Since the backlog caused by the COVID restrictions and the subsequent access problems for many patients, squat practices have risen in popularity. How easy is it to set up a private squat and what are the main points dentists wanting to establish one should consider? Andy Acton of Frank Taylor and Associates, shares his thoughts.
What is a squat?
If you buy an existing practice, the price includes an element to cover the goodwill of that practice. In effect, you are paying for the hard work that somebody’s already put into that site. They’ve found the location, they’ve created the brand, they’ve done the advertising and the marketing to generate the patients to come to that practice and purchase their dentistry. So, it’s a fully worked up business, and for that you pay to cover the goodwill.
A squat is the step before that. So, there is no existing dental practice there at all. Which means you need to find a location, develop your pricing strategy, decide what treatments you’re going to offer and so on. Then you need to find your team, open the doors and treat the patients before you can start earning money.
With the first example, it’s an established business and you are taking over what somebody’s already done. Whereas with a squat you are starting from having nothing but a business plan and taking it forward. So arguably the squat route is more difficult, but for the people who do it, they say it’s incredibly rewarding.
How do start-up costs compare?
If you’re looking to buy an existing practice, you need to put in between 10% and 15% of the purchase price of the practice. That would mean on average between £80,000 and £120,000 as a contribution to buy a practice. If you set up a squat practice, you can spend as much as you want, but typically it’s going to be in the region of £250,000 to £300,000. So, for a lot of dentists, it becomes an affordable option, but it is not without risk. Setting up a squat practice is not for the faint hearted.
If you need finance, then banks are likely to lend less money for a squat than for the purchase of an existing practice. With an established dental practice, a bank would lend somewhere between 80% and 90% of the purchase price. Whereas for a squat, it’s harder to get support for any more than around 50% of the cost.
That’s because an established dental practice will usually have a minimum of three years’ financial accounts to show the performance of that practice. It has an inbuilt profitability. Which means from day one you’re generating fees, and a profit. So, you’re able to cover your costs, there’ll be some money left for the dentist to pay themselves and there will be enough to cover the bank loan. So that’s a good setup.
If you are starting with a squat, effectively what you are presenting to the bank is your CV and a business plan and you’re asking them to trust you. So, from a bank’s point of view, it’s a riskier venture as the investment is in the dentist and their skills to develop the business. Whereas, when taking over an established business, usually, if you continue to do the same things as the previous owner, you’re likely to get similar results. It’s less risky for the banks.
Introduce a plan
Traditionally, pay-as-you-go was ranked at a slightly higher level than plan-based income when valuing goodwill. We’ve seen that change, and now plan-based income is more desirable and more popular. That’s because through COVID where practices had to shut, purely private practices had zero income. Whereas those with plans still had that income, and very few patients cancelled their Direct Debit. So that showed quite a few practice owners that a plan evens out cashflow quite nicely. So, from a goodwill perspective, plan-based income now ranks slightly above pay-as-you-go income.
From the point of view of a squat, if you are able to recruit patients onto a plan early on, it means that month by month your cashflow builds and it starts to cover your costs at a quicker rate than just pay-as-you-go. Because in the early days you won’t know what the needs of your patients are going to be. You may have a good month, then you may have a fallow month and your earnings will really fluctuate. Whereas if you have recurring plan-based income, it gives your business a more robust structure from the point of view of your cashflow.
Start your preparation early
If setting up your own squat is a longer-term ambition for you, I suggest you start splitting your CPD into two areas. Develop a business CPD programme alongside your clinical one to build a CV that includes business skills. See if you can deputise for your principal when they’re on holiday and look after the team. Get involved in marketing the practice and try to get involved in the business side of things as much as possible as this is an area that dentists don’t get trained for during their five years at dental school. Also, talk to other people that have been through the process of setting up a squat.
Then start to build your business plan. Start with an outline plan and think about where you want it to be, what services you are going to offer, your opening hours, and start to visualise how you would like your practice to be. Then, when the time’s right, you can start to fill in some of the gaps and produce your financial plan.
If you are much closer to being ready to setting up, then the most important thing to get right is your location. You can change most things in a dental practice, but you can’t change your location easily. So, do not compromise on location. When you get that right, everything else will flow from it.
And finally, make sure you start your marketing about six months before you plan to open your doors to your first patient. Because unless someone is in acute pain, most people will be prepared to wait for you to open and come to see you. So, if you start your marketing early, you’ll have a database of prospective patients you can engage with who can come in as soon as you’re open, which will help you get earning sooner.
Andy Acton is a director at Frank Taylor and Associates Ltd. He is a sought-after public speaker covering topics including leadership, management, marketing and the future value of dental practices. Andy is also a director and co-owner of FTA Finance, the award-winning healthcare finance broker, FTA Financial & Wealth Management, the specialist financial services provider for the dental profession, and was one of the founding directors/owners of FTA Law. More recently Andy helped create FTA Media which produces authentic video for digital marketing purposes. Andy is currently working on several new projects including a growth consultancy venture to support dental practices for the next decade of growth.