A Successful Strategy for New Dentists
in a Difficult and Uncertain Economy

Edward C. Challberg, CPA


You will soon graduate or have just graduated. You plan to work as an associate for several years and then own a practice. Imagine yourself in the future. What do you need to do between now and then to be successful?


Improve Your Clinical Skills
Yes, you learned a lot in dental school. Now you have to get better and faster. The greater number of procedures that you can do well and quickly the more value you can deliver to your patients. Invest in continuing education and constant improvement. The result will be a practice that is more productive and profitable.


Establish Mentor Relationships
Owning your own practice can be an intimidating challenge. Lots of things can go wrong. Costly mistakes can be made. The dental community has a wealth of knowledge and expertise available to you. Join your local dental society. Socialize and get to know many members. When appropriate talk about your plans with more experienced members. Many will be more than happy to offer sage advice, words of caution, and share stories of their satisfying accomplishments as well as challenges along the way. These kinds of relationships can be invaluable in guiding you along your own path.


Learn to Manage and Lead
You will quickly discover that being a good clinician is only part of your job. You also need to be a good business manager and a good leader. A manager maintains good systems, oversees the daily operations of the practice, and develops a well-functioning dental team. A leader communicates the practice goals, sets the tone, raises expectations, and inspires team members to do their best.
You learn to manage and lead by managing and leading. Any activity that allows you the opportunity to organize and direct people toward a goal will likely develop valuable skills for your practice. Opportunities are all around you. Actively participate in your dental society, organize a social event, teach a class, coach an athletic team, or run a charity drive. Start as soon as you graduate so that by the time you are ready to acquire a practice you have some valuable experience to draw on. Start small and test the waters. As you grow and gain confidence there will be opportunities to do more.


Manage Your Debt
If you are like most new dentists you probably have school debt. In a few years you will borrow money to purchase a practice. Later you will want a home that will require more borrowing. Therefore, the better you manage your debt the more money you will save.


Get organized. Summarize your debt in a notebook or electronic file by listing all your loans, lines of credit, and credit cards on one page if possible. Next to each indicate the purpose, current balance, interest rate, monthly payment, and months remaining until paid off. Behind this cover sheet or file have a section for each set of loan documents or in the case of a credit card, your last statement. This organization will help you and your CPA analyze and restructure your debt resulting in lower costs.


Know your credit score and improve it. Through consumer credit reporting companies such as Equifax, Experian, or TransUnion you can obtain your credit score for a modest fee as well as obtain a free credit report. The internet can provide you information about improving your score. A high credit score will qualify you for the lowest interest rates. On a $500,000, 30 year loan a 2% interest rate difference is $231,264. This is the cost of having a low credit score.


Decide to Start or Purchase a Practice
You will have to make a decision whether to start a practice or purchase a practice. Compare and contrast each alternative. Each requires different planning considerations.

  • Generally, if practices are available in your area buying is normally easier than starting a practice.
  • Whether you start a practice or buy a practice, you will likely borrow $300,000 - $600,000 to get started. From the bank's perspective a start-up is more risky. Therefore they will charge you a higher interest rate than if you were to borrow the money for a purchase.
  • If you start from scratch the practice will reflect your vision and style from the beginning. If you buy a practice you will have to slowly transform and mold the practice into your own which may require time, resources, and outside help.
  • If you start a practice you will have to hire and train employees. When you buy a practice the team is included and they are likely to be experienced, knowledgeable, and familiar with the patient base. On the other hand, if the team has problems you are acquiring that as well.
  • If you start a practice you will likely have time to build up your speed and confidence as your practice grows. If you buy a practice you will have to immediately produce at a high level because you will likely be stepping into the shoes of a dentist who has been practicing for 25 – 35 years. Caution – If you acquire a practice that is larger than your capabilities the practice will contract until it matches your abilities. However, your practice acquisition debt doesn't change. This can develop into negative cash flow.
  • If you start a practice you can eventually equip it with all the latest technology. Everything will be new and in excellent condition. If you buy a practice usually the equipment will be older, dated, approaching obsolescence, and in need of some repair, if not replacement.
  • If you start a practice your efforts will be directed toward attracting patients to the practice (external marketing). In order to be highly successful you will likely need the advice and coaching of a dental marketing consultant which can be costly. If you buy a practice you will likely be striving to keep your present patients happy and satisfied so they refer more patients (internal marketing).


Assemble Your Advisors
To own a dental practice you will need to consult with essential advisors:

  • Practice Broker – The broker facilitates the transition of the practice from seller to buyer. The broker will provide you information about practices that are for sale. The seller pays the broker a 10% commission for selling his or her practice. The buyer pays nothing.
  • Attorney – Your attorney reviews the sales-purchase agreement with you, reviews the lease on the space, and assists you in forming a corporation or similar entity depending upon the state in which you practice. Select an attorney who has experience working with dentists.
  • Dental CPA – Your dental CPA evaluates the practice to determine whether it is financially sound, reviews the asset allocation in the agreement, projects the tax implications of the purchase, projects the cash flow of the practice, performs a cost segregation, determines the best entity or form in which to practice, and drafts a business plan.
  • Insurance Agent – Your insurance agents review your insurance coverage including professional liability, personal and overhead disability, property, life, health, auto, and workers compensation.
  • Lender – The lender evaluates your credit worthiness, establishes the terms of the dental practice acquisition loan, provides funds to purchase the practice, and tracks your practice performance while the loan is outstanding.


Make a Plan
Owning your own practice is a big investment with many complex challenges. What you do from graduation to ownership is critical. Put your plan in writing. Include the following:

  1. A vision of the practice you want to have.
  2. Checklists of things to do and people to contact.
  3. Strengths, Weaknesses, Opportunities, Threats – List your personal strengths that you bring to your profession which might include strong clinical skills, personality, or organizational ability, to name a few. List your personal weaknesses. Perhaps your communication skills need honing or perhaps you have a hard time getting organized. What can you do to improve in those areas? List external opportunities. Perhaps you want to live in a rural area that is currently underserved by the dental community. Last, list external "threats" that you might encounter. Perhaps you want to practice in an area dominated by a single large company from which you would attract many patients. If that company were to move, shut down that location, or lay off substantial workers your practice might be severely impacted.
  4. Create a timeline from the present to the time that you feel ready to acquire a practice of your own. On that timeline enter what needs to be accomplished and when.
  5. Be flexible. Things change. Be ready to revise and update your plan.

Getting started in the dental profession in an uncertain economy can be either an exhilarating or frustrating experience depending upon how well you prepare and plan. Develop a strategy and follow a personal plan that will take from you from where you are now to ownership of a practice. You will succeed. ■

 

Ed owns and manages a CPA firm in San Rafael, California that exclusively serves dentists. Ed is a member of the American Institute of Certified Public Accountants (AICPA), the California Society of CPAs, and has been an active member in the Academy of Dental CPAs (ADCPA) since 2001.

 

 

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