Congratulations on this exciting step in your dental career!
Read on for 6 tips on opening a dental practice and negotiating the dental office lease agreement.
1) Outline your short and long term business goals
Your new practice venture should begin with a detailed outline of your business goals. You can begin by asking yourself a series of defining questions:
What date are you looking to open your doors? This will help to begin setting up a timeline with key dates and action items.
What are your short and long-term plans for growth? Do you see yourself bringing in associates? Will you specialize, and offer patients more than just General Dentistry services in the space – perhaps Ortho or Endo? Will you require the option to expand
to eventually grow production?
What phase of your dental career
are you in? Perhaps you’re a new dentist who’s been associating for several years. Maybe you’re mid-career and are finally ready to open your own practice, or, perhaps you’re a late career dentist, opening a practice with plans to retire and sell
within 5-10 years.
What are your financial objectives? What is your target annual production and revenue? What have you budgeted for the practice?
Whatever your business goals entail, your dental office lease should be written to facilitate the achievement of these targets.
2) Evaluate whether to buy or lease dental practice space
When establishing a dental practice, one of the many decisions you may face is whether to buy or lease your dental office space. There are advantages and disadvantages to both. Buying the real estate offers flexibility on how to use the space, and the freedom to control the property as you are your own landlord. However, owning requires a great deal more responsibility, and as a landlord/property manager, increased duties and obligations will take time and concentration away from the core business of dentistry.
Buying a practice also requires a large up-front financial investment. However, choosing to lease office space allows you to put this capital towards things like building out your practice, purchasing dental equipment, marketing, hiring and training staff, etc., allowing you to be profitable, sooner.
With leasing, you always have the option of relocating when your lease expires based on changes to your practice goals. Although moving is not always ideal, there may be situations when it makes sense for your business goals. Perhaps the community/location has changed over the years and the demographic is no longer ideal for your practice, or you want to expand and require more operatories/treatment rooms but there just isn’t enough space – with leasing, relocating is always an option.
3) Assemble the right team to achieve your practice goals
Select a trusted team that you can depend on – for starters, you’ll require a qualified office designer, equipment supplier, technology specialist, financial advisor, builder/contractor, accountant/CPA, and professional dental office lease negotiator.
4) Strategically choose a location with the potential for success
The location of your dental office will have a direct impact on the success of your business. Consider the following when looking for a home for your dental clinic:
How important is a high-visibility location such as a plaza/store front vs. a low-visibility location like a medical building?
Is the neighborhood residential, rural, or urban? Is it family-friendly with schools and grocery stores nearby? What’s the average disposable income per family? What age group and cultures make up the majority of the area? Ensure that the demographics of the neighborhood match your target patient.
Will you be located near other businesses in the vicinity that could drive traffic to your dental clinic such as a shopping mall or movie theatre? Are there other dental or hygiene clinics setup nearby that could pose as competition? What about the presence of dental specialists that could refer business to you, and vice versa?
5) Understand the Offer Letter/Letter of Intent
Once you’ve selected the ideal practice location, you will be presented with the Offer to Lease (OTL) or Letter of Intent (LOI) by your potential new landlord. These documents outline key lease terms for the property such as length of term, rental rates, commencement date, options to renew, tenant improvement allowances (TIAs), deposits, etc. It’s recommended that you work with a professional dental office lease negotiation firm to review these documents and help with this critical step in opening a practice.
6) Thoroughly review the dental office lease agreement
The office lease agreement is a much more extensive document than the LOI/OTL, outlining your obligations to the landlord and vice versa over the next 5-10 years or more – there is no room for error. Landlords typically use the lease as a tool to gain financial power and control over tenants, enabling them to relocate your practice, increase rent, terminate the lease and more. Here are some important lease considerations for startup dentists:
Economics: Are the proposed rental rates fair in comparison to similar properties in the neighborhood? Are the annual rental escalations (if applicable) reasonable?
Assignment Provisions: Many leases contain “assignment language” that gives the landlord termination rights if you ever decide to assign the lease, or, the right to collect 50% or more of your practice sale proceeds.
Many leases contain relocation language that permits the landlord to relocate your practice
for a redevelopment project
or to make room for a higher-paying tenant. Often the dentist receives just 30 days’ notice and is left responsible for paying for all moving and build-out costs, which can quickly add up to $100K+ in unpredictable expenses.
These are just some of the business-shattering risks present in a dental lease agreement that are frequently overlooked by untrained individuals. Research and a thorough lease review by trained dental office lease professionals is critical to securing a lease agreement that will provide fair terms, allow your business to grow, and protect your practice in the long run. Allow plenty of time for your lease negotiation and ensure that when the time comes to sign on the dotted line, you know what you’re agreeing to.
Looking for advice on starting a practice? The professional lease negotiation experts at Cirrus Consulting Group can help. We would be happy to discuss your startup venture or the nuances of your lease agreement. Call us for a complimentary lease discussion by dialing 1.800.459.3413 or visit www.cirrusconsultiggroup.com/lease.
Cirrus Consulting Group specializes in helping dental professionals achieve favorable terms and rental rates in their dental office lease agreements. We review the lease for risks and problem areas and develop a customized improvement strategy to help our clients secure a lease that aligns with their goals, and promotes practice protection, security and long-term success.
Questions about starting a practice or upcoming negotiation?
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