Financial Planning for Dentists: Navigating the Unique Challenges

In many ways, the dental profession is thriving and provides a rewarding career for entrepreneurs. Consider that the median pay for dentists in 2022 was $159,530, and that the profession ranks in the top ten jobs list according to the American Dental Association. And the profession is only expected to grow over the next ten years.

Beyond seeking to improve the health of their communities, many dentists embark on the journey of owning their own practice. While this path can offer significant financial benefits, it also presents unique challenges that require additional considerations when starting, running, or selling a dental business. Here are some key factors to address with your financial advisor.

Student Debt Management

Many dentists graduate with significant student loan debt. It’s essential to develop a strategy to pay down this debt efficiently, especially before making substantial investments in a private practice. Consider factors like interest rates, loan forgiveness programs, and the potential benefits of refinancing to ensure you’re taking the most effective approach.

Practice Acquisition and Financing

Purchasing or starting a dental practice requires a sizeable financial commitment. It’s vital to understand your financing options, from traditional bank loans to specialized lenders for healthcare professionals. Ensure you conduct a thorough financial analysis of any practice you consider buying. Look at its past revenue, existing patient base, and growth potential to gauge its worth.

Overhead Management

Running a dental practice comes with considerable overhead. Rent, utilities, equipment, staffing, and insurance can quickly eat into profits. Regularly reviewing and optimizing these costs can significantly impact your practice’s financial health. Having a well-structured budget and understanding the industry benchmarks can guide your decisions.

Retirement Planning

It’s never too early to start planning for retirement. Especially for dental professionals, retirement planning might look a little different than it does for other professions. For instance, you might factor in the sale of your practice as a significant retirement asset. Regular contributions to retirement accounts, such as a 401(k) or IRA, coupled with the eventual sale of your practice, can pave the way for a comfortable retirement.

Insurance Planning

Dentists need a suite of insurance solutions. From malpractice insurance to protect against professional liabilities to business overhead insurance to cover fixed business expenses if you’re unable to work due to disability, having the right coverage is crucial. Evaluate your risks and ensure you have comprehensive coverage.

Business Owner Succession

As a dentist-owner, you’ve likely invested a significant portion of your life into building your practice, but what happens when you’re ready to retire or if an unforeseen event makes it impossible for you to continue? Business owner succession planning is essential.

  • Transition to an Associate or Partner: One option is to groom an associate or bring in a partner with the intention of them taking over the practice eventually. This approach can offer a smoother transition for patients and staff.
  • Sale of the Practice: Another option is to sell your practice, either to another dentist or a dental service organization. This path requires a detailed valuation of your practice and a strategy to make it as attractive as possible to potential buyers.
  • Buy-Sell Agreements: If you’re in a partnership, having a buy-sell agreement is vital. This legally binding document outlines how a partner’s share will be bought out by the other partner(s) or the practice itself if they retire, become disabled, or pass away.
  • Estate Planning Considerations: Ensure that your will, trust, and other estate planning documents consider the value of your practice and how it will be managed or disbursed upon your passing.

While dentistry offers a unique blend of healthcare provision and entrepreneurship, it also presents distinct financial challenges. By considering the factors mentioned above and seeking guidance from financial professionals familiar with the dental industry, you can navigate these challenges effectively and build both a prosperous practice and a secure financial future.

Wealthspire Advisors is the common brand and trade name used by Wealthspire Advisors LLC, Private Ocean, LLC, and ACG Advisory Services, LLC, separately registered investment advisers and subsidiary companies of NFP Corp.
Please Note: Limitations. The achievement of any professional designation, certification, degree, or license, recognition by publications, media, or other organizations, membership in any professional organization, or any amount of prior experience or success, should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results or satisfaction if Wealthspire is engaged, or continues to be engaged, to provide investment advisory services.
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© 2024 Wealthspire Advisors
Bruce Laning

About Bruce Laning, CFA®

Bruce is a managing director based in our Milwaukee, WI office.

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