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Adding It All Up: The Real Costs in Money and Time When Opening Your Own Practice
Opening a new dental practice is a significant investment in both time and money, but proper planning and preparation can make it all worthwhile.
Adding It All Up: The Real Costs in Money and Time When Opening Your Own Practice: © Svetlana - stock.adobe.com
The idea of opening your own dental practice is appealing. Be your own boss, make your own hours, manage your own team. But along with being the boss comes the responsibility of number crunching—and sometimes, the numbers can be daunting.
Dentists thinking about opening their own practice should pay attention to those numbers before they dive in. Statistics vary, but the general consensus is that starting a new dental practice will set a dentist back about $500,000.1 This number varies based on location, building decisions, and other factors, but the initial investment will be hefty.
Couple this with around $70,000 in operating costs each month, and the necessary upfront capital is nothing to scoff at.2 According to the American Dental Association, it can take 4 to 7 years to build a dental practice into maturity, so the costs along the way—both monetary and time—won’t go away any time soon.3
So for dentists looking to open their own practice, where does all that money come from—and where does it go?
Getting the Capital
The initial cost of starting a new practice can be the most daunting hurdle. Coming up with the capital can be a big hurdle, particularly for newer dentists still juggling student loan debt.
“There aren’t many people who can just say, ‘I’m going to go put up $800,000 of my own money and buy this practice or start this practice,’ ” says Bruce Bryen, CPA, CVA, a dental practice valuation analyst at Baratz & Associates, PA.“So you go to the bank, you go to the lender, and you’ve got all kinds of help.”
Finding the right lender is the first step. Sometimes, the lowest rate—while tempting—won’t be the best one. Lenders who have worked with dental startups before are going to be better situated to deal with disbursements to the vendors involved in setting up the practice and may offer lower first-year costs. It’s also important to work with a lender that’s really going to evaluate the situation; sometimes, Bryen says, getting turned down for a loan can save you in the long run.
“With inflation, banks may not lend 100%,” he explains. “They may not lend working capital. But one of the good things about borrowing money to buy a practice is that they are looking at the investment, and [whether] it’s a good one. So if you get turned down, they are seeing something bigger that you aren’t; if you’re trying to buy an existing practice, you’ve got someone with financial experience who is going to say, ‘Look, their gross revenue has dropped for 3 straight years.’ You don’t want to get into something like that.”
Building the Practice
A significant expense in starting a new dental practice is the actual build. Construction is going to be one of the largest bills when starting a practice from scratch or renovating an existing practice. Experts estimate that dentists can expect to spend between $120,000 to $480,000 on building costs, depending on whether they are renovating or building new. Breaking it down, this is about $100 to $200 per square foot of the practice.2
Dentists should also factor in the fees associated with building permits, architects, and various contractors such as plumbers or electricians. It can add up quickly, making the higher end of the building-cost spectrum cost-prohibitive for many dentists. If this is the case, Bryen recommends renting a space instead of building a new office to cut expenses.
“You might not be able to buy the dental building right away; you may have to rent it for a few years,” Bryen says. “But you can definitely buy or start up the practice, and you’ll have the equity to do other things down the road.”
If you are looking to build a brand-new facility from scratch, be prepared to wait up to a year and half before you open your doors. Generally, it can take 2 to 3 months for site preparation, 6 to 9 months for build, and 2 to 3 months to finish the interior of the building.4 For those who have purchased or are leasing an existing office, the timeline is expedited; instead of 18 months, you can expect 4 to 9 months for renovation, depending on what the space was originally.4 In the meantime, continue to work part time somewhere to supplement your income. Then, once your practice takes off, you can transition your time there.
Once the space has been established, it has to be furnished with equipment and supplies. Stocking everything from chairs, imaging systems, and operatory furniture and fixtures to hygiene tools, front desk equipment, and so on, adds up quickly. Generally, this equipment will account for around 30% of the total startup costs.2
Getting Things Running
Perhaps one of the most important investments to get a practice up and running is the framework that will run the day to day: the practice management software. Practice management platforms manage everything from the schedule and accounts receivable to production and collection. While it’s not cheap, it is critical for a smooth workflow and successful dental practice management.
“Practice management solutions are the backbone of a dental practice and become the source of truth for many aspects of the practice, including patient records, billing, insurance, patient communications,” says Chae Kim, chief solutions architect for Planet DDS. “So investing in the right solution is vital to get you off the ground and plan for the future. I’d recommend a cloud-based solution, which offers more accessibility [and] less reliance on servers, and allows practices to grow and scale more easily.”
There is a wide variety of practice management software available on the market, with various features and price tags. Generally, all new implementations will come with an initial price, and have some fixed costs. For locally hosted software, solo practices can expect to pay anywhere from $1500 for basic software with a single user to $15,000 to $50,000 for software with features such as billing and electronic health records, and multiple users. Practices should also budget for potential data transfer fees for any preexisting data, or for ongoing tech support costs.5
For cloud-based software, there will also be ongoing subscription fees. Practices implementing cloud-based packages can expect to pay an initial setup fee ranging up to $5000 and then monthly fees of $50 to $500 per user.5
“Most dental practices select cloud-based software,” says Jill Nesbitt, founder and dental software consultant for Optimize Dental Counseling. “For new implementations this will have some fixed costs and then a monthly subscription. Fixed costs will include training, conversion, and perhaps outside resources.”
The outside resources Nesbitt refers to include trainers and consultants that can get a practice’s team up to speed on how the software works. Basic training is included in the purchase price of most software plans, but on-site training—or additional training down the road—is sometimes an additional cost. However, it’s a good investment: Bringing in advisers means that practices will be able to get the most out of their software while not relying on team members to train one another—both of which combine to make software more cost-effective.
“I’m a consultant often brought in to run a new dental software implementation,” Nesbitt says. “This is a benefit to the dental group because they don’t have to pull an existing team member away from their full-time job, plus a consultant will have expertise in the areas of change management, project management, creating SOPs, best practices for dental software set up, etc.”
In addition to the fixed costs and the cost of bringing in an additional trainer or consultant, practices also have to prepare to spend time as well as money. Training on entirely new systems shouldn’t happen through trial and error while the practice is up and running. Instead, practice owners should expect to schedule some downtime to make sure everyone on the team is properly trained.
“The surprise cost may be that in order to train your team on the new software, you may choose to close the office for 1 to 2 days, so this is also a loss of production,” Nesbitt says. “With planning, you can make up this production by opening other parts of days or taking advantage of already scheduled downtime.”
Skipping this change-management portion of new technology adoption can be a huge mistake. Some practices may think that the lost production that will occur if they close from training will outweigh the benefits, but Nesbitt emphasizes that this isn’t true. For example, if the team doesn’t learn how the software works, insurance estimates might be wrong. Then, the team might not trust the system, and won’t collect the right amount from patients—resulting in reduced collections.
“If the system isn’t set up properly, how will the schedule be set up?” Nesbitt says. “How is each adjustment set up to impact production or collection? Which reports are best to use for doctors’ compensation? When one of these is not correct, the data becomes garbage in, garbage out, and all business decisions are impacted.”
Even with thorough training, practices should be prepared for full adoption to take time. They need to ensure that team members are buying in and actually learning what they need to know to get the most out of the technology; while you can train, Nesbitt says, you can’t make people learn.
“Change management takes longer than we all think,” she says. “Time should be invested at the start in selecting an executive champion who will help everyone understand why this tech decision is being made, and then content (training materials, SOPs, etc.) should be implemented to facilitate training. Then you can use the software utilization data to track who still isn’t logging in or using the features. Talk with these team members to find out what is holding them back—and then make a plan to address their concerns.”
Keeping Things Moving
Once the building, equipment, and software are all in place, you still have to keep the practice running. The average cost of running a 2-dentist, 6-chair dental practice is between $67,500 to $70,000 per month.2 This includes the cost of rent (or loan payments), insurance, salaries, lab fees, variable costs such as supplies and equipment maintenance, and other expenses such as marketing, web hosting, and advertising. In total, variable costs should run you around 45% to 55% of practice income, while fixed expenses such as rent or mortgage payments, insurance, and utilities make up about 4% to 7% of revenue.6
Salary
Salary is going to make up the largest portion of your monthly expenses. When considering that aforementioned 2-doctor, 6-chair practice, assume that it will be staffed with 2 dental assistants, a hygienist, and a receptionist or front-office manager, at minimum. According to a 2021 U.S. News & World Report salary survey, you’ll be looking at approximately $180,000 annually per dentist and $77,000 for a hygienist.7,8 Dental assistants bring home an average gross salary of $40,000, while you can expect to pay a dental receptionist an average of $32,000, all of which will combine to around $45,000 per month in salary expenses.2
Other variable costs
Variable costs are the costs of keeping the practice running. In addition to salary, supplies, maintenance or equipment repair, continuing education, and lab fees all fall into the variable-cost bucket. Practices can expect to spend 8% of their total revenue on lab costs alone, and another 6% of total revenue on the other variable dental costs.2
Marketing
Stocking the practice and paying your staff won’t mean anything if you don’t have patients in the chair. And reaching new patients comes with its own investments. Advertising, social media campaigns, and marketing efforts are particularly important to a practice that’s just starting out.
“You can’t open a new dental office without having your own website these days,” says Kim. “Other time and monetary expenses related to that include managing your social media presence, paid advertising, and managing online reviews. Sometimes dentists don’t consider the patient-engagement aspects, but they are critical to have in place.”
Experts recommend going hard on marketing in the beginning, since you’ll be trying to offset incredible overhead and debt with new patients when first opening up. Practices should budget around 20% of projected gross revenue on marketing efforts.9 This may seem like a lot, but projections measure that the cost to acquire a new dental patient can range from $150 to $300 per patient—which can add up quickly if you’re trying to fill an entire patient roster.Once the practice is off the ground, most practices spend in the range of 4% to 7% of annual revenue.9
Don’t wait to start marketing until your doors open though; industry experts recommend beginning your marketing efforts at least 2 months before you expect to open your doors, ensuring you’ll have patients ready to go as soon as you are.4
Making Educated Choices
While opening a new practice is a significant investment in both time and money, the payoffs can be worth the long hours and financial sacrifices, both emotionally and financially. Understanding the numbers is the first step toward discovering if opening a new practice is the right choice, so potential practice owners should collaborate with a dental CPA or adviser team to figure out what those numbers would look like for them.
