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Professional News Articles : : BUY/SELL by Peter Ackerman, CPA : Are you ready to buy?

Are you ready to buy?

June 28, 2010

As a purchaser, the decision to acquire a dental practice can be a difficult decision. To help you better understand the process, we can break it down into two primary issues: reaching your personal and professional objectives, and obtaining financial rewards.

Most often we find the dentist’s personal and professional objectives are the primary driving force when deciding to purchase a private practice. Some questions to ask yourself when looking at your career include:

  • Am I providing the level and type of clinical service I had hoped to when I entered this field?
  • Am I treating the patient base I would like to treat?
  • Do I enjoy being an employee or a boss?
  • Am I willing to give up the financial rewards of practice ownership for the lower risk of being an employee?
  • Am I confident in my abilities to handle the operations of a private practice?
  • Will I be able to support my family and retire at my present income and savings rate?

The financial question of whether it makes sense to purchase a practice is a simpler question to answer.

It absolutely makes sense. 

It is extremely rare to find a situation in which a dentist would obtain greater financial rewards remaining an associate or an employee of a group practice instead of becoming an owner or obtaining an equity position in an existing practice. A typical associate earns an effective rate of 30-35 percent of fee-for-service collections. Most private practice owners earn anywhere from 50-150 percent of their collection. 

During a transition, a purchaser can expect to earn at least as much as he or she would as an associate producing the same amount of dentistry, after paying all practice overhead expenses and 100 percent of the financed purchase price over a 7-10 year period.

When comparing purchasing a practice to continuing being an associate, the advantages don’t stop at an equivalent cash flow after debt service. The interest of the acquisition loan and the depreciation of the practice purchased is 100 percent deductible, offering a substantial real tax savings, not to mention other tax benefits now available as a owner not available to employees or independent contractors.

In addition to the increased income, you will also be acquiring one of your largest personal assets that will be paid off and debt free in seven to 10 years. While this asset alone will not provide sufficient funds for retirement, it is often the single largest asset in a dentist’s investment portfolio.

Peter J. Ackerman, CPA, is a certified public accountant, licensed real estate and business broker and national speaker on business issues affecting dentists. He may be reached at peter@adsmidwest.com or www.adsmidwest.com.

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