Corporate Dentistry or Private Practice on Student Loans – 2020 Guide.
Corporate Dentistry or Private Practice: One of the great dental debates of our age is whether pursuing corporate dentistry or a private practice. For a long time, corporate dentistry has been demonized for turning something highly personal (dental care) into a bottom-line franchising model.
Nevertheless, some dentists have gradually come to realize that corporate dentistry has its own special set of benefits. Basically, you can see which one is better for your dental student loans when contrasting corporate dentistry vs private practice work
Corporate dentistry wants your student loans to make you afraid of taking risks of Dentistry practice on your students loan. Whatever the case, there are pros and cons of corporate dentistry. Like any business, the owners want a reliable pool of labor that’s perfectly happy with good benefits, a predictable income, and the illusion that working for someone else is safer than working for yourself.
One thing is sure, the higher your student loan balance, the more you should want to own your own dental practice. But we will help you make better decisions on Dentistry practice on Student Loans as you read on
How Dentistry practice on Student Loans Makes Dentists Afraid of Running their Own Practice
For most dentists, the first time their loans got real was in the first month or two after graduation when their loan servicer sent them their statement. Interest rates as high as 8% on Grad Plus loans are ridiculously high. You probably have tens of thousands of accrued interest, too.
If you owe over $300,000, your payments need to be higher than $3,000 a month just to make a meaningful impact on the principal balance. A typical new grad starts their career as an associate working for someone else earning around $120,000. Many dentists think about paying back their loans, but how do you do that when you’d be paying about 40% of your take-home pay?
Since you receive a letter in the mail every other week from a bank telling you to refinance, you might be tempted to pull the trigger. Thus, your big payments get locked in. Can you take the refinancing risk and then borrow to buy a practice too? Overlooking the effects of Dentistry practice on your Student Loans
It gets terrifying. Instead of buying a practice, they might work for years at Heartland, Pacific, Aspen, Comfort, etc. as an associate just to have a guaranteed income to pay down their student loans.
How Corporate Dentistry’s Student Loan Repayment Benefits Make You Too Comfortable
Gladly, the goal of any employer is to give you just enough that you won’t want to leave. That can lead to complacency on the part of employees. One of the fast-growing ways to make new grads feel attached to their jobs (in general not just in dentistry) is student loan payment benefits.
As humans, we are prone to the fear of loss. It’s why we hold onto a bad investment even though the rational action might be to sell it. Fear of loss is why we keep a lousy house, car, or vacation property even though we know we should get rid of it.
There is a negative psychological impact when you leave a job with a student loan repayment benefit. If your employer offers $20,000 a year towards your student loans, it hurts to give that up for an uncertain ownership path.
Other Ways Corporate Dentistry Profits from Dentists
Corporate dental groups use other methods to make employees not want to leave. They realize that many dentists would get restless without a seat at the table in their practice, so they’ve invested a lot of hybrid ownership structures.
Let’s say Harrison is a new grad and associates for practice in a random part of the country. His starting salary is $120,000 with a 10% to 30% bonus based on how the practice does. His office produces $1.2 million after three years on the job.
The dental practice does not want to lose Him, so they show him this amazing projection of income that tops $300,000. All he must do is buy 50% of the practice and stay for 10 years.
He’ll be a majority owner, and the DSO will handle all the marketing, hiring, billing, and operations. They want him to pay at a valuation of 75% of revenue, and they’ll have him take out a loan for 50% of this price to purchase 50% of the shares.
The disadvantage of Going Into a Joint Ownership with Corporate Dental Groups (For the Dentist)
Harrison has a lot of student loans, so he really likes the idea of having the DSO handle all these business functions for him so he can focus on dentistry. The high projected salary they show him makes him feel confident that he’ll be able to pay his loans off one day.
Why is this not a great deal financially for Harrison?
Here are a few reasons:
He’s spent years building the valuation of the practice by increasing its revenue and now must pay a higher multiple for the business
Anything less than 100% ownership of a practice is harder to sell
He could get 100% financing on his own without the corporate dental group
He could procure the business services much cheaper than equity financing by paying for them directly
Building the Valuation for Someone Else
Many new associates are hungry to prove themselves, which often results in much higher practice revenue within a few years.
Many dentists turn around and take an even bigger loan out to buy this increased production from themselves basically. You can prevent this with an option to buy a practice at an agreed upon % of revenue at your start date.
Don’t Pay 40% of the Business Valuation for 40% of the Practice
Another common pitfall happens like this: an accountant tells you that the whole dental practice you’re looking at is worth $1 million. The ownership group then offers you a 40% stake for $400,000. While this sounds fair, it’s not.
If you had to sell a minority interest on the open market to someone not affiliated with the dental practice, you would have to accept a discount on the price because they’re not getting full control.
When ownership agreements include the exclusive right of a corporate dental group to provide business services (like marketing, HR, operations, etc.), you reduce your pool of buyers. Who wants to be saddled with a contract from the previous dentist? Perhaps the best buyers own the other shares, and thus they can offer you less for your shares.
Another thing to keep in mind is that majority control is often worth more than you think. If you control 51% of a dental practice, you have the power. You would not want to pay 49% of the practice valuation for 49% of the practice.
I could give more examples, but the point is that if you’re even thinking about entering a partnership agreement, you should run the contract by an accountant used to valuing dental practices. Otherwise, how can you know that the agreement is fair to both parties?
When you’re dealing with a sophisticated organization like a corporate dental group, any agreement you sign is likely to be biased against your interests without someone equally sophisticated in your corner.
Why Dentists Will Get All the Capital They Need to Become Owners
Another concern with dentists who partner with DSOs is that they don’t want to take on so much debt to own a practice. They look at the $600,000 to $800,000 price tag of many solid practices and get squeamish.
In terms of securing a practice loan, banks will be happy to give you most of what you could want, even with a bunch of dental student debt. The only issues I’ve seen are with loans for jumbo-sized operations (more than $2 million in revenue, then it might get tricky).
Of course, you need to have a track record of at least a year with solid production history for a bank to feel comfortable. That said, getting capital to buy 100% of the practice you want will not be a problem.
In terms of the fear of taking on more debt, I get it. You’re already feeling nauseous that you owe over $300,000 from dental school and you’d like to keep that debt as low as possible.
However, dental practice loans are a different animal. Almost all the loans get paid back. In the rare case that the dentist defaults, the primary culprits are alcohol and drug abuse, not bad business results according to the bankers I’ve spoken with.
While $800,000 of business debt can look very intimidating, a dental practice is going to pay for itself over time. The profits of the business pay off the practice loan, and eventually, you own an asset in full. The tens of thousands you had to pay towards your business loan you will recoup one day as additional income once the loan is gone. The bigger the practice that you buy, the bigger income number you will have all things equal.
How Dentists Drastically Overpay For Business Services For Their Practice
Finally, pretend you’re the kind of dentist who likes to turn off the lights and go home. This is one of the biggest reasons I hear from dentists who choose to be associates long-term or partner with DSOs.
As a dentist, you’re doing most of the work to keep the practice humming from a revenue perspective. Yes, corporate dentistry might bring in the patients, help with staffing, and run marketing, but what are these services truly worth?
What I find is that many dentists do not realize that they don’t have to do it all by themselves as practice owners. There is a huge industry of practice consultants and dental professionals that handle everything from collecting bad debts to billing to websites and more. They’ll run your marketing, assist with staffing issues, and even help with compliance.
Many of these professionals might charge $10,000 or more for their services. While that seems steep, many dentists pay much more than that by partnering with a corporate dental group. Pretend the practice net income is $500,000 and you’re a 50/50 partner with a DSO that handles business functions.
We know that in more than 99% of cases, dentists successfully pay back practice loans. That means that the dental practice will pay for itself in time.
Hence, the dentist is paying about $250,000 a year for the services the corporate dental group offers. What kind of team could you build to support your practice with that kind of money? Furthermore, many expenses might be front-loaded in set up costs.
If you set up the website, social media, and operating systems well, they might need only occasional maintenance for example.
Is it true that corporate dentists do not make as much as private owners?
This is not necessarily true. Option one you are paid like an employee a set amount and you may receive a bit more due to experience and what you produce but you are basically locked in for the most part but if you don’t want to deal with anything outside of normal hours then it’s still a great option. Option 2 you can make as much as you can produce because you own the practice. Google the average dentist salary.
Does the scheduling suck?
This is partly true. Corporate office tend to be open M-Sat for extended hours but typically are not working all day. Some offices are open from Mon-Fri 7:30am-7:30pm and Sat 7:30AM-1:30PM. The doctors and staff typically work M-F for 6 hours and around 2 Saturdays a month which sounds terrible but it’s really not that bad since you are only working 6-7 hours at a time.
Will Corporate dentistry give the community bad service due to high volume?
Some people are very particular about how their fillings look and about how long they have to wait. These people are willing to pay the upgrade fee to go private practice. Generally about 50% of people (Statistically) just care about pricing and proximity. Customers at a corp know what they are signing up for generally and usually no one is disappointed because the doctor will solve their problem for a low cost.
Why is this advantageous? As a corp dentist you are expected to do ethical dentistry but you are not expected to create the most beautiful products. That means you don’t have to sit there with a shaping instrument for 20 minutes per filling. Generally just bulk fill, contour the top slightly, check the bite, and move on.
Why is this disadvantageous? You are DEFINITELY busy. Well only if you want to make money. You can deny patients if you want or refer them out. You will not have time to sit around and twittle your thumbs like some practice owners but you will constantly be getting better with every patient which is key when you first start as a new dentist. In a corp setting you will absolutely have more patient flow so it will be busier but you will make less per patient.
I heard Corporate dentistry does not offer you the ability to grown clinically
This is false but can vary depending on your specific corp. I have one boss that does bread and butter dentistry and he is comfortable with that. I have another boss that does everything from bread and butter to implants, bone grafts, alveoplasty, sinus lifts, lateral sinus lifts, full bony extractions w/comp, veneers, you name it he does it.
You have to pick one or the other
When you start your own practice, it does not necessarily mean you cant work corp. You can do both to supplement your income while you are in the building phase of your practice.
If you have no debt and want a flexible lifestyle with good benefits, working for a corporate dental group might be a great decision. If you absolutely cringe at the thought of talking to anyone about business, then perhaps you should work for a DSO as well.
However, do not Dentistry practice on Student Loans influence your decision to become an owner or not. It shouldn’t deter you from the advantages of starting a private dental practice. You should consider buying a practice as soon as you feel comfortable doing so if your goal is getting a good return on your educational investment. There are big profits to be made in dentistry, even with the increasing number of graduates.
You can do this, especially if you owe a huge amount of debt from dental school. If you know you’ll eventually refinance, use REPAYE and make prepayments until you’re firmly established in your practice. This will keep payments low and allow you to show a healthy cash flow profile to bankers.
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