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Considerations for Building a Small Group Practice
Careful planning and consultation with experts enhance your chances of success
Roger P. Levin, DDS
One of the questions that dentists often ask at seminars is whether or not they should add additional practices. This question is often asked in an off-the-cuff manner, which indicates that many doctors haven't thought about all of the pros and cons of having more than one or two offices. Adding additional practices comes with financial, managerial, and logistical factors that all need to be carefully considered. Additional practices always have a direct impact on the career and financial well-being of the dentist; therefore, it's best to know all the ramifications of owning a small group practice before you begin building one.
Question Your Motivation
The first question that dentists should ask themselves when thinking about adding practices is “why?” Of course, there are certainly plenty of beneficial reasons to do so, but oftentimes, dentists are simply aware that their peers are doing it and want to follow the crowd. But as many will tell you, trying to “keep up with the Joneses” can have serious consequences. When transitioning from having one or two practices to taking on three or more, things begin to change. At this point, your daily challenges will increase, and breakdowns can and more than likely will occur. Failing to recognize all of the strategic planning, operational management, and budgeting components associated with building a small group practice can limit your opportunity for success. For example, have you considered the following:
• Expanding to three or more practices usually requires adding additional doctors and updating compensation packages.
• The current office manager may no longer be qualified to handle the expanded practice.
• Adding practices means adding staff, which multiplies human resource, regulatory, legal, and financial obligations.
• Managing and operating multiple practices can make maintaining high levels of profitability more difficult.
The list could go on, and many of these concerns may seem daunting, but dentists shouldn't view them as reasons to abandon the idea of building a small group practice.
If after evaluating all of the many business considerations and consulting with experts such as accountants, lawyers, and strategic planners, you decide to build a small group practice, next you need to decide where to begin. Start with the following steps:
1. Create a Plan
Many small group practices are cobbled together almost by accident. For example, a dentist may have the opportunity to buy out a failing practice, followed by the opportunity to buy out the practice of a retiring dentist. Later, he or she might identify a hot new area that's perfect for another new practice. If these decisions are made independently and not part of a concrete medium or long-range plan, the dentist may later discover that he or she is over-extended financially or that the hot new area isn't as hot as he or she thought. Gaining economy of scale may be the primary benefit of building a group practice, and you are not likely to experience this benefit in the absence of a strategic plan.
2. Scrutinize the Budget
One of the challenges of note in many small group practices is maintaining control of high overhead. Before you decide to move forward with adding practices, be certain you have good systems in place to monitor overhead in your single practice.
3. Hire the Right Office Manager
Do you have an expert manager that can oversee day-to-day operations, tackle financial management, and make difficult decisions? If you do not, get one. All dental practices need solid business management. A group of three or more practices under the same ownership requires management skills that are exponentially greater than those needed to sustain a single practice.
4. Perform a Complete Financial Evaluation
When considering the purchase of another practice, a complete financial evaluation must be worked up, including a return on investment analysis.
5. Design an Ideal Compensation Plan
Regarding human resources, a well-thought-out compensation plan for associates in the practice must be created and remain sustainable as the small group practice grows. The compensation plan should be standardized across all practices in the group, which can be more difficult than it sounds when you're dealing with dentists who are in different stages of their careers and have varied expectations.
6. Check Out the Competition
Performing an analysis of the competition in each location where a future practice will be opened will help you to understand how changes in the area might affect your small group practice.
These are just a few of the steps that need to be taken before expanding into a small group practice. Truthfully, this list is intimidating, and most dentists do not have the ability to do this kind of work on their own. However, there are experts that can help at every step of the way.
Building an Advisory Team
Before embarking on building a small group practice, assembling an expert advisory team is strongly recommended. This team should include an accountant, an attorney, a strategic planner, and any other outside experts deemed necessary. Although most dentists already have an accountant, attorney, and insurance agent, these experts rarely or never talk to each other and don't necessarily have expertise in building a small group practice. In order to be successful, an advisory team must work together with you to create a plan, perform a financial analysis, and guide you through any challenges that may arise during the process. Once your small group practice is established, the advisory team can continue to consult with you regarding strategy, decisions, and other issues, such as call centers, insurance and compensation plans, new staff, and employee and doctor management.
Expanding into a small group practice is no small feat. You are almost guaranteed to run into issues and challenges that you will not be able to handle on your own. By asking the right questions and building the right advisory team, you can enhance your chances for small group practice success.
About the Author
Roger P. Levin, DDS, a third-generation general dentist and the founder and CEO of Levin Group, Inc., is internationally recognized as a prolific writer, advisor, educator, and dental business consultant.