17 Jun Question and Answer for the New Dentist
Even though you will ultimately rely on your own judgment to make career decisions, virtually everyone wants to be as well informed as possible before making a major decision. There are numerous sources (including PARAGON) that a dentist can turn to for such information, advice and guidance. However, you will find that these sources will often provide totally conflicting opinions as to how a new dentist should embark on their dental career. It is very easy to get confused.
In this article, PARAGON offers our perspective on how a dentist should get started in their dental career. We realize our perspective will be contrary to some other perspectives you have been offered. We just hope we can assist you in clearing up the confusion. You are not the first young dentist to be confused at this point… nor will you be the last!
My dental supply salesperson says that I don’t need to buy a practice but rather I should start a practice from scratch. Would a start-up practice be wise?
Your dental equipment supplier makes his or her living selling dental equipment. If you purchase an existing practice, you probably won’t need new equipment any time soon. The typical dental supply salesperson does not want to see you in a position of not needing new dental equipment. It is simply human nature that they would steer you away from a practice acquisition. Our question to you is how will you make ends meet if you don’t have a large enough patient base to produce the income you need to pay your overhead and also provide you with a suitable income? We know you will have that quality patient base if you acquire a practice. Can you be sure you will have enough quality patients if you start a practice from scratch?
What should I expect to earn the first year if I set up a new practice from scratch?
This largely depends on where and the type of practice (low fee managed care plan patients or fee-for-service patients) you decide to establish. Starting a practice in small town, rural areas will provide you with best chance of an exceptional annual production. We know of some start-up practices in non-competitive, rural areas who have actually earned as much or more as they would have by acquiring a practice. However, if you want to establish a new practice in a major metro area (as most young
dentists do), competition will likely be such that you will struggle to produce enough money to cover your overhead for a while. In fact, it is not unusual for start up dentists in popular, metro areas to operate at a net loss their first few years. We even know of a few start-up dentists who faced bankruptcy. If you do plan to start a practice from scratch, it is very important that you do so in an area that is not already saturated with dental practices. You should also plan on signing up for a number of low fee, managed care patient plans until you can get your quality fee-for-service patient base built up. Your profits will not be great spending hours with these low fee patients but at least you will be working and will probably at least cover your overhead.
What should I expect to earn the first year if I purchase a practice?
This depends upon the size and type of practice you acquire, but, virtually all of our new purchaser clients net (after all expenses and practice acquisition debt service payments) in excess of $130,000 their first year. It is not unusual at all for new practitioners to earn in excess of $200,000 their first year. We have a number of new practitioner clients who netted over $250,000 their first year and several who netted in excess of $300,000!
I have a lot of school debt and my dental school professors think I should become an associate for a while. Should I seek an associateship and work for a while to pay down some of this debt before I go into more debt to purchase a practice?
Many older dentists started their career as associates so they think that everyone should do the same. Frankly, some dental school professors have never even owned a practice OR they did and were not very successful. They are not always the most objective source of information on this subject.
PARAGON breaks this issue down to a financial perspective. For example, the typical associate earns in the $90,000 to $110,000 range. So, if this decision is based on financial concerns, you should ask yourself, “Am I better off earning $250,000 my first year as a practice owner or earning $100,000 or so as an associate?” Another factor that is often overlooked is that the net earnings you enjoy after acquiring a practice is not considering the income tax advantages you enjoy from a practice acquisition. When you purchase a practice, a great byproduct is that you will enjoy substantial tax deductions. So, in an apples to apples comparison, the practice owner could earn
$250,000 and also have all or most of this income offset by the tax deductions of the acquisition resulting in his or her tax liability being very small or even no taxes at all. The associate, on the other hand, pays income taxes on the entire $100,000. So, the doctor who acquires a practice not only earns more money, but is also able keep much more of what he or she earns. In addition to the fantastic tax advantages you receive when you acquire a practice, you are also your own boss. And, since the practice owner’s earnings are calculated after practice acquisition debt service, you are also building
significant equity in your practice with each debt payment that you pay. Frankly, purchasing a practice now instead of later is really a no-brainer decision!
Is immediately acquiring a practice my only practice ownership option?
No, not at all. While solo practice ownership is extremely profitable, co-owning a practice is also very rewarding. There are generally a number of established dentists seeking a co-owner with whom they can share the management and clinical duties. This has become such a popular entry path into practice ownership, PARAGON developed a program that was designed just for this purpose and with the young dentist in mind. PARAGON’s “Progressive Ownership Program” was established to create an easy way for a young dentist to associate with a practice and achieve equal ownership over a period of time. The timing of the ownership is based on both the young dentist’s production achievements and the length of service in the practice.
I don’t have the money to acquire a practice. How will I convince a bank to loan me that much money when I already owe so much in dental school debt?
Actually, you probably will not be able to convince a local bank to loan you the money. But, PARAGON has long standing, solid relationships with many national lenders who are quite experienced with the dental practice sale and acquisition process. These lenders finance practice acquisitions based on the viability of the practice opportunity and your credit history instead of on your current debt load. Experienced dental practice acquisition lenders know that you can better pay back your school debt on a practice owner’s income than an associate’s income. If your credit is good and you don’t have a significant amount of credit card debt, PARAGON can typically find the financing you will need to acquire a practice regardless of your school debt.
Which choice for the new graduate does PARAGON think is the best?
That’s easy! The logical choice is practice ownership. Acquiring an established practice is the most financially secure way to transition into practice ownership. Your net income is quite predictable since the projections are based on the established, historical financial track record of the practice being acquired. Associateships don’t make much sense in the big career picture unless you enter into a contractual relationship that eventually leads to practice ownership. “Hired Gun” associateships are a complete waste of time and resources. If your lack of experience in operating a practice is a major concern, then you should consider a practice acquisition structure whereby the seller remains with you as your associate and mentor for a while (PARAGON’s PreSale Program). Don’t delay! There are lots of excuses offered for delaying practice ownership. Frankly, if you don’t want to do something, one excuse is just as good as another. But, if you want to make the most of your career earning potential, seek and follow advice from experts and get yourself into practice ownership as soon as possible!