Can I Afford a $700,000 Practice?

As dental education debts continue to rise, more graduates are feeling that it is an impossible goal to purchase a dental practice. With the average dental school debt as of 2011 at public institutions averaging $178,000 and those at private institutions

averaging $245,000, it is no small wonder why today’s graduates feel that way!

However, the good news is that all of the major dental

lenders understand your plight and are ready to loan money for a practice acquisition as soon as two years after your graduation. These lenders are in the business of providing funds for dental practice acquisitions because you are their market. The ability for recent grads to obtain sizable loans is a reality. Bank underwriters consider several factors; your credit, your amount of debt, your clinical production history and, most importantly, the financial condition of the practice you are purchasing.

Every entrepreneur has heard the adage, “You’ve got to spend money to make

money.” The enormous benefits of acquiring a successful, profitable dental practice certainly can place you on track to retire your student debt comfortably as well as meet your financial obligations of purchasing a practice. Furthermore, if you have the clinical experience to produce in excess of $35,000 to $40,000 a month, start thinking

out of the box and consider purchasing a $600,000 or $700,000 practice. In fact, you can purchase an even higher grossing

practice, especially if the seller remains after the sale.

acquisition loan for $500,000 at a slightly higher interest rate of 6.2 percent over 15 years, would equal $51,018 per year over the loan term. So, you would reduce your annual loan payments by 23 percent annually.

When you purchase a successful practice, you are purchasing a dentist’s historical earnings. As long as you continue to maintain the practice revenue and eventually grow the practice, your financial success can be easily achieved.

Since many practice start-ups range from $250,000 to $400,000 (based on area of the country), the borrowing cost and perceived risk of a smaller loan may seem more attractive. However, if there are no patients at the onset, there is no income! It will also take a considerable number of years for you to catch up to the earnings stream that you will be receiving from the first day of ownership, when purchasing a practice. In fact, you may never catch up as far as your lifetime earnings potential is concerned. Chances are, purchasing a profitable practice may still offer the best alternative for many graduates.

Before the Great Recession, many banks were funding start-ups at a very high rate. Recently, practice start-ups have declined, particularly in economically hard hit areas of the country. However, a start-up is still a viable career option in the right market. Yet, for many graduates, purchasing an existing income stream via a highly profitable practice is always a winning proposition.

When comparing whether a start-up option is preferable to purchasing an existing practice, you must consider the long term cumulative potential for wealth accumulation. To illustrate this point, assume that you purchase a $700,000 practice, which has a profit margin of 40 percent. That equals $280,000 of income per year

With interest rates still in single digits for the foreseeable future, the time is right for taking advantage of these market conditions that allow investing in a highgrossing practice a real possibility. Lower interest rates translate into more purchasing power for you! ■

(before debt service). Over a 20-year period, without even considering any growth in your annual income, the total income you can generate over that 20-year time frame translates into $5.6 million. Let’s assume that you paid $500,000 for this practice (including working capital). The loan term is for 10 years at an interest rate of 6.0 percent. That translates into annual payments of $66,280 over the course of the loan. So is borrowing $500,000 for a practice that can produce potentially over $5.6 million in career earnings a worthwhile investment? The answer, of course, is yes. In fact, several banks now offer loan terms for 15 years, so affordability can be enhanced. For example, that practice

Dr. Tom Snyder is managing partner of The Snyder Group LLC. A transition services consulting firm that specializes in practice valuations, practice sales as well as designing associate and partner relationships. He can be reached at (800) 988-5674 or email: tsnyder@snydergroup.net. The firms’ website is www.snydergroup.net

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When you’re ready to purchase or start a practice, count on Wells Fargo Practice Finance to help you achieve your practice goals.

Customized financing to help you acquire an existing practice or start one from scratch · Competitive fixed rates with preferred pricing for ADA® members · Expert project support by experienced practice financing specialists · Complimentary business planning tools, educational resources and practice management consulting to help you successfully manage your transition to ownership

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