Expert Guidance on Dental Practice Startups: Insights from a Dental CPA

Changing Trends in Dental Practice Ownership

As Dental CPAs advising young professionals for over 20 years, we’ve seen concepts of practice ownership evolve. While traditional start-up endeavors and buy-sell transitions are still prevalent, variations have arisen. For example, we’ve seen dentists buy smaller gross-collection practices with underutilized physical plants (what we’ve coined as “pseudo-start-ups”) as a more economical way of getting into practice ownership. With the advancement of the internet and social media, specialists who have traditionally relied upon referral sources for new revenue are now reaching out directly to the consumer. The idea of hanging a shingle with the hope that “If you build it, they will come” has come and gone along with the floppy disks and the iPod. Young dentists have taken the game to a new level, with technology paving the way. The new standards of care include using CAD-CAM, scanners, 3D printers, and practice management software that utilizes CRM. Placing implants and providing other ancillary services has allowed general practitioners to compete and weather tough times. Today’s dentists are armed with cutting-edge knowledge and technology and are embracing new concepts to build their practices.

Where Do I Begin When it Comes to Starting a Dental Practice?

One thing to consider is whether you should pursue a dental practice start-up or a practice transition. Let’s look at some of the characteristics of each:

Start-up Practices vs. Practice Transitions

• No patients vs. Existing patient base
• Designing your physical plant vs. Inheriting the current office setting
• Hiring and training your own staff vs. Inheriting staff
• Setting up your systems from the beginning vs. Inheriting a culture

As you can see, there are key factors to consider when choosing between a start-up and a practice transition. There is no right or wrong answer, and usually, it comes down to the dentist’s comfort level and risk tolerance. Some would say there is less risk involved in a transition because there is cash flow on Day One. But since we are currently in a seller’s transition market, practices are selling at higher multiples, costing buyers more money just to purchase a practice, let alone to replace some of that practice’s older equipment and technology. While the start-up practice must pay for an office build-out (sometimes costing upwards of $500,000), it won’t have a physical plant issue for many years. The good news is that in either scenario, the Healthcare Lending divisions at some major banks view dentists as good risks, with dentists having a loan default rate of less than 0.5%!

What Should I Consider When Starting a Dental Practice?

Preparation and having a clear idea of what your dental practice will “look like” is crucial to starting a successful dental practice. Before diving in, it’s useful to ask yourself the following questions:

Who Am I as a Clinician?

Taking a candid look in your dental mirror will help you determine who you are, both as a clinician and as a dental practice owner. Consider the following questions:

• Would I like to practice more cosmetic or restorative dentistry?
• Would I like to offer specialized dental services like implants or clear aligners?
• Would I bring in dental specialists, refer patients to outside specialists, or both?
• Do I envision myself as a dental clinician, an entrepreneur, or both?

Also, consider what your ideal office would look like:

• How many operatories will I need?
• Should I build or plumb?
• What technology should I use?

How Should I Structure My Dental Practice?

The way you choose to structure your practice tends to go hand-in-hand with who you are as a clinician. Consider the following:

• Will you be a fee-for-service practice, insurance-based, or both?
  Sometimes this decision is dictated by your practice’s geographic area or patient demographics.
• Will you embrace marketing?
  Marketing, an activity not always embraced by old-school dentists, has found solid footing in the world of dentistry. Posting great office moments or patient cases on Facebook and Instagram has become a 21st-century practice norm. Marketing activities like maintaining an interactive website and social media accounts, confirming patient appointments via text and email, and asking patients for Google reviews are expected by patients and essential to your success. The 2023 dentist is all about patient experience, from the minute the appointment is made through the post-appointment follow-up email.
• Will you practice only on weekdays from 9-5 or also on weekends and evenings if that’s what patients want?
  Our advice: It’s so easy to lose a patient and so hard to get a new one, so do everything you can to make it convenient for your patients to remain with your practice.

When Should I Start a Dental Practice?

What’s your ideal timeframe for starting or purchasing a practice? Will you go “all in” or work in another practice while you build your office?

Our experience has shown us that it’s prudent for dentists to continue to work for an established practice while building their start-up offices. To grant you a loan, the banks must see that you have outside cash flow. They also want evidence that should you purchase a practice, you will be able to handle the production. We recommend that as your new office gets busier, you slowly cut back on your work in the outside offices until that additional cash flow is no longer needed.

What Are the Initial Steps for Starting a Dental Practice?

So, you’ve dug deep, done some research, and answered the difficult questions. You’re eager to start building a new dental practice. Where do you begin?

Finding a Space for Your Start-up Dental Practice

You may ask yourself, “What are the best locations for a dental practice?” Where to locate your practice may be the most crucial decision you make. The location you choose may influence other components of your overall practice plan. Finding the right location for the practice is essential, and it should be easily accessible and have adequate parking. Other considerations include the following:

• What type of area do I prefer for my practice?
• Urban
• Suburban
• Rural
• Do I prefer to rent, own, or rent to own my office space eventually?

We’ve seen dentists succeed at building practices in all types of communities, with success defined as having the practice, financial, and family life that they desire. When our clients are considering various office settings, we remind them that they may be “living there” (meaning working 8–12 hours per day) for the next 30 years, so the practice should be located in an area that they want to go to every day and not in an area that they have to go to.

It’s also important to note that while the location is important, at the end of the day, it’s the many facets of the practitioner that will determine their success. Plans sometimes change, and that’s okay because your professional skill set is transferable to another location. Case in point: We recently met with a Vancouver, British Columbia client who grew up with “the mountains in her backyard.” She wanted a city practice because she yearned for a fast-paced life. After a few years of city life, getting married, and starting a family, she realized that her priorities had changed, and she felt that having a practice in the suburbs might not be such a bad idea. She is currently in the process of scouting a suburban location.

Hiring a Support Team

It’s time to start employing those dental professionals we discussed earlier. At this initial stage, a real estate professional, contractor, and equipment person, each with a strong working knowledge of dental office design and workflow, are key team members. You should obtain references for each, and ideally, choose individuals who have worked together before. Review their work online or in person to get a feel for their style.

How Do I Build a Solid Dental Practice Team?

Regardless of your chosen direction, you must align yourself with experienced professionals who specialize in helping dentists build and maintain successful dental practices. To avoid making costly mistakes that could prevent you from reaching your goals, you should include dental professionals from the following industries as an integral part of your practice team:

• Real estate
• Equipment
• Construction
• Legal
• Accounting and Tax
• Dental Coaching
• Marketing

As Dental CPAs, we’ve been fortunate to work with some of the most qualified professionals in the dental practice support community. These experts “stay in their lane” and typically work only with dentists or other healthcare providers. As a result of our experiences with these dental practice professionals, when our clients approach us with ideas for new business ventures, we always tell them to “do what you know” and “invest in yourself by hiring support professionals who are experienced in the dental industry.” This advice sounds simple and logical, but it’s easy to be tempted to leap into unfamiliar territory without the skills to navigate it successfully.

Why should you use qualified, experienced professionals vs. doing things yourself or hiring your college roommate’s brother? Because the professionals deal with dental practices all day, every day, and they have a proven history of success. Dental deals, whether they are start-ups or transitions, can be time-sensitive and time-consuming. You don’t want a general legal practitioner learning which covenants and disclosures apply to your deal on your dime. Instead, we’d recommend matching up legal counsel that has worked together many times, making it time-efficient and less costly for all parties.

Finance and Legal Professionals for Your Dental Start-up

Once you’ve identified the space for your new dental practice, you need legal counsel to negotiate the lease. Select an expert in real estate law, not a tax attorney.

Unless you’re self-financing your endeavor, you’ll need a healthcare lender who will approve $500,000 or more of financing for your office buildout and working capital. Worried about how your student loan debt will impact your ability to secure a loan to build your dental office? “Even with the increase in student loan debt averaging over $500,000, we can lend 100% financing for construction, equipment, working capital, marketing, consulting and technology for a startup so the first-time business owner is not out of pocket any funds to open their practice” states Jason A. MacKenzie, Vice President of Healthcare Lending at Bank of America Practice Solutions, the leader in start-up lending. Most banks’ lending conditions are standard, requiring you to have:

1. A demonstrated ability to produce a high volume and level of dentistry, and
2. Strong financial qualifications, such as a high credit score. Dentists are good risks, but dentists with poor financial habits are not.

A Dental CPA is the next professional to add to your support team. The accountant you choose should have significant experience providing a range of accounting services to dentists. A Dental CPA understands how dental practices operate and is current on the most recent tax laws that affect dental practices. Your Dental CPA can help you navigate the details of your financing options and guide you in selecting a business entity for your new practice. In some states, like New York, forming a business entity could take months, so we encourage dentists to start this process upon signing a lease, before construction starts. While entity setup is a legal process, because of the tax considerations, attorneys usually defer to accountants to consult with the client on entity choice. The typical entity options are LLC or S-Corporation; For start-ups, we recommend LLC, since we have the option of electing an S-corporation down the road.

A couple of weeks before opening day, you should be working with your Dental CPA to set up:

1. Banking
2. Credit cards
3. Merchant services
4. Payroll processing
5. Insurance – liability, worker’s compensation, and disability
6. Record keeping
7. Practice collections procedures
8. Financial monitoring

Dental Office Management

This is where your first hire comes in. Try to be lean and mean at the outset by hiring a flex employee who can manage the front office and also help in the back. You’ll need someone organized and efficient who is familiar with how a successful dental office works. This employee will need to be good at keeping on top of requirements and paperwork so you can rest assured all deadlines are being met and you won’t hit any unnecessary roadblocks on your way to opening day. For example, if you plan on accepting insurance in your dental practice, start the credentialing process early because it can be tedious and time-consuming. Since the process could take three to four months, you should begin reviewing fee schedules and preparing applications as soon as possible.

Setting up front-office systems, practice protocols, and employee training programs correctly from the start will save time, money, and mistakes in the future. Even professional athletes and performers need coaches, so don’t hesitate to rely on the expertise of a professional to coach you through this process. One example of a professional who can add that coaching element to your team is your supply representative. Your supply rep visits many offices, giving them a real-time perspective of the dental climate and community. Not only can your rep assist you in placing your initial order of equipment and supplies, but they can also give you an idea of how other dental offices are achieving efficiency.

Who Will Be Responsible for Marketing Your Dental Practice?

It’s wise to leverage the services of a marketing professional to develop and execute a comprehensive marketing plan that attracts new patients and builds a strong brand. As most practitioners know, the days of hanging a shingle and watching patients walk in the door are long gone. To compete in today’s marketplace, your practice must have a vision, brand, logo, well-designed website, strong social media presence, and, of course, a name. All these elements should work together to deliver a cohesive marketing message.

You should put a lot of thought into choosing a business name. A common question we are asked is “Should I just use my name, followed by LLC, or should I think of a catchy name for my practice?” You should choose an SEO-friendly name for your practice that helps streamline your marketing efforts. The name you choose should differentiate your practice from those of other dentists while also being keyword-friendly. Likewise, to help your website appear prominently in online search results, it should be designed (and updated over time) to leverage the latest SEO trends and strategies.

It’s crucial to create a solid foundation for your marketing plans, so if you aren’t a marketing guru, hire an experienced professional to help you name your business, develop your marketing plan, set up your marketing systems, and track your results.

Dental Practice Ownership – Words to Live By

Because we work with hundreds of dental practices, we’ve seen it all and have worked with professionals from all these industries, so we can offer our advice on who may be your best fit.

Words to Live By:

1. The race is a marathon, not a sprint, so set a steady pace.
2. Be proactive, not reactive
   • A marketing program should be implemented and measured.
   • Review accounts receivable regularly, not just when funds are low.
3. Create and maintain an office culture that causes staff to feel they want to—not have to—come to work every day.
4. Lead and empower, yet monitor.

It’s easy to lose a patient but more difficult and costly to get a new one, so create the WOW experience from the first patient interaction on the phone to the last exchange!