When is the
Right Time to own your
Dental Practice? by Steve Seabolt
A recent poll indicates that students in dental school with school debt and dentists in a group practice setting are exploring the best options and timing for ownership of their own dental practice as compared to working for someone. The investment they are making in education and in their future is not to simply become an employee for the length of their career. Some graduates find ideal situations when they join a private practice as an associate and in many cases become a partner and eventually become the practice owner through a well-planned transition. Others may join a corporate group to receive a pay check and gain experience before gaining independence, and there are still graduates that successfully open a practice right out of school and are very successful. Atlanta Dental Supply, Professional Practice Management and Practice Life Partners share insights for evaluating the opportunity and the advantages of personal practice ownership. We begin with a simple self-survey to assess your preparedness and confirm the basics of owning your own business.
First, you need to answer a few questions about yourself... • Are you confident in your clinical skill level and speed? • Are you confident in managing a staff of dental team members? • Are you confident in managing the practice numbers and metrics?
If your answer is “yes” or even “maybe,” you are probably ready to take the leap and start putting your team together to make it all happen. Once you have made the decision to go out on our own, one of the first steps in opening your own dental practice is to decide … Where do you want to live and practice? Ideally, most of us prefer to live as close to the office as is practical. Minimizing drive time will give you more time to devote to your family and professional life. The best time to make this happen is before you open your practice. There are many positive attributes to opening your own practice: you’re the boss; you can establish your own working hours; you’ll get to choose your own team to support your patients and practice. Ultimately, you get to decide how much you want to earn with virtually no ceiling on the amount. How is that possible? It’s possible by investing in your own business. You might think that it is too expensive to open a dental practice. You might think that you can’t afford it. However, consider the awesome potential of increased earnings from owning your own practice vs. working as an employee. In our opinion, we think you can’t afford not to open your own practice. Let’s look at the facts. As an employee, it’s clear that you will be paid a lower percentage of collections than you would earn as a practice
owner performing the same exact procedures. This is a logical assumption since the owner of the practice that hires an employee dentist is not going to hire someone to work for the practice and just break even on their work. They will most likely be earning 10%-15% or more off your clinical work, not including 100% of Hygiene produced for your patients. That’s okay since he/she has made the investment and has taken the steps to developing the necessary skills required to successfully run a dental practice. In fact, they have figured out that owning their own practice is so lucrative that they can bring on an associate to become even more profitable. So, what is the cost financially of not opening your own practice and being an employee for your entire working career? Let’s make a few assumptions based on our history of working with both employee dentists and single owner dental
practices. Keeping it very simple, a general dentist working as an employee will, on average, earn somewhere between $10k to $15k per month or about $120k to $180k annually. An average established dental office will have a minimum of 4 equipped rooms by the 4th or 5th year in practice and should be collecting around $900k annually. The average general dental practice collects between $225k and $250k+ per equipped room. With the average dental office’s profit margin at about 35% of collections, you should have annual earnings of at least double the income as an owner -vs- being a W-2 employee doing the same procedures. An employee dentist’s pay is, by all standards, a great wage and puts you in the top 10% of wage earners in the country. Being in the top 1% is not all that difficult if you own your own practice and follow a fairly simple roadmap to success. Below is a chart that shows the additional potential earnings you could accumulate over a 35 year career owning your own practice -vs- being an employee for your dental career. Just imagine how much more your personal net worth would be at the end of your professional career if you also took a portion of these additional earnings and invested in a Retirement Plan and reinvested a portion back into the dental practice, which will likely earn you even more. This financial snapshot of practice ownership has been proven over many years. In order to earn double, triple or quadruple what you could expect to earn as an
Potential Additional Earnings when owning your own practice AS AN EMPLOYEE
WITH 4 OPS ONLY
+2 NEW OPS IN YEAR 6
+2 MORE OPS IN YEAR 10
YEAR
Annual
Cumulative
Annual
Cumulative
Annual
Cumulative
Annual
Cumulative
1
120,000
120,000
100,000
100,000
100,000
100,000
100,000
100,000
3
130,000
380,000
250,000
600,000
250,000
600,000
250,000
600,000
5
160,000
700,000
315,000
1,230,000
315,000
1,230,000
315,000
1,230,000
10
160,000
1,500,000
315,000
2,805,000
480,000
3,630,000
480,000
3,630,000
15
160,000
2,300,000
315,000
4,380,000
480,000
6,030,000
650,000
6,880,000
20
160,000
3,100,000
315,000
5,955,000
480,000
8,430,000
650,000
10,130,000
25
160,000
3,900,000
315,000
7,530,000
480,000
10,830,000
650,000
13,380,000
30
160,000
4,700,000
315,000
9,105,000
480,000
13,230,000
650,000
16,630,000
35
160,000
5,500,000
315,000
10,680,000
480,000
15,630,000
650,000
19,880,000
Total 4 OPS Only
= $5,180,000
Total 6 OPS
= $10,130,000
Total 8 OPS
= $14,380,000
Potential ADDITIONAL Earnings Over a Lifetime of Work
(in 6 YRS)
(in 10 YEARS)
employee over the next 35 years, you only have to invest about $550k in your new start up office including build out costs. Four fully equipped operatories and office build out costs will be an overall investment of around $550k. If you take this same $550k and purchase a house or invest in a mutual fund or the stock market, it’s going to be quite a challenge to earn the same return on your investment over those 35 working years. Generally by the end of the 3rd or 4th year you will have 4 fully equipped operatories. Our clients usually outgrow a 4 operatory practice and will added two more rooms around year 5 or 6 and many add two more room by year 10. Just remember, the investment in your own practice is one of the biggest keys to a lifetime of success. We would love to be part of your team. When is the right time to own your own Dental Practice? The shortest answer is as early in your career as humanly possible! The main reason for this is simple economics. Life expectancies in this country are at an all-time high, so your retirement will probably last a lot longer than it did for your parents’ generation. According to Social Security Administration actuaries, people who have reached age 65 today have life expectancies averaging 19 years for men and 21 years for women … and the arrow is pointing up. Of today’s 65 year olds, one in four people will live past 90 and one in 10 will live past 95. The physical nature of Dentistry will mean that some of you won’t be able to work into your 70s, even if that is your plan. Being able to fund a 25-30 year retirement is not out of the question. You don’t want to be that person who outlives their money! To pay for everything you need over this long retirement, you will need the profits you generate in your career to go into your own pocket and not into someone else’s. If you work as an employee, the profits you produce go to your employer - as they should - because they invested in the means of production. However, if you are wise enough to invest in your own practice early on, the profits accrue to you long after you have paid off your initial investment. If your employer or potential employer is advising you to avoid the “perils of
ownership,” they are at least partly motivated by the profits you will produce for them. The earlier you begin earning profits for yourself, the better your chances of accumulating what you will need to fund all of your retirement. This is the American dream and it is achievable for most Dentists! When it comes time to really grow your patient base, typically around the 5 to 10 year mark, you will generally begin to think of ways you can expand your practice’s services to improve value, strengthen your competitive position, and attract the interest of new patients. Maybe you’re thinking of moving to a larger space or even building your own office. Our team of professionals at Atlanta Dental Supply and Practice Life will be there to guide you through the entire process. By striking a balance of quality along with and state-of-the-art technology you will become a more successful dentist with a strong reputation, loyal clients, and maximized profits. Stephen Seabolt is a Certified Public Accountant. He has been with Professional Practice Management for 20+ years, working closely with our dental clients to help them limit their tax liability while maximizing profit. He works with our clients throughout the year to provide proactive service, well beyond that of a normal CPA. His knowledge of the dental profession is an asset to every client with whom he works.