Dental practice ownership: Start-up Vs buying

By Dr Nauv Kashyap

So you have decided that practice ownership is right for you and you are keen to become an owner. Where to next? Should you consider starting up a practice from scratch or should you purchase an existing one? This article will discuss the ins and outs of both options.

I’ll declare my bias from the outset. I’ve started 12 practices and purchased four.

Firstly – start-ups.

On one hand you get to choose the location, equipment, fit out, colours, branding etc. You hire the staff, train them your way and establish the culture from the beginning. You are able to create the type of practice that you want.

On the other hand, there is no established patient base and cash flow is uncertain. There may be days where there are no patients booked and there may be times you will need to put in money to support the cash flow. It is also time consuming designing and establishing processes from scratch as well as hiring and training new staff. Further, you may need to work as an associate at another practice to support your own personal cash flow.

Over the years I’ve done more startups compared to purchasing practices and believe with the correct location analysis and marketing I can create significant goodwill without the need to pay for it.

However, what I’ve found recently is that these good locations particularly within a 30-40 minute drive of Sydney, Melbourne and Brisbane’s CBD’s are becoming more difficult to find. Many dentists have already started up in these locations.

Certainly, in today’s competitive environment a start-up is a major risk in these metropolitan areas. There are many recent examples of start-ups in these metropolitan areas closing down and/or declaring bankruptcy. I’ve had dentists reach out for help who have billed the same amount in three months at their start-up practice that they would have billed in a fortnight at their previous associate position.

Unfortunately, I’ve advised these dentists that there’s nothing I can do as they’ve made critical mistakes in their location selection. Conversely, there are still significant opportunities for start-ups in many outer, regional and rural areas with rapidly growing populations with a lack of dentists in the area. I’ve done one start-up in the past three years and that has been in a rapidly growing area 40 minutes from a major CBD. In the same time, I’ve purchased three established practices.

This change from focusing on start-up opportunities to purchasing established practices is a direct reflection of the current dentist saturation in metropolitan areas. With an established practice there is a current patient base with cash flow from the start.

As a generalization, if purchasing the practice from a vendor who is retiring, the current patient base is likely underserviced. Typically, vendors approaching retirement, limit the procedures they undertake and may lean towards patch-up dentistry as opposed to ideal dentistry. There may be scope to grow the practice just by offering additional clinical procedures where appropriate.

Further, the existing staff is trained and you likely won’t need to put in as much time establishing processes and procedures compared to a start-up. However, the fit out and equipment may be old, the branding won’t be yours and the existing practice culture may be poor. You may also be paying considerable amounts for goodwill.

Nevertheless, nowadays I’m much more inclined to recommend purchasing a practice in metropolitan areas compared to starting-up. Equally, in many rapidly growing outer, regional and rural areas I’m much more inclined to recommend starting-up compared to purchasing a practice. As a caveat, there are always exceptions. There are examples of start ups doing very well in metropolitan areas. Many of these involve an existing patient base following the owner. However, logic dictates that not everyone can be the exception.

Our next practice ownership seminar is coming up in Sydney on the 28th and 29th of March 2020. These seminars have sold out in previous years so register ASAP. https://practiceownership.com.au/seminars/ We also offer expert guidance in various areas of practice ownership. See the below link for more information. http://www.practiceownership.com.au/expert-guidance/

Dental practice ownership: Start-up Vs buying -

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