It’s the question that, at one time or another, every dentist ponders: “should i open my own practice?” It’s a question that warrants serious consideration, since the answer can have long-term implications with respect to your income, sense of independence, day-to-day stress level as well as your overall degree of career satisfaction.
Many dentists know early on that they’ll open a practice someday. For others, the answer isn’t as clear cut and, as a result, they can spend years trying to make up their minds while they work in associate positions.
Starting a dental practice is a costly proposition – particularly following a lengthy and expensive education. Before you make the leap, it’s advisable to weigh the potential benefits and challenges of practice ownership and do some serious soul-searching to ensure
it’s the right approach for you.
Pros and cons
To a large extent, the decision to start your own practice revolves around one central idea – that in addition to being a dentist, you will also need to be a full-time business person, along with the various responsibilities that entails. That’s why it’s important to assess the pros and cons before you make your move.
On the ‘pros’ side of the equation are factors such as:
- An increased degree of control over your personal time and work environment,
- The potential for higher business profits (particularly when employing other revenue generating professionals such as dental hygienists and associates),L
- Long-term wealth creation (e.g. the creation of goodwill value over time), and
- Greater emotional satisfaction from the challenges of leadership.
Conversely, there are some potential downsides to practice ownership, including:
- Increased stress associated with responsibility for the business, people’s livelihoods, etc.
- Greater scope of responsibility beyond matters of patient care (e.g. accounting, taxes, hiring, general contracting, competition, equipment/supplier decisions), and
- The potential for business losses, which can negatively impact long-term wealth accumulation.
“There are many people who don’t want the headaches that come along with operating a dental practice business. They want to come into work, earn their salary and go home without having to worry about loans or staffing issues,” says
Dr.Amin Shivji, a Vancouver-based dentist who leads and operates 123dentist.com, a multi-clinic group of dental practices and practitioners throughout British Columbia.
“If the associate has a great relationship with the owner, it can work well. But in my experience, most dentists tend to enjoy a higher degree of control.”
Buy or build?
So… after careful consideration, you’ve decided to pursue your own practice.there’s still an important question to answer. Do you plan on acquiring an existing practice or building one from the ground up? Either way, it’s going to be expensive. The answer will differ depending on a number of factors, including:
- The availability of practices for sale in your desired area,
- The competitive environment,
- The state of the local real estate market,
- The present values of cash flows from each alternative, and
- Whether you’ll be able to create new goodwill faster than you can purchase and pay for existing goodwill.
“Starting from scratch is one of the most difficult things a dentist can do. You need to have the cash flow to support the losses in the first year or two,” says dr. shivji.
The purchase of an existing practice, while typically more costly, can translate into a more predictable investment, particularly in the short term.“wWith an existing practice, the cash flow is there, the patients are there. You have a good idea of what your revenues will look like, the team is in place and hopefully the office is being run efficiently,” says dr. shivji.
No matter which route you take to practice ownership, you’re going to have a lot on the line. And therefore it’s advisable to seek specialized advice and expertise when it comes to financing and operating your new venture. “Whether you’re buying or building your practice, there are a number of important financial elements to consider,” says Beau Olmstead, Vice President, Commercial Financial services, Royal Bank of Canada.“in addition to the obvious matter of things like leasehold improvements, dental and computer
equipment, there are matters of financing structure to ensure compatibility with one’s other planning initiatives. And then, of course, there’s the efficient operation of the business with respect to managing receivables, payables and keeping a close eye on cash flow.” Real estate ownership can be a factor often mixed with the buy or build decision. However, it should be separated in terms of both the decision reasoning and timing – success in one, does not necessarily lead to success in the other. Whether you’re dealing with the emotional aspects of buying a practice or looking for sensible financing options tailored to your specific needs, your financial partner will be able to bring their experience to the table, providing you with sound advice as well as enabling you to make informed decisions about this important step.
Bottom Line:This article deals with the issue “to buy or not to buy a dental practice” and explains how important it is to have a trusted financial partner in this decision making process.
The information contained in this article is for informational purposes only and is not intended to provide specific leasing, financial, business, tax, legal, investment or other advice to you, and should not be acted or relied upon in that regard without seeking the advice of a professional. Your advisor can help to ensure that your own circumstances have been properly considered and any action is taken on the latest available information.
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