ACQUISITION versus START-UP

ACQUISTION versus START-UP
By Dr. Mark Diekmann
So you either just graduated or will soon be graduating from dental school. You have already made the decision that you do not want to work for someone else. You know that practice ownership is the only way you can achieve the income level you desire. You have also learned that it is possible to obtain financing even if you are weighted down in school debt. But now you are struggling with the quintessential question:

“Should I buy an existing practice or start a practice from scratch?”

This is quite possibly the most important career decision you will ever be faced with and the choice you make now will most assuredly have a major impact on your entire career. Dental equipment salespeople suggest that a practice start-up is best; practice brokers state a practice acquisition is best. Your dental school professors may be advising you to take the associate route. Unfortunately, depending on which “expert” you talk with, you are finding that the so-called “informed opinions” are quite varied. Well not to be outdone, let us throw PARAGON’s two cents into the pot.

First of all, regardless of what others may tell you, you will virtually always have infinitely more take home income from a practice you acquire than from a practice you start cold! It is just simple logic! The source of cash flow for a dental practice is a quality patient base. A start-up practice has no patients; an established practice does.

Let’s look at a simple comparison: Dr. A and Dr. B would both like to own a practice with gross revenues of $350,000 per year. Both Dr. A and Dr. B believe that they can achieve an annual growth rate of $50,000 per year (this is a significantly higher growth rate than the national average for start-up practices). Dr. A acquires a practice for $175,000 that is currently grossing $250,000; Dr. B starts a practice from scratch purchasing $125,000 of new equipment, furniture and supplies. Dr. A has an immediate patient base of 1,500 active patients. Dr. B has an immediate patient base consisting of his family and close friends.

Growing at an annual pace of $50,000 per year, Dr. A quickly reaches his target annual gross revenue goal of $350,000 in just two short years. It takes seven years for Dr. B to reach his target gross revenue goal (again, the national average indicates that it would actually take 10 to 12 years to reach this gross income level in a start-up situation).

Dr. A’s practice provides total gross revenues of $2,300,000 and a total net profit of $1,100,000 (after annual debt service). Dr. B’s practice provides total gross revenues of $1,400,000 with a total net profit of $560,000 (after debt service).

Dr. A accumulates a net income of $540,000 more than Dr. B. More importantly, Dr. A enjoys a net income beginning with the very first month; Dr. B struggles just to pay his overhead for the first two years! Why? Dr. A acquired an established patient base while Dr. B’s patients literally trickled into the practice for the first few years.

Can you afford a mistake like this? Call PARAGON today to see what career opportunities await you!

ã Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.