Truths About Practice Ownership: Math That Corporate Doesn’t Want You to Know
Dental graduates worry about their student loan debt which is why many young dentists are now considering working within dental corporations. Just ten years ago, many viewed working for a corporation negatively.
Why the shift in thinking? One simple answer is the significant amount of student debt, perhaps more than $400,000 with 7 percent interest rates, and the other is fear.
Corporate dentistry is growing rapidly. Corporate dentistry now attends and markets to dental schools and state and national dental meetings. Corporate practices are bringing in young dentists by persuading them with perks such as good starting salaries and not handling the business side of the practice. This allows them to leave the office and not take work home.
Corporations have the same ideas and marketing, just lather, rinse, repeat.
As a young dentist, you need to ask yourself how corporate is entering the marketplace at such a rapid pace. Corporations utilize the expertise of MBA’s who have run every financial model possible to convince associates straight out of dental school to work for them.
However, corporate has not presented those associates with all of the information. You must consider the facts when contemplating dental practice ownership versus employment.
Measuring Financial Opportunity
First, let’s take a look at the timeline and measure the financial opportunity. Assuming you start working at age 28 and retire at 63, we have 35 years on our work timeline. Our scenario uses the following assumptions:
- 35-year career
- Million-dollar practice
- Annual doctor production/collections of approximately $750,000
- Checking $250,000 of hygiene
- Earned 27 percent of doctor collections as an employee
- 60 percent practice overhead
As an employee, if you are paid 27% of your doctor production, you will earn $202,500. Let’s compare this amount to what you may earn as an owner performing the SAME dentistry and hygiene.
As a dental practice owner, you should net about 40 percent of a $1M doctor and hygiene collection practice. This results in $400,000 of annual compensation. You could make nearly two times your earnings as an employee for doing the SAME work. The math is simple.
If the income difference in a single year isn’t shocking, take a look at that $200,000 annual difference multiplied by your 35 years in the workforce. The projected difference over 35 years is $7,000,000!
Considerations for Dental Practice Ownership
This alone should convince you that ownership is key. But, here are a few other reasons to consider practice ownership.
- Build equity in your dental practice. A $750,000 valuation of a dental practice that has $1M collections gives you the ability to sell the practice when you retire or sell percentages along the way to a partner.
- Take advantage of tax strategies that are not available to employees. The tax rates are near 38 percent (33 percent federal and an estimated 5 percent state tax) on annual income above $231,500. Making use of additional tax strategies can make a big impact.
- Contribute more to your pension plan than you can defer as an employee because of funding limitations. By saving more through a tax-deferred pension plan, you can greatly increase your ability to save money for retirement.
- Control your own destiny. As a dental practice owner, you have the options to choose your staff, the supplies you want to use, the insurance plans you accept, and the labs you use.
- Bring in a partner if you choose. As your practice grows, you may choose to bring in a business partner for additional growth. This may also allow you to work less or to be selective about the types of dentistry you wish to perform.
- Owning the real estate property gives you an additional asset.
Major banks report that dentists have a loan failure rate that is less than 1 percent.
Let’s rephrase that. You, the dentist, have a 99 percent success rate when you borrow money from the leading lenders and own your practice. These statistics show that as a dentist you have access to ownership in an industry that is already very successful without needing a corporation.
The next time someone asks you to work for them, remember what is in it for them, rather than for you. Although working as an associate for 2 years or less can be a great learning experience to grow and save, after that you are abandoning a huge financial opportunity – potentially a $7M opportunity.
There is a saying in dentistry, “You only have so many crown preps….” How do you plan to use yours?
At LenDRgroup Consulting, our team cares about your dental practice’s long-term success. Whether you need practice financing or business consulting, we will customize a plan that fits the unique needs of your practice and your career.
Our lending platform consists of 300+ dental and healthcare-specific lenders. We built this network to help dentists, veterinarians, and physicians. We want you to achieve your dreams of dental practice ownership while eliminating practice financing obstacles.
To date, we have helped hundreds of healthcare professionals start, expand, and grow their practices. LenDRgroup Consulting recognizes and understands the needs of your business and can help you avoid costly mistakes. So, let’s get started.
Contact us today to schedule your consultation.