As I come to a time in my life where I am going to be the boss and I am going to have an associate under me, so many questions arise. I do not have a practice that is bursting at the seams, but I have one that, when firing on all cylinders, can handle two dentists without a problem. I have told you about Wayne before, but let me update you. I have been working with my dad since I graduated from dental school in 1995. We are 50/50 partners and he plans on retiring in 20 months. At the present time, he and I are working out a buyout of the building and the other 50% of the practice. But that is beside the point.
I have been thinking of Wayne (the guy that is going to join me in about 18 months). Wayne is a young man that has grown up in our practice, shadowed me in high school, and in college began thinking he wanted to be a dentist. He now is a 3rd year dental student (at the best school in the world — the University of Florida). We both have agreed that he is going to be the heir apparent here.
Anyway, I was thinking of Wayne and brainstorming a bit about the future. He tells me he is going to be $200,000 in debt coming out of school. Man, when you think about that, it is a HUGE number. I think nowadays they amortize this over 30 years but…
He is going to come out of school with a house attached to him for the next 30 years. This is kind of a burden on me because I realize he has needs. When I got out, I had $38,000 in school loans. My payment was $280 each month. This is not earth-shattering. This is not "change the way you practice" money. But with $200k to pay back, there is so much pressure on him right out of school to perform.
As I think about this, I wonder what how much a new dentist makes. I made $300 a day for about the first year out. I imagine it went higher than that and now might actually be coming down again. I am assuming that there are not a lot of great jobs out there. If you want to do corporate dentistry, there are probably a bunch of jobs out there. And this could be good, especially for a young dentist who wants to improve his speed and see a bunch of stuff, but the associate job where you are mentored and learn to be part of a team? I think this kind of job is hard to find.
Let’s say the per day salary is somewhere around $400. That is a good living in any job. I think he is going to work 250 days each year. That is $100k his first year out. Does that sound high? Let’s just say $100k.
But after taxes that $100k becomes more like $80k. Then he has to pay all his insurances, loans, etc. Now he is done to $40k. Then he has to live somewhere and pay for gas, which brings him down to $20k. So he basically has $1,500 a month to live on (food, electric, Gator games, clothes, furniture). That is doable, but that is living like he lives now (like he is in college).
One of the things that a new dentist can get sucked into is all the expectations of what a professional is supposed to have. Nice clothes, cars, house, watches, the list goes on. I can't tell you how many of my classmates got out of school and bought a sweet ride THAT WEEK, because they deserved it. I bit into that poison apple too (but not that bad). Rolexes, Ruth's Chris, and designer jeans. You know, champagne and caviar. So then this new dentist starts using credit cards to manage his lifestyle.
What does that look like in 3 years when he wants to buy in? Let’s just say I have a $1.5million practice, and the going rate is 60-70% of production to buy. Conservatively, to buy 50% of this office, he is going to need to come up with $420,000. Wow!!!
So, three years after practicing (okay, maybe 5 years), add $450,000 to his debt. I don't know for sure, but I think this is basically an unsecured loan and would be at a higher rate than if he bought a house. Welcome to the real world, bro.
I don't know how a new guy can handle all this. What if he wants to settle down with his new wife? No bank is going to give a guy a home loan that has $650k in unsecured debt. They used to loan money on potential, but nowadays it is much harder. I just shake my head. Then kids, minivan, tuition....arghhh.
The mentoring has to start early. Wayne is a pretty down-to-earth guy. He is not really self-centered; just last week he asked if I wanted to go on a mission trip with him. But his expectations of what a professional looks like have to be real. And his work ethic is important. You eat what you kill out in real life.
I have to tell him that competition is fierce and that the squeaky wheel definitely gets the grease. You have to work at YOUR business. It isn’t going to come to you. And whatever you do, don't live beyond your means because that changes everything. You come to work having to make a certain amount.
I don't know. I am just running off at the typewriter today. Any thoughts? Are you in a world of debt? Tell me about it.
See you Friday,
john
26 comments:
I am a young DDS that graduated in 2010. I started my own office and worked a part-time job until I could be at my office full time. I have debt from going to a private dental school and live like I did in college. The good news? I can practice dentistry to the standard and caliber I want and show my patients integrity each day. Basically nose to the grind stone is my philosophy. It is not easy, but I have the most supportive spouse possible. We drive Saturns and live in a regular house-it works for us!!
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The sad reality for me is that Wayne is in pretty good shape, I would kill to have $200k of debt. I go to a private dental school (which will remain nameless) and will be graduating in May 2012 with $340k in debt. And I am single, most of my married classmates with have close to $400k. We are screwed!!
John,
Also consider that your associate will probably not qualify for any practice loans. YOU will have to carry that note. This seems to be a growing trend among sellers. Unless you price the practice so low as to allow buyers to qualify
I just graduated from a state school with about $170k debt. I'm fortunate enough to have a job with my father when many of my classmates do not even have a job. Unfortunately for me... he's only paying me about $3k a month total. I barely have enough to pay off loans and to live on. I don't want to complain much about it, but at the same time, I need an income to live on. Luckily, I'm single right now, but I'd like to get married someday. I'm worried I won't have any sort of safety net saved up for anything down the road. The future just seems so unpredictable...
I wish this is something they would address with professional students (medical, dental, law, etc) at the BEGINNING of their training. No one ever really talks about it.
I owe roughly $135k in student loans. Over 30 years, the payments are roughly $600 a month. The interest rate is super low - 2.8% I think - which is better than you can do on any other kind of loan. Honestly most days I just pretend it doesn't exist because it makes more sense to pay off my mortgage than to pay ahead on low interest student loans.
I don't know how things are for dentists, but I get crap in the mail weekly offering me unsecured "doctor loans" for all kinds of giant amounts of money to help "build my practice." From reputable banks - SunTrust seems to be really gungho about trying to loan $ to doctors.
Banks do make some loans on potential. I got my mortgage based on a signed employment contract and closed on my house 3 weeks before I even started my first out of residency job. I guess they figure they can get it out of you some way, some how, because the likelihood is you will have a decent enough income to go after if they need to sue you, even if you aren't making as much as you had hoped.
This debt load is what faces many new professionals. If I could do it all again, I think I would have lived in a tiny apartment for the first 5 years out of residency (like I did in residency) and paid everything off and stockpiled some money to put a substantial downpayment on a house, rather than jumping in to a mortgage as soon as I could secure one and always feeling underwater.
Oh well, hindsight!
Just keep emphasizing to your new associate about living within your means. Don't buy anything on credit. Have an emergency fund. There will be much less stress that way, and then he can focus on building his practice.
I agree with the comment above. With $200K and a job right out of school, Wayne is a lucky guy. Try doubling that, and then some. Now it's my world. In a job market and economy that is very unforgiving, it's tough to realize exactly what the real world is like, but reality hits home very quickly. These days, there needs to be more emphasis on entering dentistry with a genuine heart for the field and an acceptance of the financial burden that it may become. It's a hard hit reality. Love of dentistry needs to be for the LOVE of DENTISTRY and not what you love and think dentistry will provide.
Good luck to you guys............ The Debt is getting out of control now day isnt it. The reality is we dont live in the same US that you graduated into and comming out of school and having to work hard before you make much money is part of the process. I am 9 years out and still living very frugally. could be less frugal, but I want to pay down all that debt
John, I know it is kinda early but don't you think at least one of your 4 kids might want to go into dentistry.
If you sell the office they won't have the opportunity to take over the office and work with you. Are you really that busy where you have to have an associate right now? Or is it your ego that needs to be worshipped with your hand picked associate. Seems like a few months back you were complaining how slow it was and making ends meet. I know in about 10-15 years I will either retire or step back and really slow down. Which is about the time our kids would graduate dental school. If my kids and your kids did do dentistry. Having a partner or associate might make that difficult. Of course we are talking a big what if but you do have 4 shots at it.
I go to a public dental school, but I'm out of state and have three kids. When I graduate in 7 months, I'll have roughly $350,000 of student loan debt. It hasn't hit me yet, but I'm coming to terms with the fact that I won't be getting an iPhone when I graduate!
I think what we are watching here is the devaluation of the current dental practice. It's a late effect of the over lending spree in the US over that last 15 years. Much like a house, a practice is only worth what a buyer can pay. Here in Canada, lending was kept under control so house prices have continued to soar as have dental practice values. Canadian dentists graduate now with under 100k in loans and the average practice sells for only 50% of gross which makes it possible for buyers and sellers. I would expect that in the US that all new buyers are so strapped that it will cause the sellers to reduce their prices heavily. And this won't go away. New dentists are mortgaging their school costs over 30 years now so its a problem that won't go away for 30 years. I'd plan to reduce your expectations for practice value. But that's not a huge problem if you parse it correctly. It's like a delivery truck - you make your money while you work it and while the value of the truck depreciates. I think the sooner one appreciates this the better. Walk in medical clinics here have done the same to medical practices - join a walk in get the same fees and have no call ins. Its a changing world and we have to adapt to it.
I guess though it gets worse if a divorce enters the mix. Here the ex-wife is entitled to half of the value of the practice. I bought a practice in 99 for 400k moved it in 05 for 200k so I'm 600 in. And then I got divorced. Im 18 years out and will pay off my practice in 8 months but I wlll spend the next 7 years paying off my exwife for half of what my practice was evaluated at, os 250K . So at 62 I will simaltaneously pay off my practice after 35 years of practice and pay off my wife. So at 62 I will work til I die. And mh practice will be worth 400K of which I will, or my new wife will get half. Luckily I really really love my work. :)
All young dentists PLEASE read this last comment. Funny and so real.
Thanks for telling us your story.
john
Just in reference to the above comment... I am in my last year of dental school in Canada I don't know a single Canadian new grad who is coming out with under $100k, that is unless their parents paid for their education. I expect to be over triple that in debt.
Here is a link to an article that was on the front page of the LA Times this morning. http://discussions.latimes.com/20/lanews/la-fi-dental-recession-20111201/10 I don't understand why it was on the front page, but it did get reader's attention. I looked online and saw the number of comments that it had collected. Not a lot of pleasant things to be said about the dental profession. I think it ties into the following post. Dentist need to make a living plus pay for our school loans, but we also became dentists to help people improve their oral hygiene. Are we charging too much where people can't afford dental work? Just some questions that I was thinking about after seeing the comments today.
I am a first year Canadian dental student. I don't know any Canadian dental students with under 100k debt unless their dentist parents paid for their school. I have a 250k line of credit and school will take up most of it not including living.
Paying 20% Taxes on 100,000?; How is this possible?
25% Federal
13.3% Self employment (Since you will be considered an independent contractor, even though you will be treated like an employee in a private practice)
4-6% State, depends on where you live
So lets say on average you have a 43.3% tax liability on that 100,000 that first year, plus student loans, rent, cost of living
Yes there are deductions but you cant S corp realistically until you own, so all I can say is WOW
Well, I was seriously considering beginning the long uphill battle of becoming a dentist - but after all of the research I've done, and this little cherry of an article and comments, I think I will stick to entrepreneurship, we expect to be broke and have work until the day we die. We just don't need a decade of "formal" education.
100K / year? you would be robbing him blind.
600/ day or 35% (50% surgical) of production would be minimum to survive for new grads. But if he's ok with 100k / year, looks like you caught a deal.
Additionally recognize that your copartner will likely not meet all requirements for any practice advances. You will convey that note. This appears to be a developing movement near dealers. Unless you value the practice so level as to permit purchasers to qualify
I graduated dental school 2009 and finished a year of residency in NY. I have been working two part times but I don't seem to find any dentist who is willing to mentor you . Everyone is looking for dentist with 3- 5 years experience . How will one get experience without getting a job?
I sent twenty resumes to job openings but not one has called . I don't understand what is going on with dentist jobs . Any suggestions??
Most practices seem to offer a $600 a day min or 28%-33% production in the south. I don't know about up there. I've never heard of someone paying an associate $300. Will you sleep at night? I mean I know the economy is bad up north, but dang. This is exactly why new doctors work at corporations and most dentists are complaining about this. This is my first year out, I get $700/day min or 28% of production working in a practice in an area of need.
It really sounds like there are so many different things that go on as a new dentist. I really like the idea of earning $300 a day. That is something that really can help with paying the loans that I'm sure are still around. Thank you for such great insight. http://www.bafamilydentistry.com
My son is seriously considering dentistry, which I thought was a good idea. After reading this blog I am not so sure he should pursue it. I am going to get him to read this blog.
Thank you guys for this very informative insight. Cannot thank you enough.
I am a UCLA Graduate 2009 and was in practice for 5 years working at non-profit until I made the leap to practice ownership. I was fortunate enough to have been able to repay my student loans through a scholarship received with the National Health Service Corps. If any of you are interested in more information related to the NHSC Loan Repayment or Scholarship program feel free and contact.
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