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Should You Lease or Own Your Dental Practice Building?

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If you’ve decided to own a dental practice, there are lots of things to be mindful of to be successful beyond the day to day operations. Your time, money and other resources need to be spent on marketing, effective management techniques, and bookkeeping. In addition to all of these, you also need to factor the whereabouts of the physical location of your business. And with that comes the need to think about what your plans are for your practice for both the long and short term.

Do you want to have more flexibility for the physical location of your practice? Do you have access to funds for a down payment and mortgage for your practice space, if desired? These types of questions can help you hone in on the more practical option for your business needs and goals.

And these questions lead to a very important one.

Should you own or lease the office space for your dental practice?

 

PROS OF LEASING

Leasing is essentially the same thing as renting your office space. If location is of utmost importance to you, leasing allows you to have more flexibility than owning real estate. There’s a higher likelihood of being able to find short term leases, for example, if that’s something you feel you need. In many cases, leasing gives you more options in terms of property locations. Finally, you won’t need to have a large amount of capital to invest in real estate property if you decide to lease.

 

CONS OF LEASING

If you’ve had experience with renting at all, you know that one of the biggest drawbacks is that rental rates consistently increase over time. If you’d like your dental practice to remain in the same location for the long haul, signing onto a long-term lease might not be in your best interest. You also don’t get the benefits of property ownership, namely equity value and tax advantages, if you lease your office space.

 

PROS OF OWNING

Real estate ownership offers many advantages and benefits in general, and the same is true if you want to purchase property for your dental practice.  Some of the most compelling benefits are flexibility in controlling location and any future expansion projects, the ability to build equity as you pay down the financial terms, and to eventually earn a return on your investment.

 

CONS OF OWNING

In contrast, owning your dental practice location requires a significant amount of upfront capital. As a property owner, you would also be responsible for any upkeep and maintenance, including fronting the cost for any property-related damages. These responsibilities can take away from other tasks necessary to growing and sustaining your practice,like marketing, staff management, and accounting.

The decision to lease or own your dental practice property is based on a combination of your personal and business needs. It’s good to think through all of your options with either choice.

 

WONDERING WHERE TO BEGIN?

Are you just starting out with your practice? Sign up for Dr. Coughlin’s program that details the principles of success to learn what it takes to have a successful, thriving dental practice!

Estimating the Cost of Buying a Dental Practice

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Whether you are fresh out of dental school or have been working as an associate for several years, the time may come when you want to buy your own practice. More and more dentists are choosing not to go this route, opting instead for corporate dentistry, but there is an undeniable appeal to owning your own practice. Yet it can be tough to figure out exactly how much it will cost to buy a practice. Here are some considerations.

Valuation

The valuation is simply how much the dental practice is worth. This is determined by formulas that range from simple to highly complex, and is always an approximation. Still, the valuation is the jumping off point for negotiating a purchase price, so it is important to have a professional appraisal. Common valuation methods include:

Income-Based Valuation

Based on either capitalized earnings or discounted cash flows, income-based valuation works well for dental practices that have a strong history of growth. This type of valuation can be more challenging for newer practices and those that have gone through financial issues.

Market-Based Valuation

Market-based valuation can be a desirable choice for a newer practice without much history, as it is based on the market data of similar practices in the area. However, it is not generally considered as reliable as income-based valuation.

Net Asset Valuation

Net asset valuation attempts to put a dollar figure on not only tangible assets like chairs and real estate, but also such intangibles as the goodwill the practice has developed. It is tricky, since as much as 85 percent of the value may be intangible, but can be the right choice for practices that have had financial problems or have major tangible assets.

Other Considerations

At best, valuation is an educated guess. There is simply no way to take into account all of the factors that are part of buying a dental practice. Here are a few more things to consider:

Unexpected Overhead

Equipment breaks. Staff members must be paid. Operational budgets may not be streamlined. Although a careful look at recent budgets can help you plan, always build in a cushion for unexpected expenses.

Inherited Staff

Until you actually purchase the practice, you have no real way to know how the staff operates day to day. From family troubles to workplace feuds, staff members are human beings with lives that are often messy. Be aware that workplace productivity will never be as high as it seems on paper, and try not to schedule more than 80 percent of any individual’s day. Over time, you may need to weed out bad apples to boost staff morale.

Patient Transitioning

Accepting change is hard for most people, especially when it comes to their healthcare. Some may leave the practice altogether. Prepare your budget for a dip in patient numbers, and make a plan for actively recruiting new patients.

Referrals

If you are a specialist, tapping into an existing referral network is vital. If you don’t have a local network, and one didn’t come with the purchase, you will need to invest some money and time into building those relationships.

It is nearly impossible to predict all of the costs associated with buying a dental practice. However, if you start with a professional valuation and then set aside cash to meet unexpected expenses, you will go a long way toward quickly achieving profitability.

Ascent Dental Solutions is a full-service agency dedicated to helping dentists build their practices and map out their careers. It is the brainchild of Dr. Kevin Coughlin, who earned his doctorate at Tufts University School of Dental Medicine and currently serves as a faculty member there. While Dr. Coughlin continues to practice dentistry as the principal owner of the 14-location Baystate Dental PC, he has a strong passion for helping fellow dentists maximize their success. If you are interested in learning how to take your dental practice to the next level, please contact Ascent Dental Solutions today at 413-224-2659 to learn how Dr. Coughlin can help.