The dental brokers at ddsmatch Southwest are often asked about whether it’s better to start a new dental practice or buy an existing dental practice. If you’re reading this, chances are you are considering starting or buying a dental practice. You may have questions like “what income is typical for an average dental practice?” or, “how can you know you’re ready to buy a practice?” Below we shine a light on some of the basics you should know.
Starting a Dental Practice
The dream of many young dentists is to own their practice. The freedom of being your own boss and the income potential are both great. But what do you need to know before you decide to start a dental practice from scratch?
- It takes a lot of capital. To get your dental start-up off the ground you need an office, equipment, and employees, and you need these things before any patients step through the door. Talk with a dental CPA and a bank to find out what kind of loan you qualify for and what the terms will be. This will not only give you a budget going forward for office construction or renovations, equipment, and employees, it will give you an idea of your overhead costs once you open your practice.
- You won’t turn a profit immediately. Your loan terms will most likely include an amount to hold you over until your patients and insurance companies begin to pay. You may have enough to cover expenses and a little left over, but your profits will be nowhere near that of an established dental practice.
- Give it a few years. For the first year or two, you will be focused on feeding your business to keep it afloat. After that, you may start breaking even or taking a small salary. As your business matures, typically between five and seven years after launching, you will begin to see higher revenue and pay yourself a salary closer to industry standards.
- Keep costs low while building your business. Making wise purchases is crucial whether you are starting or buying a dental practice, but it is especially important for dentists who want to build their practice from scratch. The more debt you acquire when starting up your business, the longer it will take for you to increase your income, add employees, and add associates. Don’t be fooled into thinking that having newer or more expensive equipment will help you attract or retain patients. Dental Economics explains how keeping equipment debt to a minimum is essential for new practices.
Buying a Dental Practice
Purchasing an established dental practice can be a great business move, but you need to know what you’re getting into before you start. Dentists who are fresh out of school or have no business knowledge may have a difficult transition into small business ownership if they are not adequately prepared. Before you decide whether you are better off starting or buying a dental practice, sit down with professionals, create goals, and make a long-term transition plan. Matt Howard, a business valuator and dental CPA from Blue & Co., says “you just need a really good board of directors to walk you through.” (See Matt’s full webinar on this page, below.) Don’t try and do it all yourself. Read the following questions and answers to get you started on the right track.
- How much does an average dental practice cost? The average price of a dental practice will vary widely based on your location. The valuation of dental practices are based on their assets and their production. You should expect to pay anywhere from $300,000 – $1,000,000.
- How do you know you’re ready to buy a practice? When you are ready to buy a dental practice, you will need to visit a bank to discuss a loan. The bank will approve you based on your finances as well as how well they think you will run the practice. Matt Howard explains that the bank will be thinking “what does their world look like… do they have some sort of margin in their life?” You need a financial safety net as well as a proven track record working in the industry.
- What should I think about before talking to a broker? Speaking to a broker can be helpful at any stage so you can create realistic goals. It is beneficial to come prepared by considering your lifestyle, skills, and where you want to practice (such as rural or urban). Thinking about these choices will help you and your broker to narrow down your options for moving forward.
- How do I get a loan? Visit several banks to see who offers the best financing terms. Consider the loan terms, interest rates, prepayment options, and any start-up services the bank may offer. As mentioned above the bank will approve you not only based on your financial stability, but also on your dental ability and experience.
Planning for the Future
Starting or buying a dental practice is not something that you can achieve overnight. It takes careful planning and preparation. Whether you’re still in school or just out of school, now is the time to plan for your future. If your goal is to open a practice one day, but you want to get a few years of experience under your belt, try taking on an associate role under a doctor who is willing to teach you about practice management. Find advisors, such as a CPA, a dental broker, and an attorney so you can talk through your goals and plans and be ready when the time comes.
The Importance of Good Advice When Starting or Buying a Dental Practice
Like Matt Howard says, you need experienced advisors on your side before starting or buying a dental practice. Look for local experts with good reviews and multiple years of experience. Ask seasoned dentists who they recommend. Set up a consultation to gauge how you might work with your advisors. Ideally, you will be working with this team for years to come, so trust is essential.
If you are thinking about starting or buying a dental practice, ask the experts at ddsmatch Southwest for help. We specialize in dental transitions and can help you decide the right path for you. As part of your team of trusted advisors, we will do our best to help you achieve your goals. To set up a consultation, call today.