Be discerning about the “facts” you may hear about starting a practice. Misconceptions swirl around debt, expected income, and location. Let’s clear up five common ones.
Misconception #1: I have to be debt-free (with money in the bank) to start a practice.
Many young dentists think banks want you to have a clean slate before they will loan them money to start a practice. Nothing could be more untrue. Lenders examine debt-to-income ratio to determine whether to provide a practice loan.
Still have student loan debt from dental school? As long as you can show you can afford the student loan and practice loan payments, a lender will most likely approve you. Banks understand that dental school means student debt. The most important factor for the bank is your future earning potential.
Similarly, many dentists seeking to launch their own practice believe they will need a lot of money on hand to secure a loan. In reality, if you deal with dental-specific lenders, they’ll typically fund your practice with zero down.
Misconception #2: You won’t make money the first few years.
Risk is scary. But no one ever made a big play by standing on the sidelines. Grabbing the opportunity to begin your own practice might seem like a financial risk with an initial reduction in your income, but that’s not the reality.
In their first year of practice, the average dental startup generates a revenue of approximately $350,000. After operational costs, which includes paying all your associated bills and employees, the average dentist will take home about 35% of their gross revenue. That’s about $100,000 to $120,000 on average.
But most dentists will also serve as an associate dentist the first year or two after starting their own practice. During this transition phase, you may work a few days each week for the practice you first worked at as professional or as an associate at another practice. This is why most new practices are open only 3-4 days per week. For example, you might earn income from your own practice Monday through Wednesday, but work for another practice Thursdays and Fridays. As a result, many dentists can earn over $200,000 in their first year.
Misconception #3: I must know everything.
Don’t know anything about negotiating a lease? Not sure how to deal with a general contractor? Luckily, you don’t have to be an expert on every phase of starting your practice.
The industry has an expansive network of dental-specific vendors to assist you in achieving your dream of owning your own practice. There are real estate professionals who specialize in finding properties for dentists and are experts in demographics, and attorneys and lenders well-versed in the industry. You can also lean on general contractors, space designers, and marketing companies that specialize in the dental-practice industry. These folks do dental practice-related work all day, every day. When you work with trusted experts, you’re never on your own.
Real estate services is an area where industry experts can save you money and protect you from challenges. For example, many dentists think they can just drive around a city and find a location for their practice themselves or use a realtor relationship that has never done a dental practice. But that can be a mistake, because they’re not trained to know what factors are important to the success of a dental practice; and it’s unlikely they have access to the metrics used to determine the long-term viability of a location. A professional who exclusively works with dentists regarding real estate will know not only how to negotiate a lease but why you should be considering that location for success. They are also not aware of the areas that are needed to protect you if you later decide to sell your practice.
Misconception #4: All major markets in Texas are saturated.
We hear this often from dentists hoping to open their own practice: “I don’t want to be in (this city or that city) because it’s saturated with dental practices.” Sure, a large metro area like Dallas or San Francisco might have loads of practices, but the number of practices in a city when looked at alone, is not a worthy metric for consideration.
Many people think a market is comprised of a city. But you must examine individual trade areas, which, in a metropolitan region, typically consists of a three-mile radius. By looking at an area on this micro level, the number of people within the radius can be identified as well as how many providers exist there or nearby. Then a growth rate for the next five years can be projected. A healthy geographic sector for a practice will have high growth in home construction and robust employment, among other things.
When a metro area is broken down into sections like this, locations that offer vibrant growth opportunity for your practice are achievable.
Misconception #5: A location is just an address.
The location of your office is one of the most important factors in the success (or non-success) of the practice. A good location is not simply a great piece of property or an attractive building near high-traffic areas. There are three factors that need to be considered when deciding on a location; and all of them are important.
The first major factor is the current population of an area under consideration. For example, Xite Realty makes sure a client’s selected community has a high concentration of the dentist’s target patients and target payer (Medicare and Medicaid versus private or commercial insurance) mix to ensure it provides growth opportunities for the practice.
Second, a favorable competition ratio (and knowing what it is) and indications that market share is available are critical to enabling a new practice to thrive in an area.
Last, the availability of dominant real estate in the target area is very important. With the retailization of healthcare in the last 10 years, visibility and accessibility are more important than ever. Even if a community has a high concentration of target patients and a favorable competition ratio, if a dominant real estate spot can’t be found, the success of your practice will be in jeopardy.
Some dentists hear “competition ratios” and think that’s all they need to look at. But you need to seek communities that have the highest ratios and target-customer base, as well as find an excellent real estate location.