Lately we’ve seen more dentists thinking about buying or opening additional dental practices. They see the successful expansion of corporate dentistry, or dental service organizations (DSOs), and wonder how they can emulate that success. Some dentists decide to buy a second practice as their way of building wealth, only to be disappointed or frustrated by the time and effort that goes into operating it.
If you’re contemplating a second practice, it may help to recall what inspired you to choose dentistry as a profession in the first place. Success usually follows people who are passionate about what they do. Someone who is only interested in making money without helping others usually finds success to be short-lived. Those who happen to make money as a side benefit to doing what they love, while genuinely caring for and helping people, will find success in abundance and perpetuity. Ask yourself why you’re in business. Will owning a second practice align with your primary motivating factors?
Ask yourself the following questions
What financial risk will I be facing? Buying a second practice usually involves leveraging your investment through debt by borrowing funds from a bank to acquire the practice. Additional debt obligations could mean a strain on the cash flow following a bad month. Furthermore, many lenders have tighter financing requirements when lending for a second practice. Besides having a thoughtful, written plan for managing more than one practice, the bank will also want to see a considerable savings cushion, possibly $100,000 or more parked in a business savings account.
If you have the financial resources and managerial strategies to move forward, consider the level of diversity that can come through having a second practice, especially if that practice is located in an area with different socioeconomic demographics. In other words, when one practice is slow, the other may be busy, and together they can serve to subsidize each other during slow times if needed. Keep in mind that your marketing and staffing strategies may need to differ to meet the needs of two different locations.
Are you willing to give up discretionary time in your life to commit to managing a second practice? If you already own a practice, then you know that investing in a practice is not like parking your money in a mutual fund and then sitting back and watching it (hopefully) grow. Andrew Carnegie suggested you put all your eggs in one basket and then watch the basket. The important part of Carnegie’s advice is to be sure you’ve got the right basket, i.e., right practice, and make sure you watchthe basket very carefully, i.e., manage the practice properly.
This type of business requires time, effort, resources, attention, management, and a fire extinguisher constantly on stand-by. If one practice requires all that, a second practice will too. Ostensibly you could be looking at twice the time, twice the effort, twice the attention, and twice as many fires to put out when it comes to managing two or more practices. At a minimum, you will probably need to spend an extra five or more hours a week overseeing the operations of the second practice.
If you dedicate extra time to reviewing your current practice statistics and financial statements and studying up on ways to be a smarter practice owner, then running another practice, even though it may complicate your life, may also add value to it. Likewise, if you’re running a successful practice and are able to implement efficient processes and systems and motivate and keep staff, it’s possible you could duplicate this success in another practice.
Will you be able to easily find, maintain, or replace associate dentists in the practice? Attempting to work two practices yourself doubles your stress and overhead without doubling your revenues. The only prudent course is to hire another dentist to work in the second practice. Many doctors who own more than one practice find retaining quality associates more challenging than expected. If you want to increase production while keeping fixed overhead expenses as low as possible, it’s best to acquire a practice that can accommodate two associates working full-time. Plus, you will want associates who are willing to adapt to your processes and practice philosophy, who have the right skills to produce at a reasonable level, with excellent interpersonal skills and chairside manner. There is always the risk that once you have found the right associate, he or she may eventually leave to buy or start his or her own practice.
While there are certainly advantages to owning multiple practices, in our experience they are usually outweighed by the challenges and risks. For some, multiple ownership is a great way to create more wealth and income and improve their quality of life. It gives them a worthy goal and fills them with a sense of accomplishment. However, some dentists pursue a second practice only to find it is more than they can handle or is not complementary with their lifestyle, and it becomes more of a headache than it’s worth.
A second practice might be a great move for you and your career, but before you make that decision, know what you’re getting into, and perhaps more importantly, be very honest with yourself about why you’re getting into it. If you’re looking to build wealth through practice acquisitions, reconsider your motives and how you feel about putting in the additional work and assuming additional risks. If you’re up for the task and want a rewarding challenge, as well as the opportunity to make a positive difference in more people’s lives, then go for it!
Randon Jensen and Marie Chatterley are with CTC Associates, a dental practice transition consulting company. Contact them at (303) 795-8800, or visit ctc-associates.com.