Sally McKenzie, CEO McKenzie Management Printer Friendly Version

High Debt Choking Your Practice?
Consider This …

It’s the end of the day for Dr. T. The patients are gone, the staff is wrapping up and he should be winding down. Instead, for Dr. T., this is the most stressful part of the day. Time to face the purest form of torture he knows: going through the mail. Experience has taught him that there is nothing in the stack that is going to bring any good news. No sir, those envelopes are lined up like enemy soldiers, weapons poised and ready to take him down.

The first in line is the $8,000 monthly bill on his practice mortgage; next is the $2,500 installment due on equipment lease #1; another is $3,200 on equipment lease #2. Then there are the two “zero interest” loans that require a nice fat $2,000 pay out each month. And he certainly can’t overlook those three credit card bills on cards that are maxed out, draining another $2,800 from his checking account. Then there’s the monthly chunk that goes to the selling doctor. Dr. T. is looking at well over $20,000 in debt payments for yet another month.

He will ignore the retirement fund once again. As for the college savings accounts, he’s hoping that his kids turn out to be either geniuses or star athletes because scholarships are going to be a must. Dr. T. doesn’t know how he’s going to tell the staff that they have to eke another year out of those aging computers and he’s praying that patient numbers don’t drop and treatment acceptance doesn’t decline so he can continue to hold on by his fingertips. The stress is palpable.

High debt is a very real and frightening scenario for many dentists. What typically happens, explains Jason Tyson, a Regional Business Manager with Bank of America Practice Solutions, is that “dentists take advantage of short-term notes, lease specials, and/or zero interest programs from various suppliers, vendors, etc. Over time, the debt increases and eventually it becomes too much to handle as the bills from multiple companies pile up. Ultimately, the doctor is forced to start making minimum payments, which basically covers the interest and slows payment on principle. It’s the perfect storm of business debt that compromises the cash flow of the practice.”

Certainly, debt is part of running a successful practice, and not all debt is bad debt. The key, notes Mr. Tyson, is to make sure it is structured properly to fit the doctor’s financial situation. He recommends that dentists explore debt consolidation options that will lower their monthly payments and increase cash flow. “Although people sometimes perceive debt consolidation negatively, in reality it’s merely a process of loan restructuring. And it can be a very appropriate option for many business owners, particularly dentists that enables them to simplify their finances quickly and efficiently.”

For example, options are available that would enable a dentist to roll all those monthly payments into one smaller payment, secure a low fixed interest rate and pay off the debt over a 10–15 year period. “There’s less stress at home and at work, and cash flow is improved considerably, which enables the dentist to continue to make the necessary investments in his/her business or personal life.”

The ideal candidate for debt consolidation, explains Mr. Tyson, is a dentist who has a good credit rating and an established practice that is producing well, but who is facing very large overhead, which is creating a cash flow strain. “If the dentist is having problems paying their monthly bills and has multiple obligations from banks, lenders, credit cards, equipment companies, and if they are paying interest rates that are in the 9% range or above, that’s definitely the time to look at refinancing and consolidation. If the debt consolidation is structured properly, in most cases it will enable the dentist to reduce their monthly payments considerably and increase cash flow to the practice immediately,” says Mr. Tyson.

Just consider Dr. T.’s experience. Although the scenario was changed somewhat for this article, he was paying $24,000 in monthly payments—every month. Through consolidation and refinancing, he was able to cut that monthly payment in half, saving him $144,000 annually. Needless to say, his stress has been reduced considerably.

If you would like more information on whether debt consolidation and refinancing would be an option for your practice, check with your local bank or contact Jason Tyson directly at Bank of America Practice Solutions at 877.541.3535 or via email at jason.m.tyson@bankofamerica.com. “Looking at your cash flow and exploring debt restructuring options in the current economy just makes sense,” emphasizes Mr. Tyson.

Sally McKenzie is CEO of McKenzie Management, a nationwide dental management, practice development and educational consulting firm. Working on-site with dentists since 1980, McKenzie Management provides knowledge, guidance and personalized solutions that have propelled thousands of general and specialty practices to realize their potential.

Interested in speaking to Sally about your practice concerns? Email her at sally@thedentistsnetwork.net or call 1.877.777.6151.

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