Are You Better Off Purchasing A Practice Or Remaining An Associate?

In our July 2021 article “Can You Get Practice Purchase Financing Despite Your Student Loan Debt?” we discussed the fact that in many cases, numerous banks are offering young doctors practice purchase financing, even though they have significant amounts of student loan debt. However, just because you can get practice purchase financing, should you?

86% of graduating dentists say they want to own their own practice within 10 years of graduation. However, in some cases young doctors are interested in paying down, or paying off, their student loan debt before buying a practice. Is that a good strategy?

No! The reality is the fastest way to get out of debt (including student loans) is to make more money. And the fastest way to make more money is not to stay a renter (associate), but to become a practice owner by purchasing a practice. Interest rates are historically low right now, and many banks are willing to loan 100% of the purchase price, plus some working capital to cover operating costs for the first few months, as long as the practice financials support it.

Most young doctors don’t understand that by purchasing a practice that’s fairly priced, they can actually increase their cash flow by thousands of dollars annually, even after covering practice overhead and practice purchase debt service payments. So, don’t delay your planned practice purchase! The sooner you do, the better off you’ll be as the following example illustrates.

Assume you purchase a practice grossing $1,000,000, with a 60% overhead rate and 40% net profit margin, at a purchase price of $775,000. If the purchase is 100% bank financed over a 10-year period at a 3.00% interest rate, this will require debt service of $7,483.46 a month, or $89,801.52 annually.

If the young doctor is currently employed as a corporate associate at a salary of $165,478 annually, their pre-tax cash flow as owner would increase to $205,376 in the first year after purchasing the practice, even after paying for the practice overhead and debt service. This would provide increased cash flow of over $40,000 in the first year alone, compared to remaining an associate. Over the first 15 years, the additional cash flow advantage through purchasing adds up to over $1,300,000! Moreover, you’re building equity in a long-term asset as you pay down the practice debt. Plus, as an owner you’ll be eligible for larger tax-deductible retirement plan contributions and other tax breaks (travel, auto, meals, CE, etc.) that aren’t available to associates.

Most importantly, you can take control and gain the freedom to set your own schedule and make clinical and management decisions that reflect your values, not someone else’s!

*Coleman is a practice transition specialist with Roger K. Hill & Company, Inc., a member of The McGill & Hill Group LLC. To receive proforma spreadsheet calculations verifying these results, or for more information on purchasing a practice, contact Coleman at or at 704.424.5626.

JD Wade joined McGill & Hill Group in October of 2012. He earned a bachelor’s degree in accounting from The Citadel, and a Juris Doctorate degree from Charlotte School of Law. Wade serves clients across the United States in the development and implementation of customized transition plans for their dental practices. He is a member of the South Carolina Bar and American Bar Associations.

The McGill Advisory content is provided for informational purposes only and does not constitute legal, accounting, or other professional advice.

Copyright © 2021 John K. McGill & Company, Inc.