Industry Insights

The dental profession continues to thrive, ranking #2 in Best Health Care Jobs in the US. With nearly 25,010 students enrolled in US dental schools in 2018, the field is growing, and notably, 49.1% of these students are female, a significant increase from 5.8% in 1982. The biggest difference from 1982 to 2018, more dentists own multiple practices.

Do Banks Want to Lend to Dentists?

Banks are generally favorable towards lending to dental practices due to their low failure rates—only 5.2% of dental practices fail, and 0.52% of loans are charged off. Specialty lenders offer competitive terms such as 100% financing, longer terms, and less collateral requirements, understanding the unique value of practice goodwill.

Associate vs. Owner: A Financial Comparison

Associate

Income: Produces $600,000 annually, earns $180,000, net income $126,000 after taxes.
Pros: Steady income, no ownership responsibilities.
Cons: Limited earning potential, no equity position.

Owner

Income: Produces $600,000 annually, total revenue $900,000, earns $360,000, net income $190,764 after loan payments and taxes.
Pros: No income ceiling, equity position, ability to create own culture.
Cons: Ownership responsibilities, potential stress.

Over a decade, an owner can earn significantly more, including equity in the business, totaling $2,627,640 compared to $1,260,000 for an associate.

Financial Preparation for Securing a Loan

Credit 101: The 5 “C’s”

Character: Your credit history.
Capacity: Ability to repay the loan.
Capital: Banks provide 100% but like to see 10% liquidity reserves.
Collateral: Banks don’t require personal assets but will ask for a personal guarantee
Conditions: Dental practices are considered essential businesses and less impacted by the economy.

Steps to Prepare Financially

Work History: Demonstrate a stable and successful work history.
Income/Production: Show your ability to generate income.
Student Loans: Understand repayment plans like IBR and REPAYE.
Personal Debt: Manage monthly cash flow and overall net worth.
Liquidity: Maintain sufficient cash reserves.

Building Your Team

Assembling a team of professionals is crucial:

CPA: For financial management.
Attorney: For legal advice.
Supply/Equipment Company: Reliable suppliers.
Marketing: Strategies to attract patients.
Real Estate Agent: Finding the right location.
Contractor: Construction or renovation needs.
Lender: Dental-specific lender for favorable terms.

Buying vs. Starting a Practice

Buying a Practice

Pros: Established patient base, immediate income, trained staff, insurance providers in place.
Cons: Staff resistance, patient attrition, outdated office, possible equipment upgrades.

Starting a Practice

Pros: Choose location, customize layout, new equipment, build own culture.
Cons: Finding space, construction stress, no initial patient base, growing pains with staff.

Loan Considerations

Dental-specific lenders offer benefits such as no personal collateral, fixed rates, 100% financing plus working capital, and flexible terms.

Conclusion

Owning a dental practice offers significant financial and professional benefits compared to being an associate. With proper financial preparation and a strong team, dentists can successfully navigate the path to practice ownership.

For more information or specific questions, contact Sam Zanayed, Vice President at Huntington Practice Financing.

Cell 773.415.2999 or Email sam.zanayed@huntington.com