Wednesday, August 8, 2012

Leveraging the Equity in a Dental Practice.

This is a guest post from Stephen Trutter at Bank of America Practice Solutions

Have you ever wondered what the value of your practice is?  Are you at a point in your practice where you want to expand, renovate, or even relocate your office?  Do you have debt that you would like to refinance in order to free up more cash? These are all questions that I am being asked from dentists on a consistent basis.  I wrote this to provide some answers. 

The equity in your practice is the buying power of your practice.  It gives you the ability to market, expand, and ultimately when you retire, sell your practice for top dollar.   So before you can determine what you would like to do with that equity (which you may have built over the years), let’s just get an understanding of what equity is. Equity is the residual claim (or interest) of the most junior class of investors in assets - after all liabilities are paid. In the dental world, it is typically (last year’s revenues x 75%) less your current practice debt. 

The best place you can invest your equity is in your practice.  Today’s young dentists are trained on the latest technology and today’s dental consumer wants their dentist to be utilizing the best technology as well.  This gives them comfort and it can get you more patients. Along with updating your office with this equity, you can market your practice more effectively, rejuvenate your practice (dental practice makeover), expand with additional space, or take advantage of historically low interest rates and consolidate debt. 

The question that comes up is whether or not it is a good time to spend money.  The current economy is rocky, however, the dental economy is still strong.   Interest rates are at all time lows so it is possible to take advantage of this to borrow to improve your practice.  Landlords are generally giving generous improvement allowances.  Equipment vendors have incentives to take advantage of. Talk with your dental CPA, accountant or tax advisor, there may be significant tax advantages of upgrading now versus later. 

To recap, your practice is the main investment you can control.  No stock, bond, etc… can give you the same return as your practice.  Take advantage of the current economic conditions to improve your practice, consolidate debt, and/or expand.  The funds you spend today may give you huge returns in the future.  

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