By Lisa White
When faced with the decision to purchase a practice as compared to a start-up, there are some important questions that need to be asked. These questions can be hard to answer if the practice in question is a specialty practice, and yes, even a referral-based one.
We have heard, “Why would I want to purchase a practice when I can start up on my own?” There are several reasons that purchasing a practice can be the most rewarding path, but perhaps the most important is the financial impact. When you purchase a practice at a fair price, the immediate cash flow from the practice should provide a head start that you could not expect from a start-up. The first several years in a start-up can be quite slow, while the purchased practice continues to produce revenue. In addition, the business functions are established, the staff is already in place, and the location and telephone number are familiar to your patients. With a start-up, none of these things exist.
Another question that has come up is, “Is a referral-based practice worth anything?” We emphatically say yes! After more than a decade of transitioning referral-based practices, we know that if done correctly, the acquisition of a referral-based practice is the easiest way to get a career off the ground. In addition to the positives listed here, consider the fact that you are replacing the retiring dentist instead of adding another dentist to a market that may be quite competitive.
As an example, imagine that you have two friends coming over for pizza and you order one pizza for the three of you. However, if those two friends decide to each bring an additional friend, it means that someone will probably leave hungry. The same principle applies to dentistry. Just because you’re opening up a new office doesn’t mean that any new demand has been created for your service. It just means that there is now more supply. As with the pizza, one just isn’t enough for all five of you to leave with a full stomach.
The supply and demand issue raised here is even more important in current times, especially for specialists. It is anticipated that the percentage of specialists in dentistry will be greater than 25% by 2020. By contrast, only 10% of all actively practicing dentists were specialists in 1970. This means that specialists have to be smarter about the market they decide to practice in for the long term, and make sure that there is an established demand for the services they are offering. There is no surefire way to select that perfect market, and yet this is already established and proven if you purchase an existing dental practice.
If, however, you are so particular about the exact location you want to be in or the exact equipment you need, perhaps a start-up is the best path for you. Just know that historically the risk is high and the reward is not. You may find that your “ideal” location is not so ideal from a demand-for-dentistry standpoint, and that the location of your choice may result in considerably less income than someplace with a proven track record.
You might ask, “Why do the banks charge higher interest rates for a start-up loan than an acquisition loan?” I believe it is because the banks know that a start-up carries a higher risk loan. Additionally, it makes sense to evaluate how many new patients or referrals you will need to get to a position that a start-up makes sense over purchasing an existing practice. It may not be as rewarding financially, but if you can only see yourself practicing with certain equipment or in a certain location, then perhaps a start-up is the right choice for you.
Whether it is right to purchase an existing practice or start from scratch is a question that needs to be carefully considered by each practitioner.
Lisa White is the president of Radman, White & Associates, Inc., a transition firm solely focused on transitioning endodontic practices. She has lectured at the AAE and many of the endodontic residency programs. She is the national endodontic representative for ADS and serves on the ADS Marketing Committee. She can be reached at [email protected] or 888- 419-5590 ext. 972.
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