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Another Debt Crisis

Conversations surrounding student debt have been ongoing for years. The primary focus of these conversations has been on the steady rise in cost of a dental education and the associated costs of financing that expense. The conversation, though, has evolved and we field questions from both potential Sellers and Purchasers alike. Doctors that are contemplating an upcoming sale of their practice are concerned that Purchasers are saddled with so much student debt that they’re not able to gather the capital or obtain the financing that would be required for the purchase of their practice. Purchasers are saying the same, or are concerned that they cannot or should not “take on more debt” than they already have. While there are certainly instances where any of these statements may be true, that is not the nature of the current market, and, in the case of a Purchaser, these thoughts may be hampering or jeopardizing your entire future in your chosen career.

The current reality is that with a Purchaser who has a good, solid, credit score and is looking to purchase a quality practice, ample money is available. The general credit evaluation is this — a Purchaser will need to show that they are capable of producing the amount of dentistry required to maintain the practice and, after paying all overhead of the business (not including owner’s compensation), have enough remaining from the practice (net income) to pay all costs of living, i.e. housing, food, car payments, insurance and, yes, debt (student and practice). If a Purchaser’s credit isn’t good, the Purchaser cannot produce the amount required to maintain the practice, or there is not enough left over in net income, a primary (or possibly any) lender likely will not lend. So, to be clear – money is available for good purchasers purchasing good practices. Lenders are consistently looking to us for additional opportunities so it is no question for us that the ability to finance is still there.

The bigger issue for Sellers is one that has been discussed since the economy has been improving. It is imperative that you make your practice the best it can be. Specifically, we’re talking about consistent, hopefully growing gross production and collections, equipment and technology, as updated as is reasonable (we have several articles about this on our website), and interior, as clean and uncluttered as possible. Beyond that, keep staff costs in line as well as overhead in general. In essence, we want to be sure that your practice is running as optimally as possible, and hopefully growing.

For Purchasers, this conversation is two-fold. First, as we have discussed in previous articles, be prudent with what you buy and what financial commitments you make after graduation. Just because you’ve received a large signing bonus, and have a nice income from your associateship, consider delaying the purchase of new cars, a new home, boat or airplane until after you find and purchase your practice. With that, make sure you’re also paying your bills on time, ensuring your credit score remains strong.

Second, you can and should purchase a practice. We already discussed that money is available. The bigger and more important reality is, though, not only is your financial quality of life often better as an owner (over being an associate/employee), but your personal quality life is often better. Dentists, by nature, are artists and entrepreneurs.  You like to make your own decisions – call your own shots.  Associates don’t get to do that. Financially, though, a typical associate will make 25-32% of collections, so $25k-$32k for every $100k collected by the practice. Compared with an owner, while a sole-practitioner owner may earn at a similar rate (but usually a few percent higher), once the debt service is paid off, the take home is rarely lower than 35% and often times 40% or more. That’s $3-$8k more per month, or $36k – $96k more per year. This is all assuming no practice growth or efficiencies and does not even speak to the other financial benefits built in to being an owner (think tax write-offs and more).

There are several articles about this topic out there right now. One from a PPT colleague that was published in Dental Entrepreneur can be viewed here. There is another from our colleagues in North Carolina.  We are all concerned that the entrepreneurial spirit of the dentist is being destroyed by the overwhelming mental weight of the debt. We are here to tell you that that debt is a cost of doing business. You could not be a dentist without incurring the debt (unless you or your family are already wealthy) so it is just another cost. Take advantage, though, of your investment. A practice purchase is one of the very few times where you will borrow money to make money. Without the student debt, you’re just another professional somewhere – likely one that is not working in one of the top ten best paid professions in the country (dentists/dental specialists represent 6 out of 10).

If you have questions about financing, your practice purchase or practice sale, don’t hesitate to contact your local ADS Florida | Henry Schein Professional Practice Transitions representative. We have been working and have had relationships with our lending sources as long as they have been lending to dentists.




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