Inside Dentistry
January 2020
Volume 16, Issue 1

Financial Guidance Is Essential to Successful Private Practice

Partnering with knowledgeable, trustworthy experts aligns decisions with goals

Gary Kaye, DDS

Our dental training equips us to take care of the oral health of our patient populations. We learn how to take histories, perform examinations, make diagnoses, come up with treatment plans, and deliver the necessary dental care to achieve optimum oral health for each patient. There are many models for how we provide this care, but the vast majority of dentists are in private practices. Although we are healthcare providers, a private practice is a business in which the owner is directly responsible for the financial health of the enterprise. Most practice owners are not trained to understand finance and need to rely on the advice of financial partners in various areas of the business.

There are many financial decisions that have to be made over the lifecycle of a dentist in practice. These decisions have to be aligned in order for the business to achieve success, profitability, and stability, and they have to meet the dentist's own personal goals-financial, familial, or otherwise.

Financial Lifecycle

Throughout the professional lifecycle of a dentist, there is a continuum of financial issues that will arise, including the following:

• Student loans
• Starting a practice
• Buying a practice
• Growing and maintaining a practice
• Financial planning
• Practice transition and succession planning
• Practice sales or mergers
• Retirement planning

The primary concern for most dentists is the student debt that has accumulated on their way to earning the coveted degree and license required to practice dentistry. The way that this debt is managed and paid down has to be aligned with the overall financial strategy that each dentist puts in place. This can have a profound effect on whether a dentist joins a corporate or institutional practice, works as an associate in a private practice, starts a practice, or buys into an existing practice.

Starting or buying a practice puts the onus immediately onto the dentist, locking him or her into a situation where even initial financial missteps can have disastrous consequences if not properly managed. In order to practice successfully, afford patients with the necessary care, provide a stable environment for employees, maintain a facility that is current with all of the available technologies, and ensure that there is sufficient profit to support the owner's salary, the financial health of the practice is of the utmost importance.

Key Financial Concepts

A financially healthy practice is one in which the total income from patients and third-party payers (ie, insurance companies) exceeds the total expenses by an amount that is sufficient to provide the practice's owner with enough personal compensation for his or her efforts in performing clinical dentistry and running the practice. In addition, as the owner, one should consider the investment of time and risk that was put into acquiring ownership and how that value is being returned.

The financial health of a practice is reported in its balance sheet and profit and loss (P&L) statement. These reports are prepared annually and provide the practice owner with a way to see how much revenue came into the practice, how it was spent, and ultimately, what the net income for that particular year was. Becoming familiar with everything in the P&L statement grants the practice owner access to a powerful analytic and financial planning tool to help inform decisions, chart progress, and run the overall practice. In addition, anytime that the practice needs to take on a lease or loan, the lending institution will require multiple years of the practice's P&L statements. Familiarity can help the practice owner better understand this process and be more comfortable engaging it.

Every profession has its own common language that allows for informed, detailed communication between its professionals who share expertise. This language is easily understood and familiar to those within the field but confusing to those outside of it. For example, in dentistry, professionals talk about mesial and buccal surfaces, centric relationship, acute necrotizing periodontitis, and so on. In the financial world, there is also a descriptive lexicon used, which can be confusing to the novice financier. Many may be familiar with terms such as profit, net income, and cash flow, but comprehending debt-to-equity (D/E) ratios, amortization, depreciation, and earnings before interest, taxes, depreciation, and amortization (EBITDA) is often beyond the layman's understanding and can become confusing to the uninitiated.

Experts and Why We Need Them

In the financial landscape, there are many professionals who exist that can be leveraged to achieve security and success, including the following:

• Bankers
• Insurance agents
• Certified public accountants
• Attorneys
• Practice financial consultants
• Practice transition experts

It might seem obvious to many dentists, but the importance of one's relationship with his or her bank cannot be understated. Beyond basic banking, there are myriad other functions and services that the modern-day bank provides for the practice owner. These include financing, leasing, mortgaging, credit card processing, and many other functions that can make or break the financial success of a practice. Many banks have relationship managers who can help practice owners navigate the complexities of their multiservice institutions.

Insurance agents serve as guides who help us manage key financial risks. They provide insurance for malpractice, life, disability, general liability, property, business fraud, and cyber risks-all of which are pivotal concerns to a successful dental practice. This individual needs to understand the business of dentistry and its associated risks as well as how to mitigate those risks with the most cost-effective policies.

An accountant is one of the most important financial partners that a practice owner can have. The accountant makes sure that the financial records of the practice are accurately maintained. From those records and bank statements, the accountant will prepare balance sheets and P&L statements each year. In addition, he or she will use this information to prepare the practice's federal and state tax returns. Tax planning, profit analysis, and more can be enhanced by having a good accountant. An accountant is also a key person in helping you navigate through the financial lifecycle of your practice.

Handling the legal aspects of practice ownership requires the help of an attorney. An attorney can assist with transactions, structuring (eg, employment agreements), buying and selling practices and real estate, overseeing partnership agreements, and managing estate planning.

Practice financial consultants, such as representatives from Henry Schein Financial, can be very important partners in determining the financial success of a practice. These financial consultants can help with setting up the practice, leasing equipment, purchasing practice valuations, and payment processing. It is virtually essential that any financial consultant sought for this position has experience in the field of dentistry.

Another important partner for success is the practice transition expert. These professionals can be very helpful in finding an associate, purchasing a practice, merging multiple practices together, and ultimately, in planning and enacting an exit strategy when selling a practice. Although it seems obvious that you would want a transition expert with experience transitioning dental practices, it cannot be overstated how important this is to the overall success of the position. Without proper knowledge of the challenges specific to the dental practice landscape, managing these transitions is extremely difficult and comes with great financial risk.

The Importance of Trust

In the end, the most important aspect of finding the correct financial partners comes down to trust. Seeking out the most competent individuals using methods such as word of mouth, referrals, in-depth interviews, and personal research is not only about finding skilled guidance but also about establishing a baseline of trust in their abilities and expertise. Without that trust, it can be difficult to let go of full financial control, which can lead to micromanaging in areas where a dentist's knowledge may fail the practice.

Trusting the skills of your financial experts is pivotal to maintaining a financially successful practice. By educating oneself about key terms, it can become easier to learn the basics that are necessary to make informed decisions with your partners. However, there is no replacement for the years of expertise that accompany a well-respected banker, experienced insurance agent, or a trusted financial advisor. These financial guides-partners in the journey of a private dental practice-are indispensable in our ongoing mission to achieve our professional and personal goals.

About the Author

Gary Kaye, DDS, is a fellow of the Academy of General Dentistry and the founder of Kaye Dentistry PLLC, New York City, New York.

© 2021 AEGIS Communications | Privacy Policy