Factor #1: Location

Where do you want to live and plant roots? For most, owning a practice and developing relationships within that community is a process, and therefore it’s important to make sure the location is one you can see yourself and your family in long term.

What are the demographics of the area you see yourself in? What is the patient base and what is the saturation of the existing market? The common industry goal for a single-doctor practice is 2,000 active patients, so take time to assess the total population to the dentists available in that area. A demographic study can help with this process. An area with 4,000 patients for every doctor may be more desirable than an area with 800 patients for every doctor because there is likely more opportunity for building the required patient base.

Once you know you would like to be an owner and have identified a location with potential, the process differs a bit if you choose to buy an existing dental practice versus starting a brand new one.

Buying an Established Practice
The main questions to consider when looking at buying an existing practice are "how do I find the right opportunity?" and "how do I know if it’s financially sound?"

Once you understand the area from a patient and growth perspective, there are a few critical steps to finding an existing opportunity:

Search online: Perform a search of dental practice brokers to see if there are any existing practices in your area listed for sale.

Network with professionals: If there aren’t any practices listed in your initial search or the available options aren’t what you are looking for, that doesn’t mean someone else isn’t thinking of selling and may be interested. To find these “unlisted” opportunities, you will need to develop relationships with those area dentists and industry professionals and start the conversation.

The goal is to arrive at a group of opportunities. Once you have a list of prospects, performing the appropriate diligence to understand how financially and operationally sound they are is critical.

Key Areas of Due Diligence When Buying an Existing Dental Practice

• Review the financial data of the practice to understand the true operational cash flows. Important documents to begin this analysis are:
  • Practice tax returns
  • Practice profit & loss statements
  • Practice balance sheets
• Understand the production (both in procedure and by provider)
  • Production by procedure: Are you comfortable with the current procedure mix or are there procedures you are competent in that may be referred out by the current doctor?
  • Production by provider: What percentage of the work is doctor based versus hygiene? How much production is the current doctor producing a month and is that a level you can produce? Answers to questions like these can indicate if a practice may or may not be a good fit for you, for example, until you can pick up your speed or the senior doctor can work back for a transitional period to cover any production deficiencies.
• Understand the building
  • Does the current doctor own or rent the space in which the practice is located?
• Understand the established doctor’s goals and requirements post-transition
  • What schedule would they like to work after the transition? How would they like to be compensated and does that work with the estimated cash flows?
    
    

The first question that may come to mind when considering a start-up is cost. Initiating a start-up requires significant planning and an understanding of your personal financial needs and reserves.

Bank of America found that, in 2015, a dental start-up can cost anywhere from $250,000 to $500,000 with an average costs of just under $400,000¹. Add this to the student debt most dental students have after graduation and this can be a significant amount of debt.

Key Considerations:

• Building: Do you want to build a brand new building or do you prefer to find an existing location to create a dental practice space?

• Equipment and technology: Is it important to you to be on the cutting edge? Established practices can sometimes come with technology that needs to be refreshed.

• Demand vs. supply: Is there in an opportunity in a high-demand area with a low concentration of practices?

• What are your financial reserves or other income sources: Establishing a patient base does take time. If we assume a strong new patient flow of 35 patients per month and a retention rate of 85%, building up to an active patient base of 2,000 patients could take up to 5.5 years. It is important to ensure you have adequate financing and capital to support you and the practice in the early years.

• Differentiation: Do you offer a special skill, like being bilingual, the ability to sedate, etc., that doesn’t currently exist in the market? If so, starting a practice may be right for you.

Regardless of your decision of how you own – whether through starting up a new practice or buying an established practice – it’s important that you understand your personal goals, your own personality and perform the financial and operational diligence necessary to reduce the potential risks of ownership. Surrounding yourself with the right team of professionals is critical in the potentially complex but extremely rewarding career of dentistry.

¹Dental Practice Start-Up: Top-10 Tips For Success by John Fiore, Bank of America Practice Solutions