Ep. 24: Multiple Practices – The Do’s and Don’ts
Adding a second (or third or fourth or fifth) practice can be a fantastic opportunity to expand…or it can be a complete nightmare. So, don’t end up doubling your stress and overhead with no profit to show for it. Follow these tips from Jeff on how to do it the right way.
Topics:
1:57 – Are you really ready to add another practice?
6:10 – Time and distance matters with your new location
12:27 – Associate or partner?
15:07 – Scratch practice or existing office?
20:33 – Why now is a great time to expand into multiple practices
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Questions From This Episode
Why does Jeff say it's a mistake to open a second office too close to the first one?
If two offices are close enough that patients could realistically go to either one, they end up functioning as a single practice with two rents rather than two standalone businesses. Jeff's test: imagine a buyer wanted to purchase only one of the two offices while you kept practicing at the other, if you wouldn't buy it knowing patients would just drift back to you, the locations are too close.
Why does Jeff say a doctor's first, struggling office needs to be fixed before opening a second one?
Since the same owner runs both locations, whatever is causing problems at office one, poor training, an out-of-control schedule, low profitability, doesn't go away just because a second office opens. Jeff says opening a second location on top of an unresolved first one just doubles the same underlying problem instead of solving anything.
Why does Jeff say a doctor shouldn't automatically break away from their main office to personally work at a new second location?
He calls the original office "sacrosanct," meaning its production and profitability can't be sacrificed to get a second office off the ground. Jeff has seen doctors place an unstable associate in a new second office, then have that associate quit, leaving both locations short-staffed and the owner personally working six days a week to cover the gap.
Why does Jeff lean toward bringing someone in as a future partner rather than just an associate for a second office?
An associate with no ownership stake can quit at any time with no real cost to them, while a partner has genuine skin in the game in keeping the practice successful. Jeff recommends putting a clear, written partnership path in place from the start, rather than a vague "if it works out" arrangement, which he says causes the vast majority of associate-related problems he sees.
Why does Jeff say private practice dentists, not corporate groups, are best positioned to buy up smaller retiring-doctor practices right now?
Corporate groups typically target practices already doing $1.2 to $4 million a year and generally aren't interested in scaling up a smaller office from scratch. With over 15 percent of dentists 65 or older heading toward retirement, Jeff says there's a real window of smaller practices coming up for sale that private, entrepreneurial dentists are far better positioned to scale than a corporate buyer is.
Episode Transcript
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More and more, we're seeing clients and non-clients alike adding a second, third, fourth, or fifth practice. This is a trend that's been accelerating for about the last 12 years, and especially the last two since 2020, it's really gone into overdrive. I have to say I'm being asked about this now more than at any other point in my career.
An additional office can be a blessing or a curse, it all comes down to how you go about doing it, and that's why we're dedicating this episode of Dental Business Rx to multiple practices, the do's and don'ts. I'm Jeff Blumberg, and I'm your host. Let's jump right in.
Let's take an average scenario: a client comes to me because there's another office for sale in their area, and they want my opinion on whether they should buy it. Obviously, that client is going to do whatever they want to do, everybody's responsible for their own decisions, and I'd say the same to you, you have to make your own call here. But when they ask me, "should I do this," I come to my opinion based on about seven factors, and that's what I want to structure this episode around. These are the seven questions I'm going to ask a client in that situation, the more familiar I already am with their practice, the fewer of these I actually have to ask out loud, but these are generally the seven things I want to know.
The first question is why. Why are they looking at adding another location? I want to know their motivation, and obviously I'll also want to know about the practice they're buying, is it actually a good deal, which we'll get to. But motivation matters first: are they doing well and want to expand? Do they hate their current office, and feel like everything's wrong with it, so they need another one? Or have they simply maxed out their current space with no room to grow?
If the client is just doing well and wants to expand, good, I'd move on from there. But let's say they actually hate office number one, it's doing poorly, they can't find good staff, they have trouble training staff, the schedule's out of control, they're working too much, they don't like the location, there's a lot wrong with it. Here's the thing: the common denominator between both locations, whether you're physically at both of them or not, is you, since you're the owner of both. If location one is struggling, that has something to do with you, and I'd want to fix that before taking whatever's causing those problems and doubling it across two locations. Instead of one pile of trouble, now you have two. In that case, I'd usually advise against it, fix office one first.
There's one more version of "why" worth mentioning. Say a doctor is in a downtown area with four operatories and genuinely can't expand, no additional space in the building, nowhere nearby to move. Opening a second office might be a valid answer to that, but I'd point out that most doctors aren't actually in their office as much as they're paying to be in it. You're paying rent for 30 days a month, but your building is probably open later than you are there. There's often a chance to expand your hours and increase productivity without expanding your own personal hours. We've done this with clients, especially in downtown areas where space is at a premium, using what we call a split shift. Say a doctor currently works 8am to 4pm, four days a week. Instead, the office opens five or six days, the owner doctor works maybe 7am to 2pm four days a week, and associates and additional staff cover the other shift. Now there are two shifts running in the same space, the practice is open 45 to 50 hours a week, each shift covering 25-plus hours, and you effectively have two offices crammed into one location. That's always worth considering. I've also seen doctors rent a couple of suites across the street or nearby instead of opening a full second location, or do both. But I wouldn't make "I can't expand where I am" your only reason to open office number two, if you could get more space where you already are and would genuinely rather do that, then do that instead.
So the first thing I want to know is why. The second thing, which ties right back to that, is whether your house is in order at your current location. If it isn't, those problems aren't going to magically disappear once you open office number two. By "house in order," I mean things are under control, production is good, profitability is good. If you're barely making any profit at location one and want to open location two, I'd want to figure out what's wrong with one first. If you're carrying a lot of debt service because it's a newer office, sure, that's understandable. But if your profit is bad simply because the office is being run poorly, why would you want to do that in two places? Make sure your house is in order before you open location number two.
Which brings us to the third thing: where is location number two actually going to be? This one's tricky, whether it's an existing practice or one you're starting from scratch, we'll get to that distinction later, but location matters enormously. You don't want it too far away, since that becomes a constant drag, but that's actually the lesser problem compared to having it too close.
Here's the issue with putting it too close. Imagine you have a successful office in an area where people are willing to drive, say, seven to ten miles to see a dentist, every area is different, in Manhattan twelve blocks might as well be a different world, here in Tampa Bay I personally drive about 22 minutes to see my own dentist, people are used to driving a bit more here. So let's say in your area people drive seven to ten miles, and your office is doing great, so you open a second office seven miles away. I've actually seen doctors reason, "well, we could even share patients between the two practices." That is a terrible idea, please never do that. I've watched someone build a second office with exactly that plan in mind, patients could go back and forth between locations. They ended up dropping a ton of money into both offices and effectively running one practice with two rents. It was an administrative nightmare.
Here's how I'd think about whether a location is too close: imagine you have these two offices, and a buyer comes along who wants to purchase one of them while you stay and keep practicing at the other. Put yourself in that buyer's shoes. Would you buy one of these offices knowing the other owner doctor is going to keep practicing right down the street? If they're too close, you wouldn't, because the patients would just drift back to the office where the original doctor stayed. You never want to create that situation. You want both offices to be able to stand alone, maybe a patient crosses over between them once in a blue moon, but they need to be able to function independently of each other, unless you're planning for someone to eventually buy both at once. And obviously, if the second office is too far away, say, four hours, that's just going to be a constant drag and you'll end up regretting the purchase.
Which brings us to the fourth question: are you actually going to work in office number two? The honest answer varies enormously depending on the situation, so I can't give you one clean sentence, but I can walk through a few scenarios and the things worth thinking about.
Say you decide you're going to work one or two days a week at this new office, breaking those days off from your current four-day schedule at your main location. I probably wouldn't recommend that unless you have coverage in place at office one. Here's the thing to keep in mind: if office one is doing well, paying the bills, supporting your lifestyle, your family, and your staff, office one is sacrosanct, it cannot be disrupted. If office one is collecting $150,000 to $160,000 a month, it needs to keep doing that, and if you stick an associate in there for part of your time away, your profitability percentage there is going to drop. I wouldn't abandon what I'm making at office one on the hope of making it up at office two, I'd want to establish a different setup at office one first, before taking on a second practice.
It also depends on what you're walking into at office two. Maybe the current owner doctor plans to stay on as an associate for the next five or six years, and even with the debt you're taking on, it stays profitable, in which case it's not that big a deal, since that doctor is going to remain there and you're covered. But keep in mind, once they go from owner to associate, they can quit, and then you're scrambling to fill that spot.
Other setups work out well. Say at office one you already have a couple of associates and you're primarily placing implants a few mornings a week, going to work at office two a couple days a week can work out great, you pop over, come back, keep placing implants, and office one doesn't skip a beat.
What I want you to avoid is the scenario I've seen play out repeatedly: office two gets bought, a fairly unstable associate is placed there, both offices are open four days a week, the associate gives notice, you can't find a replacement fast enough, and now offices one and two are each only open three days a week while you're personally working six days a week to cover the gap. That's the last thing you want. Ideally, office one already has a couple of stable associates so you can break away, or the associate situation at office two is genuinely stable, before you take on that second office, especially if it's coming from a retiring doctor.
Which brings us to the fifth question: are you going it alone at office two, or bringing in a partner? Take that retiring-dentist scenario again. Say the office is doing $300,000 to $400,000 a year, you're paying $200,000 to $250,000 for it, and putting in another $80,000 to $150,000 in equipment. You're now carrying a bit over $300,000 in debt. You work out the debt service, and you plan to put an associate in there, factoring hygiene covering 15 to 20 percent of monthly production, and you've worked the numbers, they work, you can do this. That associate arrangement can work out fine.
The problem is, even with a non-compete in place, that associate can still quit. Maybe they don't open up down the street, though I've seen that happen plenty, but they could move a few towns over or leave the area entirely. That associate has no real skin in the game. Ultimately, everyone could leave your practice and it could still keep its doors open, since the one thing a dental practice truly needs is a dentist, but you're the one with a vested, ownership-level interest. It's ideal if the person running office two shares that same level of investment. I'm not saying you have to bring on a partner, corporate practices scale without partners all the time, I'm just telling you what I'd personally lean toward: bringing someone in as an associate with the explicit idea that they could eventually become a partner, and getting that in writing before they even start.
The last thing you want, and I've talked about this in a previous episode on associates, is going in with something vague like "if it works out, we'll talk about partnership," because they may believe it's working out well before you do. That's where I'd say about 95 percent of associate problems come from: the owner doctor and the associate simply weren't on the same page, in writing, from the start. If you're planning to scale by picking up smaller offices, I'd generally lean toward bringing someone in with a real partnership path in mind, someone who could eventually become a partner in office three too as you keep expanding. You end up building your own little team of dentists. It's actually a pretty compelling model.
Which brings us to the sixth question: are you starting a practice from scratch, or buying an existing office? I ask this for two reasons: I want to make sure the doctor is walking into a genuinely positive situation, and I want to understand how office two is going to affect office one, is it going to be a full going concern, or only open a day or two a week to start? You can be successful either way, but the most important thing is making sure the financials actually work. With an existing office, you have P&Ls to look at, you can see the real expenses, then layer on top of that what an associate is going to cost and what the acquisition debt will cost. With a scratch practice, you don't have that history, but you can still estimate the big expenses, rent, debt service, and you'll already have a sense of your own supply and lab costs from your existing practice. Either way, once you project the numbers, and I know that's not everyone's favorite part of this, it's something you absolutely have to do. You don't want office one subsidizing office two, at least not indefinitely, that doesn't work as an ongoing model, though it may be fine temporarily while a new office is getting on its feet. With a scratch practice, that ramp-up can actually be a bit easier to manage if you're on your own at office one, since there isn't yet a second office demanding three or four days a week of your time before it can stand on its own. Either way, remember, office one is sacrosanct, we can't damage it for the sake of office two.
Which brings us to the seventh and final question: if you're buying an existing practice that already has staff, do you keep them or let them go? That depends on the situation. First, I want to understand how the office is currently staffed. How are these people being paid? What often happens in practices that have been around 20 or 30-plus years is that staff end up earning well above market rate for the area, incremental raises stacking up over decades, dental assistants making $38 an hour because of years of small bumps, not necessarily current market value. That creates some hard decisions. But assuming payroll is roughly in line and the office is fully staffed, there are a few things worth doing. Talk to the current owner doctor and get an honest assessment of each staff member. Find out when each person started and how the practice has performed since, that gives you a sense of how this doctor rates performance and how each person has actually affected the office. If you're able to, observe the staff in action, and ask yourself honestly, is this how I'd want my own patients handled?
Beyond the salary question, since what worked for the previous owner's finances might not work once you've layered on debt and an associate's pay, keep in mind that if this office is successful and productive, the existing staff helped make it that way, unless they're brand new. I wouldn't assume you need to replace everybody on day one. We've had plenty of clients pick up a second office, train the existing staff into MGE's systems, and end up with genuinely great people. The truth is, most people are actually good, productive employees, or have the potential to be, only a small percentage aren't good fits, and you're not really going to know until you work with them yourself. If it's not working out, don't belabor the point or drag it out longer than necessary, but don't assume the worst going in either.
If the office isn't staffed the way you want and you're considering bringing employees over from office one, keep in mind, again, office one is sacrosanct, so if you pull someone out of it, make sure they get replaced. You might have a dental assistant with real managerial potential, train them, replace their old role, and have them become the manager at the second office. We've also seen clients bring a prospective manager for office two into office one first, letting them absorb the company culture before sending them off to run the new location, and that tends to work out really well.
Those are the main questions I'd ask a client considering a second location. There are some smaller ones too, corporate setup, financial structure, how much managed care is in the practice, whether PPOs make up a big chunk of it, patient flow, chart count, and there's a lot more to say about due diligence when you're actually going through the process of buying an office. I'll be bringing Sabri on for a future episode dedicated entirely to that, whether you're a newer doctor, a student thinking a few years out, or an associate looking to pick up a practice, we'll get into acquisition metrics in more detail there.
One last thing worth mentioning: this is a genuinely great time for private practice dentists to pick up a second office. I've talked in earlier episodes about the state of the profession, over 15 percent of dentists are 65 or older, approaching or already at the point of retirement, and we're heading into at least a brief period of a real dentist shortage as that plays out. After 2020, plenty of offices closed outright, and a number of doctors who were planning to retire in a year or two simply decided to retire now instead. So there's a real amount of inventory out there right now for entrepreneurial private dentists.
And here's the good news if you're worried about competing with corporate for these: you're not. Corporate doesn't scale the way you'd think. Look at the typical corporate acquisition target, it's not a $300,000 or $400,000-a-year office, it's a $1.2, $2, $3, $4 million practice. Corporate isn't interested in taking on a small office from a retiring doctor and scaling it up from nothing, but private dentists absolutely can. There's real opportunity here, don't let anyone tell you otherwise.
I know this was a bit all over the place, honestly I could have talked about this for hours, there's a lot more to it. If you have any questions that come up, feel free to email me directly at jeffb@mgeonline.com. Otherwise, I hope this helps, and if you'd like help with any of these issues, or just want help with your practice, we offer a free consultation here at MGE, you can sign up at mgeonline.com or call us at (800) 640-1140. And if you like the podcast, we'd appreciate it if you take a minute to subscribe, that way you'll get notified whenever new episodes come out.
Alright folks, I think that about does it for this week. We'll see you at next week's episode. Do well.