Starting vs Buying a Dental Practice
Taking the opportunity to own a dental practice means either finding a dental practice for sale that is the right fit for you or starting a new, squat practice from scratch.
Before examining the finer points, such as location and turnover, there are major decisions to be made.
- Is it better to buy an existing practice or start from scratch?
- Should the practice be NHS, private or mixed?
- Should the property be leasehold or freehold?
Buy a dental practice or start from scratch?
There are two main options when it comes to starting out as a dental practice owner for the first time.
There are pros and cons to both of these options and it’s up to the individual which option is best for them. When clients approach me about making this decision, I advise them about the different aspects they need to take into account.
Buying an existing dental practice
Buying an existing practice can bring certain benefits:
- There is already a good patient base.
- The dental surgery has a good reputation.
- There is a proven potential for good financial returns.
- The necessary equipment and design features are in place.
- There is already be a good team of professionals in place.
Whether these benefits exist can be discovered as part of the due diligence process, which you can find more about here. Some practices come with plenty of cons, rather than pros.
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- Out-dated dental practices.
- Out-dated dental equipment.
- A patient base that is used to these methods and may be averse to change.
- A poor local or online reputation
When buying an existing dental practice it’s important to make sure that the business is a sound investment; one which provides good prospects for growth and profits.
Starting a dental practice from scratch
The likelihood is that starting a dental practice from scratch can sometimes be more expensive, but often a savvy entrepreneur can set up a practice on a tight budget.
The building will probably need some re-design and all the equipment will need to be purchased. A complete new team will also need to be hired. This process can be costly and time-consuming. Marketing will also need to be a major concern, as there will be no ready-made patient base. This can be especially problematic if there is competition in the area.
However, there are also potential benefits to be had from starting from scratch.
- There is no previous client perception in place.
- State-of-the-art equipment can be purchased for use.
- The surgery can be designed precisely to your requirements.
- A hand-picked team can be put in place.
- A suitable, visible location can be found.
- You can fully implement your own vision.
It’s important to research the area and the business potential thoroughly before making a decision to start a dental surgery from scratch.
Once the decision to buy a dental practice or set one up from scratch has been made, there are other important decisions to consider.
NHS, private or mixed?
Anyone buying a dental practice has the option to choose to invest in an NHS practice, private practice or one that is mixed. I would always say that buying a dental practice which has some element of private treatment makes the most sense. Although, I have also helped many clients to negotiate the NHS tendering process.
An NHS practice may seem like a good proposition, as it provides a regular income and the patient turnover is not as high. However, NHS contracts come with restrictions and these can choke the ability to be creative in scaling a business and optimising success. The NHS England website provides details of the contracts for anyone thinking about buying an NHS dental practice.
Anyone who is looking for a dental practice for sale that allows them to make the most of their entrepreneurial skills is best advised to choose private. Providing private dental plans to patients can be highly lucrative, as long as the expected high standard of treatment is provided.
It’s also important to be prepared for investing time and financing in high quality marketing as patient acquisition and retention are essential to the survival of any private dental surgery.
Leasehold or freehold?
I’ve worked with clients who purchased freehold dental practices and those who have purchased leasehold practices. Personally, if I was looking for a dental surgery for sale I would choose freehold every time.
However, many times the freehold is never available. Therefore, focus your efforts on choosing a practice or premises in a great location, rather than just thinking about freehold or leasehold.
Of course, it depends on how good an opportunity a particular practice is, but banks tend to look more kindly at applications for finance when a freehold property is involved.
Anyone looking at a leasehold dental practice for sale needs to make sure that the lease has at least 15 years to run and be aware that banks will only lend to the end of the lease. This is a vital consideration for anyone wanting to obtain acquisition finance.
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Location of the dental practice
As I mentioned earlier, location can be an important factor in getting value for money when buying a dental practice. Often the best deals and opportunities can be found when the purchaser is willing to travel or move to a less popular location.
When considering the purchase of a dental practice and thinking about the location, it’s important to take into account several factors:
- Is the local population booming or falling? Access to a patient pool is essential for growth.
- Does the location of the proposed or existing practice have great visibility for prospective new patients?
- Is travel to the location viable, or will a move be required?
- If a move is needed, how easy and affordable is it to secure accommodation?
- What plans are there for the area over the coming years? For instance, the building of new housing could greatly increase footfall at the practice and potentially increase its value quite quickly.
What opportunities does a practice present?
In some respects a dental practice is the same as any other business; stability, profitability and growth are all vital to success. This is why it’s so important to ask for an array of information from the vendor before committing to the practice being the right option, and signing contracts.
- How many patients have been seen in the last 12 months?
- What types of treatment are most prevalent?
- What are the most outstanding treatments at the practice?
- What do exam recall rates look like?
- What is the patient retention rate?
- What marketing strategies are being used and how well are they working?
Of course, always ask for evidence of responses, so that a full picture is available.
Is it more expensive to start or buy a dental practice?
Unfortunately, there isn’t an easy, clear answer to this question.
All things considered, it can cost an average of around £200,000-£300,000 to start a new practice, but this can raise to up to £500,000 and above.
The price of a dental practice for sale will depend on several different factors, like its current profitability. A successful dental practice will cost far more than a struggling one. One of the metrics we use to calculate the value of a practice is EBITDA. You can read more about EBITDA and valuing dental practices here.
You may be able to find a practice for sale at around the same price as it would cost to set one up, but will it be a successful, profitable practice? Probably not.
So in summary, it completely depends. You do often find it can be cheaper to start a new practice than to buy an existing successful one. This is because a successful practice already has an existing, proven turnover that you’re buying. Whereas a new practice’s profits depends more on your own hard work.
Starting a Dental Practice: Get Started
We’ve been helping the UK’s dentists start their own practices for nearly 20 years and we know exactly what it takes to make your practice a success!
Our Dental Practice Start-up Programme is a hands-on consultancy service designed to take you through your whole journey to becoming a dental practice owner. Book a free, no-obligation consultation with one of our team at a time that suits you (including evenings). We’ll call you back and have a chat about how we can help start your dream practice.
Contact us today for all the advice, support and expertise you’ll ever need to start a dental practice.