Many ambitious, entrepreneurial-minded practice owners aspire to build their healthcare or dental empire by owning multiple locations – and for good reason.
An additional location may help you reach more patients, increase market presence, and reduce local competition. However, expansion doesn’t automatically translate into higher profits or a more valuable business.
The reality is that some owners discover that managing multiple locations creates more complexity, increased burnout, and greater operational risk than expected. In many cases, optimizing the efficiency and profitability of an existing practice can produce stronger financial results than purchasing another location.
While it’s great to have a growth-oriented mindset, it’s important to consider your financial plan and what lenders, buyers, and valuation professionals look for in a practice before taking the next step. Whether you’re considering a satellite office or a fully independent second location, careful planning can help ensure expansion supports your long-term goals.
Ways to Approach Second Locations: Satellite Practice vs. Independent Second Practice
While a satellite practice may be perceived as simply a second location, it’s important to recognize that these terms have distinct meanings.
A satellite practice is another location that typically functions as an extension of the primary business, open a select number of days and typically not full time. Satellites often share staff, accounting, branding, and payroll with the primary location, and oftentimes there is no distinction from an accounting or tax perspective from the primary office. Because they’re treated as one business, it can be difficult to determine how profitable the satellite truly is on its own.
A fully independent second location, on the other hand, typically operates with separate staff, and ideally, separate financial reporting, payroll, and tax returns. Although this requires more organization upfront, it provides much greater flexibility if you eventually decide to sell one location while retaining the other.
While both approaches can be successful, they create very different financial, operational, and exit-planning considerations. Understanding the difference from the beginning can help you avoid costly restructuring later.
Key Factors to Consider Before Making the Purchase
- Optimize Your Primary Practice First: Before purchasing a second practice, ask yourself if your first practice has reached its full potential. Has it had enough time to be optimized? If your existing office has opportunities to decrease overhead, optimize fees, or increase production per operatory, those improvements may generate a greater return than taking on another practice. For example, if your primary practice is landlocked, instead of purchasing another practice to gain more operatories, first, maximize scheduling efficiency in your existing space.
- Consider Your Long-Term Path Early: Expansion should always support your long-term career goals. If you hope to own multiple practices, starting with a larger primary practice may create a stronger foundation than beginning with a smaller one. It is often more difficult to build the borrowing power needed to buy a practice larger than your first location.
- Understand What Lenders Look For: Before approving financing for a second acquisition, lenders will closely analyze the health of your primary practice. Banks want to see clean financial statements, consistent profitability, and at least one full year of tax returns under your ownership. If your current practice is unstable financially, lenders may recommend growing or optimizing that practice instead of taking on additional debt.
- More Practices Don’t Always Mean More Profit: One of the biggest misconceptions is that owning multiple locations automatically increases profit. While additional practices may create more revenue opportunities, they also come with more expenses, staffing challenges, management responsibilities, and financial risk. Sometimes, the added overhead may outweigh the additional production, leading to the second location being less profitable than expected. The goal shouldn’t be to simply own more practices; instead, it should be to generate consistent profit.
Success Tips for Second Locations
If you’ve considered all the factors above and determined owning multiple locations is the right path for you, be sure to consider the following tips early on to ensure a successful outcome.
- Separate Your Financials from Day One: Whether your second location is fully independent or a satellite, keeping separate financial records from your primary practice is one of the smartest decisions you can make. This will allow lenders and future buyers to easily and clearly evaluate each practice independently. Without this level of separation, determining the value of each location becomes significantly more difficult, often creating complications during a future sale.
When possible, separate profit and loss statements for each location, including:- Payroll
- Supply Accounts
- Production and Collections Reporting
- Marketing Expenses
- Patient Flow Statistics
- Ideally, each location should also be its own legal entity and have separate Employer Identification Numbers (EIN), allowing for separate tax returns to be filed
- Hire Associates Strategically: Reliable associates are essential for making a second location successful. If an associate unexpectedly leaves, production and cash flow can decline rapidly. Consider whether you have a strong pipeline of future associates, and take the appropriate steps to recruit, develop, and retain talented doctors.
- Don’t Spread Yourself Thin: One of the biggest challenges with multiple locations is leadership and avoiding burnout. Without strong systems and trust in place, it’s difficult for one owner to effectively oversee two or more practices at once. Instead, many successful multi-location owners rely on trusted partners or associates to provide consistent clinical care, while they focus on leadership and long-term growth.
- Build With the Future Sale in Mind: Even if selling is far in the future, being able to show how your second practice can operate on its own mitigates your risk with eventual buyers. In general, to effectively pass on goodwill to your buyer, you should have a separate brand, distinct patient base, dedicated staff, website, and marketing strategy for your second practice. This will allow for a cleaner transition and won’t interfere with your primary practice after the sale. Preparing for a future transition today can help prevent costly restructuring years down the road.
SO, IS A SECOND LOCATION RIGHT FOR YOU?
Use this checklist as a guide to work through your decision to own multiple practices. Although each situation is different and there may be other factors to consider, this checklist gives you a good starting point.
Expansion Question Checklist:
- Is my current practice operating at maximum efficiency?
- Do I have at least one year of stable financial performance and tax returns?
- Can I comfortably manage and travel between two locations?
- Do I have reliable and long-term associates or partners? If not, do I have access to a pool of potential candidates?
- Have I considered how this decision affects a future practice sale?
- Will this expansion improve profitability, or simply increase complexity and expenses?
There’s nothing wrong with wanting to expand your healthcare or dental empire, but thoughtful planning is essential to ensure a successful outcome.
At NDP, we’re here to help guide you through your career journey, providing insight tailored to your situation at every step of the way. Book a complimentary call with one of our consultants to discuss your unique goals and determine if this is the right path for you.
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