Are you ready to buy your first practice?

This month, Kaival Patel discusses the three most important steps you should take before leaping into practice ownership.

It is 2015, and I was just bopping up and down in the slightly oversized swimming pool during my first holiday to the UAE with my wife, Shreena. These were the days before I had to interject on the water-gun warfare between my two boys before they soaked the poor holidaymakers that had, so blissfully, fallen asleep on their sun loungers.

I remember this feeling of just having an ‘itch’ which wouldn’t go away. No, not because the budgie smugglers were a tad too encroaching, but more of a metaphorical one.

Just three months prior I had been to yet another practice viewing – probably the 12th or 13th different one we had gone to see. I knew this was ‘the one’.

I had come back buzzing after the viewing and remember telling my wife that the place was perfect. It had two nice owners – one who wanted to retire, and one who wanted to stay on and really help with a transition.

The only issue was that when we put in a full asking price offer, it was rejected! I was gutted.

We had missed out on several opportunities prior to that with other practices for a variety of reasons. We were even in the process of buying a practice leading up to our wedding day in 2012 until we found out that the owner had set up a new site and was asking patients to move over to it, forcing us to back out at the last minute.

That was a tough pill to swallow. Many lessons learned!

Everything happens for a reason

Anyway, back to the rejected offer. Something still didn’t sit right with me and I couldn’t shake it off. So, I reached out to the seller again just to give them a quick hello and see how everything was going with the sale.

An hour later, I had a message back and my heart nearly jumped out of my chest… the sale with the other party had fallen through and they asked if we were still interested!

I jumped out of the pool, called my bank manager and said that I need something to reassure the seller that we were good for the finance, which he in-turn sent them within minutes, and we went on to purchase our first practice.

Ironically, if the first practice didn’t fall through and we hadn’t established the good relationship with the bank during that process, we wouldn’t have been in the position to send such a quick proof of finance. Everything happens for a reason!

It takes me to something a wise man once said (I think it was on Love Island, actually) that you miss 100% of shots you don’t take. It’s very true.

Being able to look back as the owner of a small group of practices, there are a few small – but important – steps that helped establish the comfort factors we needed to take that first initial leap into practice ownership. Let me share these with you…

Step 1: know your why

If you are thinking of taking the plunge into practice ownership, the first step is to understand within yourself why you are doing it. Is it just because it’s the natural career progression as a dentist? I strongly advise you think twice if this is your rationale.

Your ‘why’ could be that you are desperate to implement a long list of strategies that you simply are not able to do in the associate position you are in. Maybe you don’t believe in the ethos of your current practice and you want to do things your own way. Or it could be that you have always loved business and you feel like you need to scratch that itch.

Don’t do it to keep up with the Jones’, ie looking at that practice owner driving a flash car and thinking that’s just because he/she owns a practice and are taking 60% of their associates hard-earned income.

Stay true to your why

Firstly, the person not driving the flash car is probably the wealthy practice owner (yes, I have a flash car). And also, I promise you that 60% of your earnings are definitely not lining the pockets of the owner.

Secondly, for every practice owner doing well, I can tell you about another that just finds it too much. The grass can always look greener on the other side.

Be ready for the practice to take up most of your waking hours. But very much like a child that you have nurtured, it can also be the most satisfying thing to watch something flourish and develop into everything that you had hoped it could be.

Whatever your why is, grab a piece of paper and just write it down. Every now and then, even after taking over, dust off that piece of paper and see if you are really keeping true to it.

Step 2: understand your numbers

If you are a higher or moderate grossing associate, it wouldn’t be unusual to expect a drop in income when you take over a practice. Therefore, you need to know what your own personal break-even point is.

The best way to do this is to look over your own bank statements over the last year or so and create your own personal cash flow. If you have never done this, I promise it will be eye-opening!

Create a spreadsheet month-by-month with all your expenses. Include big things like your mortgage or rent, but also smaller numbers like your Netflix subscription and how much you have spent every month on eating out. Literally everything.

Also include a plan for the next 12 months for anything you may be expecting on a personal level, eg if you want to go on holiday or have a rent review coming up.

Financial comfort

You will quickly see what you are currently needing on a monthly basis to live your life to the level you are living it right now. You will also see what you will need to be generating from your new practice to sustain your current lifestyle, or indeed what can be sacrificed if you have a bad month or two.

Highlight anything that will need to be paid, come rain or shine, and then have a look at any savings you have. How many weeks/months/years can you survive if you had no income coming in and you got rid of any of the luxuries on the spreadsheet?

It sounds pretty simple, but doing this process gave me the comfort factors I needed when we were contemplating taking the plunge for the first time and if things didn’t go to plan.

Step 3: plan, plan, plan

Whether it’s your first practice or your 20th, make sure you have a business plan. As a bare minimum it will get your head in the right space for what is about to come.

The business plan should include a bit of research about the area. Are there any hot spots, new housing developments or any other practices being built next door?

You can have a look at the latest census and gather the unemployment rate and the number of younger professionals in the area. All of this will give you a picture of the area you will be practicing in.

Do a SWOT analysis (strengths, weaknesses, opportunities and threats). Remember that a strength can also be a threat.

For example, a long-standing team would be fantastic to inherit, but how will they react to a new owner doing things their own way? Conversely, a weakness could be an opportunity, eg the website is very dated or non-existent, but can you suddenly attract a new patient base by creating one and appearing higher on search engines?

Finally, make a plan for the first three months, one year and three years, and write it down. The first three months could be that you don’t do anything but observe and see what’s working, and indeed, not working very well.

Where do you want the practice to be on your first anniversary? Would you have re-branded or kept things exactly the same?

Small, achievable goals are the key, but also don’t be afraid to throw in a wild goal – something that is a stretch – and really test yourself to see if you can achieve it.

Cash flow forecast

Use this plan to make a business cash flow forecast. There are some great accountants that can help you, but if you can actually grasp the concept yourself, it will do you wonders.

With existing practices, you can always ask the seller for their last 12 months management accounts. It will show any specific peaks and troughs when it comes to income/expenditure and allow you to plan even more effectively.

If, for example, December is a lower income month, then it’s probably not the best time to pay for a new website or large piece of equipment until you have built up a little bit of cash in the business to allow for this.

Compare these numbers to the equivalent NASDAL benchmark. It will show you if, for example, your team wages are below the norm and maybe you need to factor that in, or the spend on materials is currently way over what you would expect and there is a saving to be made.

Find focus and purpose

The business plan will inevitably change as you go on your journey, but it will focus your mind and allows you to start with real conviction and purpose. Everyone loves a leader with a plan.

If the last few years have shown us anything, it’s clear that there is no crystal ball when it comes to business. That being said, dentistry is still one of the most predictable businesses you can invest in.

Practice ownership isn’t for everyone, so do it for the right reasons, know your numbers and be clear with what you want to achieve, and you will absolutely smash it.

In the next few articles, I will delve into the acquisition process, such as what happens once you have an offer accepted and the pros and cons of joint ventures versus going solo. I will also get some insights from a very special entrepreneur into opening a squat practice to see if that’s better than taking over an existing one.

If you have any questions, comments or requests, please reach out to me on [email protected]