Do Your Homework First

Whether purchasing a practice, doing a start-up, or buying into an existing practice, it is important to do your homework first.  Understanding the demographics and current economic trends will help you to know if a practice opportunity is right for you.  Don’t give yourself an ulcer by not knowing how successful you will be.  Do your homework and understand how to predict your future. 

Demographics can be pulled by any number of companies.  You can also do most of the research on your own.  Basic information can be found on most city websites.  I recommend you also call the city planning department to get further information. The key categories to start with are:

Population – the number of residences in a specific location

Population to Dentist ratio – the number of general dentists per resident

• The population to dentist ratio needs to be larger than 1:1700 for start-ups.
• If you are purchasing a practice that you are hoping to grow, the ratio needs to be larger than 1:1200.
• If you are buying into an existing practice and need to build your own patient base then you will need a ratio no less than 1:1500.

These statistics are not cut and dry.  Even if the ratio is favorable, don’t stop there.  There are a number of economic factors that can impact your success, even with a favorable ratio.

Growth rate – this is a very difficult figure to use to approximate success.  A city can have a negative growth rate and still maintain successful dental offices.  I recommend talking with the city planning committee to find out how many new homes are being planned for that area over the next 1-3 years.  You may also look at the past growth rate, but growth can change quickly with economic factors making it difficult to gain a perfect projection of that location’s potential.   Generally an existing part of town will have a low or negative growth rate.  This is okay as long as the population is large enough to warrant having a new dental practice.

Household income – this is important in understanding the insurance plans you may or may not need to be in-network with.  Just understanding the income level of your target area will help assess what type of practice will be successful: Cosmetic, Family, PPO, Medicaid, etc.  If you just finished an expensive implant seminar and are looking to buy a practice, make sure it’s in an area where your patients can actually afford this procedure.

New patient flow – An existing practice needs to have new patients coming in every month to replenish the normal patient turnover.  An office not concerned with growth really needs to have 10-15 new patients per month to replenish this natural turnover.  A growing practice needs to have 20 or more new patients a month.  A new practice needs to have at least 50 new patients per month to break even by month 6.  An ideal practice start-up will have over 80 new patients per month.

Other economic factors – Two additional economic factors to research in your target area are foreclosures and unemployment.  This can be a red flag for even a growing community with few doctors.

Take the time to understand and research the area before investing large amounts of time and money on a new opportunity.