Buying vs. Starting a Dental Practice – Tips and ConsiderationsBy Carl Steinberg on November 1, 2021 | 2 comments
Buying an Existing Practice | Buying: Insurance-Driven Practice | Buying: Fee-for-Service Practice
Buying: Blended Practice | Buying: What to Consider | Tips for Buying a Practice
Starting a New Practice | Tips for Starting a Practice | Starting: What to Consider
I remember when I decided to become a dentist. I was in high school in the 1970s and had a visit with my dentist, Dr. Steinberg (no relation). He was a one-person operation and worked out of his home. He was a very pleasant and personable gentleman who seemed to really enjoy his work. He was having fun!
Back in the days when Dr. Steinberg graduated, dentists just opened an office from scratch. It was a mentality not unlike that in the 1989 movie Field of Dreams. “If you build it, they will come.”
When I graduated in 1980, the field had changed. There were group practices, insurance-based practices and Medicaid/Medicare practices—but the field was still dominated by solo practitioners. At only 24 years old, I realized that I wasn't ready to own a practice and still had lots to learn. Of all the things that you learn in dental school, how to start and run a dental practice is not one of them.
I was lucky enough to attend a residency where I was exposed to many ideas and philosophies of dentistry and practice. After residency, I worked at three practices—a fee-for-service practice, a carpenter's union practice, and a Medicaid/Medicare practice. It exposed me to what I enjoyed and what I didn't. Both were equally important.
A year later, I left all three positions and joined a two-person practice—me being the third—in downtown Philadelphia. The practice was predominantly fee-for-service but also participated in Blue Cross insurance. Two years or so into this relationship, the older dentist retired and I was able to buy into the practice. I saw my future here.
At that time some thirty-five years ago, we realized that the insurance company's best interest was not for the patient or the practitioner—consequently, we disassociated. My additional training and continuing education guided me in transitioning into a 100% fee-for-service practice.
My journey taught me many things, one of them being this: I believe the first step in deciding whether to buy an existing practice or to start a practice from scratch is having some experiences of different practice styles. Know what you like and what you do not. Talk with others—but more importantly, visit other practices.
When graduation day is some time behind you, you'll realize it is time to work for the best person in the world—and that would be yourself!
So, should you buy an existing practice or start one from scratch?
When that time does come, should you buy a practice or start from scratch? The decision comes down to your personality and personal choice. Both can succeed and both can fail. In either case, over time the practice will become who you are. The practice of dentistry is partially about the dentistry performed, but mostly about the relationships and experiences with people.
Let's consider both approaches in depth, starting with buying an existing practice.
Buying an existing dental practice
I believe more new practice owners are created by acquiring an existing practice rather than starting a practice—but first, let's discuss the different practice styles that will impact your decision.
Buying an insurance-driven practice
What is an insurance-based practice?
An insurance-based dental practice participates in many different insurance plans. Most new patients find an insurance-based practice in their ‘plan booklet', and the choice is usually made by geographic proximity to home or work. Some of these practices will also get new patients through marketing.
Usually there are multiple patients being seen at once by one or more doctors, and one or more hygienists. Many patients see the hygienist on their first visit. The first discussion of dental care and concerns is with a team member. There are usually several auxiliary team members to help support the volume of patients coming in and out of the office.
While there is a buzz of being busy, there can be difficulties staying on time. Profit margins are tight and overhead can be high. The dental practice is paid through fees based upon what has been contractually agreed upon with the insurance company. There may also be restrictions on how much care can be provided in a calendar year.
What to expect when buying an insurance-based practice
Transitions in an insurance practice may be less critical than a fee-for-service practice. Many young dentists start their careers in these style practices, and consequently there may be some familiarity with this practice style already.
Working with the team. Team members may be used to having associates enter the practice. While the new owner will be their boss, they may be used to adjustments in team players and more adaptable to change. Just as in fee-for-service practices, the team is valuable to help with continuation of care and the running of the office as they are familiar with the existing systems.
Establishing expectations with patients. The patients are in the practice because you participate with their insurance plan. Usually, it is a geographic choice. As such, be comfortable with the practice location. If you were to move, would patients follow you or find a more convenient dentist in their plan?
Should you buy an insurance-based practice?
In some cases, within an insurance-based practice, there is an office manager who is running the show. For some dentists, not having this responsibility is appealing. They like the fact that all they must do and focus on is dentistry.
In addition, patients may not have high expectations of team relationships and high-tech equipment, and treatment performed may not be met with the most intense scrutiny. Find out why many doctors are happy as an insurance-based dental practice owner.
What is a fee-for-service practice?
The fee-for-service practice does not participate in any insurance plans. Agreements of care and the associated costs are agreed upon by the dentist and the patient—there are no limits imposed by an insurance company. Profit margins and fees are managed by the office.
In this practice format, doctors and hygienists are usually treating one patient at a time. Because of a reduced patient flow, the office can usually operate on-time with little difficulty. In many cases, this usually reflects a calming atmosphere.
New patients find the office through referral—and in many cases, through marketing. Patients usually see the dentist on the first visit and have an opportunity to develop a relationship.
What to expect when buying a fee-for-service practice
I have spoken to many dentists about how to become a fee-for-service practice—and the easiest way to accomplish that is to purchase a fee-for-service practice. When you do, however, you must then step up your game as a leader, manager and practitioner.
Working with the team. The team will be nervous not knowing what to expect. Will the new owner be the same as the prior owner? Will their jobs be secure?
The truth is that your team can and should be your greatest allies. They already know how to run a fee-for-service practice. They understand customer service and that they are working for the patients and not an insurance company. Address the elephant in the room with the team. Share with them that the transition will be challenging to all and that with their help they can all succeed.
Case in point—I know one practice owner who gave a raise to everyone in the practice on day one, as he knew and had voiced that there was lots of work ahead for him and his new team. Ten years later, he and his team have grown into one of the premier practices in his town.
Setting expectations with patients. The patients in a fee-for-service practice are expecting a certain level of care and customer service from the entire team. As one of my patients has said to me, “I know I am paying Mercedes prices, but I also know I am also getting Mercedes service.” People understand value.
Should you buy a fee-for-service practice?
If you think you want a fee-for-service practice, remember this: A fee-for-service practice is not for everyone. If you are the personality that aspires to have a relationship-based practice with a high level of care—and you are willing to work to constantly better yourself, your team, and your office—I believe a fee-for-service practice is for you.
Buying a blended practice
What is a blended practice?
In a blended practice, there is a mix of fee-for-service patients and patients from insurance plans. Consequently, this practice shows some characteristics of both an insurance-based and fee-for-service practice.
Fee structures in these practices vary. Insurance plan patients in these practices usually enjoy a similar level of care as fee-for-service patients but their costs are reduced. Some blended practices will morph into fee-for-service over time, and some may shift to more insurance dependance.
What to expect when buying a blended practice
I would expect these are the most common practices in dentistry, and as such the most common practices bought and sold. Some are more heavily insurance-based, some strike an equal balance, and some participate with only one insurance plan.
Working with the team. The same scenario exists here as with insurance-based and fee-for-service practices. The team knows how the office has been running—your job is to learn from them. Find out how the practice created its success and duplicate it before you modify any systems.
Establishing expectations with patients. The office vibe can be closer to a fee-for-service practice than a purely insurance-based office regarding patient care. Usually, this office has one way to deliver its services and sticks to it, whether the office is receiving a full fee or just a fraction of it.
Managing profit margins. The office must understand the insurance plan(s) in which it participates and ensure profit margins are blended as well. When a practice takes the time to separate the fee-for-service numbers from the insurance plan numbers, eyes are usually opened. This is often when some insurance plans may get eliminated.
What to consider when buying a practice
What is the most important aspect of buying a practice? It really depends on who you ask. When you buy an existing practice, it isn't always a turnkey experience. There will be patients, experienced staff members, equipment, dental systems, and a source of income—but there are plenty of factors to consider.
Practice style and philosophy. Today, many prospective dental practice buyers will reach out to a practice broker to help in their search. If you have a practice broker that knows the practice well, they can give you insights into the practice style and practice philosophy.
Facility and equipment. If you speak with an accountant, attorney, or a bank, they may be just looking at the numbers along with the facility, location, and equipment. If the practice real estate is owned by the dentist, then the rent or purchase will be discussed and outlined in the contracts.
Office culture. I personally believe the office culture may be the most important part in considering your purchase. It should align with your thoughts and your aspirations of the future as a dentist. Who you are today is not who you will be five years from now.
Practice location. I also believe location is an important factor in where you want to live and raise a family. Being exposed to a practice for sale feels like looking for a home to purchase—while location is a key factor in buying a home, it is also an important aspect in buying a dental practice. Since most people today do not practice out of their home like my childhood dentist, commuting time will be a consideration.
Tips for buying a dental practice
Consider past performance. The best prediction of the future is what has happened in the past, so everything should be considered. While buying a successful practice will not guarantee you instant success, it is a good indication of the practice's potential.
Get to know the existing practice owner. Spend a good amount of time with the seller—get to know who they are and focus on exploring if your thoughts and philosophies align. If they do, the transition will probably be easier. If they don't, you may have more work than you expected or surprises that won't make you smile.
Keep your eyes out for mentorship opportunities. When buying a dental practice, you can also buy a mentor. Finding a good mentor as a dentist takes time and effort— this is the reason why knowing the person is so important. I believe that if the seller is really willing to be a mentor, then you would be foolish to not take advantage of their knowledge.
Carefully consider the transition timeline. In your purchase contract, you get to negotiate how long the seller will remain after the sale. I do know some buyers feel that they are looking for a quick transition so the practice and production will be theirs, but most sellers will stay on for a period with reduced hours. Having the seller stay on for a year as a mentor and cheerleader for you is key to your early successes. The seller can help in the relationships you will develop with your patients and your team.
Take advantage of time with the seller.The first six months you will be overwhelmed with everything. Every patient you see is a new patient experience. You may not have the ears or eyes yet to really hear or see what the seller has to offer. Pay attention to what the original practice owner can teach you—it was what they accomplished that convinced you this was the practice for you.
Make the practice your own. Over time the office you purchased will morph into your personality. It will be different from the prior owners—and different doesn't mean bad. As the new practice grows and becomes profitable, you may choose to build at a new location or have an office renovation at your current location. Embrace the opportunity to rebrand the office to match your vision for the future.
Starting a new dental practice (from scratch)
While starting a practice from scratch can be challenging both financially and emotionally, it also may be the most rewarding. The main advantage is that you have total control from the beginning.
While the excitement of where to build a practice, what equipment to buy, or how to decorate may be what keeps you up at night, some may spend those waking hours worrying about where new patients will come from, where they'll find a team, and whether they'll have enough money to pay my bills. There's plenty to consider — and here's where to start.
Tips for starting a dental practice
Do your homework to secure finances. While many dentists ask first where they should build a practice, the real question is where you'll acquire the money to open a practice. Before you talk to banks, start to develop a game plan of what you envision. Have lots of details and be enthusiastic. Tell them how you plan to succeed. You must sell yourself as well as your plan. A bank is more likely to lend you money when they feel secure that they will get their investment returned.
Employ a variety of strategies to bring in new patients. The easiest way to get patients into the office is to sign up with insurance plans. Send mailers to people in your area—while this is low tech, it's not a big investment and it gets your name out in the community. While potentially costly, digital marketing can also be productive. You may want to have someone internal or external dedicated to getting your name and abilities out there.
Spend quality time with existing patients. In the early days after starting a practice, spend longer amounts of time with the patients you do have to develop relationships. Tell them you would be glad to see their friends and family. The easiest way to get something is to ask for it.
Nurture your clinical network. Reach out to all the specialists in your area. Meet them and tell them that you opened a new practice. Let them know what you envision for the practice and how you plan to grow relationships. Let them know what makes you different than the other dentists in the area—and ask them to refer a patient when they are able. To put down roots fast, consider either joining a dental study club in your area, or start a new one to begin building relationships.
Don't rush the transition. It is most likely that you will have one or more part-time jobs in other practices to supplement your income. As your practice grows, the amount of time you work for others will reduce until you work only in your practice.
Consider buying vs. renting. If you are starting from scratch, you will be looking for a location to rent or buy. While many practice owners will rent space for the duration of their career and feel happy with this decision, I believe it's also nice to have a bigger bankbook.
If you're able to buy the real estate, do so—and the sooner the better. While this will add some financial stress, the rewards of working for yourself and watching your nest egg grow will greatly offset the early stresses. Plus, it'll set up you well for retirement from your dental career.
What to consider when starting a practice
What is the most important aspect of starting a practice? Your approach will depend upon your experience in dentistry and what you hope to achieve as a practice owner.
Starting a practice as a new dentist. If I were a young dentist looking to start a practice (in this example, let's say it's a fee-for-service practice). I would look for the geographic area where I wanted my practice to be located. I would then reach out to existing general or specialty dental practices that may have some space and time to rent.
This scenario reduces my overhead costs with an instant office until the time I can build my own office. It may also allow me to “rent” some team members that are looking for additional income. Plus, I may not need to seek out a bank for a loan.
Be creative—you have nothing to lose by trying and talking to other dentists that may want to reduce their overhead. They may appreciate your initiative.
Starting a practice as a seasoned dentist. If I were a seasoned dentist with a good patient following and some predictable production, I would get loans and build my “Taj Majal” practice. From there, I'd follow the same steps as a new dentist by reaching out to local doctors and building relationships and new patient flow from there.
Final thoughts from a veteran practice owner
The stories and advice I share here reflect just one person's thoughts and observations from a 40+ year career in dentistry. If I were able to stimulate your thoughts and ideas in any way—and potentially inspired you to create your ideal dental practice—then I consider this article a success.
All the best on your journey, may it lead you to where you want to go!
Carl E. Steinberg, D.D.S., M.A.G.D., L.L.S.R. (www.DentistryinPhiladelphia.com) is a member of Spear Visiting Faculty and a contributor to Spear Digest.
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