**Client Case Studies: The Not So Successful Start-up**
We wrote previously about a successful start-up and you can find that article using the link below.
https://practiceownership.com.au/client-case-studies-the-successful-start-up/
In this article we will discuss a client case study involving a not so successful start-up. This client came to us back in 2019. The location the client wanted to setup in was a metro location on the east coast. It was a 10-minute drive from the CBD. This client was billing roughly 1.2 Million per year at her busy associateship position, taking home 470K working 4 days. She had a particular interest in orthodontics and had upskilled significantly. She was in her early 30s with a young family and was the major bread winner in her household. The client lived close by to this start-up location. The client was in a fortunate position to have had some inheritance money and considerable cash savings.
The location had several major problems. Initially, there was significant competition around, many of whom were heavily advertising special offers. In fact, there was at least 5 practices within a 10-minute walk. The client’s associateship position was on the other side of the CBD. There was no major projected population growth in the area. The client wanted to have a fairly large practice and had spoken to a fit-out company who advised her to look for a 150 SQM tenancy which would fit 4 to 5 chairs. She found a 160 SQM tenancy where the rent was 140K per year with 5% yearly increases. There was no landlord incentive provided. We did the research and recommended against starting-up in that location. However, she ended up doing the start-up. We got to see the figures of the practice as she came to us 3 years later looking for advice. We’ll discuss the timeline and numbers of her practice ownership journey below.
All numbers are rounded for the sake of simplicity. The client fitted out and equipped 4 rooms. The cost of this was 700K back in 2019. The client had paid for the fitout and equipment with her savings and thus had no loan and repayments. The client was paying about 40K per year in marketing costs.
Year 1 (first full financial year): The practice billed about 320K in this first year. The client didn’t have any associates and she did the 320K of billings herself. After paying herself her market earnings (40%) the business was left with a 146K loss. Effectively, the client was working for free in her practice and taking home no money. She had left her associateship position completely and was available to see patients at her start-up for 6 days.
Year 2: The practice billed about 370K. The client didn’t have any associates and she did the 370K of billings herself. After paying herself her market earnings (40%) the business was left with a 121K loss. Again, the client was effectively working for free in her practice. However, the client found another associateship position for 2 days and was available to see patients at her start-up for 4 days.
Year 3: The practice billed about 360K. The client didn’t have any associates and she did the 360K of billings herself. After paying herself her market earnings (40%) the business was left with a 126K loss. Again, the client was effectively working for free in her practice. The client was still at her other associateship position for 2 days and was available to see patients at her start-up for 4 days.
It was at the end of year 3 that the client came to us looking for advice and how to proceed. She was not in a good state mentally. She reported constant stresses managing staff and dwindling cash reserves. The client also alluded to stress in her relationship with her partner and having little time to spend with her children. She wanted out.
The client had significant cash reserves so was able to weather the losses. However, this was dwindling. There are several lessons for prospective owners in this.
The most important and perhaps not so apparent is the lost opportunity cost of the clients billing ability. That is, if she stayed in her busy associateship position she would have taken home 470K rather than 0. Further, to do such a large start-up in a non-growing and saturated area is crazy! The rent was always going to be a problem even if she billed more. The industry benchmark for rent is 5% to 10% of turnover. For her rent to fall within the upper end of that benchmark she would have had to bill 1.4 Million per year. We have many clients wanting to start-up where they live, the issue with this is that other dentists probably also live in that area and have already started up or own practices nearby. As an unproven business, fitting out and equipping 4 chairs initially is a massive risk as well as drain on cash. She would have had more cash available if she had only fitted out 1 room.
Perhaps the saving grace was that the client only signed up for a 5-year initial lease term (she had another 5-year option available). Our advice to her was to shut down and negotiate with the landlord to payout the lease. The landlord was thank-fully receptive. The landlord agreed to being paid 6months of rent upfront (rather than the 2 years that was remaining) and the client could walk away. The client sold the equipment for 95K which helped payout this lease, the initial purchase price of the equipment was around 320K. The 380K fitout cost was lost. The client obviously suffered some considerable overall losses as well.
However, fast forward to a few months ago we caught up with the client. She is much happier! She reports she has found another associateship position and is billing 1.6 Million per year with a take home of 610K per year working 4 days. She reports family life is much better now.
Our intention with this article is not to portray doom and gloom for start-ups. There are many successful stories out there. Rather this post is to highlight the risks, challenges and opportunity costs that dental practice ownership can bring.
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Our next start-up and buying seminars are coming up in Brisbane on Thursday 11th and Friday 12th of September 2025 and Melbourne on Thursday 16th and Friday 17th of October 2025. Please register asap using the link below to avoid missing out.
https://practiceownership.com.au/dental-practice-startup-and-buying-seminar-2025/
We also offer expert guidance in various areas of practice ownership. Please see the below link for more information.
https://www.practiceownership.com.au/expert-guidance/
We’re holding our 4th Dental Practice Owners Conference (#DPOC2025) in August this year. This is the premier event for practice owners and not to be missed. We have an amazing line up of speakers as well as spectacular events planned. There will also be a trade show with exhibitors from the major dental companies present providing conference only specials. The learning and networking opportunities will be immense. Please see the link below for more information.