For Canadian dentists transitioning from associate to practice owner, choosing between purchasing an existing practice or starting fresh represents a critical financial decision. Both paths lead to ownership, but the financial implications, timelines, and risks differ dramatically. Understanding these differences helps you make an informed choice aligned with your goals.
Initial Investment Comparison
Starting a dental practice from scratch in Canada typically requires $500,000 to $1,000,000. Equipment consumes 40–45% of this budget at $200,000 to $400,000, while leasehold improvements add $150,000 to $300,000. Technology, supplies, professional fees, marketing, and working capital complete the investment picture.
Purchasing an existing practice presents different numbers. Canadian dental practices typically sell for 100–150% of annual revenue, depending on patient demographics, equipment condition, staff stability, and location. A practice generating $800,000 annually might sell for $800,000 to $1,200,000, including patient goodwill, established systems, and immediate cash flow.
Cash Flow Timeline
Cash flow timing represents the most significant difference. Starting from scratch requires 12 to 18 months before reaching positive cash flow. During this period, you’ll build a patient base, establish referral networks, and create practice awareness. Working capital must sustain both operations and personal expenses.
Purchasing an existing practice offers immediate revenue. You inherit an established patient base, scheduled appointments, and proven systems from day one. Well-managed transitions typically retain 85–95% of active patients. This immediate cash flow reduces financial stress considerably.
Financing Structures
Canadian banks view these paths differently. Startup financing typically requires 20–30% down payment with conservative loan-to-value ratios. Interest rates on startup loans often run 0.5–1% higher than acquisition financing due to perceived higher risk and lack of proven cash flow history.
Practice acquisition financing benefits from established performance data. Lenders can analyze three to five years of financial records, making risk assessment straightforward. Many Canadian banks offer specialized dental practice acquisition loans financing up to 100% of the purchase price for qualified buyers with strong credit.
Hidden Costs
Starting fresh means every decision is yours, but every expense is necessary. Beyond equipment and renovations, factor in staff recruitment, comprehensive marketing to build awareness, technology infrastructure, and consulting fees for business planning. These often-underestimated soft costs can add 15–20% to projected budgets.
Purchasing brings its own hidden costs. Due diligence requires professional fees for accounting reviews, legal services, and practice valuation, typically totaling $15,000 to $25,000. Post-purchase investments may include deferred maintenance, equipment upgrades, or renovations to align the practice with your vision. Staff retention bonuses and transition consulting add further expenses.
Tax Treatment
Tax implications differ significantly between these paths. When starting a practice, startup costs are capitalized and depreciated over time according to CRA asset class schedules, meaning limited tax relief during the critical early years.
Practice purchases allow strategic asset allocation that optimizes tax treatment. Equipment purchases qualify for immediate depreciation under various CRA classes, while goodwill receives different treatment. Working with a dental-specialized accountant to structure the purchase agreement creates significant tax advantages. Additionally, purchased practices generate immediate business income eligible for the small business tax rate of 12.2% in Ontario, while startup practices may not reach profitability for a year or longer.
Making Your Choice
Neither path is inherently superior. Your choice should align with your circumstances, risk tolerance, available capital, and career timeline.
Starting fresh offers complete creative control and potentially lower initial investment. You choose your location, design your practice layout, select equipment, and build your team. It’s ideal for dentists valuing independence with sufficient working capital for an extended ramp-up period.
Purchasing an existing practice provides faster return on investment, immediate cash flow, and established systems. You avoid the uncertainty of building a patient base. It’s typically better for dentists focusing on clinical excellence, needing immediate income to service student debt, or preferring proven operations.
Working with professionals who understand Canadian dental practice finance is essential. A dental-specialized accountant can model the financial implications based on your circumstances, ensuring your decision supports both professional ambitions and financial security.
Ready to explore practice ownership? Contact Dental Tax to discuss which path makes the most financial sense for your specific situation. Our team specializes in helping Canadian dentists navigate the financial complexities of practice acquisition and startup.
Adam has an MBA from the Richard Ivey School of Business in London and also holds a Chartered Investment Manager designation.
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