• Should you buy a practice or set one up from scratch?
Apr 19 2021 - Simon Palmer - Buyer: buying

Once a dentist has decided that they want to be their own boss and own a dental practice, the next question that they face is “should I buy an existing practice or set one up from scratch?”

Regularly, Practice Sale Search will be selling a practice in the $350K - $500K price range, where the potential buyer will argue that, for the same money, they could set up the practice of their dreams in a great location, with brand new equipment of their choosing.

Their assessment is no doubt true. Setting up from scratch allows the owner to create an ideal work environment for themselves, in that they can choose the location, design, fit-out, equipment and staff. Buying a practice, on the other hand, means owning someone else’s choices, which can mean compromises.

However, while owning a practice in your ideal location, fit-out perfectly in your favourite colours, newly equipped with your favourite brands, may sound hard to beat…there are some significant advantages of buying a practice that you should consider.

1.   Established customer base and cashflow

Often, most importantly, a practice that you are buying with an established customer base has a more predictable and immediate cash flow that you can count on. If the vendor stays on post sale (even part time) and you manage the transition properly, there is no reason not to expect the vast majority of the patients to stay. This gives you a cashflow foundation to maintain and build upon (with all your extra energy, skills and ideas, including increased open hours, clinical range, etc.).

On the other hand, a practice that starts from scratch has expenses (loan repayments, rent, staff wages, etc.) and no patients. This in turn means that a practice starting from scratch has a foundation of stress and a desperate need for effective marketing just to get to a financial break-even.

There is a famous business saying that it costs 5 times more to get a new client than to keep an existing one. There is no doubt that acquiring customers for any business can be an expensive, unpredictable process and retaining them is a lot easier and a lot less costly, if you have decent levels of customer service.

2. Opportunity cost of your time

If you are transitioning from being a contractor in someone else’s practice to starting up your own, you need to worry about the opportunity cost of your time.

Starting a practice from scratch means trading productive and remunerative time working at someone else’s practice (with no business overheads to cover) for unproductive and non-remunerative time (with large overheads to cover).

If you buy a practice, on the other hand, the opportunity cost is very different. Buying a practice should mean that any time that you are transferring from your previous place of work is well spent and well remunerated.

 

3. Softer landing into ownership

Setting up a practice from scratch means learning and building systems and procedures for the operations of your business from scratch. You need to establish protocols for HR (job descriptions, rostering and payroll), IT, sterilisation, ordering supplies, marketing and relationships with suppliers. All this at a time of heightened stress, when you are getting used to a new level of debt, understanding the KPIs of your business and hoping that patients will discover your practice.

Buying a practice means inheriting systems and procedures that can just roll over as a starting point to build upon. Sure, some of the procedures in place may not be ideal and need some tweaks, but this can happen incrementally over time. If a new owner buys a practice, it should come as some relief that it is possible to ‘hit the ground running’ and they don’t need to create every operational aspect of owning a practice from scratch.

Conclusion

If you have decided that you want to get into dental practice ownership and you are trying to decide between buying and setting up, it would be a good idea to review your criteria for success.

If your main criteria for success when getting into practice ownership is convenience of location, the aesthetic and having ideal equipment, then setting up a practice from scratch may well be the best way to go.

If, however, your criteria for success includes:

  • reducing the time spent getting your practice going
  • reducing financial risk and stress or
  • having a more predictable cash flow

… you can’t beat practice purchase as a pathway to ownership.

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