The Pros and Cons of Owning Multiple Practice Sites
There is no “one size fits all” rule to running a profitable dental practice. You can make significant return on investment on a one chair practice with minimal costs, a high-end specialist practice or a multi-site business. You can equally lose money on all three!
So, what makes people attracted to operating across multiple sites? Why would you do it and what traps should you be aware of?
Why do it?
The main reason that people operate multiple sites is for business growth. Operating your business across multiple locations provides you with the following opportunities:
Grow Your Reach Geographically
This is often done to expand into a particular area where the dental services aren’t currently being provided or there is not a lot of competition. Two more common examples of this are:
- Where a dentist expands into a rural or regional area whilst keeping their existing base. This allows the dentist to either employ someone local in the practice and to visit on a periodic basis or to visit on a regular basis. For example, booking in patients one week per month in a regional site and commuting to that location.
- Expanding into a greenfield site such as a newly created suburb.
Grow Your Referral Base
This is especially relevant for dental specialists. Having multiple locations means that you can expand your network of referral partners across different geographical areas to tap into a wider base.
Continue to Expand Your Existing Practice
It may be that the practice has grown to the point that the building can no longer house all the activities you need it to. Rather than shift the entire practice to a larger location, there are a variety of reasons why you may choose to open a second site instead:
- Cost: If you have recently fitted out the existing practice or there would be large break fees to terminate the lease, it may make more financial sense to keep the existing premises and start with a second location.
- Site benefits: There was a reason you picked your existing site to operate from and it is likely there are numerous benefits that are specific to that location; easy public transport access, parking, visibility, conditions on your development application (DA) that are grandfathered. If the location is a specific draw for patients, you may want to keep this and expand into a secondary site, rather than risk losing patients during the move.
- Keep Patients: retaining the existing location as well as starting a new site helps ensure patient “stickiness” – travelling to a new location could be the trigger point for a patient to move.
- Stop Competition: where your current site has several key benefits, you may choose to retain the premises whilst you start a second location as a defensive play. Otherwise, you run the risk that if you vacate the premises, another dentist may start up there and create additional competition.
Grow to Sell
Multi-site businesses are often started with the express purpose of future sale. Having multiple sites provides the owners with options in relation to selling the entire multi-site business, selling a group of sites, or selling sites individually.
So, if growth is the reason why people would start multiple sites, what are the potential down sides of doing this?
The Downside
Split Attention
One of the biggest downsides to operating multiple locations is that your attention is split across multiple sites. Your time is finite, so it means that the amount of time you can spend on each practice is limited too.
Just like parents will secretly have a favourite child, dentists will inevitably have a location that draws more of their energy, attention, and resource. This can be a result of unconscious bias or a preference to work at one location more than the other; or it may be that one of the locations is newer or underperforming and needs additional attention. Either way, the risk is that the other practice locations can be neglected and do not receive the focus they would be paid if there was only one site.
The worst-case scenario with a multi-site practice is that you end up with several underperforming/underutilised practices rather than one thriving and healthy one.
Staffing Supervision
A further by-product of the split attention across multiple sites is the inability to directly supervise the work that is being done in the practice and the culture that is being developed there. If your attention is split across multiple sites, it can be difficult to maintain a consistent level of quality across all sites. Low quality or a bad patient experience in one site can negatively impact the broader group practice. As such, it is crucial that there is an anchor person available at each site to resolve both technical issues and interpersonal conflicts. As this is usually a senior member of staff, this also comes with a financial cost.
Financial Costs
Having multiple sites means having increased fixed overheads for the practice group. Whilst there may be some costs that don’t need to be duplicated across multiple sites (e.g. group administration) there are other costs that will be – rent, electricity, equipment and fit out, and reception staffing. This means that generally, the profit margin on each site and across the group will likely be lower than a traditional single site practice turning over the same group revenue.
Reliance on Associates
To run a multi-site practice, you will either need to engage multiple associate dentists to work across the sites, whether they are paid as a contractor only or take an equity piece in the practice. Given that the practice owner only keeps a percentage of patient fees generated by an associate, the practice owner makes less profit per dollar generated on those fees compared with the fees they generate themselves. This is a relevant consideration where the time to administer (and problem solve for) multiple sites, and travel between means that the owners cannot work in the practice as much as they would like and are relying on associates to generate the fees for them. With the recent changes to payroll tax now applying to the majority of remuneration to associate dentists, this will reduce profit margins further. There is certainly profit that can be made in scale, but this must all be planned for when taking on multiple sites.
The decision whether to branch into multiple locations is a personal one and the success or otherwise will depend on both the individual factual circumstances and the level of planning that has gone into the decision. Regardless of your end decision as to the number of sites you run, the crucial part is putting in the time to educate yourself around your choice, implement a business plan and have good visibility around your numbers.
By Elissa Lippiatt, Chartered Accountant and Director of accounting and business advisory firm, Ecovis Clark Jacobs.
This article first appeared in the April 2023 issue of the News Bulletin, published by the Australian Dental Association.