Buying? Stop! 8 out of 10 practices are in the wrong location By Jonathan Fine. March 8, 2017.
An incredible eight out of 10 practices are located in the wrong place. They pass muster as viable businesses today, but the wave of retailisation churning through the industry means their days are numbered. Once good retail standards saturate the market everyone is going to notice that location is the elephant in the room, rudely the biggest and heaviest differentiator.
When that happens everyone will wake up to the critical importance of:
- Catchment size and profile
- Adjacencies (what is next door or on the same strip mall)
- Accessibility (traffic/parking/street level entry — can people walk straight in?)
- Size and layout — an empty shell presents an opportunity to create a perfectly optimised practice
If eight out of 10 UK and Irish practices are going to relocate to avoid gently dying, why not short circuit the pain and select the prime site now? You’ll move ahead of the market rather than paying through the nose for a tired and doomed practice, with all the trauma of moving again in a few years. Moving is stressful and expensive; not having to sell or vacate an old building and sort out the punitive dilapidations can only be a good thing.
If you are buying, consider the huge difference in values between practices with identical turnovers and patient profiles. The difference in value between Truro in Cornwall and Sutton in Surrey is stunning — in all probability a Sutton practice will achieve 40%+ more than its Truro counterpart. The Sutton practice offers worse returns and yet there is high demand for it, while the Truro one will take much longer to sell. Difficult to explain, until you understand the value driver.
The reason for the difference in values is supply and demand; the demand is driven by where dentists prefer to live, which comes down to cultural, family, community and lifestyle reasons (I’m baffled why people think anywhere in the UK trumps the Cornish lifestyle, but they do). Inevitably, the supply in certain geographies is extremely limited, a bit like the domestic housing market. So be aware of what and why you are buying.
If you are determined to buy then don’t sleepwalk into a massive loan that will take you the next 15 years to repay for an asset that won’t necessarily be worth what you paid for it at the end of the cycle. The only thing you will have achieved is the joy of running your own shop — which is really great fun — but it might mean you’ll be subsidising your personal income to service a loan. Big loans are getting pretty normal now that the dental practice bubble has well and truly taken off — prices jumped 14.9% last year, more than any other sector, according to Christie & Co.
My preferred route to owning a practice is a squat, but only if the principal has the discipline and appetite for creating and building a business from scratch. For the rest, ownership means paying a premium and buying somebody else’s business.
If you need help deciding or you have decided and want help making it work, talk to me — my team and I can help and reduce your risk considerably, whichever route you take.
JJF (07860 672727 | [email protected])
“Why not avoid the pain and select the prime site now?”
Jonathan Fine, MD