By Hayley Robins, Senior Accountant at Hive Business.

If you were going to start a dental business next year, would you start one from scratch or buy one that’s already up and running? Which is riskier? I know which one looks riskier. It’s the one that only 5% of owners, in our experience, go for.

Setting up a squat takes a lot of work. There’s no template and infinitely more choice, and choices are difficult. The very first choice is particularly complex; what kind of property do you buy? It could be a retail outlet, an old bank or courthouse, or do you commission a conversion of a residential property, or a new build?

You’re going to have to put a lot of thought into it, because the property you choose will determine your catchment, which your business has to engage with effectively to succeed. Once you have overseen the conversion, with all the decisions about equipment and interior décor — or more likely at the same time — you will a need a branded range of services that appeal to the people in your catchment.

Pretty soon you’ll need to recruit your team, build a website, and put in reliable back office systems, check you’re au fait with the CQC, and give some thought to your patient journey; is it smooth enough, are there areas of friction that can be removed before you go live?

Obviously, you are doing all of this without any money coming in and you have never done any of it before. You will need help. If you are paying for it with a loan from the bank, the bank will need to see a business plan of a much higher order. There’s more uncertainty and more risk for the bank, so you need to do more to show how you are mitigating that risk.

Yet the more work you do at this stage of your career to mitigate risk, the less risk there is for you in the future. It’s a zero sum game. Someone who buries themselves in debt to pay an inflated price for an established practice with little headroom and shrinking margins is not mitigating risk, however much it may feel that way.

Yes, it seems cushdy and the bank is more than happy to supply the money, so it must be a safe bet, right? Well, no, just because the bank knows that you will continue making enough money to pay it back doesn’t mean you are going to do well out of the arrangement.

This is about risk perception. Of course an established practice is going to feel safer to a rookie business owner. It has a patient list, there’s money coming in, and the principal is staying on to stabilise the transition. And yes, it works — that’s why 95% of owners go for it — but just remember that you will be in a significantly worse position than the dentist you are buying from.
And beware:

• You will almost certainly let things tick over until you have to make difficult changes down the line
• Therefore you are only temporarily avoiding the work involved in setting up a squat
• Yet you are forfeiting clarity of vision and purpose at precisely the time when such clarity pays the highest dividends
• You have a massive debt burden to start paying back from month one
• And therefore smaller margins
• It isn’t your team
• It isn’t your plan
• The old principal will probably get in your way and drive you mad
• There’s way more long term risk

A typical established practice costs £700k+. You could set up a squat for £250k. You might not have any money coming in for three or six months but the money you save could be used to make a contingency plan. Think of where you’ll be in five years. Is a squat really the riskier choice?

If you’re entertaining the squat idea and want to know how we can help, get in touch on 01872 300232 or email us at hello@hivebusiness.co.uk.