Profit First for Dentists

This is the third blogpost in the Business of Owning a Dental Practice series.  Today’s topic is Debt.  Primarily I’m going to talk about Business Debt but you could apply the same principles to personal debt as well.   

Owning a dental practice generally comes with acquiring debt, at least for most dentists.  Whether you do a scratch start or you purchase an established dental practice, to pay for it, there will likely be a loan. 

Add to this business debt, any personal debt  you may have such as dental school debt, a home mortgage, vehicle loans, and possible credit card debt, and you find yourself swimming in debt. 

It can feel heavy or even stifling to think about all the debt. 

Let’s first break it down into ‘good’ debt and ‘bad’ debt.  Debt incurred that increases your revenue and does not cause a bigger burden for your business could be considered ‘good’ debt. ...

Once you have taken stock of the debt situation you are in, it’s time to make a plan for Debt Reduction.  In order to pay down your loans quicker, you must have additional cash flow (profit) in the business.

The Profit First model is great for this because you are already setting aside money in the Profit Account.  Once you really get a handle on the overhead it’s simple to put more in the Profit Account. 

The Profit Account is used for quarterly distributions to the owner doctor.  Remember, this is the pay for doing dentistry in the practice.  The Profit Account may also be used to pay additional principle on any business loans or credit card balances. 

When you decide to use part of the distribution for debt reduction, the owner will now take less in distribution for personal use.  For example, the typical owner distribution would be 50% of the Profit Account deposits for the quarter but with focused debt reduction, the owner might...

Dentistry is an expensive profession.  It’s costly to go to dental school. Then to either open or purchase a practice is another significant investment.  It’s very likely that debt will be incurred in this process. 

Most dentists I work with are still paying on debt. These monthly payments can become drudgery in a short time. It can seem never ending!  And on top of practice debt, there’s personal debt.  Whew! The pressure to produce is real. 

With the profit first model, debt can be factored in when considering profitability. What I mean is this. A portion of the Profit Account distributions may be used for some additional debt reduction if that is the goal of the owner. A system may be put in place with a plan to eradicate debt sooner. 

First, begin by taking stock of all debt. What exactly are you paying out in payments every month? What percentage of collection is this?  Is any of this bad debt, like credit card debt that...

Welcome back to another edition of The Business of Owning a Practice. This week, we are talking all about debt. Check out my recent video here!

The topic of debt can be not only a scary one to dive into but can bring up feelings of shame or embarrassment. I want you to know, first and foremost, that owning a dental practice almost always comes with debt. In order to acquire a practice, you’ll likely need a business loan, and most dentists also have personal debt in the form of school loans, home mortgages, car payments, and even personal credit card debt. You are not alone if you, too, have debt.

Just because most dentists have debt, doesn’t mean that having debt is easy. It can often feel heavy or stifling to realize you are swimming in debt. That’s why I’m here to give you some practical tips for getting out of debt using my Profit First method. Before we get into those tips, though, we need to recognize the difference between Good and Bad Debt.

Good Debt...