Dentistry is an incredibly rewarding profession. Unfortunately, dental practice ownership can also be an expensive endeavor. The result is that many dentists take on a significant amount of debt.
There are two main reasons for this.
First, many dentists have a significant amount of medical school debt. The American Dental Education Association estimates the average dental school debt in 2020 was $304,824, whereas most medical school students take $200,000 on average to finance their education.
The second reason is that starting a dental practice is costly. First, you need to invest in equipment and facilities. In addition, as a dentist, you can expect to pay $500,000 to purchase your dental practice, while starting a primary care medical practice can cost as little as $70,000. Last but not least, you’ll need to hire the staff you need to operate—dental hygienists, dental techs, front office personnel, billing, and even other doctors.
Nothing about managing a dental practice is cheap or easy—so what can you do to manage dental practice debt? Read on for six practical strategies.
This should go without saying, but it’s still helpful to keep in mind. If you have credit card bills, pay more than the minimum each month, and always use cash or debit cards for purchases whenever possible.
One way to avoid additional debt is by building an emergency fund to serve as a financial cushion. This is necessary in the event of unexpected expenses or if there’s a period in which you don’t have enough patients to pay yourself and other expenses. While every practice is different, three to six months’ worth of income is usually enough to support you during a financial slump.
While creating an emergency fund may seem impossible on top of your other expenses, start by setting aside a small percentage of your profits each month. Arranging an automatic transfer can both speed up and simplify the process. Lastly, ensure your emergency fund is easily accessible.
Related: Taxes Are Expensive! Here's How Strategic Dental Accounting Can Save You Money
Sound financial planning begins with an accurate budget. To create a budget, perform a cash flow assessment, including how much money is coming in and going out of your practice each month. That includes income sources and expenses such as average monthly lab fees, supplies, salaries, benefits, and rent.
Once you’ve analyzed your finances and created your budget, be sure to stick to it. Make changes as needed so you can reach your debt-free goal sooner.
Refinancing has many advantages. It can allow you to consolidate all your debt into one monthly payment, which makes it easier to effectively plan out your finances.
And, of course, refinancing can save you a substantial amount of money on high-interest loans.
Also, keep in mind that refinancing can negatively affect your credit score if you make multiple credit inquiries. To choose a lender to refinance with, compare fees and closing costs, and read each company’s fine print and reviews.
An experienced dental CPA is an excellent resource when it comes to choosing a new lender. They can help you find lenders with competitive interest rates and loan terms.
Inefficient practice systems can cost you money. Analyze all your dental software and identify the systems that need to be updated. These updates and improvements will boost your productivity, reduce your expenses, and allow you to reduce your debt and grow your business.
You are skilled in filling cavities and cleaning teeth, but you may not be a financial expert. An experienced dental CPA with industry knowledge will have lender contacts and can help you manage your debt by conducting a thorough, accurate cash flow assessment. A dental accountant can also help you identify where you need to adjust.
At Chaliff + Associates, our dental CPAs have a wide range of experience helping Memphis area dentists reach their practice goals, including managing their debts and increasing profits.
Our dental accountants also:
Contact us for a consultation and learn how we can help you manage your debt and grow your practice!