cash flow while battling location and/or economic hardships. In new dental practices without steady patient flow, cash burn can become insurmountable, which makes precisely quantifying working capital needs a critical component of any financing package.
You may face unexpected expenses. By overlooking less obvious needs or working with a non-specialized contractor, a dentist may find themselves short of funds before the project is even complete. This will greatly complicate things, forcing a dentist to choose between scaling back the project or taking on additional debt. Neither choice is optimal, especially in a start-up scenario.
Competition is increasing, especially in certain areas. In recent years, competition from larger, multi-specialty practices (including emerging DSOs) has created areas of high concern that should not be considered for startup practices. In these very competitive geographical areas, it is often difficult to differentiate oneself in procedures/other service offerings and payment/insurance options.
The fact remains, any circumstance that will significantly delay the opening of the office could potentially jeopardize the success of a start-up. Here are some tips to help you succeed:
Prepare your finances accordingly. You want to make sure you have sufficient personal cash in the bank. If you have a lot of personal debt and high monthly obligations, you will want to have more cash in the bank than somebody with low monthly obligations. Do not take out unnecessary loans as these will increase the saved money you will need to qualify for the loan.
Understand your clientele and community. It is imperative to conduct a demographic analysis of the patients you could be seeing and examine nearby competition and learn their size, scale and specialties. Dental practice start-ups have a far greater chance of being successful if the local community is found to NEED its services.
Choose dental-specific professionals. Professionals with experience in dental start-ups add tremendous value because of their unique knowledge of the intricacies of constructing a dental office. This knowledge allows them to adapt to unforeseen problems that may arise, avoiding expensive change orders which could be catastrophic to the project. We recommend working with specialized contractors, architects and dental equipment specialists.
Find administrative support and professional advisers. A start-up practice will inevitably face legal, tax and accounting issues, including (but not limited to) establishing the proper corporate structure, negotiating office leases, hiring new employees, assessing bank financing proposals etc. Hence, it is strongly recommended that accounting and/or legal professionals be retained early in the process.
Hire an experienced practice manager early. The complications of navigating PPOs, deciding which insurance plans to participate with, obtaining timely credentialing, and negotiating profitable reimbursement rates can be daunting tasks but are crucial to keeping the doors open. Time is of the essence, so hiring an experienced practice manager is a top priority, as it can represent the difference between a thriving practice and one struggling to survive.
Create a full marketing plan. When a dentist is new to a community, it takes a good deal of marketing and networking to gain visibility, attract patients, and generate loyalty. Hence, a sound marketing plan should be in place even BEFORE the doors are opened for business. A dentist can possess the best clinical skills in the world, but if no one knows that he or she is open for business, patients may never come, and neither will success.
Whether leaning toward buying an existing practice or starting one from scratch, it is important to move forward with confidence. Even in an industry that has seen the emergence of the DSO model in recent years, the ability to own and operate a personalized, relationship-based practice is something that the big-box dental corporations simply cannot compete with.
Having creative control over how a dentist wants to practice dentistry and being able to clearly demonstrate value to patients and the public at large is a major motivator for young entrepreneurial dentists. It can also be a major distinguisher as the industry becomes increasingly more commoditized.
History tells us that most dental practices will ultimately succeed – in fact, more so than many other independent professions. Most, if not all, practice owners would strongly agree that practice ownership was the absolute best choice of their career, one that provides great personal and financial rewards.
If finances is the biggest roadblock holding you back from your dream of founding a dental start-up, a dental-specific lender like Panacea Financial can add great value. We are familiar with the true cost of a start-up practice, and therefore understand how to properly allocate start-up loan proceeds, including precisely quantifying working capital needs.
If you are needing guidance in other areas of your purchase, visit our Build Your Team page to get connected with experts who can help you achieve your goals.