By DR SIMON HOCKEN
I am often asked by associates who want their own practice the question: “Which is cheaper, buying an existing practice or setting up a squat?” My hunch has always been that over a period of time, say three to five years, it works out about the same money.
I thought it time I put some figures to my hunch, and let’s agree now that this is fag packet maths, but if you are curious put your own figures in and see what you think.
According to my sums, at three years buying a practice comes out slightly behind a squat but of course all this depends on so many things, none the least how quickly you can build a squat to £500k turnover. I think it would need about 1,500 private patients with an average patient value of £333/year. 500 new patients a year is a big ask, but it is being achieved by some of our practices.
Anyway, here are my figures:
Buying a two-surgery, £500k turnover, leasehold practice.
£50k deposit
£450k loan
Earnings year 1: £100k
Earnings year 2: £100k
Earnings year 3: £100k
Monies out:
Purchase: £500k
Total: £500k
Monies in:
Earnings year 1: £100k
Earnings year 2: £100k
Earnings year 3: £100k
Total: £300k
Balance: -£200k
Setting up a £500k turnover, leasehold practice.
Set up in leasehold premises: £250k
Earnings year 1: £0
Earnings year 2: £50k
Earnings year 3: £100k
Monies out:
Start up: £250k
Total: £250k
Monies in:
Earnings year 1: £0
Earnings year 2: £50k
Earnings year 3: £100k
Total: £150k
Balance: -£100k
If you want some help in deciding which option is best for you, contact me on simon.hocken@breathebusiness.co.uk or 07770 430576.
Best wishes
Simon
I think that is an overly simplistic view of things. It does not take into account living expenses. Say you need £50k pa to live. In the first example you will have made £50k surplus each year £150k total, in the second nothing overall. This means that the purchase is now £50k better than the squat. With less hassle 🙂
Thanks for your response Niall.
I agree with you that my analysis is simplistic. This is because every squat practice and every practice purchase have a different trajectory and momentum in the first three years of trading. In my experience this is because the proposition will vary enormously. A cosmetic dental and skin clinic on the Lisburn Road in Belfast will grow faster (potentially) than another “me too” private practice in the Thames Valley. The investment in marketing and the quality will vary enormously and directly affect the new patient count. The new owner’s skill set at treatment planning and building relationships with patients will vary enormously and therefore the patient value will vary between circa £200 and £1,000! Let me know if I can help you grow your next practice Niall.
Simon