Dentist to Dealmaker: A Complete Guide to Buying a Dental Practice

By Nate Williams

I have worked as a dental Certified Public Accountant (CPA) and financial advisor since 2007. And for the past 12 years, working almost exclusively with owners of dental practices, I've invested far more than Malcolm Gladwell's required 10,000 hours into this profession (see "Outliers,"Malcolm Gladwell).
More importantly, as a CPA, I see the world differently than the average person. For example, when you notice the cars other people drive, the houses they live in, the vacations they take, or the number of practices they own, you probably create an assumption of how well someone is doing financially. When I look at these things, I immediately think about the complexities of their tax returns and personal financial statements – and because I may actually be the one to prepare those tax returns, I'll know how well they're doing.
Recently, a friend commented to me after returning from a trip to Orange County, CA, "Everyone down there has so much money; I saw so many Porsches and BMWs and Mercedes..." Like the rest of us, this friend has been conditioned to believe that if someone spends a lot of money, they must have a lot of money. This assumption, as I've learned from my insider position as a CPA, is flawed. The assumption that high spending equals "doing well financially" is like assuming that the guy who orders the Triple Bacon Cheeseburger must have a six pack!
As a CPA and financial advisor, I have learned that the doctors who are doing well financially are those who have money in the bank, have financial peace of mind, and ultimately own assets that generate enough passive income to replace the income they earn by working in their practice.
Over the last decade, I've studied success and failure alike. I've looked for and found patterns and behaviors and personalities and practices that lead to wealth; and I've found the same that lead to the prolonged indentured servitude so many doctors unfortunately experience.
With a seasoned history of working with dental practice owners (or aspiring ones) like you, I've written this book in hopes it will provide you with everything you need to know about how to buy a dental practice that will carry you into what we call Financial Independence: the moment when you're free of debt and have enough passive income to pay for your current and future lifestyle.

• Language: English
• Publisher: BookBaby
• Release date: Jun 29, 2020
• ISBN: 9781098313470

Book preview

CHAPTER 1:

The Road to Ownership

The power for creating a better future is contained in the present moment: You create a good future by creating a good present.

- Eckhart Tolle

PHASE 1: BEFORE DENTAL SCHOOL

There are just two pieces of advice I have for those of you who are considering dental school.

First, make sure you’re interested in dentistry for dentistry’s sake. Not the lifestyle, not the money you can make, and not because you knew an orthodontist who had a nice house and took vacations. Sure, nice cars are cool, and vacations can be fun. But if you’re not actually interested in performing the clinical work of a dentist, you could be in for a long, unfulfilled life. And as your years tick on, four weeks in paradise will never be enough to make up for 48 weeks of misery.

Second, pay close attention to the cost of dental school and the cost of living in the area you attend dental school. DO NOT take the attitude of, one day I’ll be a rich dentist, so I’ll just pay it back then.

A client of mine who attended Tufts School of Dentistry—a very good school—right in the heart of Boston graduated with more than $750k in student loan debt (eight years later, he is down to $314k).

Another doctor we helped, who earned a dual MD/DDS degree and will work as an oral surgeon, graduated with over $1 million, of which the interest exceeded $5,500 per month—just the interest!

I’m not saying don’t go to Tufts University, or University of California, or University of the Pacific in San Francisco. Nor am I saying don’t do the MD/ DDS program. I’m merely saying: be very aware and cautious of the cost of tuition and living; and if you have two options—expensive private school in expensive city, or less expensive state school in less expensive city—remember that the formula for ROI (Return on Investment) is:

Therefore, if you can reduce the cost of the investment by reducing the cost you pay for school and living expenses, you will guarantee an increase in your ROI – and in the long run, greater Financial Independence (more on that, later).

PHASE 2: DURING DENTAL SCHOOL

For many of you reading this book, you’re already past dental school, so the strategic moves you should make in dental school are a moot point. Bear with me however, because there will likely be some principles here that will be applicable. And if you are still in dental school, listen up.

For this phase of life, I want to share three rules, that if followed, will yield much fruit later in life.

Rule 1: Live Like a Student, Not a Future Doctor

When we see the exorbitant amount of student loan debt that some doctors come out of dental school with, we’re blown away. In their defense, dental school is expensive, usually located in a costly city (as mentioned previously), and the internships required very rarely pay. We get it: big tuition + zero income + expensive city = lots of debt.

Nevertheless, the money comes cheap, and it is EASY to justify borrowing more than you need to live a little now and pay later when you’re a doctor making the big bucks.

Be careful.

When I graduated from college with a Master of Accountancy, I had $9,000 of student loan debt (sorry). Now granted, I went to BYU in Provo, UT, which is ridiculously cheap. Additionally, my parents were poor, and my grades were good, so I had most of my undergrad tuition paid for with a Pell Grant from the government.

Although $9,000 is a stupid small number when talking to dentists, there are a few important lessons from that experience which may help you.

The first lesson is on how I accumulated the debt in the first place.

When I was in my freshman year of college, my car broke down. I went to see an old friend, Bill Swartwout, who was selling used cars part-time. Bill took me aside, put his arm around me and asked, Do you want to pay for the car now while you’re poor, or in the future when you’re done with college and you’re making money?

Duh, in the future, of course. When I’m making loads of money. Bill then proceeded to tell me that I should borrow as much money as I could now, deferring all the interest and payments, so I could pay it off later when I was making money.

So, that’s what I did. That year I borrowed $9,000. I spent $6,000 on a car—a 1990 blue Ford Probe—and spent the other $3,000 on shoes and burritos, probably. Guess what Bill, although it was only $9,000, it was never fun nor easy to pay off!

The second pernicious lesson is less obvious, but a much bigger cost of debt; this is what the McGill Hill Group calls The Hidden Threat of Student Loan Debt. In a July 2015 article, they observed that the high student loan debt carried by so many graduating doctors is, in many cases, stifling or even killing their entrepreneurial spirit— i.e. their willingness to own their own practice. Instead of practice ownership, which requires more responsibility and risk, many doctors are instead opting for corporate or government jobs which pay a much lower wage but offer a sense of security and even loan repayment bonuses.

I get it. You need to borrow money to go to school and to live. But please don’t think that you’ll ever enjoy paying it back. No matter how rich you get, you won’t enjoy it. And if you have the attitude of, live it up now, I’m going to be a doctor! I can promise that you’ll regret this.

For so many reasons, only a few of which have been mentioned here, do your future self a favor and live like a student while you’re a student, not a future doctor.

Rule 2: Focus On Your Clinical Skills, Not Your Future Business Plan

Over the years, I have had countless phone calls with dental school students. The students who call me, a dental CPA, to talk about future business plans are typically the most ambitious in their classes. During these conversations, I always listen to their current circumstances, ask them about their plans, and offer advice where I can.

One recurring concern that I have when I speak to these ambitious students is this: they’re focused more their future business endeavors than they are on the opportunities they currently have to hone their clinical skills. I fear that they view dental school in the same way so many undergraduate students view their opportunity for general education; they just want to get their generals (dental school) out of the way.

This is a concern for at least two reasons:

1. Your future patients deserve someone who paid attention in dental school

2. We have found a very strong, direct correlation between income and clinical expertise. In basic terms, the better your clinical skills, the more money you’ll make.

This is not the place to belabor the point, but please take this advice to heart: while you’re in dental school, including a residency and/or specialty training, please focus your primary attention on becoming exceptional clinically. Become the top student in your class. Develop your eye for diagnosing; develop your hands for speed; develop the ability to learn and master as many procedures as possible. The better you are clinically, the more you’ll be able to help people; and as a result, the more money you’ll make.

Why is this so important? If you’re like the best dentists I know, you’ll pursue continuing education for the rest of your career. However, there is no weekend or week-long course available that will teach and let you become engulfed in dentistry as much as your time in dental school.

Your time in dental school is precious and comes with an important purpose: to become a clinical expert. Don’t squander it.

Rule 3: Learn to Love Dentistry

As I’ve had the pleasure of talking to dozens of dentists throughout the country and gotten to glimpse behind the scenes of how successful they are financially, I have learned this lesson over and over again. The most successful dentists — the happiest and wealthiest — love dentistry. Is this something they are born with? Perhaps these guys are just lucky (or weird). Or maybe they’re like Hermey from the 1964 Christmas classic, Rudolph the Red-Nosed Reindeer, who knew from a young age that he wanted to be a dentist!

Regardless of why or how, the most successful dentists love the work. And they love helping people.

As you’re going through dental school, or as you’re continuing your career, try to find ways to learn to love what you do. Consider these suggestions on how to do this:

•Make sure you have a strong reason of why you want to be a dentist (e.g. you want to help people smile; you want to relieve pain; etc.)

•Work hard to become clinically exceptional at dentistry; the better you get, the more you’ll naturally enjoy it.

•Make sure to balance interests outside of dentistry, setting aside time each day when you shut off and don’t think about work.

•Focus your efforts on serving the people who are your patients; for most of us, helping others is a more enjoyable endeavor than drilling holes or even making money.

•Focus on the positive aspects of your work, not the negative. There are cons to every career; even in music, it’s not all money for nothing and chicks for free! By focusing on the positives, you’ll become more appreciative of what you do and will be happier in the work.

Yes, you can learn to love your profession; but it may not be love at first sight. Today, I really do love my own profession, but I wasn’t born loving accounting. In fact, after the first week of BYU’s rigorous Accounting Jr. Core (the first year in the real accounting program), I almost dropped out. It was too hard, too boring, and I hated it. But there were bigger reasons I was there, and with the coaxing of some good mentors and by the grace of God, I stuck with it and worked hard. In the end, I became a good accounting student who enjoyed the curriculum.

Then, while at my first accounting job at Deloitte in Dallas, I almost quit there too. In fact, there was one time when I decided I wanted to quit my job and pursue a career as a window washer (true story, and I’m so thankful that plan failed). I can vividly remember not wanting to go to bed at night because I didn’t want to wake up in the morning to go to work. But once again, I stuck with it and worked hard –and when I look back, I’d do it all over again.

In my experience, the better I got at doing the work, the more enjoyable it became. And to this day, the more I focus on the positive aspects of my work, including the people I can help, the happier I am.

In every profession or life endeavor, the more you love it, the harder you’ll work, and the more successful you’ll be. So learn to love it and prosper!

PHASE 3: AFTER DENTAL SCHOOL

Finishing dental school is a great accomplishment – but it also brings you to an important fork in the road. And the decisions you’ll need to make won’t be between bad and good options; instead, you’ll be deciding between what is good, better and even best. The text in the rest of this section will hopefully arm you with good ideas to help you make the best decisions.

No matter what the circumstances are, there are a few basic questions every dental school grad will ask themself:

Common Question: What should my first job be?

Although I’m a staunch supporter of private dental practice ownership, I don’t generally recommend doctors buy a practice immediately upon graduation. We’ve seen many ambitious doctors do this, and in too many cases, they find themselves professionally stunted years later, having missed out on many of the mentorship opportunities other jobs would have afforded them. Why? Because there’s a huge gap between dental school and successful practice ownership – and hence, a lot to learn.

This gap can be closed in only two ways: the quick way, through the painful, expensive school of hard knocks; or the smart (paid) way, with a successful associateship.

The advice I used to hear from my friend Stan Ricks applies: Make all your mistakes and gain experience on someone else’s dime.

So, what job should you take? These days, the options for employment right out of school primarily include:

•Working