In this episode, Ash discusses the evolving landscape of dental practice ownership, particularly whether it’s still worth buying or starting a dental practice. Ash explains that the decision is much more nuanced than it was a decade ago. Factors such as market saturation, shrinking reimbursement rates, and increased competition from DSOs and PE-backed practices mean that buying or starting a practice requires extensive research and self-reflection. The conversation covers challenges unique to both startups and acquiring existing practices, including location selection, identifying business models, and coping with the demands of being both a clinician and a business owner.

He also addresses the realities of working with DSOs, selling a practice, and the trade-offs of joining larger organizations versus independent ownership. He also talks about why it's important to understand your career goals, personality fit, and risk tolerance amidst a shifting generational mindset and increasing concern about burnout.

Key Topics Discussed:

• The current viability of buying or starting a dental practice
• The impact of urban saturation and DSOs/PEs on dental ownership
• Key factors and research required for successful startups
• Startup vs. acquiring an existing practice: pros and cons
• Business acumen and the challenge for clinicians
• Effects of market demographics, location, and business models
• Lender requirements for practice acquisition
• The importance of team dynamics in transitions
• Differences between selling to DSOs vs. individual buyers
• Alternative equity opportunities for associates
• Generational differences in ownership goals
• Burnout and realistic career considerations
• Planning for exit strategies and financial obligations

Welcome to Beyond by Wings, the business side of dentistry, brought to you by Edwards and Associates, P. C. Join us as we discuss how to build your dental practice, optimize your income, and plan for your future. This podcast is distributed with the understanding that Edwards and Associates, PC is not rendering legal, accounting, or professional advice. Listeners should consult with their business advisors before acting on any of the information that is shared. At Edwards and Associates, PC, our business is the business of dentistry. For help or more information, visit our website at eandassociates.com. Hello and welcome to another episode of Beyond Bitewings.

In today's episode, we have a very special guest. Her name is Erin. Hello. Hello. And she's also our podcast director. And we decided to do an episode to talk about

Is it still worth buying a practice? We were talking about topics, and you brought up you had a lot of clients calling just about burnout.

That's right.

About starting up, and it's a lot of work nowadays where there's a lot of other opportunities. So we thought it'd be a good time to chat about, is it worth it still?

And I realized I had a completely different take ten years ago. Somebody came up to me and asked me the same question. Let's say somebody who just graduated out of dental school, worked under someone for a couple of years, and then they come up to me and they're like, Hey, do you think it's a good idea for me to, you know, do a startup? And for the most part, I would say yes. But a lot has changed in the past ten years, right? Whether we're talking about urban cities getting overly saturated, reimbursement rates shrinking, different business models, including P investors entering the market. And I'm talking about the DSO folks. Now there are multiple factors to be considered before I can answer that question. Right? And I think every time I get asked that question, the first thing that pops in my head is is the location.

So can we back up though for a minute? Yeah. Because you said that, like, location like all that. So before we get into, like, what what you should look for instead, you mentioned, like, there's oversaturation of markets. There's over what would you say to because I feel like ten years ago Mhmm. And, again, I'm I've learned a lot about this industry through you all. No. No. It hasn't been ten years.

But, you know, it kind of felt like that would have been what you did. You went to dental school. Maybe you did

work for

somebody, but the end goal was always to own your own practice. Right? Like, that's what you were gonna do.

Right. Right. Right.

Where nowadays, it doesn't feel like that anymore. I know you mentioned where even where you would say

Yeah. Yeah.

So there's factors, but is there, like, an overall something or some things that you've seen where this has really changed your mind from a, before I say that's the end goal.

Like Right.

This is why it's not.

Right. So it's not so much about, oh, I don't want people to own their own practices. It's mostly with startup practices. Yeah. Because if you're thinking about, let's say, buying an existing practice that already has a good patient base, has a good culture that you can assimilate yourself with, You know, you like the business model and you truly think you can bring something to that practice. And even with the shift of maybe losing a few patients here and there, you're still going to be profitable enough to where you can take care of your team members, you can take care of yourself, and feel good about, you know, doing what you're doing. However, the scene has changed quite a bit. And I'm specifically talking about urban cities here.

Yeah. Populated urban cities where you see quite a bit of saturation of dentistry. It's literally like every corner, there's like two or three of them. In markets like that, if somebody comes up to me and asks, Hey, Ash, you know, I'm thinking about opening up a startup in, let's say, Frisco, Texas. It's not going to be an easy yes. Yeah. I'm going to have a lot of questions for this person before I can even answer that. Have you done your research? Do you have a professional team that can help you, guide you through it? What's your business model? You know, are you gonna be Medicaid heavy? Are you gonna be accepting PPOs? Are you gonna go fully fee for service? Do you know who your competitors are? What are they? Are they all GPs or do you have some specialists there? How long have they been there? The demographics, the kind of people that are there.

Are you mostly thinking of looking at opening up a practice near residential areas or, you know, in a more commercial area? Because all of those factors will play a big part in that decision because nothing has been tried out yet. See, the big difference between an existing practice and a startup is that that existing practice wears what I call battle scars. But a startup is just entering the battlefield. And what we do as your consultants, we try to tell you what kind of armor you need to wear before you enter that battlefield. And at the same time, like if it's even worth going into battle. So going back to that question, yeah, a lot of factors have changed. I mean, I know we

talked about employment before too, where you're going up against DSOs now, where they have a ton of things that they can offer someone.

They have a lot of tools and resources. They have their biggest asset would be the economies of scale. Right? So because they have so many, and I'm talking about a decent sized DSO. Yeah. They have so many dental practices that they get all the best deals. Right? They can do bulk purchases from the supply vendors. They can get the best insurance rates to offer to their employee benefit as employee benefits. And they definitely capitalize on that.

Now, you have to also understand that most DSOs are in the business of making profit. The higher the bottom line, the better DSO they are, right? So they're always trying to find ways where they can reduce expenses, right? And increase top line revenue. And again, from a business standpoint, that's awesome. That is how it should be. The tricky thing about this whole thing is that when we're talking about a startup and we're talking about, let's say, a dentist. See, a dentist is not necessarily bred to be a business person. Right. In fact, there's only a handful of dental schools out there that even offer business classes.

So crazy.

So they are bred with the thinking that we need to put our patients' needs first. That I'm a clinician first. I need to take care of them. I need to make sure they're taken care of. They leave with their expectations met. Or, you know, if they came in with some pain, like that pain has been managed for them. And then what happens is, you know, they work under someone, let's say, for two years. And the ultimate dream is to have their own practice.

They're like, Okay, you know what? I have some experience under my belt. I'm a dentist. Let's pull the trigger and let's look into getting a practice. And let me become a practice owner. And then all of a sudden, they enter this world where now, even though those values are still there, but they're also being forced to think like a business person. So think of those DSO folks, where top line revenue needs to be considered. How to reduce expenses so the bottom line is sufficient for the owner to feel like this was a worthwhile move, right? Moving from being an associate to a practice owner. And at the same time, they need to feel like they're making a difference.

And that's the tough part. Yeah. It's very difficult for a dentist, in fact, any clinician to find that balance where they can feel like they're doing what they entered this world for, at first. And at the same time, utilize enough business acumen to be profitable. Not just for themselves, but also for the team members that they're working with. And, that's also another thing I always say that I think it's important to figure that part out as well, of yourself, before you even decide to enter or even think about having a startup. Okay. Because it might not be for everyone.

And I'm not saying it to negate the ability of a dentist. It's just different people are wired differently. In fact, at times I see that dentists that just work for someone else, they have a better standard of living lifestyle than someone, let's say, who's had a practice for three, four years and they've been struggling. So it doesn't mean one thing or another. It's just what's right for you.

Well, and just too, you talked about, like, buying an existing business that has the battle wounds.

Mhmm.

Are you willing to take the battle wounds? Like, I mean, it's not if they're gonna come, it's when. Right? Like, I mean, it just stuff happens with starting a business or even I mean, just because you get past a certain point doesn't mean it's smooth sailing. You're gonna hit those, and you just gotta decide what's Right. What you're willing to take on and what you're willing to do, especially as you're getting started.

Mhmm. Mhmm.

So we see these issues. You mentioned, like, cities are kinda harder to to navigate when it comes to starting. Where does it make sense to still start a practice where are there certain, like, metropolitan areas?

Well, I think we need to also consider two things, alongside the location part. Yeah. Because they go hand in hand. So location is important. I mean, of course, location, location, location. And oftentimes, you'll notice that most people will try to pick a location that's close to their home. Because the traditional trajectory is I'll, buy a house first and then try to find a practice near wherever I have my house. Yeah.

When in reality, I think it should be the other way around, where you should find that location first and then make that your home. At least temporarily.

Yeah.

You know, while you're establishing your business or getting it to a point where, you can move on to other things. Now, with that, you also need to think of how do you see yourself building this business? So for instance, let's say you want to be Medicare heavy. So that means it would be more volume based. Meaning you need to be seeing more patients per day than, let's say, somebody who's more PPO heavy. Right. Right? So your business model would have to be a certain way and you need to be okay with that. So, the the reason why I'm saying this is because the two years of experience, and this is relevant because most lenders will ask for that.

Mhmm.

That have you at least worked somewhere for two years before they can make you eligible for the loan. Now, that doesn't mean that you can't get a loan. By the way, I should tell you, most lenders love working with dentists. Dentists amongst all clinicians, they have the lowest default rate, so lenders love that. So they want to give you their money. But still, you know, most of the big players out there, they have some requirements. One of which is, you must have been an associate for at least a year or two. And then your production needs to be a certain amount for them to feel confident that this business venture you're going to go into is going to be profitable.

So those two years, if you've worked under a DSO, either you have liked that volume heavy workload, and you want to adopt a similar business model into your practice. Yeah. Or you detested it and you're like, I never want to do that. I want to do the exact opposite. That also comes into play, like your experience, whether it was positive and you want to, you know, carry that on into your practice or it was horrible and you want to do something completely different. And that should play into your deciding the location because depending on the part of the country or the town, that will also determine your business model. Yeah. I'll Let me give you an example.

Let's say you pick a middle of nowhere town, right? And most of the people there are either farmers or ranchers. They don't have dental insurance or health insurance. So for a place like that, if you decide to open up a practice, your business model would most likely have to be more fee for service.

Mhmm.

Right? And then you also need to make sure what percentile of fees you need to apply in that business model for it to be profitable. Now, you will have some perks of operating or having a practice that is far away from an urban setting because typically the rent is cheaper. But then again, it might be harder for you to find employees because you'll probably have to pay more to your employees so they could move from other bigger cities to your town. So there are ups and downs, but again, it's more about you.

Yeah. It's

like, okay, so I've determined the location. Also look into the factors, the demographics, the population, the education, the median income, and then the kind of services you're going to provide. Like are you a GP? Are you a specialist? Do you think there's even a need for it? There's a rough number I have for people. I typically say that if you're thinking of picking a city where you want to open up a location, look at the population and then divide it by 8,000. And whatever number you get, that's the maximum number of practice there should be in that city. Oh. So if it's higher than that, that means it's already saturated. So stay So again, this is a very general rule of thumb.

Right. Way of looking at it. But I'm sure, like, when you get closer to actually being serious about it, there's going to be real, other ways of, like, really deciding, like, this is where I want my business. Right? But this is just the rough way. Let's say if you're just Googling for different locations, it's like, how do I know if this is the city I should pick where I'm going to have my startup?

So we talked about buying. Mhmm. Since right now, you know, it may not the start up in some of these places. Is that the answer? Are there other answers to I still wanna own my own practice, but starting up is a is a lot right now?

Yeah. Because typically, it's cheaper to have a start up. If you are thinking of buying an existing practice, your initial investment would be two x, three x. Right. You got it. But there's almost that certainty that you will have net positive income. Right? So that works to your advantage. But then you have the downside, which is you have to adopt someone else's culture.

Yeah. Right? So what if you're acquiring a practice that was run by a dentist that's about to retire? So he's been running the practice for forty years the exact same way. Maybe he's had employees there that's been working for at least ten years or twenty years. And then you come in, you're younger, you've learned all these new procedures with newer technology, and you walk in and the first thing you do is you bring in all these machines, right? You're like, oh, I'm going to implement all the newest, latest gadgets and gizmos, but then your team members are not on the same page as you. So then you have to find that nice balance of like, okay, even though I want to have this way of doing the business, I need to also consider whether it's something my entire team can be on board with. And that might be the challenge you'll face when you buy an existing practice. Whereas a startup, it's all on you. If that's how you wanna start it, that's how you start it.

Yeah. And you're not gonna face that problem there.

We talk about the DSOs, which it's, you know, a very popular thing now. When you're trying to buy a business, do you find that you know, we talk about hiring. A lot of the times the DSOs are more attractive because they're offering benefits and they're offering all this kind of stuff.

That's right.

Do you find when it comes to selling a practice that the DSOs are harder or easier to go up against because or are they offering, like, super attractive packages where if I'm selling, I'm more likely to go with the DSO than just a general person trying to to start a practice.

You know, on the surface, if you ever ask a DSO within two minutes, hey, how much do you think my practice is worth? They're gonna give you some x. Right? Yeah. Five X, six X, seven X. And then you're just literally looking at your EBITDA and going, Oh my goodness, this is way more than what an independent buyer would give me. And you just think, these are the best way to go. But then when you actually get into it, you just realize how creative they can get with their offer. And almost always, they're never going to give you the full amount upfront. They're probably going to give you, I don't know, between fifty, sixty, 70, rarely 80% of what they have agreed upon and the remainder over a certain period of time.

Quite often, you're going to notice DSOs will have interested sellers stay on even after the sale for at least three to five years. And then the remaining balance is paid out to you in increments as long as you can maintain that first set EBIT amount. That's like saying, okay, you said your EBITDA is this. Well, for the next three, five years, as you stay on board, we need to make sure your EBITDA is at that level, and then we'll continue to pay that. And now, some DSOs will also offer something called growth notes, where if your EBITDA exceeds what the initial amount was, they will actually pay you a little more on the next step. So just so it's fair on both sides. Now the reason why I'm expanding on this a little bit is because that might seem attractive to some demographics of sellers, but not to all. Let's say you're at an age of retiring very quickly, and you just want out.

This might not be the best way to go about it. But let's say you're about four or five years away from retirement, and you still want to practice dentistry, this might be more for you. And then, let's say we're talking about a younger dentist, right? And the younger dentist is like, Well, I still have, I don't know, thirty five, forty years of working years left. Do I stick it out here for the next three, five years and help it grow or keep it to where it is for someone else? Or do I sell it to an independent buyer at a price where I can cash out right now and invest it somewhere else? Am I capable of that compounded growth myself? And if I am, why shouldn't I benefit from it? Yeah. Why am I having to share it? All these factors come into play whenever we're thinking of selling to a DSO. And I think they've been around enough where I feel like most people get that now. That initial, like, oh my goodness, DSOs are the best thing that could have happened. I don't think most dentists think like that anymore.

I mean, they're still there. They're still lucrative and attractive. And there's definitely a group of people that will want to work with DSOs because they are the right fit for them. And DSOs, their business models are the right fit for even the potential sellers. But that charm that everyone's going to sell to a DSO, I don't think that's quite there anymore.

Okay. You also mentioned before you started recording about opportunities where maybe you can get in on an equity stake of a company you're working for. So that could be another option for you if you're not ready to start up or quite buy, but there'd be another opportunity for you to have some ownership.

Yeah. I think I remember. We were talking about how to incentivize associates. Yeah. It's like, let's say you're a business owner and you're not just a great clinician, you're also a great business owner. You've been blessed to actually grow your enterprise from one location to, let's say, several locations. And you're being able to produce at the level at which you're producing because you have all these amazing team members that you work with, that work with you. And you want to make sure that just the way they're taking care of you, you want to take care of them.

Yeah. And the best way to show that sometimes is to have them be in the mix of it By offering some kind of an equity package. And that will vary from person to person. But from the talks that I've had with a few of my clients, they are on board with that. In fact, they think that's how it should be. That, you know, it should be a two way street. Like, if they're going to go above and beyond, they need to know that it's towards something. And I shouldn't be the only benefactor of that, that it's going to be shared.

And that's when sometimes certain models will include some kind of sweat equity package where they'll bring in an associate, they'll work for some time, whether it's two years, three years, prove their worth or show that they're capable of taking the practice to the next level. And that's when the existing owner may talk about some kind of inequity. Whether it's wet or even like a pay in, but, you know, it's, through a promissory note. Like, they'll finance it themselves. So, whatever works and But, but it's typically designed in a way where it will benefit the person who's been working there for some time, and who has helped the practice get to the state, which it is. I would say though, that's not as common. And if you do find a business owner that you're working with or another, you know, dentist owner that thinks like that, then yeah, that's the kind of culture you want to stay in. Yeah.

Right? Where they think like that. But going back to the American dream, right? Oh, yeah. Of a dental student, where it was like, Oh, you know, I'm gonna go to dental school. After I graduate, I'll work for someone a couple of years, kind of learn, not just the clinical side, but the management side, how to pull reports, how to look at production reports, and then how to make assessments. And then I'm going to do my own thing. Ten, twenty years ago, that worked quite well.

Mhmm.

Right? You didn't see as many dentists. And then even the people you were competing against were on the same level as you, so to speak. So, in other words, let's say, you know, you graduated from a dental school where they taught you nothing, which again, till today, most of them don't, about running a business. But you see that all the other 10 people are exactly in the same boat. But you guys are kind of learning it together. Yeah. Okay, how do I get there? And that's why this whole notion of like, Oh, I'm going to do on five, ten dentistries one day. That was not the thing back then.

It was like, I'm going to have one and I'm going to take it to that level one day. Just make it better and better and better. These days, I mean, you mentioned DSOs. You're competing with PE folks. You're competing with so many different things. Saturation, you know? And then, again, going into, let's say, you're in a 20 mile radius, city that has 60 dental practises. What can you do to remain profitable? I mean, there's only limited resources, meaning there's only so many population that will require dentistry. How do you make sure you get the bulk of it so you would remain profitable? But keeping in mind that someone's going to be a loser.

Some of them will be a loser. And what if it's you? So there's not enough to go around, especially in urban populated cities. So, it's more important these days where you think about all these factors before moving in. And you know what surprised me? I do have to mention generations. I feel like you do see a stark difference in the way people think, depending on the generation they're from. Let's say you're talking to someone who's been practicing dentistry for thirty, forty years, how they think.

Mhmm.

Versus let's say somebody who just graduated out of school. It's kind of similar to, let's say, at the risk of showing my age, like you were told to own a house one day.

Exactly. As

we're getting older.

And buy things.

And buy things.

Yeah.

Right. These days, they would rather rent because they don't want to mow the lawn. They'd rather pay the HOA, they'd increase the HOA and have someone else take care

of it. It's just different. It's experiences more than, you know, things.

I think so, yeah. Yeah. And I think convenience is also a huge factor for them. Yeah. So, keeping those things in mind, I think it is going to be very different, depending on who you're talking to. But there's clearly a shift. Yeah. And I feel like even when I'm advising people, keeping those shifts in mind, I have to change what I say and how I look at things.

And then of course, the inclusion of more and more factors can alter that.

Yeah. Yeah. Well, I think it's a great topic. I think it's just, like you said, there's a shift happening. It's interesting from a perspective of what's important. But also really good things to consider. And maybe this maybe you gotta take a left or right turn, but understanding what direction that is to ultimately get to that dream that you have. But also, I like the perspective of being very realistic and understanding what kind of practice you want.

It's not just a black and white thing. There's a lot of different ways to go about it. So That's right. I think an important topic for Mhmm. Everyone. It's business ownership is not it's worth it. I mean, it's great, but it's not for everyone.

And so,

you know, there's other options out there if you still wanna practice, but and make good money.

That's right.

Have a great life. Yeah. Yeah. Right? And just find more balance.

Yeah, and just because your dad, who was also a dentist, told you that that should be your goal because that was my goal.

Yeah.

Doesn't have to be the case anymore. Yep. You know? Because you live in a different time and things work differently now. Things cost more now. Yep. So look at all the options. Think of yourself, how you are as a person, how you want to grow, and what kind of challenges you're willing to face. Because one other thing I don't think we touched upon, but, burnout's a huge thing these days.

And more so amongst our fellow dentists. So, yes, it is a competitive world and a lot of factors have to be considered. But as long as a balance can be maintained. Yeah. I think, we can do a much better job at, reducing the number of burnouts. Because, you know, it doesn't matter how strong of your contract is for an exit clause. Sometimes certain factors, let's say if you're financing your business venture and you want to call quits in a couple of years, but you still have three years left on that note. And what if your business isn't, equity wise, to a point where it could pay off your meaning debt? You might be stuck.

Yeah. Till your debt reduces to a point where when you sell it, you can pay it off. So, even when you go into a business, you need to think of that. Like, okay, what if I want to call it quits? Can I do it immediately or is it going to take me some time? Yeah. So those factors also need to be considered. Not just what do I need to start this, but also the exit clauses.

Right. Awesome. All right. Well, thank you very much.

Sure. Anytime. Thank you, Erin, for being on the episode and asking all these questions. And, again, it's always a pleasure.

Yes. Absolutely.

Thanks for listening today. Be sure to subscribe to Beyond by Wings on your favorite podcast platform. For more information, you can follow us on Facebook, Twitter, and LinkedIn, or reach out to us on our website. You can also shoot us an email at infoeandassociates dot com.