As a new graduate, a major career question that arises after your initial years of practice is deciding whether to own a clinic or continue as an associate. Once you opt for clinic ownership, the million-dollar question is choosing between starting a new dental practice or acquiring an existing one. Both options offer distinct advantages and challenges.
Advantages of acquiring a practice
No set up delays: Unlike building from scratch, there are no delays waiting for permits or equipment. If the clinic is fully operational, you can begin treating patients and earning revenue from day one.
Existing patient base: Acquiring a practice means inheriting an established patient base and the goodwill of the community, especially valuable if you work with the outgoing dentist initially. This is particularly powerful if a dentist works as an associate at the clinic for several years before acquiring it.
In-place staff: You benefit from an existing team, eliminating the need to build a staff from the ground up. Moreover, there is typically a pre-established payroll, billing, and scheduling system in place. This can be particularly helpful to young associates who would benefit from having tenured hygienists and assistants to guide them.
Known financial landscape: You can review the practice’s financial history, providing insights into its successes and areas for improvement. The longer the clinic’s track record, the more data there is to analyze, allowing you to understand the story behind the numbers and make immediate changes to enhance profitability.
Easier to finance: While dentists will generally receive 100% financing for most clinic acquisitions or start-ups, it is easier to finance an existing clinic due to the financial track record and established patient base.
Challenges of acquiring a practice
Fixed infrastructure: The cost of buying a practice often limits immediate changes to the location or equipment. If a dentist wants to add new equipment or change the clinic’s layout, it can often be challenging due to financial constraints, space limitations, or cultural factors; sometimes, rapid change can negatively impact the clinic’s culture.
Staff adaptation: Existing staff may resist new management styles or operational changes. This can come in the form of staff leaving or potentially asking for increases in wages or perhaps even extra vacation time, to name a few examples.
Inherited reputation: The previous owner’s reputation, whether positive or negative, can significantly impact your practice. This can lead to challenges in establishing new procedures among staff or potentially losing patients due to their loyalty to the previous principal dentist.
Competition: Increased competition arises from individual dentists or Dental Service Organizations (DSOs) when purchasing an existing practice, compared to building a clinic from scratch.
Appraisals: One set of financial statements can yield a range of opinions on EBITDA and the clinic’s value, making it challenging to ascertain the true value of the asset you are purchasing.
Advantages of starting a practice
Complete autonomy: Starting your practice allows full control over every aspect, including location, equipment, and office layout. Aside from obtaining city permits, new clinics offer a blank canvas for all your ideas.
Building your team: You have the freedom to hire staff that aligns with your vision and culture. You can choose who is on your team and train them as you see best fit.
Creating a brand: From day one, you can establish a brand for your clinic and style of practice. This is essential not only in your marketing efforts and within your clinic, but also important if you wish to expand locations or even sell in the future.
Entrepreneurial growth: Establishing a practice from the ground up offers invaluable business experience and personal growth. You will be forced to understand what matters most to you and why you are going down this road.
Challenges of starting a practice
Extensive initial effort: Establishing a new practice requires managing numerous tasks, from leasing premises to setting up systems. There is nothing to build off; the foundation is all yours to establish. Permits, equipment, staff, and more; everything needs to come together in order to open your doors to start treating patients.
Delayed profitability: New practices typically take time, often 1-2 years, to become profitable. As you build up your patient base, it’s not uncommon to continue as an associate at another clinic until a full patient base is established at your own clinic.
Higher financial risk: Starting a practice involves significant financial investment and risk, particularly for recent graduates with student loans. Combining six-figure student loans, a potential mortgage, and a seven-figure loan for clinic purchase leads to heightened financial risk and mental stress. Which is why it’s typically best to start a clinic after some of your personal debts have been reduced.
Conclusion
In summary, while acquiring a practice offers an immediate patient base and operational setup, it also comes with constraints like existing infrastructure and staff dynamics. On the other hand, starting a new practice provides complete control and a fresh start, but with the challenges of higher initial effort, delayed profitability, and financial risks. The decision ultimately depends on individual preferences, goals, and circumstances. While owning a clinic can come with tremendous financial upside, I’ve found in my experience that the number one driving force to start your own clinic should be autonomy. Practice ownership offers the autonomy to practice as you wish, perform preferred treatments, cultivate a desired culture, market your clinic on your terms, and overall, “steer” the direction of your practice.
About the author
Gurtej Varn is a wealth advisor specializing in serving early to mid-career dentists. His firm, White Coat Financial Inc., offers a full suite of services – investments, insurance, mortgages, tax planning, and financial advice. He’s quickly becoming the go-to advisor for dentists across Canada.