Most dental students dream one day of establishing their own practice. But is starting from scratch really the best option? Tracey Hordern investigates
Dentistry has never been more competitive in Australia than it currently is now. Most industry experts cite the increase in the number of qualified immigrants coming to Australia, plus the increase in the number of dental schools and their graduates as the main driving forces behind this hyper-competitive environment.
While establishing a practice from scratch does have its advantages, such as affording the dentist maximum control, increasingly industry experts agree that the disadvantages of establishing a practice from scratch can far outweigh the benefits.
Founder and managing director of Practice Sale Search, Simon Palmer, suggests there are three main advantages of buying into an already established practice. Firstly, Palmer asserts there is demonstrably far less financial risk when you buy into a practice.
“There is a relatively known income from day one—and if you have the vendor stay on for a period post sale, you inherit an immediate flow of both patients and income.”
Secondly, Palmer argues that by buying into an established practice, there is far less work involved for the buyer. “Someone setting up a practice from scratch has to find a suitable site; they sometimes have to get council permits for it, deal with fit-out design, tradesmen, equipment salesmen, and set up procedures for every part of the business from scratch. When you buy a business none of this work exists.”
And finally, Palmer sees there is more help and support available when you purchase an established practice. “When you buy a practice, there is often more assistance in the transition period to ownership than when you set up from scratch. This can be very helpful for a first-time owner.”
“When you buy a practice, there is often more assistance in the transition period to ownership than when you set up from scratch.”—John Tassopoulos, area manager, ANZ Health
John Tassopoulos, area manager at ANZ Health, NSW & ACT, oversees a team of bankers that look after the specific financial needs of practice owners. Tassopoulos also cites dentistry as an especially competitive industry at the moment. “The market is currently saturated, especially in the larger cities like Sydney. This makes it very difficult for dentists to open a new practice from scratch.”
Tassopoulos also cites the lengthy lead time before a practice is generating regular income, plus the fact that dentistry is especially expensive to set up. “From our research it is estimated that the set-up costs of a dental practice are around $3,000 per square metre; that’s double the set-up cost compared to say, an orthopedics practice!” he says.
“That’s not to say that buying into an established dental practice is without its inherent challenges. If you’re buying into a practice, you will want financial experts to scrutinise the figures. You would also want to assess things like the fit-out and ascertain if it needs renewing, or how long until upgrades are required.”
Tassopoulos also strongly suggests that anyone looking to buy into a business should obtain quality legal advice. “You would also want to consider negotiating to keep the existing dentist there for a period of time to help smooth the transition. I would also suggest negotiating a non-compete clause in your contact. You don’t want the previous dentist opening up a practice down the street from the business you have just purchased.”
You also don’t have to buy 100 per cent of the practice suggests Tassopoulos. “For instance, you could buy 20 per cent of the business. That puts a lot less pressure on a younger dentist if they are only buying a portion, and maybe planning to increase that ownership percentage over time. I think that’s a great happy medium; it can be win-win and a lot easier on a young dentist, while also serving as a workable exit plan for the older dentist as well.”
Andrew Graham is the state manager of Victoria and Tasmania at Medfin Finance, which is a subsidiary of NAB Health. Looking after the financial needs of practice owners, along with other industry experts, Graham cites the increase in the number of dentists practising especially in metropolitan areas, as driving fierce competition within the dental industry.
“Unfortunately, we’ve seen some start-ups fail in the last couple of years and this is mainly due to the current market where supply is greater than demand.”—Andrew Graham, state manager, Medfin Finance
“It’s now much harder for dentists to find new patients and start up their own practice than it was even 10 years ago. Unfortunately, we’ve seen some start-ups fail in the last couple of years and this is manly due to the current market where supply is greater than demand.”
Quoting from recent Medfin Finance figures, Graham can track industry trends. “We estimate that approximately 75 to 80 per cent of our lending is currently for funding young dentists buying into an established practice. The remainder of our lending, some 20-25 per cent, is used for assisting dentists that are establishing a new practice.”
While Medfin Finance does help finance start-up practices, Graham suggests that those wanting to set up a new practice would also need to have some of their own money behind them due to the current competitive market. “We do generally like to see that there are some savings to assist the new practice, usually enough to support the practice’s costs for up to two years.”
When it comes to buying into an already established practice, Graham suggests that the potential buyer seeks out solid advice from qualified professionals. “Ideally, you would get your advice from specialised accountants and lawyers that have experience advising those working in the healthcare industry.”
Graham also suggests that the best way to ensure long-term success in a competitive market such as dentistry is to undertake all relevant due diligence from the very start. “Small mistakes made in the beginning can cost a lot down the track. And while we can fund up to 100 per cent of the costs of buying an established practice, there is certain criteria that we like to see.”
Those criteria are a practice that can demonstrate both a regular income and scope for growth “For instance, we would like to see a practice that may only be operating four days a week, or a practice that has the capacity to add new services. In other words, a solid practice with real potential to grow is what we would regard as the perfect scenario.”