Starting a Practice Versus Buying an Existing One
11:55 AM | Feb 10,2011
One of the primary advantages of starting and building your
own practice is related to the freedom to practice wherever you wish to
live. Every geographic area has its more desirable and less desirable
states. Within these desirable states, there are, of course, desirable
and less desirable communities. Even within the communities there are
desirable and less than desirable areas. Providing that the area
demographics will support a new dentist, the primary advantage of a scratch
start is being able to select where you wish to practice.
The most noticeable disadvantage of starting a practice from
scratch is the lack of patients. It takes time to build a patient base,
which translates into the opportunity to produce and collect for dentistry
performed, i.e., generation of cash flow. Implementation of a good
marketing program is imperative to overcome this disadvantage. Even at an
ideal start of 25 new patients per month, and assuming normal attrition, it
will take five years to develop a thousand patients in your base. While
this is occurring, it may be necessary for you to supplement your income
through employment and other means to make the required principal and interest
payments on your start-up loan plus meet living expenses.
It is fairly easy to summarize the advantages of purchasing
an existing practice if we look at the previous discussion relative to the
disadvantages of starting a practice from scratch. The primary asset
acquired when one purchases an existing practice, typically representing 70% to
80% of the purchase price, is the “goodwill” associated with the existing
patient base. As noted in the following example, the sample practice used
will have an existing patient base of 1,333 patients. As noted from the
above example, it took five years to develop 1,150 patients. Most
importantly, this existing patient base immediately translates into income for
the practice.
The primary cited disadvantage of acquiring an existing
practice is the price. Many new dentists are frightened by the so-called
“sticker shock.” At first, by sheer size, the price of acquiring an
existing business can seem to be formidable. However, a careful review of
the cash flows and projected future cash flows will quickly point out that the
purchase price can be readily supported.