If you buy a dental practice, should you also buy the practice real estate? In other words, do you buy the building as well? Or is that just too much?
I’ll get right down to what you care about: How does this impact you financially?
Honestly, you’re not benefitting much financially by purchasing the facility — not usually, anyway. Most lease versus buy analysis come out pretty close.
That being said, you are buying control over your space AND you’re buying a forced savings plan in real estate investment.
Some buyers come to me and ask, “I can make it work financially and I want to own it, but should I do it? I don’t really like the layout/decor/visibility, etc.”
Unfortunately, I am not there at the physical location to tell you if it’s a good facility. I am not a real estate appraiser or inspector looking for issues.
I can be your springboard to bounce concerns off and give you some financial advice. However, I can’t tell you whether or not you should buy it. That is a decision you need to make.
Instead of asking me to sell you on the facility, I’ll ask you to sell me on it.
Tell me that this location is near ideal, has great visibility and is accessible to patients. Tell me why you want it. If you can’t adequately do that, then you have your answer!
Potential Pitfalls of Purchasing
These pitfalls are strictly based on the physical space alone.
We have already talked about how the visual appeal of a website can translate into new patients. The same can be said for the facility as well. If the facility is relatively modern in aesthetics, a patient is likely to notice that.
However, as with all good things, there is such a thing as “too much.”
Don’t buy a castle when you can only afford a cottage.
I have seen many times when some sellers out there had grand aspirations and large egos and it’s reflected in the size of their facility. They wanted flash and awe. Now they are the only provider in a 10 operatory office in a large stand alone building solely dedicated to house the dental office and nothing else.
Sure it looks nice. It likely has very good roadside visibility, however, they are paying for double the space they actually need and if you buy it, you will too (unless you bring on an associate or two).
Don’t trap yourself and limit your potential by going too small.
The opposite is true as well, however. I’ve assessed multiple practices that have okay collections at best, maybe somewhere in the $675,000 range, but the office only has three treatment rooms.
Sure, there are some ways you could maybe grow production and subsequently collections. You could add some specialty procedures or complete untreated work. You could be more effective with how the advertising budget is spent. And so on.
However, your growth is significantly limited because the facility is limited. If you see a three-op practice that checks many of your boxes, find out early if it can be expanded.
I generally recommend, if you’re looking to be a single provider and you want to purchase the facility, look for a space that’s somewhere between 4-6 ops.
The choice is yours. At the end of the day, I want you to be set up for success. So if that means that you decide not to purchase the building, I strongly recommend making sure to include in the letter of intent that you have the option to buy the facility at some point. This will at least give you the option later if you change your mind after a few years.