Practice Ownership — Buy or Build?

By | April 25, 2014

Dr LarryJust over 88% of dentists are practice owners, either as solo practitioners or partners. For almost every dentist, ownership becomes a consideration at some point in his or her career.

Does it make more sense to buy an existing practice or start from scratch? ADA New Dentist Now has been asking new dentists what choice they made and why.

Today is a guest post from one of a pair of married dentists, Dr. Larry Dougherty and Dr. Ana Paula Ferraz-Dougherty.

We Built by Dr. Larry Dougherty:

My wife and I chose to do a startup rather than buy an existing practice. Here’s why:

Our Vision: I wanted to start a practice that was built on the vision we had for a dental practice, not shape someone else’s vision into what we wanted.

MBA on the Fly: Supplies, insurance, managing staff – I knew next to nothing about the business side of dentistry even after working several years as an associate. We knew we wanted to develop business systems, not inherit the systems of another dentist, and the slow rhythm of a startup’s early days were an ideal time to understand everything at a deep level.

Pick Your Unknowns: We got advice about what numbers to look for when assessing practices, but I didn’t know what any of that all really meant. Plus, I’d heard enough horror stories of dentists not getting what they expected from practice purchases. Psychologically, you need to decide for yourself: which set of complete unknowns am I more comfortable with?

I’d Do it all Again. Our colleagues that purchased practices probably made more money than we did during those first years of ownership. On the other hand we learned lessons that will serve us well in the long run. There’s a lot of pride that comes with building something from scratch, and that experience can’t be purchased.

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Dr. Larry Dougherty and Dr. Ana Paula Ferraz-Dougherty are the owners of Rolling Oaks Dental in San Antonio, TX.

2 thoughts on “Practice Ownership — Buy or Build?

  1. Jeff Jenkins DDS

    First of all great blog! I liked that Dr. Dougherty would do it again. Yes! It is great to make money in the first years of business, but I think it’s even better when you can start from the bottom and work your way up and have your practice just the way you want it and experience those growing pains. These are the things that will keep you growing in business. When buy a practice I don’t feel that you have the same experiences that you would when starting from the “scratch.”

    Reply
  2. Jayme Amos

    This is GREAT stuff. Thanks for sharing!

    Startups are right for SOME…startups are NOT RIGHT for every doctor.

    We’ve seen some doctors thrive and be deeply fulfilled in their startup practice (like the doctor who wrote the post above)…others will only be happy if they’re in the “fixer” mode of practice acquisition.

    My firm (www.HowToOpenADentalOffice.com) has, ironically, advised many doctors to go the acquisition path INSTEAD of the startup path.

    Startups are not right for everyone.

    Why?

    There are lots of reasons but there are 2 that are discovered through 2 simple tests.

    THE FIRST TEST
    We call it the “Litmus Test”
    When I work with doctors asking about advice about Startup-vs-Acquisition, my first test is this:
    Would you be more fulfilled creating something from nothing OR…
    would you be more fulfilled fixing existing issues?

    If you’re one of the “creators”, you’ll have a higher chance of loving practice ownership THROUGH STARTUP.

    If you’re one of the “fixer uppers”, you’ll have a much happier path through ACQUISITION.
    We call that the first litmus test.

    THE SECOND TEST
    Business or Job?
    When looking at practices to buy, you’ll get a report called a valuation (I’ve seen hundreds and helped doctors sift through all the nonsense in the valuation in about 5 minutes).
    Some of the practices for sale are EXCELLENT and offer huge upside.
    Others are doomed. I get contacted by doctors every month who say they bought a practice that the broker told them was a great buy, only to find they can’t do enough dentistry to pay themselves a salary. Its not a joke. I just had a call like that yesterday…the doctor just about broke into tears on the phone, telling me how he hasn’t taken a paycheck in months, just had his second baby and needs immediate help (let alone the fact that he has to take a part time job).
    ==> It doesn’t have to be that way.

    The biggest question you need to ask yourself BEFORE you even look at the valuation is:
    Do I want to buy a BUSINESS or a JOB?
    If you buy a large practice, you can actually purchase a business (something that makes YOU an income).
    If you buy a practice that is too small, you’ll end up buying yourself a JOB (something that you WORK to earn an income).
    The bigger practices, or at least the good ones, will have:
    – well trained staff
    – systems in place
    – modern equipment
    – profitable tech
    – multiple producers (Hyg or Doc)

    Those things will make YOU and income through an efficient, profitable business…which just happens to be a dental practice. If that sounds appealing and you want to ACQUIRE a practice, make sure you buy a BUSINESS (that just happens to be a dental practice).

    In a smaller practice (my personally recommended threshold is about $1 million) you’ll commonly find:
    – outdated equipment
    – fewer than 1200 patients in recare
    – 1 or no other providers
    – old or sad tech
    – undertrained staff
    – generally older patient population

    These kinds of practices require an immense amount of work.
    ALL the marketing will need to be done so you can build up the patient base.
    All the staff training will need to be done (or redone, perhaps).
    New tech.
    New equipment.
    After all that, is it what you really wanted in the first place?
    Will you own the practice? Yes.
    You’ll officially be able to call yourself a PRACTICE OWNER.
    But does that matter if you can’t afford to pay yourself?
    Do you really want to end up like the doctor who was about to cry on the phone with me?

    Be very careful about buying the small practices.
    They can set you back a decade financially.

    ACQUISITION:
    If you won’t purchase a practice over $1 million, its nearly impossible to find a practice that will be a real BUSINESS – something that works on your behalf. Something that is more than just a JOB.

    STARTUPS:
    This is no lollipop road, so don’t believe anyone who tells you so (even if its me, the founder of http://www.HowToOpenADentalOffice.com).
    HOWEVER…the tremendous upside of a startup is that we can create a framework for your practice to succeed very quickly.
    If the practice is:
    – built in the right town (see my book http://www.amazon.com/dp/0989780309),
    – has the right vision,
    – secures the best financing
    – negotiates construction properly (10-40% savings)
    – negotiates equipment properly (10-25% savings)
    – puts the right marketing plan together
    – hires the best team

    …THEN you can create an amazing experience.

    For some doctors, they tell us their startup has given them:
    1) Clinical Freedom
    2) Income level they’re really worth
    3) a platform to make a bigger difference

    The sad reality is that many startups jump in to a location simply because they live nearby.
    Or they found a pretty building.
    Or it looks like a good part of town.

    DON’T BE FOOLED.

    Dentistry has changed forever because of Corporate Dentistry, PPOs, rising taxation and demographic shifts.

    Startups can be AMAZING for doctors when they’re done right.

    Just make sure you do all your homework and you can create a life changing experience that allows you to take control of your future in dentistry.

    Good luck!

    Jayme
    jayme@HowToOpenADentalOffice.com

    Founder, HowToOpenADentalOffice.com
    —————
    Bestselling Author, Practice Location
    amazon.com/dp/0989780309
    —————
    Host, Ideal Practices Podcast
    http://goo.gl/GjaUAM

    Looking for case studies?
    See some here:
    http://www.idealpractices.com/apply

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