Friday, March 9, 2012

Loan Shark

Happy Friday,

It is official: I am buying my dad out. I am telling you about this because I think there might be a lot of dentists out there wondering about the process. I have a financial adviser that I pay quarterly to be the point man when it comes to things like this. He watches our practice. He knows our practice.

When we told the adviser that we were going to do this, he put a package together. The package includes all the numbers of our practice, production, overhead, profit, salaries, P/L. It also includes a business plan, my W-2s for the last 5 years, and all that stuff that I try not to get too involved with.

After we put the packed together, we had to think about whom we would allow to compete for our loan. We have been customers of a certain large bank since my father started this practice (it was a smaller bank then), so we started there. There is a bank literally across the street from my office. The manager has been a patient since before I was here, and a couple staff members there are also patients. There is a guy from my church that everyone knows around town. He is boisterous, fun, and very excited about working with me, so we put him in the mix. I have another patient that is high up at another bank, so he’s in the mix. There is also one more that my financial adviser has a long time relationship with.

We sent the package to these five financial institutions, and my life has not been pleasant since. I wake up in the middle of the night thinking about making payments. I am grouchy at work because I think about overhead like I never have before. I used to make fun of dentists that micromanage their offices and here I am doing it. I hear myself saying to my assistant, "Do you really need to put out that many cotton rolls for this procedure?"


"Two drops? Really?! Two drops? Do you really think we are going to need two drops of Clearfil for this procedure? Of course you don't know. Because you don't care. Why would you? You don't have THIS HUGE LOAN HANGING OVER YOUR HEAD FOR THE NEXT SEVEN YEARS!!! Of course you don't care about how many drops you put in the dappen dish!"

Are these words really coming out of my mouth? Did I really just go up to the front and tell everyone to get back to work and stop talking and laughing? What is happening to me? Is this what becoming the 100% owner feels like?

I start to look at all the products we have. I look at the 6-year-old computers and just look the other way. I look at the rug that needs to be replaced. I am seeing everything as a monkey on my back. I know it is not supposed to be this way. I know that this is supposed to a happy time. I know that this was the natural progression of my career. I knew five years ago that this was coming. But why is signing the papers changing me? Why do I go home and mope?

It has even made me less tolerant of my kids. "Are these your broken crayons? Who do you think has to pay for all these crayons? Do you even care? Of course you don't, because you don't have this THIS HUGE LOAN HANGING OVER YOUR HEAD FOR THE NEXT SEVEN YEARS!!! Of course you don't care about how much crayons cost!" Man, kids these days.

Things look expensive at home, too. Cars, dishwashers, rugs that are 10 years old. I know owning a house costs money. I know that things need to be replaced, but they all seem to need replacing as I am getting ready to sign this big loan.

The loan is, relatively, not that much and if the office stays the same, things should be fine. But if we slip a little… Ahhh, I am starting to sweat just writing that.

Things at the office are okay, but we are not doing that great. We are getting very nice people in and patients that really appreciate what we are doing here. I have always said that that is my motivation. But, now that all this going to be mine (or, now that I am on the hook for all this), it feels different. I just want to sign the papers and get it over with. I want to get a couple of months of paying it back under my belt and maybe this headache will go away.

On a more pleasant note, I was approved by all five banks. Two of them have been very competitive. The rate I am borrowing this money at is very low, so I’ve got that going for me. But this doesn't unwind me at all. I wish I had all this money in the bank so I didn't have to borrow. I wish I was on the other end where I was deciding what to do with my money and where to invest. Should I buy real estate or a mountain home? Not this. This is too stressful.

Have a great weekend,

Do you know how much crayons cost nowadays?


Dr. Andy said...


I could write a book on the subject. I just paid off my 7 year note this past December. I am excited about it. Now I'm in the process of paying off other loan that accumalated during that time and taxes.

The next seven years will be stressful. The first one will be the easiest since there will be deductible costs associated with purchasing the practice. At the end of the year your tax bill won't be as much. Years 2-7 will not be fun.

why? Accounting, baby, accounting. Let's say your note is $5000 per month. (For the non-dental people imagine paying off your 30-year mortgage in 7 years.) You bring in the $5000 and dutifully send in your payment. All is good until the IRS says you owe us tax on the $5000. (Yes, the interest is deductible but since you have a low rate the interest part won't be that big a deal. Plus each year you pay less interest and more principal.)

So you spent the $5000 and STILL owe tax on the $5000. Where does the other, let's say, $1000 in tax come from. Well from the rest of the money you bring in that you wanted to spend on staff, computers, etc. Ordinarily, when money comes in you set some aside for taxes. All is fine. Here you spend the whole wad of cash and still owe taxes.

Anyway, the best way to think of it is that yes, you COULD have bought a mountain home but decided to buy a practice instead.

Oh, and during the next seven years you'll find yourself saying, "I made much more money as an associate than by being an owner" If I had a dollar for everytime I said that. . .

Anonymous said...

Small business owners are nuts, yet we employ more than 50% of the country's workers so without us the country would be totally stuffed! So you are doing a very noble thing by sticking to the game (well, that't what you can tell yourself anyway).

Anonymous said...

I feel you John. I can't imagine seven years. I'm doing ten. Just did the cash flow projection with the cpa. A disturbing look at the future like the guy who mentioned getting taxed on what you spent vs. What you earned. It's a vicious cycle but what is the alternative? To be part owner? JA

Anonymous said...

Lucky for me I paid off my 7 year note in 2005. It was a great weight off my shoulders. Yes you have to look at it the way your are describing or else your staff will gladly spend and waste your money for you. And yes you can only deduct the interest on the loan, not the principle. Congratulations!!!

401k loan said...

Took me time to read all the comments, but I really enjoyed the article. It proved to be Very helpful to me and I am sure to all the commenter’s here! It’s always nice when you can not only be informed, but also entertained! I’m sure you had fun writing this article.

gatordmd said...

I am glad you liked it.
By the by, it is still going on.
Very arduous process because everyone wants their piece but trying to be fair at the same time.

I hope you keep reading and commenting.


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