As several DSOs begin to prioritize new office development, several factors must be considered to ensure profitability and operational stability.
Barry Lyon, DDS, the director of provider recruiting and onboarding at Dental Care Alliance, recently spoke with Becker’s about the risks associated with opening de novo practices.
Editor’s note: This Q&A is part of a weekly series featuring Dr. Lyon focused on topics in the dental industry and DSO field. The views expressed are those of Dr. Lyon and do not necessarily reflect those of Dental Care Alliance.
This response was lightly edited for clarity and length.
Dr. Barry Lyon: DSOs find the idea of creating their own culture and developing their own clinical model while avoiding high acquisition multiples an attractive concept. Several DSOs have announced plans to accelerate de novo expansion, with organizations including PDS Health, Park Dental Partners and Smile Partners emphasizing new-office development as a core growth engine.
De novo development is not without risks, and they begin with high startup costs. Opening a dental office requires substantial upfront investment, including construction, equipment, technology, furnishings and working capital. Marketing costs are often substantially higher during the first two years, and slower-than-expected patient growth can delay profitability. DSOs must maintain sufficient liquidity to offset operating losses while the practice matures.
Launching a startup practice requires significant investments of capital, planning and business preparation. Most de novo practices experience negative cash flow during their early months, as fixed expenses begin accumulating immediately and long before collections begin to steadily arrive. Recruiting providers willing to join a brand-new practice may be particularly difficult because compensation is initially tied to lower patient volume. Since the practice’s dentists are most often paid on collections, initial compensation packages often include daily guarantees until patient flow stabilizes the doctor’s collections. Credentialing with commercial insurers and Medicaid may take weeks or even months, delaying reimbursement and sometimes postponing patient care.
There are obviously distinct advantages to de novo development, but planning needs to be meticulous, and expectations need to be realistic. Accurately predicting startup costs, exhibiting patience as the practice grows and having an adequate amount of starting capital will make the investment in a de novo worth the risks.
At the Becker’s 5th Annual Future of Dentistry Roundtable, taking place September 14-15 in Chicago, dental leaders and executives will gain insights into emerging technologies, practice growth strategies and the evolving landscape of dental care delivery, with a focus on innovation, patient experience and operational excellence. Apply for complimentary registration now.
