You want your own practice, but the decision has to be made as to whether you want to buy an existing practice or start your own from scratch. Both have advantages and disadvantages, and below are just a few points to consider when making this critical business decision.
Advantages and Disadvantages of Purchasing a Practice
One of the main benefits of purchasing a practice is the proven market potential and established patient base. The transition period allows for a smooth handover and you’ll benefit from cash flow the instant you open your doors. Established staff can keep the business running smoothly while you settle in. Having an established patient base means you’ll have to expend less effort and money trying to get new patients through the door, and will be able to devote more time to building up relationships with existing and new patients.
The main disadvantages of purchasing a dental practice are that you are purchasing the sellers reputation, both as a clinician and a business person. The equipment in the practice could be older or outdated, and the layout is someone else’s design. Then there is the question of fitting in with an established staff, as there could be certain dynamics that were not immediately apparent when you decided to buy the practice.
Advantages and Disadvantages of Starting Your Own Practice
One of the main advantages of starting your own practice is that you can choose your location; you’ll get to design the layout, the decor and choose the equipment. You can hire your own staff and build your own team over the time.
The disadvantages of starting a practice include having to cope with very little cash flow while you try to build your business. You’ll also need to spend time interviewing, hiring and training staff. Even if you intend to keep staffing to a minimum it’s essential to hire an experienced receptionist to run the front desk. They have to be able to deal with new patients, will need to make sure insurance forms and health history work ups are completed, and must be able to answer any questions. Start-ups can be more difficult to finance due to unproven market potential and greater working capital requirements.
When comparing the costs of purchasing an existing practice or starting your own, it could be tempting to opt for the latter as it can appear cheaper. However this can be misleading as the net income generated by an established practice is usually considerably more than the net income generated by a start-up, even when loan repayments are taken into account. This greater income is obviously due to an established patient base, and it’s important to think about the patient attrition rate. Experienced consultants consider an attrition rate of between 7% and 10% to be reasonable for a practice in transition to new ownership, while the attrition rate for patients in a new practice can be anything between 15% and 20%. When taken into account, it’s easy to see it could take several years for a new practice to achieve a patient base similar to that of an established practice. Although there are opportunities for those trying to build up a new practice, buying an established practice does help to alleviate some of the risk in terms of patient flow, collections and cash flow.
To learn more about how to purchase a dental practice, view our buyers steps and review a list of current dental practices for sale.