Lately we have seen more dentists thinking about buying or opening additional dental practices. They see the successful expansion of "corporate dentistry," or dental service organizations (“DSO's”), and wonder how they can emulate that success. Some dentists decide to buy a second practice as their idea of building wealth only to be disappointed or frustrated by the additional time and effort that goes into operating it.
If you are contemplating a second practice, it may help to recall what inspired you to chose dentistry as a profession in the first place. Success usually follows people who are passionate about what they do and do it for the betterment of others. Someone who is only interested in making money without helping others along the way usually finds success to be short-lived. Those who happen to make money as a side benefit to doing what they love, while genuinely caring for and helping people, will find success in abundance and perpetuity. Ask yourself why you are in business. Will owning a second practice align with your primary motivating factors?
What financial risk will you be facing? Buying a second practice usually involves leveraging your investment through debt by borrowing funds from a bank to acquire the practice. Additional debt obligations could mean a strain on the cash flow if there is a bad month. Furthermore, many lenders have tighter financing requirements when lending for a second practice. Besides having a thoughtful, well-laid and written plan for managing more than one practice, the bank will also want to see a considerable savings cushion, possibly $100K or more parked in a business savings account.
If you have the financial resources and managerial strategies to move forward, consider the level of diversity that can come through having a second practice, especially if that practice is located in an area of differing socioeconomic demographics. In other words, when one practice is slow, the other may be busy, and together they can serve to subsidize each other during slow months, if needed. Keep in mind that your marketing and staffing strategies may need to differ to meet the needs of two different locations.
Are you willing to give up discretionary time in your life to commit to managing a second practice? If you already own a practice, then you know investing in a practice is not like parking your money in a mutual fund and then sitting back and watching it (hopefully) grow. Andrew Carnegie, suggested you put all your eggs in one basket and then watch the basket. The important part of Carnegie’s advice is to be sure you’ve got the right basket (i.e., the “right practice”) and make sure you watch the basket very carefully (i.e., "manage the practice properly"). This type of business requires time, effort, resources, attention, management and a fire extinguisher constantly on stand-by. If one practice requires all that, a second practice will too. Ostensibly you could be looking at twice the time, twice the effort, twice the attention and twice as many fires to put on when it comes to managing two or more practices. At a minimum, though, you will probably need to spend an extra five or more hours a week overseeing the operations of the second practice.
If you currently dedicate extra time to reviewing your current practice statistics and financial statements and studying up on ways be a smarter practice owner, then running another practice, even though it may complicate your life, may also add value to it.
Likewise, if you are currently running a successful practice and are able to implement efficient process and systems and are able to motivate and keep staff, it is possible you could duplicate this success in another practice.
Will you be able to easily find, maintain and/or replace associate dentists to work for you in the practice? Attempting to work two practices yourself only doubles your stress and overhead without doubling your revenues. The only prudent course is to hire another dentist to work for you in the second practice. Many doctors who own more than one practice find retaining quality associates more challenging than expected. And if you want to increase production while keeping fixed overhead expenses as low as possible, it is best to acquire a practice that can accommodate two associates working full-time, which means finding two associates. Plus, you will want associates who are willing to adopt and integrate with your processes, systems and practice philosophy and have the right clinical and productive skills set to produce at a reasonable level, and, of course, excellent interpersonal skills and a good chair-side manner. And there is always the risk that once you have found the "right" associate, they may eventually leave to buy or start a practice of their own.
While there are certainly advantages to multiple practice ownership, our experience, they are more commonly outweighed by the challenges and risks. For some it has been a great way to create more wealth and income and improve their quality of life. It has given them a worthy goal to work toward and filled them with a sense of accomplishment. However, we see some dentists pursue a second practice only to find it is more than they can handle or it is not complimentary with their preferred lifestyle and becomes more of a headache than it is worth to them.
A second practice may be a great move for you and your career, but before you make that decision, know what you are getting into and--perhaps more importantly—be very honest with yourself about why you are getting into it. If you are looking to build wealth through practice acquisitions, then reconsider your motives and how you feel about putting in the additional work and assume the risks. If you are up for the task and want a rewarding challenge as well as an opportunity to make a positive difference in the lives of more people, including associates, staff, patients, and community, then go for it!
Randon Jensen and Marie Chatterley is with CTC Associates, a Dental Practice Transition Consulting Company
tel: (303) 795-8800 www.ctc-associates.com