September 25, 2018
How to Get a Return on Your Dental Practice Investment
Purchasing a dental practice is no easy task, but it’s only the beginning of the hard work you’ll need to do to see a return on your investment (ROI). Whether the practice is new or existing, opportunity cost should drive all your post-buying decisions. Here’s how you can ensure ROI is top of mind.
At the top of your considerations list should be the theory that a dollar in the bank today is worth more than the expectation of receiving a dollar in the future. In other words, spending and earning wisely now will only pay off in the long run.
Like taxes on your mortgage, interest on your loan payment can be written off as a deduction. Consider taking out a longer-term loan with lower payments to increase the cash flow of the practice, similar to taking out an insurance policy.
Along the same lines, maximizing tax advantages with every decision will only pay off every year. For example: While all assets depreciate in value over time, Section 179’s Depreciation Schedule allows you to depreciate all assets up to a certain amount in the first year so that no taxes will be paid, in most cases. (Note: Associates don’t receive the same type of tax advantages as the practice owner.)
When purchasing an existing dental practice, cash flow should be analyzed by the income stream of the practice, the compensation necessary for the purchasing dentist, and any obligations incurred, no matter if you are looking at the loan for the actual purchase of the practice or any other working capital needed for equipment, supplies or anything else to get the practice ready for operation.
Rather than taking the safer route of working as an associate or for a dental service organization (DSO) that will only provide a commission for the work you do, owning your own practice will only maximize the investment of your dental degree because you’ll not only receive a commission but also a profit component.
When working with the experts at Professional Transition Strategies (PTS), an approximate ROI equation for the purchase of the practice is included in each prospectus, which adds up the compensation of the doctor, any adjustments made for non-business-related expenses and net income distributions. The remaining amount is an approximation of the cash flow or immediate ROI available to the purchasing doctor.