How Purchasing A Dental Practice Can Get You Out Of Debt Quickly
As a young dentist fresh out of dental school, the next step in your career might be to purchase your own practice. But today, most dental school graduates find themselves in immense debt and are concerned about the costs associated with such a large purchase.
One quick look at the statistics and it’s clear that the financial concerns of recent grads are completely justified. The American Dental Education Association (ADEA) reports that the average dental school debt for 2017 was $287,331, per graduate. Then, couple that with the average price of a dental practice – $650,000 – a recent dental school graduate can expect to go into debt by roughly $938,000.
Yes, this is a staggering amount of debt, but it doesn’t have to be insurmountable.
In my experience working with recent dental school grads who are embarking on their journeys of practice ownership, I can tell you first hand that it’s not only possible for you to purchase your own practice, it’s actually a pretty wise decision to make.
With the right help, any debt you bring on can be managed and the work you put in will be worth it in the long run. In fact, many new dentists will opt to purchase an existing practice instead of building their own from scratch, giving them instant access to an established patient group. This leads to immediate cash flow and, by taking on the high cost of purchasing a practice early in your career, you can pay off your debts faster and get on with enjoying your fulfilling profession debt free, much earlier than you previously thought was possible.
That being said, you should work with someone knowledgeable in the industry to determine which practice is the right practice for you to purchase.
Two Words To Live By
The quickest way to cut into your student loan debt is to have the money to pay it down; and the fastest, most effective way to secure the funds to pay down your debt is to go into business for yourself. But how will you know if a particular practice is the right practice to invest in? Two words: “cash flow”.
A business’s cash flow provides you with a snapshot of its true financial health and showcases whether it’s operating in a way that’s profitable or if it has too much overhead. These financial benchmarks are critical when determining whether a particular practice is the right one for you.
To determine if there is enough cash flow in a practice, you must first take a closer look at the amount of personal debt you carry. Personal debt includes: student loans, mortgage, car loans, credit card debt or any other financial responsibilities. Once you calculate your monthly debts, you’ll then want to multiply that number by 12 to determine your yearly debt and how much money you need coming in to cover it.
- Banks typically look for a minimum debt to service ratio of 1.20:1. This means for every $1 in expense, the practice must make $1.20.
- Having money in the bank may be more important than aggressively paying down your student loans, so try and save as much money as you can and develop a strategy designed to help you minimize your personal debt over a period of time while still putting money away in the bank.
The team at PMA is committed to working closely with you from the very beginning of your practice ownership journey, all the way to the end – catering to your needs while offering a superior personalized service the entire way. PMA’s commitment and open communication allows you to purchase your first dental practice with confidence. We will work to provide you with complete knowledge of the purchasing processes to help you protect your investment and avoid any liabilities in the future.
If you’ve recently graduated from dental school and want to take the next step on your career journey, check out www.PMAgroup.net to find a variety of quality practices for sale and valuable assistance in other aspects of practice ownership.
If you have any questions, feel free to reach out to me by email at firstname.lastname@example.org, or call me at 330.335.9042.
By Matt Scherer, president, PMA Practice Transitions