After the Letter of Intent

Buying a Dental Practice – After the Letter of Intent

Brian Hanks Practice Transitions 2 Comments

When buying a dental practice, how do you know what to do after the letter of intent? Almost always, there is a period of time between when you’ve negotiated the letter of intent and when you walk through the front doors of your new practice, keys in hand, as the brand new owner.

Picture the moment: You park the car and start walking toward those front doors you own for the first time! The opening few bars of “Sweet Emotion” by Aerosmith are running through your head. You own your own practice now, you stunning piece of humanity! If there was a confident emoji, it would look like you.

But what if you don’t feel confident?

What if you show up on your first day, like a pediatric dentist I know in Arizona, and you realize the schedule is only half-full and your front desk can’t bill to insurance yet because credentialing hasn’t happened?

What if you’re like an orthodontist in Texas who had to keep pushing back the close date on his practice three times because the bank wouldn’t release funds due to lack of life and disability insurance?

What if you’re like a general dentist I know in Seattle who showed up on his first day of ownership to find out two of the five employees had quit and weren’t coming back?

With a little knowledge of what to do, you can feel confident. You can feel ready. You can walk through those doors, humming Aerosmith, knowing you’ve taken care of the essentials and you’re ready to wow your patients and continue an amazing career! The steps below outline what to do after the letter of intent.

Step 1: Make Sure Your Dental License is in PlaceRead More

A Letter of Intent Should Include This When Buying a Dental Practice

Brian Hanks Practice Transitions Leave a Comment

When buying a dental practice, one of the most important documents in the process is the letter of intent (or LOI, for short). The letter of intent is the legally non-binding document that contains all the elements of the practice transition that you have negotiated with the seller. The letter of intent saves you money by allowing you to negotiate with the seller before you begin paying an attorney for drafting documents or other related services.

Getting the Letter of Intent Right is Crucial – But How Do You Know?

Getting the letter of intent right is crucial, and typically leads to much smoother transactions where everyone is happy – the buyer, seller, staff and patients.

If the letter of intent is so important when buying a dental practice, how do you know what it should contain? How can you be sure that you’ve negotiated the key elements and nothing is missing that might come back to bite you later on down the road?

Missing Elements in a Letter of Intent Can Be Disastrous!

I recently got involved helping a buyer purchase a dental practice after the initial negotiations and letter of intent had been signed. I asked the buyer to send me a copy of the letter of intent. The price of the dental practice was on the paper, but not much else. Over the next few weeks, the buyer asked for deal elements that would ensure a smooth patient transition and help his tax situation.  The seller was offended that the buyer would “change the deal.” The seller assumed that because an LOI was signed, the buyer should just take whatever else was offered. The transition ended on a positive note, but not with some serious risk of the deal falling apart.

You need to get the letter of intent right the first time! Making sure the elements below are included is a key step in the process. A letter of intent for a dental transition should include at a minimum the following: 

Included and Excluded Assets

One dentist I talked with recently told me about the first day she showed up at the practice she purchased, only to find every single piece of furniture and fixture gone. Every couch. Every painting. The chairs the front desk had used for years – gone. Even the little potted plants around the office had walked away. She just assumed those were part of the transition. She spent the first few days making Costco and Ikea runs instead of being focused on the staff, patients and processes in the office.

A good letter of intent will call out specifically which assets are included in the sale and which are not. Typically, included assets will be equipment, supplies, instruments, furniture, fixtures, computers, digital assets (website, phone number), etc.

Assets typically not included are cash, personal effects, employee benefits, liabilities of the seller and any cars the practice might own.

Less important is the actual list. More important is that you and seller are on the same page and that you won’t have any surprises.

Accounts Receivable and an A/R Purchase Schedule

You need to know if, and under what terms, you are purchasing accounts receivable. Not every seller wants to sell the accounts receivable, but many do. I recommend purchasing them if you can – if done correctly, it’s like buying cash at a discount.

Most importantly, you need to spell out under what terms you’ll purchase the accounts receivable. Typically, this looks like a table with the various aging categories and the value you will pay for them.

 

accounts-receivable-letter-of-intent-buying-a-dental-practice

If you don’t purchase the accounts receivable, I recommend making it clear that you are willing to collect and remit payment on the selling doctor’s accounts. But you’ll do it for a fee of around 5% of the value of those accounts collected.

Purchase Price and Asset Allocation

Of course, you’ll include the price of the practice in the letter of intent with the breakdown of the allocation of that total price. When purchasing a business, the IRS gives different tax treatment to the various assets being purchased – dental supplies, equipment, patient records, goodwill, etc.

The asset allocation is one of those negotiating areas where a win/win arrangement is tough. Typically, if the seller wins, the buyer loses and vice versa.

As the buyer, you care about the asset allocation because how the purchase price is broken out will affect how quickly you can depreciate and write off the value of the practice you’re buying. Thus, potentially lowering your tax bill.

As of 2016, the assets can be depreciated as follows in the table below. Lower numbers generally are better for you as the buyer (but not always, so talk with your accountant to know for sure).

letter-of-intent-asset-allocation-buying-a-dental-practice

Due Diligence Period

Make sure you and the seller are clear on how long you and your dental accountant (you have one, right?) will need to review the practice and financial information. I typically recommend at least 30 days.

You’ll also want to be specific about what access you and your dental accountant will need in order to complete the due diligence.

Intentions Around Real Estate

Are you going to buy the real estate? Are you going to rent from the seller? If renting, would you like the right of first refusal on the sale of the building? Don’t leave those questions to chance and make sure they’re spelled out in the letter of intent.

Details Around the Seller’s Transition

Each situation will be unique, but you want to make sure the seller helps set you up for success as the buyer. You will want the seller to author a letter (that you help edit) informing patients from the last three or so years about the change in ownership and how amazing you as the buyer are. In fact, many state dental boards require this letter be written and sent. Spell out who is going to pay for the letter.

Also, you will want to talk with the seller about their availability post-transition to help understand the operations of the practice and possibly help with consultations in-person, or via telephone, email, etc.

Employees

One seller I know gave his employees all big raises between the time he agreed to sell the practice and the time the buyer actually took over. Staff compensation went from 28.5% of collections to 31.8%. I don’t know for sure the motivation for the change, but you can be sure that the buyer wasn’t able to show up on the first day and say: “Just kidding everyone! Let’s go back to your pay level from six months ago!”

Make clear to the seller that all accrued benefits (bonuses, paid time off, etc.) are the responsibility of the seller before you take over the practice. I strongly, strongly recommend making as few changes to the staff, pay, benefits, etc. as possible in the first few months of business (with the one exception being the 401k or another pension plan). Make it clear to the seller that you intend to keep all the staff, but that all accrued benefits and promises are their responsibility.

Redos and Rework

Decide with the seller up front how you will handle patient cases that were originally handled by the seller but come back to your office to be fixed after you’re the owner. Who will do the work? Who will pay for it?

If the seller hasn’t left town, I like to see the seller have the option to come back in and do the work (of course, paying for staff time and materials required).

Restrictive Covenants

Make sure you negotiated upfront in the letter of intent the restrictive covenant that the seller will be subject to. Include both the time and distance (e.g. 5 years and 15 miles) in the LOI. You will also want to include language around recruiting former employees and marketing within that same distance.

Wrap-Up

A good letter of intent is one of the keys to successfully buying a dental practice. You will minimize misunderstanding, maximize your use of time and energy, and even save money when you turn over a document to the lawyers that is complete and doesn’t require a lot of back and forth.

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Need help evaluating your LOI? Reach out to me at brian@practicefinancialgroup.com for a free consultation around your situation because this is an important decision!

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Like what you read? Read more about successfully buying a dental practice:

How to Analyze a Dental Practice for Sale – The Quantitative Factors
How to Analyze a Dental Practice for Sale – The Qualitative Factors
Why You Should Buy a Dental Practice BEFORE Your Student Loans are Paid Off

4 Common Mistakes Dentists Make with Student Loans

Brian Hanks Financial Planning, General Leave a Comment

A few weeks ago I had the chance to scratch an item off my bucket list when I flew to New York and saw the US Open tennis tournament live. As a casual fan and player, I loved the opportunity to sit as close to 10 feet away from Nadal, Murray, Djokovic and Williams – the best in the world. As I watched them play, I could predict who would win almost every time by looking at only one statistic: unforced errors. An unforced error is a lost point entirely the result of a player’s own blunder, and not because of how well the other player has played. As dentists struggle to repay record levels of student-loan debt, many are making unforced errors that threaten their long-term financial security and delay retirement.

Unforced Error #1: Assuming Income-Based Repayment Plans are the Best OptionRead More

5 Reasons a New Dentist Should Buy Term, and Not Whole Life Insurance

Brian Hanks General 3 Comments

Life insurance is a crucial topic for new dentists to get right. After such an enormous investment of time, money, energy and effort in school, should the unthinkable happen you want your family and/or loved ones to be taken care of. (You? Peacefully in your sleep, of course. Me? Wingsuit skydiving, probably!) You want to be able to replace your income if you’re not around to provide.

I can hear the whole life insurance zealots now, “Whole life offers great returns!” and “It’s much safer than the stock market!”

I’ve heard it all before. Every time I sit and analyze a client’s whole life policy they’ve been paying on for a number of years, what they were told they would have in their account is never even close to what they actually have.

A few times a year I go to various dental schools and residency programs to talk with dentists about their upcoming careers. When I ask who some of the other speakers have been, insurance agents are always top of the list. It makes sense – as a newer dentist, you’re going to have a LOT of insurance policies. And life insurance should be among them.

In case you skipped all those lunch and learns at your school, the two types of life insurance you’ll need to decide between are term and whole life insurance. The differences in a nutshell are basic. Term insurance is a monthly bill you pay, hoping you never see any benefit from (because you’re not dead! That’s good!) Whole life insurance is also a monthly bill, but instead of you never seeing your money again if you don’t die, when you’re much older, the policy has a cash value that you can then borrow from, withdraw, pass on to heirs, etc.

With the knowledge that chances are good you’ve talked with at least one insurance agent, here are five reasons why you should stick to term life insurance as a new dentist:

  1. Cost. I ran a quote on myself for a $2.5-million-dollar term life policy. (For the record, I’m 35, a non-smoker, and frequently offered underwear modeling contracts that I graciously decline. Two out of three of those facts are true.) The cost was $1,760/year. I then ran a quote for a whole life policy worth $250,000 (10% of the amount my wife would get if I die, compared to the term policy.) The cost was $3,440/year. This is double the cost for 10% of the benefit with whole life. Term insurance is always much cheaper. The brutal fact is  in order to be adequately covered, you’ll probably need a large amount of coverage. If you feel better with a whole life policy, the cost to get to that big number becomes so prohibitive, that most choose inadequate coverage and the family suffers as a result.
  2. Timing. Today, right now, you’re as young and likely as healthy as you’re ever going to be. That means, that your insurance policy is as cheap as it’s ever going to be too. Truthfully that applies equally to both types of insurance. However, when you’re older, term life insurance may not be an option. Or, it may be so expensive that you may not want to purchase it. I spoke with a dentist recently who, in his 50’s, had not been as successful in his career as he thought he’d be in his early 30’s. He had a whole life policy, but was concerned about large family obligations and debt load. He had recently lost a parent unexpectedly and, being reminded of his mortality, was surprised to learn insurance companies were quoting annual premiums 10- to 15-times higher than he thought he’d need to pay. He is still uninsured.
  3. Term is straightforward and easy to understand. One thing that drives financial advisors like me up the wall is when we see the assumptions in the presentation given to dentists about choosing a whole life policy. So often the assumptions are not realistic. As a new dentist, you don’t know any better. Why would you? Just like I don’t know that one dentist’s choice to choose a cheap composite on my filling was a poor choice, often times I see people making poor decisions about insurance based on assumptions that are very unrealistic. Term insurance is simple. Pay a small premium, and if you die, your heirs get a big check. That’s it. Simpler is better here. Trust me. If I could get back the hundreds of hours I’ve wasted trying to understand the inner workings of whole life, and reinvest it with my kids, I’d do it in a heartbeat.
  4. Insurance is not an investment. Insurance is a transference of risk. You transfer the risk over many people similar to you, which reduces everyone’s risk. When you try to overlay investments on top of that, it gets exponentially more expensive. Keep your insurance in its own lane, and keep investments in their own lane. Besides, as a new dentist, you’re probably more focused on increasing your earnings and paying down debt. Investing serious amounts of money probably won’t come for at least a few years into your career.
  5. You’re not making your insurance agent rich – Commissions on insurance policies can run anywhere from 55% to 100% of the first year’s premium. You saw how differently term and whole life policies get priced with my own example. Thus, human nature being what it is, your insurance agent has a strong incentive to sell you the more expensive policy. Not every insurance agent will push you towards an inferior option. In fact, we work closely with several insurance agents we know and trust. However, we’ve seen the results of enough poorly understood and poorly placed whole life policies, that we know bad actors are out there.

Practice Financial Group could be MUCH more profitable if we jumped on the whole life bandwagon. Many financial advisors and dental CPAs love whole life because of the income it provides their business. The numbers have not worked for our clients. We choose to recommend term life insurance as the best option for dentists – especially new ones. And we sleep so much better on our thinner wallets.

While it’s true whole life rarely gets recommended for our clients, there can be situations where it makes sense. Typically, whole life insurance has a place in the portfolios of high-earners who have maxed out their other investment opportunities and are looking for an ultra-conservative place to invest. If you’re looking for whole life insurance as a new dentist, and thinking that it will mean smooth sailing in your retirement years, you are probably wasting your money.

How to Analyze a Dental Practice for Sale – The Qualitative Factors

Brian Hanks Practice Transitions Leave a Comment

Have you ever had a friend who wanted so badly to be in a relationship they talked themselves into being with someone who was a horrible match for them? I had a roommate in college who wanted to be married so badly that he talked himself into relationships that were obviously a poor fit. Being the good roommates we were, we’d kindly point out obvious flaws with his latest girlfriend.

We’d point out, “Dude. She’s still dating other guys! We just saw her with Brad down the street.”

Of course, he would defend the decision, “Her mom told her to not stop dating until she’s serious with someone. I think proposing will make things serious!”

Buying a dental practice is a lot like finding someone to be in a serious relationship with. It’s a huge decision. It’s vitally important to get right. And the consequences of choosing well or poorly will impact the quality of your life.

You’ve got to get the analysis right and for a dental practice, that means getting the numbers right. But it also means getting the non-numerical numerical right. The qualitative factors.

When looking for a practice to buy, it’s obvious to an outsider when things aren’t a good fit. I had with a dentist with a few years of an associateship under her belt about her search for a practice in the suburbs of Seattle. Married with a few kids, she and her husband spoke at length with me about the importance of good schools and a short commute. They wanted to raise her kids in an environment similar to their suburban upbringing. But, like a lot of doctors looking for a practice to buy, she was having trouble finding one that fit her criteria. She called me about a practice in Downtown Seattle, outside where she was normally looking. We looked at the numbers of the practice, and the quantitative side of the analysis could work. However, I was concerned about her desire for a short commute and the practice location.

I asked her, “Where would you live if you bought this practice? Have you found a neighborhood close to the practice with good schools?”

(Long Pause)

“The closest one my husband and I feel comfortable with is 15 miles north of downtown.” She replied sounding a little guarded.

Personally having been stuck in Seattle traffic many times I responded, “That’s…what?…a 30 minute drive on I-5 one way, on a good day, right?”

A second pause, “About that, yes.”

“And about an hour in traffic, right?” was my follow up question.

Knowing what I was going to say next, she replied, “Or more.”

I asked my last question “…so why are we even talking about this practice??”

Don’t get married or buy a practice, just because you’re mentally ready to move on to your next career step. How do you do that? The numbers have to work, obviously. But you’ve got to get the qualitative side of a dental practice right too.

And just like deciding whom to marry, would you ever get married without dating first? Would you buy a car without at least taking it for a test drive? Would you buy a house without seeing and inspecting it first?

You’ve got to get out and see the practice first-hand. And when you do, there are seven areas to pay special attention to. I’ll give you a few of the questions for each of the seven areas you need to ask when looking.

Key Area #1 – The Family Test

This is the Monopoly Test. This is called the Monopoly Test because if the answer is “no” to any of the above questions, do not pass go and stop analyzing this practice. You’re considering living somewhere for a period of, probably, decades. Consider the following questions:

  • Can you live in this city, and (more importantly, if applicable) can your spouse live here?
  • Will you have the kind of life you want in this area?
  • Will you be able to do the things that are important to you, if you spend 50 weeks a year in this part of the country?
  • Will the cost of living here enhance or detract from your financial goals?

 

Key Area #2 – The Selling Doctor

Interview the selling doctor; get to know him or her.  If your style doesn’t match the selling doctor, it will be more difficult to carry the practice forward in the way it has been carried so far. Consider these questions about the selling doctor:

  • Does your personality style match the selling doctor?
  • Do you have similar values and philosophy on life and business?
  • Do you share a similar clinical diagnosis philosophy?
  • Do you feel comfortable with the selling doctor’s ethics?

Key Area #3 – The Facility

Don’t even think about purchasing a practice unless you have, or plan to visit the practice in person. There is no substitute for a boots on the ground inspection of the facility, grounds and area. Consider asking these questions as you consider the facility:

  • Are the office and signage easily visible to the public?
  • How is the physical appearance of the building, inside and out?
  • Are there major changes you’ll need/want to make to the building?
  • Is there sufficient parking?
  • Is the building in a part of town that has the demographic of your target patient base?
  • Would you want to get your dental work done in this office?

Key Area #4 – The Equipment

The tools you’ll be working with can enhance or detract from the practice you purchase. If you’re a recent grad, you’re probably used to the latest and greatest equipment most dental schools seem to have. Consider the following questions regarding equipment:

  • Does the seller have the equipment/instruments you’ll need and want to do your work?
  • If not, how much will it cost you to acquire the equipment you need/want?
  • Is the equipment left or right-handed?
  • What does the local equipment rep have to say about the quality of tools in use?
  • Open bay vs. quiet rooms for doctor and hygiene?
  • What do you notice about the non-front-and-center equipment: delivery units, compressor, vacuum, nitrous, etc?

Key Area #5 – The Team

Your team will be your family away from home. Getting along with them is important. But even more important is understanding who they are as individuals. Their reasons for being in their careers. Their hopes, dreams and goals. Their ability to be coached, and expectations of their new boss. Consider these questions as you analyze the team:

  • What is the staff’s general attitude towards the transition?
  • Will they be staying with you or leaving? Who will you have to replace?
  • What is the tenure of the staff?
  • What do you think of current salaries, benefits and any existing employment contracts?
  • What are the main reasons other staff have left this practice in the past?
  • Does the staff see any problems in the practice?
  • What changes would they recommend making in the practice?
  • How often do they receive feedback (both positive and negative)? How often do they improve their ability to contribute value to the practice?
  • Do they know the practice goals? Do they have personal goals or development plans?

Key Area #6 – The Patients & Scheduling

Patient flow and scheduling are the circulatory system of any practice. Without it, the practice dies. If there are problems with patients & scheduling, everything else becomes harder. Consider these questions when considering patients and scheduling:

  • How long is the doctor booked in advance? (Hopefully 70-80% full for the next two weeks)
  • Is there room for emergency visits?
  • How far is hygiene booked out?
  • Are there gaps in the hygiene schedule?
  • What are the primary sources of new patients?
  • What are the current internal marketing programs?
  • What are the primary external marketing programs?
  • How are you going to attract new patients to the office?
  • Does the office have an online marketing plan integrating website, social media & SEO?
  • What changes would you make to the scheduling process?

Key Area #7 – Production & Chart Audit

Patients may be coming in the doors, but how do you know they are the types of patients you will be able to help? Or the types of patients you want to help? Consider the following questions about the production and charts in the practice:

  • Do they use digital or paper charts?
  • What percentage of active patients come from fee for service, PPO, HMO plans, Medicaid?
  • What percentage of total annual production is from Hygiene?
  • Review the x-rays in the chart and compare them with the work diagnosed and performed. Do you agree with the diagnosis?
  • Are the treatment notes complete and legible? Could you pick up this chart and treat the patient without trouble?
  • Can you find any patterns of patient treatment and acceptance?
  • Do you have the expertise to confidently perform the treatment in a chart?
  • How much accepted treatment is there not yet performed? (*Rule of thumb: for $500k of revenue, there should be $300k of diagnosed, presented and accepted, untreated dentistry)

A final tip as you consider the list above: the help of a professional who specializes in helping dentists with this type of analysis is invaluable. Not only can they help you think through all of the above and more, they can give you a sense of what the answers to those questions mean. If the quantitative side of a practice analysis works, and the qualitative side in the questions above work, you may have found a practice worth buying! Good luck!

How to Analyze a Dental Practice for Sale – The Quantitative Factors

Brian Hanks Practice Transitions 10 Comments

Recently, I was approached by a dental student with financial papers in hand wanting to know “Is this dental practice I’m thinking of buying a good one?”

“It depends,” I replied, “on what you want. Do you have student loans and want to be able to pay them off quickly?”

With a touch of “duh” in her voice, she replied “yes”

My next question was, “Do you want to retire when the average dentist retires today at 68.8 years old, or would you rather have the freedom to walk away earlier in your 50’s if you wanted to?”

Horrified, the student replied “That’s the average retirement age?!”

Feeling a little bad about bursting her bubble, I continued, “does this practice collect enough, and have enough profit to support your debt pay down, savings and lifestyle goals?’

“….um….I’m not sure…” was the response. We talked for a few minutes about how much she wanted to make and when she wanted to be debt free.

From there I took a quick glance through the financial documents she had and, focused on six or seven numbers. Within a few minutes I had a pretty good idea of whether or not this student was considering a financially “good” practice.

What are those numbers?

I’ll outline exactly what to look for in a practice you’re considering purchasing.Read More

What Can Dentists Learn About Leadership from Marshawn Lynch?

Nate Williams Leadership Leave a Comment

Leadership is a difficult concept to teach. It’s easier to show an example of a good leader than to describe what makes a good leader.

For this example, we’ll turn to the colorful Marshawn Lynch, Mr. Beast Mode himself. What can we learn about leadership from Marshawn Lynch? From this clip, just about everything. Cue the video…

Well, what did you learn about leadership? Perhaps you should watch it again…

Read More

The Successful Dentist: It’s Who They Are

Nate Williams Leadership, Personal Management 1 Comment

Collectively at Practice Financial Group we have worked with hundreds of doctors. They are all unique in their personalities, practice circumstances, income, net worth, age, etc. We have advised deca-millionaires (net worth greater than $10 million) and clients with multimillion-dollar debt loads. We have seen both thriving and floundering practices, and the broad spectrum in between. Our experience has been a fine-tuned education in what creates and sustains wealth, including the keys to running a successful practice.

With regard to the successful practice, we often asked, “What do successful dentists do, that less successful ones don’t do?” Do their secrets lie in better advertising campaigns, or free whitening promotions? Many of our blog posts aim to answer this question; our information comes from what we have studied and more importantly what we have observed.

After years of study and observation, it has become clear that to ask “what do they do?” is to ask the wrong question. Perhaps the most salient truth that has emerged from my experience advising practice owners is this: it is not what successful dentists do that most distinguishes them from their colleagues, it is who they are that makes the difference.

Their deeper character is what matters. And they often don’t even recognize what they are “doing.”

Although there are many important characteristics that define the whole being of a successful dentist, let me mention one that we believe is paramount to them all:

The most successful dentists we know sincerely care about people.

They care about their employees. They care about their patients and genuinely want to help them. They show and express appreciation to these people, and they mean it. Their behavior is not informed by gimmicks gleaned from motivational books; there is not a profit motive behind their kindness. Their success grows from a genuine concern for the wellbeing of those around them.  It is because they care that they smile more, work harder, and perform better treatment. Patients can feel this sincerity, and they respond to it. Associates and staff can also feel their genuine concern, and they are willing to sacrifice more for these doctors.

All this is to say that if you don’t genuinely care about people—your team and your patients—and if you don’t feel and express sincere appreciation for them, you will underperform your colleagues who do, and more importantly you will significantly underperform your own potential.

Although there are other factors, (level of training, effective and persuasive communication, leadership qualities), caring about people is perhaps the most critical component of successful dentistry and the foundation of a successful life.

In conclusion, please resist the urge to ask what successful dentists do; instead examine who they are.  The path to becoming a successful dentist is not paved with quick fixes or easy answers; it is a continual course of self-improvement.

The Millionaire Dentist Next Door

Nate Williams Financial Planning, Personal Management Leave a Comment

In the most comprehensive, revealing study about true wealth in America, Dr. Thomas J. Stanley, PhD profiles the real millionaires in our country. In this landmark book, the majority of the people he profiles have a net worth (total assets – liabilities) of $1 – 10 million. They are also first-generation millionaires. Our clients—hard working dentists—are this group of people. This book was written for you.

After reading dozens of books on the topic of personal finance, this is the book I come back to time and again to refresh my perspective on how these millionaires build wealth. After my most recent reading, I am inspired again to refine these principles in my own life and to recommend them to you.

Please read the book. If you prefer to listen, Audible.com has an abridged version that is fantastic. Then read it again. And digest and implement the principles he teaches. In effort to further guide you to greater levels of financial independence, I will address some of the key takeaways I gleaned from my most recent reading of “The Millionaire Next Door.”Read More

Why You Should Buy a Dental Practice BEFORE Your Student Loans are Paid Off

Brian Hanks General 1 Comment

“I am really interested in owning my own dental practice, but I think I need to pay down my student loans before I buy one.” said nearly every dental student and resident I’ve talked with across the country.

It’s a common response I get when talking with students. But it’s not a wise one.

If you’re coming out of dental school, you probably have a mountain of student loans. It feels daunting. And it only feels worse if you did a residency program. I get it.

You need to face your fears. Stare the cold, hard facts in the face. Realize the quickest way for you to pay down your student loans is to own a good dental practice as soon as possible.

Recently, a client of ours came out of dental school with just under $300,000 in student loans. He’s married, and has 3 kids. He worked for about 8 months as an associate, and then shopped and found a good practice to buy. Two years after that purchase, he’s whittled his student loan debt load down to about $80,000 and is on track to finish paying them off this year.

All his student loans paid off less than four years after dental school. Sound nice?

The fact is, the quickest way to pay down your student loans is to have the money to pay them down, and the quickest way to have the money is, typically, to own a good dental practice.

Let’s look at a simple example that helps illustrate the point. Let’s say you’re a new dental grad a year or two out of dental school and you’ve got the hand speed and skills to do $800,000 a year in production. If you’re an employee of a big chain, you’re probably taking home 25% of production, or $200,000. Good for you. Your Mom is proud, and your non-dental friends will make you pay for dinner.

Buy a Dental Practice Fast 1

What if you were the same dentist, but instead were an owner?

As an owner, let’s say you produce the same $800,000 in production and buy a practice that produces exactly that amount per year. Let’s assume you pay 65% of production for the practice, or $520,000. Now, instead of 25% of whatever you produce, you get to keep all the profits from the business. The average dental practice has overhead of about 60%, so you would get to keep about 40% as profit, or $320,000. But, don’t forget that you had to get a loan to buy the practice. Let’s say it was a 10-year loan at a 5% interest rate. That’s $66,185 annually that you’d need to pay towards that loan. But wait, if you subtract the loan amount from the profit you have left from the business, you have $253,815 – $53,815 more than you would have as an employee.

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The real kicker comes down the road. After you’ve paid off the practice loan, you’re now keeping all the profit from the business. If you’re an employee, you’re still making 25% of production.

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Of course, in real life the comparison is never quite as simple. There are other financial factors I haven’t mentioned, and plenty of non-financial factors not included in this analysis. Do you want control over which procedures you recommend? Do you want control over whom you work with? Do you want the added stress that comes with owning a business? Answers to those questions matter as much as the numbers. 

Even assuming ownership is still the goal, after I run students through the numbers I get two common questions:

“With as much as I have in student loans, no bank will lend to me!” Actually, banks can and frequently do lend to newer dentists with large student loan balances. Banks LOVE to lend to dentists. It’s true you’ll need to buy a dental practice that can support your student loan payments along with your living expenses at home. But make no mistake – the banks will run those numbers backwards and forwards. A good dental CPA with a Buyer Advocacy program like Practice Financial Group can run the cash flow projections for you as well. I’d be willing to bet good money that you, yes you (and your student loans), can get a practice loan.

“But I don’t have the experience yet to run my own dental practice!” That might be true. If you’re just graduating, you probably don’t have the experience you need yet. You need some day-in day-out time with patients to increase your speed and master your procedures. If you’re a year or two out of school, however, as long as you’ve been practicing dentistry, you know more than you think. And if you can show production history close to a practice you’re thinking of purchasing, there are advisors and consultants that can help you figure out what you don’t know.

The hidden danger with working at a big corporate dental chain right out of school as an employee is that you pick up bad habits. As an employee you’re more comfortable with an open schedule. You’re slower than your colleagues who own their own practice. You aren’t quite as good at selling the need for a procedure to your patient. Why would you be? The buck, ultimately, stops with someone else.

Working as an associate in an office similar (or the same!) as the one you might eventually buy is the best course of action right out of dental school. You get the experience you need, pick up the best habits of a business owner, and get an idea of how you will run your practice when you own it.

If you have a general idea of the pros and cons of business ownership, and you suspect that you will someday want to own your own practice – don’t wait until your student loans are paid off. The fastest way to pay off those pesky student loans, is to have the money to pay them off. And generally, the quickest way to have that money is to own a good dental practice sooner rather than later.