January 18, 2023
Why Adding More Dental Practice Locations Doesn’t Always Add Value
You’ve been bitten by the entrepreneurship bug and have wondered if purchasing additional dental practices is your next move. But first, you’ll need to understand what’s involved in owning multiple locations. Here’s how owning multiple dental practice locations can affect your valuation when it comes time to transition, for better or worse.
Crunch the numbers
Simply put, more locations equal more fixed costs. This can decrease profitability if you aren’t careful about optimizing each office. In fact, one of your locations could actually be weighing you down by requiring more money to operate. Consider if your anchor location will get more traction than any additional locations based on area competition and demographics, which will have an effect on your valuation.
Even the best-laid plans for working in both locations can become inefficient. As the owner, you can become spread very thin fast if you’re trying to hop around to multiple locations, oftentimes leading to burnout or even cannibalizing the anchor location in an effort to ramp up the other location(s). Depending on your plan for growth, it may make more sense to have certain staff members exclusively at the different locations, such as admin personnel, other dentists, hygienists and dental assistants.
Does part of your plan include bringing on an associate or partner, understanding that associateships are only successful 20% of the time, while partnerships see a 60% success rate? Adding associates to work at the other location(s) does not always equal the same level of production that the owner/doctor is able to achieve. Consider how this will negatively impact the reputation of your anchor location if your name is associated with both practices.
Assess the location
Naturally, overhead costs increase with more locations. This includes purchasing supplies, paying more staff and investing in advertising for the additional location(s). Creating an inventory system that keeps all office supplies in one location and extra medical supplies in another will only make everyone’s lives easier. What’s more, investing in technology at the same time will ensure you can manage multiple locations from a central location or database.
Plan for growth
Though not with the same learning curve, every new location will take time to ramp up, just as it did when you opened your first dental practice. How will this affect your timeline to exit your practice, whether that’s for retirement reasons or to release managerial responsibilities? Any good transition of ownership should start as early as five years out, so you don’t want to back yourself into a corner if not all goes according to plan.
Consider all options
Starting from scratch isn’t the only way to grow your practice. Consider strategies that involve either an acquisition or de novo startup, both of which have their perks, but understanding the consequences of either will ensure more pros than cons. Alternatively, consider merging your practice with an existing practice to get an influx of patients without the overhead of another office.