Six Million Reasons to Buy a Dental Practice
Based on some conservative calculations, there is a 6 million dollar difference between working as an associate and buying a dental practice over a 30 year career. And this is before any investing, tax savings, or equity, which are the basic building blocks of long term wealth.
So how did I arrive at 6 million dollars?
I’ll start with some basic math:
Let’s say that you’re an associate producing $800,000 at 28% compensation. Your take-home income is $224,000 (not bad at all…Mom is proud and you’re beating the average associate compensation, but those years in dental school could be worth a lot more).
With more dentists entering the market, your job isn’t entirely secure, but let’s say that you keep working at the same place (a very rare feat) for 30 years.
Now, as an owner producing $800,000, your overhead is likely around 60%, meaning that your take-home income is $320,000. Let’s say that you’re still receiving 28% for the work you do, but you’re also receiving the 12% profit generated by the business. That’s a $120,000 bonus every year!
But wait…there’s more!
Assume that a conservative 25% of the practice production comes from your hygiene department. If you continue to produce $800,000, then your hygiene department is producing $266,000, for a grand total of $1,066,000. Now your overhead is still 60% and you’re still producing the same amount of dentistry, but your ‘bonus’ (profit from the business) has just gone up. Your total take-home income is now $426,400.
Now let’s say you buy this practice today for $850,000 (a reasonable price for a practice doing these numbers in many California markets).
Your annual payment for the loan you take out (10 years at 5%) is $108,192.
Your take-home after debt service is $318,208.
Your tax savings on just the practice purchase over 10 years amounts to around $340,000.
Assuming you haven’t grown your new practice at all, the difference after 10 years:
Owner: $3,182,080 + $340,000 tax savings + practice equity of $850,000 = over $4,000,000
The difference after 20 years (10 years of no loan payments):
Owner: $7,446,080 + Initial Tax Savings of $340,000 (you save far more with a corporation) + Equity of $850,000
The difference after 30 years:
Owner: $11,710,080 + Initial Tax Savings of $340,000 (you save far more with a corporation) + Equity of $850,000
Total difference after 30 years: $6,180,080
That’s over 6 million dollars with no practice growth and no investing. Grow the practice by improving systems, producing more, working more days, increasing fees, or any other means, and that number goes up even further. And investing even 1 million of that 7 million over 10 years (assuming 6% returns) would turn that initial million into almost $1.8 million.
The economy will have its ups and downs and consumer confidence will wax and wane. When looking at the financial benefits of practice ownership, a piece of classic investing advice is in order: time in the market beats timing the market.
In other words, as long as you’re planning to be in private practice for over 5 years, the time to start reaping the rewards of practice ownership is now.
Buying a dental practice is an investment, and it pays off MASSIVELY over time.
Buying a dental practice is an investment. It provides you with more than a job that you control; it also offers profit above and beyond your compensation for the dentistry you perform, tax-advantages, a working environment you control, and equity in an income-producing asset (your practice).
So that’s 6 million reasons to buy a dental practice.
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