Can you get a 1.5 million dollar dental practice loan?

[753698]

Investing in multiple offices would be a great way to get passive income and higher returns than a commercial real estate. However, the headache and the effort that goes into it is 100 folds more than the headache that goes into commercial buildings.

Having multiple offices require finding the right staff, specially a long term dentist. You could hire and delegate all the management of the offices to office managers, but that increases overhead and you still need to put some level of time to meet and talk to the managers and address many concerns they may not be able to resolve on their own. For me, I once had 3 offices and sold 1 because I couldn’t get the associate to buy the 3rd practice so I ended up consolidating offices #2 and #3 together.

Of the past 8 years that I was running my offices, I went through 7 associates, (not including the 2 that works with me now) and dozen other staff members. Unfortunately, if you hire associates, the majority of them have plans to work with you for few months to couple of years before they decide to own their own shop somewhere else. Often it is heavily encouraged by the spouse and/or families and friends of the associate to move on one day and have their own office. I learned a lot from this, so I just decided to not scale up from 2 offices and invest my money in more consistent and low effort and headache investment, and real estate made the biggest sense for me.

That makes sense, associate turnover is a big issue with owning multiple practices. However, I see that corporations with dental chains tend to also have a lot of turnover (mostly because dentists only work there to pay off loans and then leave), but I've seen that some ways they retain dentists is by forming partnerships with the dentists, or pretty much allowing the dentist to gain some equity in the practice.

Do you think this is a sound strategy? Theoretically this is a win-win for both the owner entrepreneurial dentist, as well as the associate partner dentist. The associate dentist gets some equity share, maybe 25-50% of the practice, and you get the rest. In this case, the associate can only focus on dentistry and not the business side, and you can have an office manager handle the business aspects of the practice. There won't be any dentist turnover since the associate is now a partner and owns stake in the business. In this scenario, the owner dentist will take his % of profits from the practice, and the partner will take his percentage. Ideally, you can continue buying small, cheap practices or start new ones up and staff them with partner dentists with the hopes of turning them into high production practices.

Would this be profitable for the owner (CEO) dentist? I know the trend in dentistry lately has been towards group practices just like in medicine, so it seems that such a scenario is likely to become more common in the future.

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[charlestweed]

Investing in multiple offices would be a great way to get passive income and higher returns than a commercial real estate. However, the headache and the effort that goes into it is 100 folds more than the headache that goes into commercial buildings.

Having multiple offices require finding the right staff, specially a long term dentist. You could hire and delegate all the management of the offices to office managers, but that increases overhead and you still need to put some level of time to meet and talk to the managers and address many concerns they may not be able to resolve on their own. For me, I once had 3 offices and sold 1 because I couldn’t get the associate to buy the 3rd practice so I ended up consolidating offices #2 and #3 together.

Of the past 8 years that I was running my offices, I went through 7 associates, (not including the 2 that works with me now) and dozen other staff members. Unfortunately, if you hire associates, the majority of them have plans to work with you for few months to couple of years before they decide to own their own shop somewhere else. Often it is heavily encouraged by the spouse and/or families and friends of the associate to move on one day and have their own office. I learned a lot from this, so I just decided to not scale up from 2 offices and invest my money in more consistent and low effort and headache investment, and real estate made the biggest sense for me.

Very true. Running your own practice and making it successful require a lot of time and efforts. If it’s so easy, I would just hire a couple of associate orthodontists to work for me at 4 of my offices. I woudn’t have to travel to each of these offices, work late hours, and work on Saturdays and Sundays. Associate dentists don’t care about your practice the way you do. They don’t care about the overhead and try to help you to keep the overhead as low as possible. They care more about protecting their own license (and I don’t blame them) so they try to avoid performing more challenging cases and refer these cases back to you for you to perform. Some of them don’t have enough experience in diagnosis and tx planning….and patients start to lose trust in the office and seek tx elsewhere. They care about getting paid on time and going home on time. I’ve heard all kinds of stories that my gp friends have shared with me about their associate dentists.

As an associate ortho, who works for the corp office, I admit that I am guilty of not treating the office same way that I treat my own office. I don’t care when the day is not fully booked, when office doesn’t have a lot of new patient consultations, and when new patients don’t want to start tx. I still get paid the same per diem rate. I don’t care when the supplies get low. I don’t care if the office runs out of brackets…I can just tell the front desk to reschedule the patient to another appointment day. It’s not as stressful when the patients at the corp complain as when my patients at my own office complain.

 

[753698]

Very true. Running your own practice and making it successful require a lot of time and efforts. If it’s so easy, I would just hire a couple of associate orthodontists to work for me at 4 of my offices. I woudn’t have to travel to each of these offices, work late hours, and work on Saturdays and Sundays. Associate dentists don’t care about your practice the way you do. They don’t care about the overhead and try to help you to keep the overhead as low as possible. They care more about protecting their own license (and I don’t blame them) so they try to avoid performing more challenging cases and refer these cases back to you for you to perform. Some of them don’t have enough experience in diagnosis and tx planning….and patients start to lose trust in the office and seek tx elsewhere. They care about getting paid on time and going home on time. I’ve heard all kinds of stories that my gp friends have shared with me about their associate dentists.

As an associate ortho, who works for the corp office, I admit that I am guilty of not treating the office same way that I treat my own office. I don’t care when the day is not fully booked, when office doesn’t have a lot of new patient consultations, and when new patients don’t want to start tx. I still get paid the same per diem rate. I don’t care when the supplies get low. I don’t care if the office runs out of brackets…I can just tell the front desk to reschedule the patient to another appointment day. It’s not as stressful when the patients at the corp complain as when my patients at my own office complain.

Would this be different if those associates were partners though? Since now they actually have a stake in the practice, so they have to care. The more profitable the practice, the more profitable their bank account. It might mean less money for the owner dentist of said group practice, but it will also mean less headache, right?

 

[charlestweed]

Would this be different if those associates were partners though? Since now they actually have a stake in the practice, so they have to care. The more profitable the practice, the more profitable their bank account. It might mean less money for the owner dentist of said group practice, but it will also mean less headache, right?

I can’t answer your questions since I don’t have any experience with partnership. Personally, I prefer to run my business alone because I want to have the freedom to do whatever I like and not have to ask the partner for permission to do certain things (ie taking a vacation or firing an employee). That’s the whole point of opening my own office….full autonomy.

I think if the associate dentist is good (clinically and business-wise) and earns enough trust from the owner, the owner may consider making him his partner. But it’s very hard to find such trustworthy person to give (sell) a portion of his practice to. And if the owner chooses a wrong person, the new partner might create more headaches for the owner, instead of helping the practice grow. Partnership is like a marriage. It’s rare to have 2 doctors who agree on everything and have similar personality….one may work faster than the other, one may be harder working than the other, one is more generous at spending the $$$ to buy high tech gadgets while the other doc wants to keep the overhead low as low as possible etc. DrJeff and THMVR have more knowledge about this subject than me.

 

[753698]

I can’t answer your questions since I don’t have any experience with partnership. Personally, I prefer to run my business alone because I want to have the freedom to do whatever I like and not have to ask the partner for permission to do certain things (ie taking a vacation or firing an employee). That’s the whole point of opening my own office….full autonomy.

I think if the associate dentist is good (clinically and business-wise) and earns enough trust from the owner, the owner may consider making him his partner. But it’s very hard to find such trustworthy person to give (sell) a portion of his practice to. And if the owner chooses a wrong person, the new partner might create more headaches for the owner, instead of helping the practice grow. Partnership is like a marriage. It’s rare to have 2 doctors who agree on everything and have similar personality….one may work faster than the other, one may be harder working than the other, one is more generous at spending the $$$ to buy high tech gadgets while the other doc wants to keep the overhead low as low as possible etc. DrJeff and THMVR have more knowledge about this subject than me.

That's true, it does seem like a headache. I wonder how corporate dental groups manage such things. Is there any way for a single dentist to run a successful group practice with the good aspects of corporate groups (such as low overhead, good advertising etc.) minus the bad aspects (such as potential lower quality of care)?

I mean I always read about all these successful dental group practices run by entrepreneurial dentists, but unfortunately they never go into detail about how they did it.

 

[Cold Front]

That's true, it does seem like a headache. I wonder how corporate dental groups manage such things. Is there any way for a single dentist to run a successful group practice with the good aspects of corporate groups (such as low overhead, good advertising etc.) minus the bad aspects (such as potential lower quality of care)?

I mean I always read about all these successful dental group practices run by entrepreneurial dentists, but unfortunately they never go into detail about how they did it.

In the long run, it’s very rare to find a solo dentist with multiple offices (more than 4 or 5+ offices) without some level of partnership. Corporate offices fill a gap in the dental labor market, a very attractive option for many young dentists who love to be mobile and avoid long term commitments. In return, corporate offices give the dentists ability to find a job at a moment’s notice. It may not be the closest office to your home, but it will be an office at a reasonable driving distance for most dentists. So this is a great way to find a transition job for a dentist, and there are plenty of dentists who are looking for a transition job; from new grads to dentists on the move until they settle in to their new communities. So there is a big revolving door with corporate offices, but there is always an influx of dentists who are mostly filling the band-aid position at these corporate offices. As a dentist, this is a great plan B until you get your plan A going.

There are horror stories at corporate offices; a dentist (sometimes with the entire staff boycott and) just walk out of the office with no notice to the corporate office, corporate offices with lawsuits against their practices due to inducement practices towards their patients (ie. Free exam and cleaning to get patients in, but patients get ton of over treatment procedures), corporate offices who low ball new graduates with salaries and as a karma things go south when new graduate realizes their worth in few months, many states like North Carolina don’t allow corporate offices to own their offices - so corporate offices pay a dentist to be an acting owner and not the actual owner or co-owner of offices, corporate offices are notoriously negatively reviewed on yelp and google or even BBB by their patients for bad service, I can go on and on and on... and yet, corporate Dentistry is an important segment of the Dental workforce for the roaming dentist.

 

[DrJeff]

I can’t answer your questions since I don’t have any experience with partnership. Personally, I prefer to run my business alone because I want to have the freedom to do whatever I like and not have to ask the partner for permission to do certain things (ie taking a vacation or firing an employee). That’s the whole point of opening my own office….full autonomy.

I think if the associate dentist is good (clinically and business-wise) and earns enough trust from the owner, the owner may consider making him his partner. But it’s very hard to find such trustworthy person to give (sell) a portion of his practice to. And if the owner chooses a wrong person, the new partner might create more headaches for the owner, instead of helping the practice grow. Partnership is like a marriage. It’s rare to have 2 doctors who agree on everything and have similar personality….one may work faster than the other, one may be harder working than the other, one is more generous at spending the $$$ to buy high tech gadgets while the other doc wants to keep the overhead low as low as possible etc. DrJeff and THMVR have more knowledge about this subject than me.

My partner and I (and between my initial years as an associate, my years during my buy in to partnership and now my years functioning in a partnership we've been practicing together for over 17 years now) have a saying that our practice runs more like 2 individual practices within the practice rather than 1 big practice, and for us, that works.

What that means, is that we have our financial agreement as to who is responsible for what out of our own portion of the overhead. After that, what's left from what I produced and more importantly COLLECTED is mine, and what's left from my partner's collections is his. We don't pool the profit we each produced and split it evenly after we've paid off our respected expenses (and expenses are everything from straight office operations overhead, staff salary and benefits, our own benefits, etc). If my partner had a BIG year, that is reflected in his compensation and vice versa. It has worked for us, and some of the differences in how we both feel comfortable with practicing very well. If one of us wants to take some extra time off, then that's reflected in our individual compensation and not augmented by the the others collections.

We have plenty of discussions about issues should the arise and whether or not to make significant purchases. The way that we communicate, the trust we have in each other and how we want to run a practice seem to work fairly well for us, but it does take regualr work and communication to keep it that way

 

[753698]

My partner and I (and between my initial years as an associate, my years during my buy in to partnership and now my years functioning in a partnership we've been practicing together for over 17 years now) have a saying that our practice runs more like 2 individual practices within the practice rather than 1 big practice, and for us, that works.

What that means, is that we have our financial agreement as to who is responsible for what out of our own portion of the overhead. After that, what's left from what I produced and more importantly COLLECTED is mine, and what's left from my partner's collections is his. We don't pool the profit we each produced and split it evenly after we've paid off our respected expenses (and expenses are everything from straight office operations overhead, staff salary and benefits, our own benefits, etc). If my partner had a BIG year, that is reflected in his compensation and vice versa. It has worked for us, and some of the differences in how we both feel comfortable with practicing very well. If one of us wants to take some extra time off, then that's reflected in our individual compensation and not augmented by the the others collections.

We have plenty of discussions about issues should the arise and whether or not to make significant purchases. The way that we communicate, the trust we have in each other and how we want to run a practice seem to work fairly well for us, but it does take regualr work and communication to keep it that way

How is this separate from just having your own practices without forming a partnership? I understand that you both work in one practice, but since everything is separate it is essentially like having 2 individual practices, as you stated.

Do you have savings in overhead from this model?

 

[753698]

In the long run, it’s very rare to find a solo dentist with multiple offices (more than 4 or 5+ offices) without some level of partnership. Corporate offices fill a gap in the dental labor market, a very attractive option for many young dentists who love to be mobile and avoid long term commitments. In return, corporate offices give the dentists ability to find a job at a moment’s notice. It may not be the closest office to your home, but it will be an office at a reasonable driving distance for most dentists. So this is a great way to find a transition job for a dentist, and there are plenty of dentists who are looking for a transition job; from new grads to dentists on the move until they settle in to their new communities. So there is a big revolving door with corporate offices, but there is always an influx of dentists who are mostly filling the band-aid position at these corporate offices. As a dentist, this is a great plan B until you get your plan A going.

There are horror stories at corporate offices; a dentist (sometimes with the entire staff boycott and) just walk out of the office with no notice to the corporate office, corporate offices with lawsuits against their practices due to inducement practices towards their patients (ie. Free exam and cleaning to get patients in, but patients get ton of over treatment procedures), corporate offices who low ball new graduates with salaries and as a karma things go south when new graduate realizes their worth in few months, many states like North Carolina don’t allow corporate offices to own their offices - so corporate offices pay a dentist to be an acting owner and not the actual owner or co-owner of offices, corporate offices are notoriously negatively reviewed on yelp and google or even BBB by their patients for bad service, I can go on and on and on... and yet, corporate Dentistry is an important segment of the Dental workforce for the roaming dentist.

I'm curious though, how do people even grow their practices to those big corporate chains. For example, Rick Workman the founder of Heartland Dental, he started with one practice and continued to acquire dental practices and now he owns a large corporate chain.

I'm not necessarily looking to form a large corporate chain, but I do want to form a smaller multi-location group practice where I'm sort of the umbrella owner that staffs dentists/specialists at the other locations and I continue work at my primary location. However, I can't really find strategies/models on how this is achieved. Nobody starts with a large group practice, usually they start as a solo dentist and build into it.

 

[DrJeff]

How is this separate from just having your own practices without forming a partnership? I understand that you both work in one practice, but since everything is separate it is essentially like having 2 individual practices, as you stated.

Do you have savings in overhead from this model?

We both employ, and in the case of only the hygiene portion of our practice, share the profits in a contractually specified percentage, regardless of how many days we work and/or take off. That is a plus, as it allows more patients to come through hygiene at once, which gets more possible patients in our own chairs than if we had 2 completely separate solo practices. Hygiene for a general practitioner can certainly be a decent profit source to augment your own profit from your direct treatment. So if say my partner takes a week off, while I get full production credit for all of the hygiene checks that week he's out of the office, and in our office over the course of a typical week that often adds up to basically the extra production equivalent to at least 2, if not 3 crowns, from those extra hygiene exams that my partner would of done on his patients if he was in that week, so even though we split the hygiene profit regardless of if one of us is in the office or on vacation, who ever is working benefits financially from the extra examinations

Other than that, especially with major purchases, I'm responsible for paying for half of that say 100k piece of new equipment rather than the full 100k, so I'm profiting from that purchase quicker. Also, it allows us to have a slightly bigger staff, which can often handle things quicker than if I was functioning as a solo practitioner. Add in the fact that I don't have to worry about finding someone to cover emergencies should I want to take a vacation and that my staff can basically take a vacation when they want as opposed to when I do, and have it not effect the operations of the practice, there's a bunch of upside that my partner and I feel to the way that we have structured our partnership and run our practice

How much of a savings it is, not sure, as I haven't practiced any other way for 17 years. Anecdotally, from the annual survey that our accountant gives out to the roughly 200 dental clients he has, our practice is almost always in the lowest 10-15% with respect to overhead, so I guess on a scale of things, it seems to be working well for us

 

[Cold Front]

I'm curious though, how do people even grow their practices to those big corporate chains. For example, Rick Workman the founder of Heartland Dental, he started with one practice and continued to acquire dental practices and now he owns a large corporate chain.

I'm not necessarily looking to form a large corporate chain, but I do want to form a smaller multi-location group practice where I'm sort of the umbrella owner that staffs dentists/specialists at the other locations and I continue work at my primary location. However, I can't really find strategies/models on how this is achieved. Nobody starts with a large group practice, usually they start as a solo dentist and build into it.

They leverage. In corporate or large multiple offices, the existing office(s) acquire assets for new offices or expansions from their lenders, and the leverage process continues to borrow more money for new and future offices. Some corporate offices use leverage in a different way, not by borrowing but through equity, and ask their investors to raise the money needed for expansion and new offices. We are now in the realm of business strategy and not doing dentistry, so you either borrow capital or raise capital. This is how I opened multiple offices and bought my commercial buildings.

 

[753698]

They leverage. In corporate or large multiple offices, the existing office(s) acquire assets for new offices or expansions from their lenders, and the leverage process continues to borrow more money for new and future offices. Some corporate offices use leverage in a different way, not by borrowing but through equity, and ask their investors to raise the money needed for expansion and new offices. We are now in the realm of business strategy and not doing dentistry, so you either borrow capital or raise capital. This is how I opened multiple offices and bought my commercial buildings.

So essentially the strong cash flow from your very first office is what is used for leverage to acquire more offices? But as the owner now of multiple practices, how do you make sure the other practices are profitable to you can actually pay back the loan you borrowed? You had said that often associate turnover is a big headache and leads to the satellite practices not being very efficient, so how exactly do these dentists make sure that the offices they acquire can be turned around and made profitable without their physical presence in these offices?

 

[Cold Front]

So essentially the strong cash flow from your very first office is what is used for leverage to acquire more offices? But as the owner now of multiple practices, how do you make sure the other practices are profitable to you can actually pay back the loan you borrowed? You had said that often associate turnover is a big headache and leads to the satellite practices not being very efficient, so how exactly do these dentists make sure that the offices they acquire can be turned around and made profitable without their physical presence in these offices?

Yes. Again, I’m speaking in general here, I don’t know the specific business models of any corporate office. The revolving door issues for large and corporate practices is a big headache but there are strategies those offices use to stay ahead of those problems. One example is that corporate offices prefer a senior or lead dentist and one associate junior dentist in every office. In fact, the offices themselves are designed to support at least 2 dentists. If one of those dentists leave, the offices will start looking for a replacement dentist. In the meantime, the practice will be adjusted around the remaining 1 dentist until the new 2nd doctor arrives. If you go to corporate office websites like Aspen dental, they have 100’s of dentist jobs open, but about 80% of those jobs are for offices with 1 existing dentist, and the rest of the jobs are for new offices with no dentist or offices that will be losing their only dentist soon. Those rules also apply to other staff members but at a different forms or levels.

Again, the revolving door is a manageable problem, and things will be up and down for some corporate offices, but the overall workforce in their 100’s of offices will grow.

 

[753698]

If it was easy everybody would be doing it.

These guys like Workman are CEO personalities and visionaries. Like Jobs Gates etc. They are also cutthroat sharks. The answers to your questions are not on SDN, or any dentist Forum. The corporates all have different models. It’s like a software engineer asking “how can I start the next Amazon? I know how to code”

#1 thing you need is leadership ability. Everything else follows

Well I never said it was easy, and not everybody is built for or even wants to go into entrepreneurship. I personally don't care to have such a big corporate empire, but I'm still interested in the entrepreneurial aspect of dentistry.

 

[753698]

Yes. Again, I’m speaking in general here, I don’t know the specific business models of any corporate office. The revolving door issues for large and corporate practices is a big headache but there are strategies those offices use to stay ahead of those problems. One example is that corporate offices prefer a senior or lead dentist and one associate junior dentist in every office. In fact, the offices themselves are designed to support at least 2 dentists. If one of those dentists leave, the offices will start looking for a replacement dentist. In the meantime, the practice will be adjusted around the remaining 1 dentist until the new 2nd doctor arrives. If you go to corporate office websites like Aspen dental, they have 100’s of dentist jobs open, but about 80% of those jobs are for offices with 1 existing dentist, and the rest of the jobs are for new offices with no dentist or offices that will be losing their only dentist soon. Those rules also apply to other staff members but at a different forms or levels.

Again, the revolving door is a manageable problem, and things will be up and down for some corporate offices, but the overall workforce in their 100’s of offices will grow.

Oh that actually makes a lot of sense. I've seen that corporate groups actually encourage dentists to buy into the practices, but these terms are often for life. I personally think this is a pretty bad deal for the dentist, but I can understand why some dentists do it.

 

[Cold Front]

Oh that actually makes a lot of sense. I've seen that corporate groups actually encourage dentists to buy into the practices, but these terms are often for life. I personally think this is a pretty bad deal for the dentist, but I can understand why some dentists do it.

The doctors who buy into corporate offices get a “until death do us part” type of deal. If they try to walk away from the corporate partnership, they stand to lose hundreds of thousands of dollars they brought into the deal and some serious non-compete clauses being activated. The corporate partnership heavily favors the corporation, they control all the numbers and the business side of the deal. The dentist will have access to everything, but they are primarily focusing on the clinical side of the deal. The dentist will have a mountain of patients to keep him/her busy that they won’t have time to track the business decisions closely (like a solo practitioner would), and those business decisions are primarily made in the interest of the parent company. So it’s a “be careful what you wish for” type of deal for the most of the corporations,

 

[753698]

The doctors who buy into corporate offices get a “until death do us part” type of deal. If they try to walk away from the corporate partnership, they stand to lose hundreds of thousands of dollars they brought into the deal and some serious non-compete clauses being activated. The corporate partnership heavily favors the corporation, they control all the numbers and the business side of the deal. The dentist will have access to everything, but they are primarily focusing on the clinical side of the deal. The dentist will have a mountain of patients to keep him/her busy that they won’t have time to track the business decisions closely (like a solo practitioner would), and those business decisions are primarily made in the interest of the parent company. So it’s a “be careful what you wish for” type of deal for the most of the corporations,

Exactly. I feel like those same dentists could be earning the same while treating half the patients if they were in their own practice. They would also have higher satisfaction + sense of achievement with their work if they build their own practice. Not sure why dentists want to buy into corporate practices. It just seems like a terrible deal from my perspective.

 

[753698]

By the way, @Cold Front, suppose you were to take out a loan to buy a second dental practice. If that dental practice was under the same entity as your primary practice, then is the loan on that 2nd practice deductible as a business expense of your primary practice?

 

[2TH MVR]

Hope I'm correct here, but when you take out a business loan on assets. The principle amount of the loan is not deductible. The interest is. What is deductible is the depreciation on those assets. That's why when you buy a practice (asset) you want the purchase price to be mostly "equipment" which can be depreciated on a much faster time frame then goodwill, walls, ceilings, flooring, etc. etc. But for the seller .... the opposite is the case. The seller pays more in taxes for the equipment as compared to goodwill. Therefore a specific loan for a specific asset is only for that asset unless that loan covers assets that are shared or used by both entities. It is best to treat each entity as it's own business. Best not to intertwine these entities.

disclaimer .... I am only a keyboard quarterback. Best to consult a tax accountant versed in dental practice acquisition.

 

[753698]

Hope I'm correct here, but when you take out a business loan on assets. The principle amount of the loan is not deductible. The interest is. What is deductible is the depreciation on those assets. That's why when you buy a practice (asset) you want the purchase price to be mostly "equipment" which can be depreciated on a much faster time frame then goodwill, walls, ceilings, flooring, etc. etc. But for the seller .... the opposite is the case. The seller pays more in taxes for the equipment as compared to goodwill. Therefore a specific loan for a specific asset is only for that asset unless that loan covers assets that are shared or used by both entities. It is best to treat each entity as it's own business. Best not to intertwine these entities.

disclaimer .... I am only a keyboard quarterback. Best to consult a tax accountant versed in dental practice acquisition.

Ohh that makes sense. So theoretically when purchasing a practice you would want one with lower amount of goodwill? So more of the price is allocated towards equipment? That's new to me because when I was browsing practices most of them boasted about the number of years of goodwill they had, as if that is a good thing for the buyer.

So depreciation is tax deductible right? When buying a practice does that mean that the interest plus a little of the principle (value of depreciation) of the loan is written off?

I'm going to throw something at the wall and hope it sticks, suppose you were to buy a second practice and merge it with your primary practice. In that scenario, all assets from the 2nd practice are now a part of your primary practice, so this would allow the interest + depreciation to be written off, correct?

 

[2TH MVR]

Traditionally you can’t write off a dental practice. If you did anyways, then you would have to pay tax on the sale, as it would be considered all profit.

That’s the simplest way to think about it.

I'm not sure its that simple.

 

[321931]

The amount of information and curiousity this pre-dent has about business is pretty awesome but at the same time funny. It's like an high school student asking stephen hawking to explain his equations on the universe.

 

[Cold Front]

Hope I'm correct here, but when you take out a business loan on assets. The principle amount of the loan is not deductible. The interest is. What is deductible is the depreciation on those assets. That's why when you buy a practice (asset) you want the purchase price to be mostly "equipment" which can be depreciated on a much faster time frame then goodwill, walls, ceilings, flooring, etc. etc. But for the seller .... the opposite is the case. The seller pays more in taxes for the equipment as compared to goodwill. Therefore a specific loan for a specific asset is only for that asset unless that loan covers assets that are shared or used by both entities. It is best to treat each entity as it's own business. Best not to intertwine these entities.

disclaimer .... I am only a keyboard quarterback. Best to consult a tax accountant versed in dental practice acquisition.

My response would be exactly the same as yours.

 

[Cold Front]

Ohh that makes sense. So theoretically when purchasing a practice you would want one with lower amount of goodwill? So more of the price is allocated towards equipment? That's new to me because when I was browsing practices most of them boasted about the number of years of goodwill they had, as if that is a good thing for the buyer.

So depreciation is tax deductible right? When buying a practice does that mean that the interest plus a little of the principle (value of depreciation) of the loan is written off?

I'm going to throw something at the wall and hope it sticks, suppose you were to buy a second practice and merge it with your primary practice. In that scenario, all assets from the 2nd practice are now a part of your primary practice, so this would allow the interest + depreciation to be written off, correct?

It’s best to consult with an accountant with these specific questions. Any response here are based on non-professional opinions and I would take them with a grain of salt.

In general, depreciation is tax deductible if it qualifies under a particular tax code or law. For instance, section 179 of the tax law is a common tax depreciation tool that a lot of dental offices use when they buy equipment. Under this law, congress mandates every year what amount this section of the tax code is set at and can be used to depreciate against personal income tax as purchases of dental equipment and related items. Historically, the section 179 depreciation has been upto $500k, again congress has been threatening to lower that amount down to $200k or even less, not sure what that amount is today. So if you buy a $100k cerec machine and $100k in dental imaging equipment and $200k in dental computers and treatment chairs, you can depreciate that $400k against your gross income taxes, so your adjusted income taxes for the same year the purchases were made is adjust down by $400k, and as a result you will pay less income taxes to all state agencies. I have done this before when I opened my practices from scratch, but I would strongly suggest you run your specifics with an accountant when you are ready to cross that bridge. You are exploring things the right way, and no harm in asking these questions in these forums to those who have more knowledge or experience in certain business decisions.

Edit: 2018 Section 179 deduction limit is $1M! Thanks to GOP majority congress.

 

[753698]

It’s best to consult with an accountant with these specific questions. Any response here are based on non-professional opinions and I would take them with a grain of salt.

In general, depreciation is tax deductible if it qualifies under a particular tax code or law. For instance, section 179 of the tax law is a common tax depreciation tool that a lot of dental offices use when they buy equipment. Under this law, congress mandates every year what amount this section of the tax code is set at and can be used to depreciate against personal income tax as purchases of dental equipment and related items. Historically, the section 179 depreciation has been upto $500k, again congress has been threatening to lower that amount down to $200k or even less, not sure what that amount is today. So if you buy a $100k cerec machine and $100k in dental imaging equipment and $200k in dental computers and treatment chairs, you can depreciate that $400k against your gross income taxes, so your adjusted income taxes for the same year the purchases were made is adjust down by $400k, and as a result you will pay less income taxes to all state agencies. I have done this before when I opened my practices from scratch, but I would strongly suggest you run your specifics with an accountant when you are ready to cross that bridge. You are exploring things the right way, and no harm in asking these questions in these forums to those who have more knowledge or experience in certain business decisions.

Edit: 2018 Section 179 deduction limit is $1M! Thanks to GOP majority congress.

Oh wow so they raised the deduction limit. They must've had dentists in mind haha.

I probably am getting ahead of myself here. I'm not even halfway through undergrad and I'm talking about dental tax write-offs
It's just that I want to learn as much about dentistry and the business of dentistry so I know exactly what I'm committing myself to for the rest of my life. Shadowing only shows you about 50% of dentistry, and the other 50% (business) is what dentists tend to struggle with so I thought I might as well learn from dentists who have figured out the other 50%.

My curiosity has gotten the best of me. I've noticed that all this dental technology, while being tax deductible, is still ridiculously expensive. Would you say that these 100k machines are actually worth the investment. Is there really an increase in production due to these machines that justifies their cost, or is it just an unnecessary expensive toy a dentist doesn't really need?

 

[753698]

I know most of you guys are practice owners, but when you were first looking to buy a practice and get a loan, did you actively seek out a high production associate position so you could show the production to the banks?

If so, do you know how you would find such positions? Would corporate dentistry be the best bet for showing really high production, because I know that in general they have a lot of patients and it's almost like a dental factory.

 

[mariam1980]

I don’t believe the bank cares about your production ability. The bank secures the loan to your personal assets as much as you have and expects monthly payments. When I bought my practice I was working part time and not making much production. I certainly did t provide them proof of production and they didn’t ask. If you are confident you can make payment on the loan, then go for it but if you have low experience buying a high producing office, it’s difficult to match your skills to what previous owner was doing and keeping up with production.

 

[753698]

I don’t believe the bank cares about your production ability. The bank secures the loan to your personal assets as much as you have and expects monthly payments. When I bought my practice I was working part time and not making much production. I certainly did t provide them proof of production and they didn’t ask. If you are confident you can make payment on the loan, then go for it but if you have low experience buying a high producing office, it’s difficult to match your skills to what previous owner was doing and keeping up with production.

But a young dentist would realistically not have many personal assets. No house, maybe a cheap car, but it's not really much of an asset.

Isn't the bank "banking" on your future production rather than what you currently have. So the best way to judge your future production ability would be to judge your current production ability and scale it to the increase in patients in your own practice.

For example, if the practice you are buying does all their endo in house, then wouldn't the bank want to make sure you did plenty of endo before applying for the loan, since that specific procedure will account for a significant portion of the production in the practice you will be buying.

 

[mariam1980]

But a young dentist would realistically not have many personal assets. No house, maybe a cheap car, but it's not really much of an asset.

Isn't the bank "banking" on your future production rather than what you currently have. So the best way to judge your future production ability would be to judge your current production ability and scale it to the increase in patients in your own practice.

For example, if the practice you are buying does all their endo in house, then wouldn't the bank want to make sure you did plenty of endo before applying for the loan, since that specific procedure will account for a significant portion of the production in the practice you will be buying.

Sounds pretty good logically however based on previous experience, I’ve not seen the bank look in to your ability of production. The bank officer doesn’t know endo or oral surgery and can’t really make a decision on your qualification. What office you buy is a personal decision for you to know if you can increase or keep up the production. My advice would be to spend the least on buying an office and invest in the technology as you grow the office and make improvements. Beautiful offices are nice to buy however you are paying for stuff that you might not need or use and it would cost much less to do it later and not have to suffer thru the bank loan payments.

 

[ysrebob]

It’s best to consult with an accountant with these specific questions. Any response here are based on non-professional opinions and I would take them with a grain of salt.

In general, depreciation is tax deductible if it qualifies under a particular tax code or law. For instance, section 179 of the tax law is a common tax depreciation tool that a lot of dental offices use when they buy equipment. Under this law, congress mandates every year what amount this section of the tax code is set at and can be used to depreciate against personal income tax as purchases of dental equipment and related items. Historically, the section 179 depreciation has been upto $500k, again congress has been threatening to lower that amount down to $200k or even less, not sure what that amount is today. So if you buy a $100k cerec machine and $100k in dental imaging equipment and $200k in dental computers and treatment chairs, you can depreciate that $400k against your gross income taxes, so your adjusted income taxes for the same year the purchases were made is adjust down by $400k, and as a result you will pay less income taxes to all state agencies. I have done this before when I opened my practices from scratch, but I would strongly suggest you run your specifics with an accountant when you are ready to cross that bridge. You are exploring things the right way, and no harm in asking these questions in these forums to those who have more knowledge or experience in certain business decisions.

Edit: 2018 Section 179 deduction limit is $1M! Thanks to GOP majority congress.

Equipment / major purchases of durable items will ALWAYS show up as a deductible expense to your business sooner or later and therefore reduce taxes. By default, their cost is expensed a little each year over say 5 or 7 years (which is supposed to represent the useful life of the equipment) -- that's what "depreciation" means. So if you buy a $100K CEREC, maybe you get to write off $20/yr as an expense each year for the next five years, reducing your taxable income by that amount every year for the next five.

Because of the short-term tax benefits of doing so, people often look for a way to count ALL the expense of an equipment purchase RIGHT AWAY ($100K reduction in taxable income this year; no future deductions). That's what Section 179 allows you to do. E.g, you count the full $100K as an expense in the year you buy the CEREC. In the long run you don't get to reduce your taxable income any more than if you'd depreciated it over time -- with S179 you just get to claim all the tax benefits right now.

There not many ways to legally reduce your taxable income (other than actually making less money); there are plenty of completely legal ways to shift business income forward or backward in time. A good accountant will help you strategize this. Corporations love Section 179 and will often try to expense everything they can right away, because hired managers are focused on short-term financial results. As a small business owner you should be playing the long game. In a startup or early in your career, you may ultimately be better off to skip the S179 deduction and depreciate things over as long a time span as possible: presumably in future years your income will rise into higher brackets, whereupon being able to reduce your taxable income will be more beneficial than it would have been early on.

 

[Rambunctious]

Do you guys recommend working for a few years as an associate dentist right out of dental school prior to asking the bank for a loan? It seems like banks now won't give over the money easily with all this student debt we have with no assets.

 

[753698]

Sounds pretty good logically however based on previous experience, I’ve not seen the bank look in to your ability of production. The bank officer doesn’t know endo or oral surgery and can’t really make a decision on your qualification. What office you buy is a personal decision for you to know if you can increase or keep up the production. My advice would be to spend the least on buying an office and invest in the technology as you grow the office and make improvements. Beautiful offices are nice to buy however you are paying for stuff that you might not need or use and it would cost much less to do it later and not have to suffer thru the bank loan payments.

But when you are buying a practice, isn't it more for the established patient base than it is for the technology in it? Practices generally sell for a % of production, but the cost of the practice is independent of the cost of the equipment in the practice.

What I'm trying to say is a really fancy practice with all new tech that only produces 200k per year probably will sell for much less than a 2 op old school practice that produces 600k per year with low overhead. So essentially what I'm saying is that if you want a high cash flow practice regardless of the technology in the practice, you will have to shell out some coin.

 

[Cold Front]

Do you guys recommend working for a few years as an associate dentist right out of dental school prior to asking the bank for a loan? It seems like banks now won't give over the money easily with all this student debt we have with no assets.

I have discussed this in detail in a previous post. Applying for a loan is an art, and not exact science. Every bank is different, every applicant is different, and ever deal is different. You just have to match all 3 to get approved.

Some people may say I’m irresponsible for even suggesting people to get a loan and get themselves into more debt. But my opinions are only to explain how the process works.

 

[DrJeff]

But when you are buying a practice, isn't it more for the established patient base than it is for the technology in it? Practices generally sell for a % of production, but the cost of the practice is independent of the cost of the equipment in the practice.

What I'm trying to say is a really fancy practice with all new tech that only produces 200k per year probably will sell for much less than a 2 op old school practice that produces 600k per year with low overhead. So essentially what I'm saying is that if you want a high cash flow practice regardless of the technology in the practice, you will have to shell out some coin.

All of the equipment of the practice presumably comes as part of the purchase price, and as such will be there after the sale. The patient base, while one hopes will be there, isn't a guarantee, as whether not the patient CHOOSES to stay in the practice after the sale date is fully up to the patient, and isn't as certain as if say that Cerec machine or digital x-ray system that is listed in the sale agreement will be there.

While a good percentage of patients will end up staying in the practice after a sale happens and the original Doc is long gone, the reality is some will leave, so what a practice was producing pre-sale date isn't always indicative of what it will produce after you sign the purchase agreement and take over

 

[mariam1980]

But when you are buying a practice, isn't it more for the established patient base than it is for the technology in it? Practices generally sell for a % of production, but the cost of the practice is independent of the cost of the equipment in the practice.

What I'm trying to say is a really fancy practice with all new tech that only produces 200k per year probably will sell for much less than a 2 op old school practice that produces 600k per year with low overhead. So essentially what I'm saying is that if you want a high cash flow practice regardless of the technology in the practice, you will have to shell out some coin.

The decision to purchase a practice should have more to do with your location, your proximity to the business, the general appeal of the practice than the actual production. While the practice would sell as a % of production, the office doesn’t continue to produce that with a new owner unconditionally. The previous cash flow of the practice has to do with the ability of previous owner to practice and do certain procedures and a lot to do with the trust between that dentist and the patient base. There is an personal relationship in many small family practices between the patients and staff and dentist. A new owner immediately lacks the same trust and relationship so there is always a percentage of very loyal patients who might leave the practice, especially if the new doctor comes really aggressive with different style than previously presented to them. For that reason I suggested that it’s best to not pay for a high production office to begin with but start small and grow in to a high production office. It will be less stressful and arguably more rewarding.

 

[753698]

The decision to purchase a practice should have more to do with your location, your proximity to the business, the general appeal of the practice than the actual production. While the practice would sell as a % of production, the office doesn’t continue to produce that with a new owner unconditionally. The previous cash flow of the practice has to do with the ability of previous owner to practice and do certain procedures and a lot to do with the trust between that dentist and the patient base. There is an personal relationship in many small family practices between the patients and staff and dentist. A new owner immediately lacks the same trust and relationship so there is always a percentage of very loyal patients who might leave the practice, especially if the new doctor comes really aggressive with different style than previously presented to them. For that reason I suggested that it’s best to not pay for a high production office to begin with but start small and grow in to a high production office. It will be less stressful and arguably more rewarding.

I see what you mean, but even for loyal patients, why would they leave if the previous dentist leaves? I mean, who would they go to? Would they rather not stay in the same office with familiar staff rather than go to a completely new office?

Not to mention, often the seller stays to help in the transition, so the previous beloved owner doc will still be there while you are also there, so his loyal patients will continue on coming and during those months you yourself will become a familiar and friendly face to them.

I agree that some patients will leave, but I think vast majority will stay, especially if it's a gradual transition rather than an abrupt transition.

 

[Rambunctious]

I have discussed this in detail in a previous post. Applying for a loan is an art, and not exact science. Every bank is different, every applicant is different, and ever deal is different. You just have to match all 3 to get approved.

Some people may say I’m irresponsible for even suggesting people to get a loan and get themselves into more debt. But my opinions are only to explain how the process works.

Dude at least give me a link to your post that you're referring to lol

 

[753698]

Dude at least give me a link to your post that you're referring to lol

He said it in this thread

 

[Rambunctious]

Investing in multiple offices would be a great way to get passive income and higher returns than a commercial real estate. However, the headache and the effort that goes into it is 100 folds more than the headache that goes into commercial buildings.

Having multiple offices require finding the right staff, specially a long term dentist. You could hire and delegate all the management of the offices to office managers, but that increases overhead and you still need to put some level of time to meet and talk to the managers and address many concerns they may not be able to resolve on their own. For me, I once had 3 offices and sold 1 because I couldn’t get the associate to buy the 3rd practice so I ended up consolidating offices #2 and #3 together.

Of the past 8 years that I was running my offices, I went through 7 associates, (not including the 2 that works with me now) and dozen other staff members. Unfortunately, if you hire associates, the majority of them have plans to work with you for few months to couple of years before they decide to own their own shop somewhere else. Often it is heavily encouraged by the spouse and/or families and friends of the associate to move on one day and have their own office. I learned a lot from this, so I just decided to not scale up from 2 offices and invest my money in more consistent and low effort and headache investment, and real estate made the biggest sense for me.

Do you mind sharing how much you paid these associates? Was it a daily minimum or a percentage of the production? I'm a new associate and the owner dentist is retired, but paying us pretty well. He has had multiple associates stay for 10+ years at his practices.

 

[Cold Front]

Do you mind sharing how much you paid these associates? Was it a daily minimum or a percentage of the production? I'm a new associate and the owner dentist is retired, but paying us pretty well. He has had multiple associates stay for 10+ years at his practices.

I started with paying base salaries to my associates ($550-600 daily) but later switched to percentage of collection, typically 35%.

The rule of thumb is - a daily minimum is good for an associate, percentage is good for an owner. A motivated associate will go for a percentage any day, a lousy one would negotiate a daily minimum. That’s how I know which a dentist would be when I interview for an associate position at my offices.

 

[753698]

I started with paying base salaries to my associates ($550-600 daily) but later switched to percentage of collection, typically 35%.

The rule of thumb is - a daily minimum is good for an associate, percentage is good for an owner. A motivated associate will go for a percentage any day, a lousy one would negotiate a daily minimum. That’s how I know which a dentist would be when I interview for an associate position at my offices.

Makes sense

A good dentist will bet on himself to produce. A lazy dentist will take the guaranteed money and go home.

 

[2TH MVR]

Makes sense

A good dentist will bet on himself to produce. A lazy dentist will take the guaranteed money and go home.

Some other questions a potential associate dentist may want to ask.

What is the typical % collection rate? 100%? 90%? Who pays lab charges? Who pays future collection fees? It costs $$ to collect delinquent collections. How are procedures such as high paying C&B vs low paying procedures directed? To owner dentist? Or to Associate? Who sees all the new patients and decides what procedures are delegated to the Associate?
Associate Independent contractor or Employee? If employee ..... any employee benefits such as PTO, 401K, sick days, paid CE, malpractice premiums, etc. etc. (I bring this up since most if not all larger Corps offer this to their employees)
As an Associate IC ...you will be paying ALL your own taxes. FICA. State. Federal. But will have no business write offs such as staff costs, supplies, utilities, etc. etc. IC gets NO employee types of benefits.
Are you guaranteed X number of work days per week?

Lots of variables. Unfortunately most of the young dentists right out of school go into this blindly. One constant is that regardless if you are an employee or IC ... you work for the benefit of the owner dentist. Which is like most jobs.

 

[theleatherwalle]

I can't imagine any situation where an associate will pay their own FICA taxes.

35% collection seems rather high. I can't justify paying anyone anymore than 600 unless they're an extraordinary producer. Do you give benefits?

I am not into my first year of practice ownership, but my over-head already seems to be quite high. I am approaching 65-70%. My accountant has said this normal and not to worry, but it is odd being in the first steps of ownership and having your name on the wall.

 

[Cold Front]

I can't imagine any situation where an associate will pay their own FICA taxes.

35% collection seems rather high. I can't justify paying anyone anymore than 600 unless they're an extraordinary producer. Do you give benefits?

I am not into my first year of practice ownership, but my over-head already seems to be quite high. I am approaching 65-70%. My accountant has said this normal and not to worry, but it is odd being in the first steps of ownership and having your name on the wall.

Yes, 35% of collections is set high for an associate for 2 reasons; 1) The associates comes to work and have no guarantees what their paycheck will be that day, but with 35% collections they will feel better that they can at least take a nice bite out of any major dentist they do - plus there is a risk of cancellations and no shows they have to worry about, but for the most part they should be fine and always have the prospect of making more on a very solid day. Also, if associate calls off or sick, they make $0 that day, so the 35% collection is really hard to pass... and discourages taking days off easily. 2) There is payroll tax savings for the employer when the associate chooses a 1099 for the 35% collection, so the burden of FICA shifts to the associate versus a W2 with a $500-600 daily guarantees (which may equate to $1,000-1,500 a month in FICA and payroll expenses for the owner, a $17-20k a year in savings). The associate always thinks of maximizing their money first and cares less about the owner’s numbers and savings. So they higher the collection %, the more likely an associate will go for the deal - even though there are a lot of downsides to that option itself as I mentioned above.

In my experience, the bargaining process is ultimately in the hands of the associate more than the owner, they define their goals to push a better deal for the associate, but an informed owner has to aim for a win-win situation, and not undermine the associate to get into a deal that is destined to fail - which is a classic corporate dental office approach.

 

[knewstance]

Loving this conversation...

I know this can vary greatly, but how long does an owner dentist typically expect an associate to stick around? Is 2-5 years the typical expectation? --obviously greatly depends on the individual, the contract, and their motivations.

 

[DrJeff]

Loving this conversation...

I know this can vary greatly, but how long does an owner dentist typically expect an associate to stick around? Is 2-5 years the typical expectation? --obviously greatly depends on the individual, the contract, and their motivations.

There are about 101 variables in this for sure!


First and foremost has the owner, when talking with the potential associate before bringing them on talked about the possibility of partnership down the road, should both parties be interested?

Secondly, regardless of the future partnership possibility, does the associate want to be a partner and/or solo owner in the future, or are they happy and content with being an associate?

After that, it's all about how the associate is looking at their career path and possibly in a not so good situation, how long can the associate tolerate the owner/practice?

I have a practice in the building next to my office that tends to go through associates every 12 to 18 months. There's also another practice across town from mine that has had an associate for over 10 years, and both the owner and associate are happy with the situation

 

[2TH MVR]

Getting back to the original post. Are SBA loans still available? I know the dentist who bought a commercial condo next to mine used SBA financing. Can't remember the details, but maybe the SBA loans are an option if conventional financing falls through.

 

[Cold Front]

Getting back to the original post. Are SBA loans still available? I know the dentist who bought a commercial condo next to mine used SBA financing. Can't remember the details, but maybe the SBA loans are an option if conventional financing falls through.

I purchased my commercial buildings with SBA 0% down, yes, ZERO down. It was a product for dentists and doctors. As of of January 2018, congress changed the SBA downpayment requirements and you can no longer get that 0% down product, and it’s now 10% down minimum for ANY SBA product. You still have to occupy 51% of the building you are purchasing under SBA. The terms are still upto 300 payments / 25 years.

Hope that helps.

 

[Cold Front]

Loving this conversation...

I know this can vary greatly, but how long does an owner dentist typically expect an associate to stick around? Is 2-5 years the typical expectation? --obviously greatly depends on the individual, the contract, and their motivations.

I agree with @DrJeff.

I read books and listened to podcasts on this topic, associate/employee looking for the right employer and vice-versa. LinkedIn founders said the average employee looking for a job averages couple of jobs every 5 years. I think there is this expectation that the grass is greener on the other side for most associates. Dentistry after dental school is almost like going up the ladder process for the first 5 years - learning real world clinic dentistry, getting the chairside skills sharp, understanding insurances and production, labs, learning tons of other business related skills, and so on. These critical factors in the first 5 years has much effect on how an associate may commit a long term relationship with the owner. If the associate feels that some or most of these learning experiences are not available to them, they will most likely have a plan to leave for a position that offers those set of experiences, provided the incomes are about the same.

Any employer can draft a polished contract, but what’s on paper do not always turn out or translate to what the associate had in mind.

 

[753698]

I agree with @DrJeff.

I read books and listened to podcasts on this topic, associate/employee looking for the right employer and vice-versa. LinkedIn founders said the average employee looking for a job averages couple of jobs every 5 years. I think there is this expectation that the grass is greener on the other side for most associates. Dentistry after dental school is almost like going up the ladder process for the first 5 years - learning real world clinic dentistry, getting the chairside skills sharp, understanding insurances and production, labs, learning tons of other business related skills, and so on. These critical factors in the first 5 years has much effect on how an associate may commit a long term relationship with the owner. If the associate feels that some or most of these learning experiences are not available to them, they will most likely have a plan to leave for a position that offers those set of experiences, provided the incomes are about the same.

Any employer can draft a polished contract, but what’s on paper do not always turn out or translate to what the associate had in mind.

Would you say books and podcasts are the best way for someone to get insight into the business of dentistry, for someone who isn't currently a dentist?