Dental graduates are increasingly concerned with student debt, making corporations a popular option for many young doctors. Yet, just ten years ago, working for a corporation was viewed negatively. The question is, why the shift in thinking? One answer is more than $400,000 of dental school debt with 7 percent interest rates, the other is fear.
Corporate dentistry is winning the race and its market share is growing rapidly. Dental schools, ASDA, state and national dental meetings are now attended by (and marketed heavily to) corporate dentistry, and for a good reason. Many DMOs expect a 20 percent annual growth rate with the goal of doubling the number of locations over the next 3 years. They are persuading young dentists with benefits like nice starting salaries and not handling the business side of the practice, allowing them to leave the office and not take work home. Corporate is in every dental school marketing this same message. Lather, rinse, repeat.
As a young dentist, you must ask yourself, how is corporate entering the market place at such a rapid pace? The answer is that it utilizes the expertise of MBA’s who have run every financial model possible to convince associates straight out of dental school to work for them. However, corporate has not presented all the information. As an associate you should consider the facts when contemplating ownership versus employment.
First let’s review the timeline so we can adequately measure the financial opportunity. If we assume you are entering the workforce at age 28 and retiring at 63, then we need to use 35 years as our timeline. Here are the assumptions in our scenario:
- 35-year career
- $1 million practice
- Annual doctor production/collections of approximately $750,000
- Checking $250,000 of hygiene
- Paid 27 percent of doctor collections as an employee
- Practice has a 60 percent overhead
As an employee, if paid 27% of your doctor production, you will earn $202,500. Now, let’s compare this to what you can earn as an owner doing the SAME dentistry and checking the SAME hygiene.
As an owner dentist you should conservatively net 40 percent of a $1M doctor and hygiene collection practice resulting in $400,000 of annual compensation. This means that you can make almost two times what you would earn as an employee for doing the SAME work. The math is simple. If the one year isn’t shocking, the $200,000 difference in annual compensation multiplied by the assumed 35 year timeline is $7,000,000. This distinction alone should be enough to convince you that ownership is key. But there are other compelling reasons:
- Build equity in your dental practice. Consider that a $750,000 valuation of a practice with $1M collections creates the ability sell the practice at the end of your career or sell percentages along the way to a partner.
- Take advantage of efficient tax strategies which are not available to you as an employee. With tax rates close to 38 percent (33 percent federal and estimated 5 percent state) on annual income greater than $231,500, this can be very impactful.
- Contribute significantly more to a pension plan for your benefit than you can defer as an employee due to funding limitations. Saving more to a tax-deferred pension plan greatly increases your ability to save the millions you will need to accumulate for retirement.
- Control your own destiny by maintaining the options to select your staff, supplies, insurance acceptance and labs.
- Bring in a partner as the business grows creating the freedom to grow, work less or be selective with the dentistry you wish to perform.
- Own the real estate as an additional asset.
Major banks report that the failure rate in dental loans is less than 1 percent. Lets say it differently. You, the dentist, according to the leading lenders in the industry, have a 99 percent success rate when you borrow money from them and own your practice. These statistics show that you have access to ownership in a very successful industry, without the need of a corporation. You have a great future ahead of you.
The next time someone says, “Come work for me,” remember what is in it for them. Working as an associate for 24 months or less can be a great experience to grow, save and learn, but after that you are leaving a huge financial opportunity on the table—potentially a $7M opportunity.
There is a saying in dentistry, “You only have so many crown preps….” How do you plan to use yours?
Charles Loretto brings energy and enthusiasm, offering audiences a step-by-step breakdown of the key business decisions every dentist must get right in order to build a successful practice. He joined Cain Watters & Associates (CWA) in 2001 and plays a critical role in CWA’s business development. In 2004, he founded CWA related company National Dental Placements (NDP), a national dental transition firm.