Sailing into practice ownership

Dr. Albert (Ace) Goerig discusses several ways to navigate practice ownership

Few things in life are as satisfying as home ownership, and the same is true for owning your “practice home.” The professional independence, economic self-sufficiency, and ability to achieve your vision are tremendously gratifying. Doctors currently seeking practice ownership typically include:

• Recently graduated from endodontic residency
• Exiting from an associate or employment environment
• Starting private practice after military or public service
• Making a long-distance move to a new city

Your comfort level with the ownership process usually depends on any past experience in private practice. Endodontic graduates who completed their residency immediately after dental school have both limited clinical experience and business experience in the real world, so they often have the highest perception of risk. Other doctors have previous clinical experience and sometimes previous business experience too.

Either way, it is common for doctors to have concern about risk because becoming a practice owner is a big investment in your long-term future. Here are some guidelines that can ease the process and ensure you’re making good decisions now that will set you up for the best success as a practice owner.

Economic realities

Most doctors begin their practice ownership journey already burdened by a high level of debt, particularly lingering education debt, but possibly a mortgage too if they are a homeowner already. A lender is going to look at your current debt obligations and living expenses compared to your potential income as a practice owner. The gap between the two effectively defines your available funding for ownership (unless you have other sources, such as family contributions).

Your current debt is a given, so your cost of living and income potential as a practice owner are the variables that really matter. Keep your living costs modest, minimized, and avoid unnecessary consumer debt (including expensive cars). As far as income potential, lenders are going to look at endodontic industry averages at best, which are lower than you would expect.

Whatever funding you are able to get is going to highly influence your path to practice ownership. Average solo doctor endodontic practices often sell for $600,000 to $900,000, which is a significant investment. Alternatively, you can go for a startup approach, which is notably less expensive but lacks the built-in goodwill and referral network you get by buying out a practice. If neither of these options work for you, you will need to reduce your debt and save for your ownership path. For many doctors, that means working as an associate first.

Associate pathways

Because of high current debt and uncertainty about risk, many doctors work as an associate before venturing to practice ownership. How soon you can move from an associate environment to ownership depends a lot on the associate position that you accept. If you associate in a practice that is motivated by growth and enables you to be highly productive, you can significantly reduce your debt and save for practice ownership within a few years.

If, however, you end up associating in a practice which is not providing you enough productivity, you may be spinning your wheels. Yes, you might be earning enough to make your debt payments and cost of living each month, but that’s not enough to effectively prepare for ownership. If your goal is practice ownership, the reason you are associating is to make money. Staying in a practice that is limiting you economically is self-defeating.

As a general guideline, if you are completing less cases as an associate than the average endodontist (at least 3 to 4 cases per day), you should consider looking around for a better situation in a practice that is highly efficient and has a better referral network. A full-time associate should reasonably expect more than part-time productivity! The good news is that endo associates are in high demand, and it’s easy to find better opportunities in highly successful practices where you can excel as an associate and earn far more income. One more case a day on average can make the difference of as much as $100,000 income in a year.

Acquisition versus startup versus transition

There are basically only three paths into practice ownership. The first path is acquisition where you buy out a doctor who is exiting their practice. Buyouts are usually 70% or more of the exiting doctor’s annual revenues, and most of that value is in the referral network goodwill. The exiting doctor usually stays for a short time (usually 6 months to a year) to coordinate your introduction to the referral network so you earn the right to their continued referrals and transfer as much goodwill as possible.

• Advantage: existing referral network and potential initial cash flow
• Disadvantage: most expensive upfront investment cost

The second approach is a new practice startup. A startup is exactly that: opening a brand-new practice in a new location and building everything from the ground up, including a referral network. Associates in most states who open startups usually have to locate outside the referral draw area of the practice they are associating in due to restrictive covenants, which is a good reason to avoid associating in the community you want to end up in.

• Advantage: less expensive (save half or more compared to acquisition)
• Disadvantage: zero revenues on Day 1 of ownership

The third approach is through an associate transition, which is when you start as an associate in the practice and eventually (in about 5 years typically) buy in to become a partner or buy out an exiting doctor. The agreement in principle for the transition is usually determined upfront as part of associateship engagement, depending on a trial period to ensure there is a good match in the case of an eventual partnership. Sometimes those partnerships are time-limited, with the senior doctor retiring well before you, and you have the right to buy out their final equity.

• Advantage: earn income now and prove your potential in the practice you will own
• Disadvantages: delayed approach, and being the “junior” if in an eventual partnership

Location and facility

In terms of location, I strongly recommend that you carefully select the community that your practice is located in. Ownership puts down roots that are hard to change, and you want to practice as near as possible to where you want to live and enjoy life with your family on a long-term basis. Commuting is a huge time loss in life, so think about where you want to be in your 30s, 40s, and 50s, and how quickly and easily you can get to work. The ultimate goal is to have a great life with endodontics as your professional and financial foundation.

In terms of facility, this is one area where less is more at the beginning. We all graduate into dentistry with our “dream practice” in our minds, and that is a great vision to work toward. However, it’s probably not going to be your first step into practice ownership. You need to maximize income and minimize expenses, so don’t “over buy” what you need to get established. Prioritize for early profitability, which can mean equipping a startup practice with second-hand equipment to save on upfront costs. When you are buying an existing practice, of course, everything is already second-hand.

The key to remember is that even though your path to ownership is financially limited by what lenders believe you can safely earn, your actual income potential as an endodontist is far higher. Doctors in Endo Mastery-coached practices typically earn 2 to 3 times the average endodontist within a few years, and that includes new owners in recent startups and acquisitions. When you achieve that level of success, you’ll quickly pay off all your debt and then easily afford building or moving to your dream facility.

Productivity and profitability

The level of productivity and profitability that you will achieve in your practice is directly linked to the performance of the team and the effectiveness of practice systems. Acquisition doctors tend to assume that the practice’s current team and systems are adequate. Startup doctors tend to assume that they (or someone on their newly hired team) will train and set up their systems once the practice is open. Both of these assumptions are mindsets that should be challenged.

Notwithstanding the fact that we are all quite brilliant as doctors, we are not taught the nuts and bolts of business ownership in dental school or residency. We are not taught the most efficient and effective marketing techniques, scheduling strategies, or financial systems for our offices. Most doctors try to learn it by the seat of their pants, and that’s why most endodontic practices significantly underperform their potential and cause stress for the doctor.

At Endo Mastery, we strive for doctors to achieve “effortless endodontics” in their practices, which means an optimized and empowered approach to teamwork, practice systems, and doctor productivity. Endo Mastery-coached doctors can achieve multiples higher than the average endodontist because they’ve invested in creating a stress-free but growth-driven business, driven by a highly-trained and motivated team.

Coaching for business success is just like any other advisor that you rely on as a new practice owner, such as your lawyer or accountant. If you’re serious about success as a practice owner, it’s a vital component to your journey that you should be building into your strategic plan from the beginning. That’s especially true in the current employment environment where it is so difficult to hire experienced team members.

Risk and reward

I started this article talking about the perception of risk, and certainly there are vital decisions that you make on the way to practice ownership that affect your future. However, the rewards of ownership make it all worthwhile. None of the issues you face are unsolvable, and navigating the initial concerns of debt and finances is the most difficult part. With vision, ingenuity, and coaching, you can find the right path and establish a practice that will drive incredible future success.