One thing we love about dental is that most practices succeed. Dentists who open a de novo or buy a second practice tend to do just fine — unlike the typical small business, which has a 65 percent risk of failure over 10 years.
Historically, this has meant that dentists have also had an easy time finding money to back them. Banks, especially, have generally felt comfortable issuing loans not only to seasoned doctor-owners but even to brand-new DDSs with no proven track record in business.
But as DSOs, often backed by private equity, continue to buy up practices and introduce new levels of structure and corporate accountability to the industry, that generosity of spirit is beginning to dry up. Increasingly, lenders are asking even single-practice owners looking to add a second location to display a degree of financial diligence unheard of in years past.
“The banks are now smarter,” says Jonathan Moffat, CEO of Aligned Advisors, a wealth management firm that focuses on dentists. “Private equity is smarter. They now know what a good practice or a good group looks like.”
Translation: If you want to expand (and use loans to pay for it), you need to get smarter about money too. It’s no longer enough to be a great dentist — you need to build an efficiently-run business.
Mr. Moffat suggests that practice owners — especially those who already run several locations — recruit an executive to get everything in order well before trying to obtain any additional financing. “Bring on a CFO, a controller,” he says. “Or at least a fractional CFO.”
Sadly, it looks like there’s no such thing as a free lunch. Even for those who clean teeth for a living.