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Delaying a Practice Purchase May Be Costlyby Dr. Tom Snyder
With the average debt for all indebted dental school graduates of the Class of 2016 averaging $261,000, many grads are becoming less optimistic about practice ownership, at least for several years. Working for years as an associate does not have to be your only option before deciding to purchase a practice. The cost of delay in an ownership decision can be significant; the sooner you purchase a practice, the better your long-term financial picture may become!
Let’s consider a hypothetical situation of two classmates who both purchase a dental practice, but make their decision at different points in time after graduation. We’ve made the purchased practices’ financial data identical so the comparison can be consistent.
Dr. A decided to purchase a dental practice two years after graduating from dental school. Let’s assume that the practice Dr. A purchases has revenue of $840,000 with a 63% overhead, so the practice’s Net Profit is $319,000. Let’s assume the practice sells for $613,000. Dr. A will also need $75,000 in working capital, so total debt will be $688,000. Dr. A’s loan terms are ten years at 5% interest, so annual principal and interest payments will be approximately $87,000. Let’s also assume...
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