Opening a second dental location changes everything about how you operate. What worked as a single-location owner-operator rarely translates directly to multi-site ownership. The dentist who built a thriving first practice through clinical excellence and personal attention must become someone who builds systems, delegates authority, and manages from a distance.
A CPA for dental practices sees this transition regularly. The technical requirements of expansion, including lender documentation, entity structure decisions, and financial projections, all demand attention. But the deeper challenge involves building infrastructure that lets you succeed when you cannot be in two places at once.
Considering a second dental location? Our team helps practice owners prepare for expansion with the financial infrastructure that multi-site ownership requires. Connect with our advisors to discuss your situation.
What Lenders Require Before Approving Expansion Financing
Banks treat second-location financing differently from first-practice acquisition loans. If you want to open a second location, you will need to show that your first location can cover those new debt payments. Underwriters examine your historic cash flow and confirm your first location is performing before approving a second office purchase.
This means your existing practice must demonstrate surplus cash flow beyond what you need for personal income and current debt service. Lenders want to see that even if the second location struggles initially, your first practice can carry the additional debt burden without financial distress.
Documentation You Should Prepare
Lenders typically require detailed financial information on the practice you want to acquire, including a profit and loss statement and the past two years of business tax returns. You should also prepare purchase price information, including detailed estimates of specific costs such as acquisition fees, equipment costs, and construction costs, if relevant.
Beyond the acquisition target’s financials, lenders evaluate your existing practice and personal financial position. Expect requests for your last two years of individual tax returns, bank statements, and a personal financial statement showing assets, debts, and net worth. A credit score above 700 typically qualifies for better interest rates, though scores above 670 can still secure financing.
The Cash Reserve Question
Practice owners should ensure they have a comfortable cash or savings cushion of 3 to 5 months of operating expenses before starting the financing process for a second location. This reserve provides margin for error during the transition period.
This reserve exists separately from your down payment or working capital needs. It protects against the unexpected: slower patient ramp-up at the new location, temporary production decline at your first practice while your attention diverts, or equipment issues that require immediate cash. Practices that struggle with cash flow during slow months should address that vulnerability before expansion adds complexity.
Entity Structure Decisions Before You Expand
Adding a second location often forces entity structure conversations that single-location owners can defer. The structure supporting one practice may create problems when a second location is added.
Why Structure Matters for Multi-Location Ownership
According to Dental & Medical Counsel, entity choice can ease the process if you anticipate expanding or transitioning ownership later. A structure that supports long-term strategies simplifies future changes.
Single-location practices commonly operate as sole proprietorships, single-member LLCs, or S corporations. Each works adequately when a single owner runs a single practice. But adding a second location raises questions: Should both practices operate under one entity? Should they be separate entities with common ownership? How does the structure affect liability if one location faces legal claims?
Common Structures for Two-Location Owners
Many dental CPAs recommend that solo dental practice owners set up a Limited Liability Company and make an S-Corporation election. This allows the owner to limit personal liability while offering flexibility on how earnings are taxed. Additionally, there is no requirement for equal distribution should you take on a partner or shareholder.
For two-location ownership, several approaches work:
One entity owning both locations simplifies accounting and tax filing, but provides no liability separation between sites. If one location faces a lawsuit, assets from both practices may be exposed.
Separate entities for each location provide liability protection but increase administrative complexity. Each entity requires its own tax filings, potentially its own payroll, and separate accounting.
A holding company structure with subsidiary entities for each location offers both liability protection and centralized management, but adds cost and complexity that may not be justified for two locations.
Your CPA for dental practices and attorney should evaluate your specific situation before expansion. Restructuring after you have already added the second location costs more and creates complications that pre-expansion planning avoids.
Real Estate Ownership Considerations
Real estate should be owned by an entity other than the practice entity for both tax and timing purposes in a practice sale. The practice should have a written lease with the real estate entity to which rents and occupancy costs are paid.
If you plan to purchase real estate for your second location, creating a separate LLC to hold that property provides liability protection and tax advantages. The practice pays rent to the real estate LLC, creating a lease arrangement that simplifies future transitions if you eventually sell the practice while retaining the real estate.
Building Financial Projections for the New Location
Lenders require projections, but the real value of financial modeling is testing whether expansion makes sense for your specific situation. A CPA for dental practices can help build scenarios that reveal the true financial implications of adding a second site.
What Pro Forma Projections Should Include
Your projections need realistic assumptions about patient ramp-up, staffing costs, and the timeline to profitability. New practices can expect to incur monthly operating expenses during the initial months of operations, including salary, rent, supplies, variable costs, and other fees.
The projection should model:
Revenue ramp-up over 12 to 24 months, with conservative assumptions about how quickly the new location builds its patient base. Acquired practices typically retain most of their existing patients; startups build from scratch.
Staffing costs from day one, even before patient volume justifies the expense. You need front desk coverage, clinical support, and either your time or an associate’s production to generate revenue.
Your time allocation between locations. If you plan to split time between practices, model the production impact at your first location. Your personal production there will decline when you are physically at the second site.
Debt service on the new financing begins regardless of whether the second location is profitable yet.
The Working Capital Gap
New locations typically operate at a loss before reaching break-even. This gap between opening and profitability must be funded from somewhere: cash reserves, a line of credit, or cash flow from your first practice.
Lines of credit provide practices with a ready source of cash to fund expansion projects, hire additional staff, or cover expenses during gaps between providing services and receiving insurance reimbursements.
Quantify this gap before committing to expansion. If your first practice generates $15,000 monthly in excess cash flow and the second location will lose $20,000 monthly for six months before break-even, you need $30,000 from other sources to bridge that gap. Understanding this math prevents unpleasant surprises.
Financial modeling for expansion requires expertise in dental practice economics. A fractional CFO can build projections specific to your situation and stress-test your assumptions.
Performance Benchmarks That Signal Readiness
Not every successful single-location practice is ready for expansion. Certain key performance indicators suggest whether your first location can support the demands of adding a second site.
Collection Rate and Overhead
The American Dental Association states that if a practice is not collecting 98% of billable or adjusted production, policies and scripts may need to be adjusted. The ADA also recommends keeping overhead at 63% or less of total income.
These benchmarks matter more for expansion decisions than for single-location operations. A practice collecting 92% with 68% overhead may still be profitable, but those inefficiencies multiply across two locations. Expansion does not fix operational problems; it amplifies them.
If your first practice falls short of these benchmarks, improving performance before expansion is likely to yield better returns than adding a second location that inherits the same weaknesses.
Patient Capacity Utilization
A good general benchmark for a full-time, one-doctor dental practice is 1,600 to 1,800 active patients. Any practice significantly below these numbers may not fill the schedule, so it is important to address them before opening a second location.
If your current practice operates well below capacity, the question is whether you should invest in growing patient volume at your existing site before adding the complexity of a second location. Practices that cannot fill one schedule face challenges filling two.
The ADA recommends that new patient numbers increase 10 to 15% annually. Practices achieving this growth at their first location demonstrate the marketing and operational capabilities that translate to a second site.
The Time and Attention Challenge
The most underestimated aspect of going from one location to two is the owner’s time. Your first practice succeeded partly because you were there every day, catching problems, maintaining culture, and ensuring quality. A second location means you cannot be everywhere.
Staffing Before You Need It
Having an associate dentist will help ensure that both locations are as productive as possible. The success of the second location and the organization as a whole relies imperatively on having key support staff in place, along with a reliable, dedicated, and productive associate seeing patients at one location while you are working at the other.
If you do not already have an associate at your first practice, adding one before expansion may be wiser than hiring one at the same time as opening a second location. Training an associate while also launching a new practice divides attention that neither effort can spare.
Systems That Run Without You
Your first practice likely has informal processes that work because you are present to fill gaps. Those gaps become problems when you are at the other location. Before expansion, document and systematize operations so they function without your daily presence.
This includes scheduling protocols, patient communication standards, financial controls, and quality assurance processes. Practices showing signs of losing financial control when the owner is distracted should strengthen those systems before adding a second site.
Accounting and Reporting Infrastructure
Multi-location ownership requires financial visibility that single-location practices often lack. You need to see each location’s performance clearly, compare them meaningfully, and identify problems before they become crises.
Separate Tracking for Each Location
Even if both practices operate under one legal entity, your accounting should track each location separately. This means assigning revenue, expenses, and profitability to specific sites so you can see which locations perform well and which need attention.
Practice management software typically tracks production by location. Your accounting system needs parallel capability, either through separate accounts or class tracking that tags transactions to specific sites. Without this separation, you cannot answer basic questions about which locations drive profitability and which drag on results.
Monthly Financial Reviews
Single-location owners sometimes review financials quarterly or less frequently. Multi-location ownership demands monthly attention. Problems at a location you visit less regularly can compound quickly if you discover them months later.
Establish a monthly close process that produces location-level profit-and-loss statements within 2 weeks of month-end. Review these statements, compare locations, and investigate variances. This discipline catches issues early when correction is still possible.
A fractional CFO for dental practices can establish these reporting systems and provide the regular financial reviews that multi-location ownership requires.
Insurance Credentialing Timeline
An often-overlooked aspect of expansion is the time required to obtain insurance company credentials at the new location. If you accept insurance, patients cannot use their benefits at your second practice until credentialing is complete, which can take three to six months, depending on the payer.
Start credentialing applications as early as possible, ideally before the lease is signed or the acquisition closes. Delays in credentialing mean delays in revenue from insured patients, extending the working capital gap, and slowing your path to profitability.
If you acquire an existing practice, the selling dentist’s insurance contracts typically do not transfer automatically. You need your own credentialing with each payer, using the new location’s address and your provider information.
Making the Expansion Decision
The infrastructure requirements for multi-location ownership are substantial, but they exist because expansion genuinely changes what your business requires. Practices that build these foundations before growth experience smoother transitions than those that expand first and address gaps later.
Work with a CPA for dental practices to honestly evaluate your readiness. Does your first location perform at benchmarks that support expansion? Do you have the cash reserves and financing capacity required for the second location? Have you addressed entity structure, staffing, and systems before adding complexity?
For owners scaling multi-location dental practices, preparation distinguishes successful expansion from stressful struggle. The work you do before signing the lease or acquisition agreement determines much of what follows.
Ready to evaluate your expansion readiness? Our team provides the financial analysis and infrastructure guidance dental practices need before adding locations. Schedule a consultation to discuss your growth plans.
Frequently Asked Questions
What do lenders look for when financing a second dental location?
Lenders evaluate whether your existing practice generates sufficient cash flow to cover new debt payments, even if the second location struggles initially. According to Aprio, underwriters examine historic cash flow and want to see your first location performing strongly before approving a second office purchase. You should prepare two years of business and personal tax returns, profit and loss statements, bank statements, and a personal financial statement. Credit scores above 700 typically qualify for better interest rates. Lenders also want to see a detailed business plan with realistic projections for the new location.
How should I structure ownership of two dental practices?
Entity structure depends on your specific circumstances, risk tolerance, and long-term plans. Common approaches include operating both locations under a single entity for simplicity, creating separate entities to protect liability between sites, or establishing a holding company structure. According to Cain Watters, many dental CPAs recommend an LLC with an S-Corporation election for the flexibility it provides. Real estate should typically be owned in a separate entity from the practice. Work with your CPA and attorney to evaluate options before expansion, as restructuring afterward costs more and creates complications.
What cash reserves should I have before opening a second location?
According to Panacea Financial, practice owners should maintain 3 to 5 months of operating expenses as a cash cushion before beginning the expansion financing process. This reserve is separate from your down payment or working capital needs for the new location. It protects against unexpected challenges such as slower patient ramp-up, temporary production declines at your first practice, or equipment issues requiring immediate cash. The working capital gap between opening and profitability at the new location requires additional funding from cash reserves, credit lines, or cash flow from your first practice.
What benchmarks should my first practice meet before expansion?
According to the American Dental Association, practices should collect 98% of billable production and maintain overhead at 63% or less of total income. Patient capacity should be near the 1,600 to 1,800 active patient benchmark for a full-time practice, with new patient numbers growing 10 to 15% annually. Practices falling short of these benchmarks may benefit more from improving first-location performance than from adding a second site. Expansion does not fix operational problems; it amplifies them across multiple locations.
How long does insurance credentialing take for a new location?
Insurance credentialing at a new location typically takes three to six months, depending on the payer. Start credentialing applications as early as possible, ideally before the lease is signed or the acquisition closes. Delays in credentialing mean patients cannot use their insurance benefits at your second practice, extending the working capital gap and slowing revenue ramp-up. If you acquire an existing practice, the selling dentist’s insurance contracts typically do not transfer automatically; you need your own credentialing with each payer using the new location’s address.
