There are many different ways to practice dentistry and there are a number of different career paths for a dentist to choose. One of those choices is to buy your own dental practice. But how do you know if the time is right? How do you maneuver through the buying landscape? What needs to be considered? What are the concerns to be looked at? Let’s navigate the path towards private dental practice ownership.
Let’s examine:
- Dentistry Business Models
- Risks and Rewards of Dental Practice Ownership
- Judging the Right Time to Buy
- Tips on Buying a Dental Practice
Dentistry Business Models
Today’s marketplace offers a dental practitioner different business model, to practice within. The foundation for each model is based on ownership. Who owns the practice? How is it structured? How is it managed? How does it affect the dentistry practiced?
Dental Service Organizations (DSO)
Commonly thought of as “corporate dentistry,” DSO’s are non-dentist-owned practices that are run by a corporate structure that assumes business and operational functions, but not clinical ones. Many are significantly owned by private equity firms. According to the American Dental Association about 7.5% of dentists practice through a DSO. In this model the dentist is essentially an employee of the DSO.
Dentist-Owned Group Practices
This model can be either a small group practice with one or a few localized dental offices or a larger group practice that operates in multiple locations over a larger area. Larger dentist-owned group practices may have a dental service organization business plan to contract a third party for business management operations, but the sole ownership lies with the dentists.
Private Practice
With this more traditional model, full ownership along with full business and operational responsibility is held in the dentist’s hands. Private practices often hire early career dentists as associates. Selling their private practice is a typical retirement strategy for owners.
Risks and Rewards of Dental Practice Ownership
What Are Your Career Goals?
Ownership goals and the level of dental practice management responsibilities play a role in how a dentist chooses to practice. Is owning your own practice something you desire? Is the responsibility something you want?
Some early-career dentists may gain experience as a DSO employee, followed by private practice ownership. Dental associates often transition into buying their own practice as they gain experience. It’s important to figure out your career goals and if ownership is something you want.
As a dental practitioner, there are risks and rewards in buying a dental practice. If your goal is to own your own practice, then weighing both the risks and the rewards of private practice ownership is beneficial. This also involves evaluating your career goals on who you are as a person and how you want to practice dentistry long-term.
Weighing The Rewards
Higher Earning Capacity
As an owner, your earning potential over the long term is higher than as an employee of a DSO or an associate. This is true even after expenses, overhead, and debt payments. Business ownership is value ownership. And a dental practice is a business that holds value. While you earn income from working in your practice, you are also accumulating wealth through equity. If you are working for someone else, you do not build equity.
Personal and Professional Satisfaction
Ownership rewards include the control to practice dentistry in the way you desire. As an associate or employee, there is a lot that is out of your control: hours worked, procedures performed, professional expectations, vacation time, and compensation. As an owner, you have clinical independence and the freedom to choose how you practice. You are building your life’s work.
Weighing The Risks
Financial Risk
Buying a dental practice is expensive. Although a dental practice is a valuable investment over time, it still includes assuming debt. That is a risk. It’s important to be prepared to take on this risk with a sound financial plan in place.
Risks in the Economy and Crises
As an owner with the responsibility to run the business side of your practice as well as the clinical side, the economy and unpredictable crises (such as a global pandemic) can affect your bottom line. Markets fluctuate. They go up, and they go down. Without appropriate and standardized procedures, your costs and revenues will cycle over time. But, a dental practice is a long-term investment. You need to learn to run your practice in both up markets and down markets. The question is whether or not you want to take on that challenge.
Business Management Responsibilities
This is both a risk and a reward. Or, it can be. By buying a dental practice, you are taking on the management of your practice. All of it. The hiring and training of employees, the administrative and business operations, the marketing, and a whole lot more. It’s a lot to take on, and there is risk in that, but successfully taking control of the whole of your practice is a reward too.
Do The Rewards Outweigh The Risks?
This can only be answered by you. Are you ready for the challenge? Are you prepared for the financial risk and ownership responsibilities? Is ownership your long-term goal? Do you want to control how you practice dentistry? Do you want to work to meet the challenges and, in return, reap the benefits? If the answer is yes, then let’s determine if the time is right.
Judging the Right Time to Buy
If clinical independence and owning your own dental practice are desired career goals, then reflect on what you have in place and what you need in place to make the move to buy.
To help you navigate:
- Gather information and do your research about ownership
- Talk with friends, colleagues, mentors, and practice owners
- Consult with a financial advisor about this lifetime investment
- Meet with a lender to discover financing options and possibilities
- Look at market conditions and seek out expert advice.
Look at three main considerations:
- Financing
- Time in Career
- Current Market Concerns
Financing
You need to be prepared for the financial obligation of buying a business and secure financing. Banks are on your side. From a lender perspective, dental practices are a good investment. They are willing to 100% finance your purchase, but this does not mean you do not need cash on hand. Can you afford a dental practice acquisition loan at this time? What is your existing debt?
Time in Career
To move into the ownership phase of your career, it is practical to be at least one year out of dental school, and in most cases, longer. You need a strong production history to keep up with a busy practice. (And you want a busy practice.) In a dental practice transition, your hand speed needs to be about 80% of the departing dentist to handle the biggest money-making procedures.
Current Market Concerns
Yes, the world has been going through a global pandemic, and it has put uncertainty into the market. But, challenging times often present opportunities. People need to see a dentist despite crises. And every crisis is overcome with time.
Some current conditions to weight:
- Interest rates: Still fairly low, which makes it an excellent time to borrow
- Retirement rates: Up in all sectors. More retiring dentists means more dental practices for sale.
- Future growth potential: Long-term investment is more stable than current conditions reflect.
Tips on Buying a Dental Practice
Research the Area
Know what is available in a specific area. Understand the market conditions in the area and that the area meets your needs. Know what is on the market. Visit available practices and get a feel for what’s out there. Research other dental practices in the area too, making sure it is not saturated with competition.
Research the Dental Practice for Sale
- Question if it meets your needs in terms of size, location, revenue, staff size, number of operatories, equipment, and technologies.
- Evaluate if the equipment is reasonably up to date and the cost effectiveness of needed upgrades.
- Take a look at the systems. Upgrading to a digital system is a costly project.
- Check out the website. How does the office show online? What information is communicated about the doctor and staff? What procedures are highlighted? What specialties are shown?
Letter of Intent
Make sure to set the expectations of the sale in writing and include a non-compete. Define all key aspects of the transaction, including price, asset allocation, real estate arrangement, and dental instruments and equipment.
Business Valuation Analysis
- Figure out what the practice is worth.
- Look at financial detail, production, collections, taxes, patient records, and overhead.
- Consider the production history as well as new trends.
- Look at historical data and key performance indicators, such as expense, profit, and cash flow.
- Understand the total value of the loan.
Timing is Everything
Navigating your career path includes choosing how you want to practice dentistry. But if dental practice ownership is a career goal, then it becomes about timing the purchase of your dental practice and having the right support system in place. Once you figure out the timing, it becomes a career milestone towards successfully practicing dentistry the way you want. From that point, you should be able to lean on your support system when needed and enjoy building the practice of your dreams.
