This article was written by A.J. Peak, CEO of Peak Dental Services, and was published in the July-September 2018 edition of the American Academy of Dental Group Practice’s quarterly newsletter CONTACT. See the print version here on pages 13 & 14 or read the full reprint below.
As a son-of-a-dentist and having started my business with only 1 location and 4 employees, I have an insider’s advantage into the challenges of juggling the administrative burdens of running a practice, being a leader, and doing the dentistry.
Since 2008, we’ve grown from 1 location to 27 dental practices. Currently, we’re adding roughly 1 location a month.
This isn’t for the faint of heart.
Over the years, I learned (usually the hard way) how to use what was working well for us and scale it to accommodate our growth. Here are three essential must-do’s that can save you a lot of headaches as you scale up.
Define your strategic differentiation and stick with it.
Now is the time to define who you are. There are a few key elements that you should keep uniform across all of your current and future practices. Define your strategies as they apply to these categories:
- Level of practice esthetics and technology
- Dentist ownership models (pick one and stick with it!)
- Insurance plans accepted (be sure they are the same across all offices)
- Suite of clinical services
- In-house specialists (if any)
- Which administration tasks are centralized
Pick one model and perfect it. Perhaps more simply said, defining who you are today will make things scalable and operationally feasible when you have 10+ or even 25+ locations.
Fine tune your formula to evaluate purchase opportunities.
When you are evaluating dental practices, do not make the mistake of getting hung up on the practice’s revenue history. This will not give you the complete picture of the practice’s financial future. Learn to build year 1 EBITDA (profit) forecasts for acquisition prospects to facilitate what price you’re willing to pay. Adjust the year 1 revenue forecast up or down according to these criteria:
- Practice esthetics, technology and location
- Saturation of dental practices
- Suite of clinical services
- New patient count
- Dentist/hygienist productivity
Be sure to model out any variable expenses based on your company’s history (e.g., advertising expenses), not the acquisition practice’s history. Conversely, model out the practice’s fixed expenses using its history (e.g., rent, utilities). After you’ve constructed your year 1 EBITDA forecast, share it with your lender to verify what price they’d support you paying for the practice.
Develop new funding opportunities.
Pursue capital sources to fund growth as if it is a fulltime job. It’s likely your source of capital will change at least 3-4 times as you grow from 1 to 25 locations. For example, we used a primary lender and asset-based finance lenders to get to 5 locations. It was at that point, we were too big for our primary lender and frankly too small for the banks higher up the food chain. To bridge the gap between being too large for some banks and too small for others, we elected to take on a relatively small minority private investment. Usually if you can get to a pool of 10 or more profitable locations, the landscape of interested lenders begins to open up.
Keep these three ideas in mind as your company grows and you will have an easier way to scale up!