You just graduated dental school and are ready to begin your dental career. Have you started looking for openings at local dental practices? Before you do that, take a listen to this video with dental transition experts Matt Scherer and Adam Goldmsith as they share how it is possible to purchase a dental practice after graduating from dental school — even with student loan debt.
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It’s Matt Scherer. I’m with PMA Practice Transitions, and I assist dentists in transitioning out of their practices; also assist buyers in buying practices in the state of Ohio, and western PA. Have my colleague on with me. His name’s Adam Goldsmith. And he does the same there in Indiana and northern Kentucky. And Adam, today’s topic is I’ve got a lot of student loan debt and I’m out of school. What should I do? Should I buy a practice? Everybody tells me I can’t afford a practice, or should I find an associateship? What should I do?
I’ll start this off by saying number one, straight out of dental school, it’s probably really important to kind of, I guess, get your beak wet a little bit and get out there and work, build up the hand speed and things like that. Because one thing that I think younger dentists don’t realize when you buy a practice is you become a small business owner. And what does that entail? We know how to do dentistry. We’ve been very educated in that, but what is owning a practice? What is owning a small business? So I think it’s important, plus banks do like to see some associateship right out of school. But what I will tell you is even with all that student loan debt… let’s say you’ve been out for a year or two… you can afford to buy a practice. In fact, I don’t think you can’t not afford to buy a practice, if that makes sense. What do you think Adam?
Yeah. I couldn’t agree more, especially when you’re looking at purchasing a practice that has a pretty strong track record, some good revenues. There’s so many advantages to being a business owner versus an employee. Obviously, the sheltering of your taxable income through business expenses and other means is a huge point. That is not a benefit you have as an employee. You’re probably going to work fewer hours clinically as a practice owner versus an employee. A lot of associates right out of college are going to be working 40, 50 hours for maybe a DSL or some organization of that sort. Whereas a lot of private practices that you would potentially consider purchasing have maybe four days a week, 32 hours a week, something like that. So there are definitely a multitude of benefits of being an owner versus an employee.
Yeah. And that’s why we say you can’t not, not afford to buy a practice. As an employee, as well, the compensation for an associate is somewhere between 25 and 30% of your collections, not what you produce. Certainly as a business owner, as Adam stated, you can shelter some of that income, but your income usually is somewhere in that 35 to even 45% range. So certainly you are making more money doing a lot of times less dentistry to make that money. And again, you’ve got certain privileges as a business owner that you can do from a tax perspective to shelter some of that income.
Yeah. Another point, if there is a real estate component tied to the practice you’re looking at, obviously building equity in real estate is an investment in itself. And so trying to couple that in, if at all possible, to your practice acquisition is generally a smart move. There are some thought leaders in the industry that think, that state your hygiene department alone should be able to cover the loan for the practice and maybe your mortgage payment. So there’s definitely a lot of advantages of being able to get some of those profits versus just strictly your salaried income as an employee.
Yeah. And keep in mind, too, somebody coming out of dental school, let’s say a year has $300,000 in student loan debt. Now they’re going to the bank to borrow half a million or more, or little bit less to buy a practice. That’s a daunting amount of money. And we get that. But again, the bank is going to make sure that the cash flow of the practice supports those needs along with paying you a good income and all of that. So don’t get hung up… and we see this a lot is… don’t get hung up on the number per se. I’m a million dollars in debt. Now what? You have to remember, student loan is good debt. Student loan gets you to an income level because you’re a dentist. Buying a practice gets you to an income level. So that is what we call good debt to have.
So keep that in mind when you’re considering whether or not you want to buy a practice because again, the bank’s going to make sure that the cash flow makes sense for you. And certainly, Adam and I are happy to have those discussions with you. If you liked this topic, please give us a thumbs up. Share it with your colleagues. Also, visit us on www.pmagroup.net. And again, like I said, we’ll be happy to sit down with you and kind of walk through what a cash flow would look like for you and how you can afford to buy a practice, especially with a high student loan debt. Thanks.