Fear of ownership

June 1, 2000
I often ask dentists who do not own their own practices their reasons why. Typically, their decisions are based on fear. That is, they are afraid of the unknown aspects of business ownership, and take the path of least resistance by continuing to work for someone else .

Kevin A. Shea, J.D.

I often ask dentists who do not own their own practices their reasons why. Typically, their decisions are based on fear. That is, they are afraid of the unknown aspects of business ownership, and take the path of least resistance by continuing to work for someone else .

Too often, these fears are based on myths rather than facts. Some of these falsehoods have been perpetuated for decades. Dentists fail to recognize the tremendous changes that have occurred in purchasing and operating a dental practice .

It is important to dispel these myths. We should encourage new practitioners to enter the satisfying - and profitable - world of business ownership.

Myth #1:

"It `s too expensive. I could never afford it."

This is the most common myth regarding practice ownership. Today`s "buyer`s market" clearly contradicts this perception. Dental practices are selling at relatively low values. Many sellers are disappointed by how little their practices are worth after a lifetime of operation. Buyers, however, are often pleasantly surprised by a pay raise! Practice owners can retain up to 60 percent of their personal production; the net result is often double their former salaries. This salary increase, over time, will more than offset the purchase costs.

Myth #2:

"I know nothing about management. How can I operate my own practice?"

The most important aspect of owning a practice is management. A new practice owner, however, can greatly benefit from the advent of computer technology, which simplifies such details as bookkeeping, payroll, and scheduling.

The novice manager can also utilize the services of a management consultant specializing in dentistry. Consultants can counsel the new practice owner in the essential task of hiring and retaining quality personnel; they can also provide a strategy for effective accountability and quality control.

Myth #3:

"I don`t have the money to buy a practice, and I can`t qualify for financing."

This myth is left over from the 1980`s when credit policies were strict and interest rates high. National lenders nowadays are anxious to finance practice acquisition loans. These lenders have determined that a dental practice is eight times less likely to fail than other businesses and are viewed accordingly as the very best type of risk. Furthermore, these loans can be obtained with a minimal downpayment.

Myth #4:

"The practices for sale are too old, and have outdated equipment."

This myth is the most common - and difficult - to dispel for the apprehensive buyer. Outdated equipment, however, is a minor concern when acquiring a practice . Most sellers have operated their practices for 25 to 30 years, and they typically have less than modern equipment. This makes the facility "substandard" in market terms. The purchase price is discounted accordingly.

The hidden benefit of purchasing an established practice is its solid customer base, which offers a built-in, reliable cash flow. An investment in new equipment (which can be financed as part of the purchase cost of a practice) can pay for itself with the increase in production it brings - typically 30 percent over the previous owner. The buyer reaps the benefits of acquiring a stable practice at a relatively low cost, plus the added profits from increased productivity.

In today`s positive climate, there are no good reasons not to own a practice. One year after selling a practice to a dentist, I asked him if he had any regrets. "Yes," he replied, "... that I didn`t buy it sooner!"

Kevin A. Shea, J.D., is an attorney and president of PEB Practice Sales, P.A., Minneapolis, Minn. PEB assists dentists in purchasing, selling, appraising, and conducting practice transitions. He can be reached at (877) 275-2727. Shea is a member of American Dental Sales, Inc., the largest group of dental brokers, appraisers, and consultants in the United States. See the ADS classified ads for names and phone numbers of ADS members in you area.

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