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Howard Speaks: Debt and Cash Flow by Howard Farran, DDS, MBA, Publisher, Dentaltown Magazine

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by Howard Farran, DDS, MBA, Publisher, Dentaltown Magazine

There is not a billionaire on earth who doesn’t use debt to benefit business. Even if you started saving money the day you were born and never spent a penny, you’d die before you’d ever see your bank account reach a billion dollars. Billionaires borrow other people’s money (OPM), whether through stock or bond offerings or a bank. They buy or build something and then they pay back the loan.

You could have worked a minimum wage job for 40 years, saved money and paid for dental school in cash. But instead most of us took out student loans. You may not be a billionaire, but you used OPM to build your career. This was smart debt.

The same goes for purchasing equipment in the practice. The adage “you have to spend money to make money” is true, and it often entails other people’s money to get to that point. This isn’t to say you should blindly go into massive debt. Analyze the ROI on a piece of equipment. What will the benefit be to your practice and how long will it take to pay back the loan?

It’s a privilege to borrow

It’s a privilege to be able to borrow money. Third world countries don’t have this option. Debt is leverage, but it’s treated as an emotional decision.

I graduated from dental school in 1987 with $87,000 in student loans. That’s in the $220,000 range today. I paid it back after graduation while working as a dentist because the lowest-paid dentists made $50 an hour. That’s 10 times what I would have made working and saving money at that minimum wage job. If I hear one more dental school graduate whine about his $300,000 in student loans, I’m going to slap him! Those loans took him from earning $5 an hour to $50+ an hour

I often hear dentists say they don’t want to purchase a CAD/ CAM or CBCT unit because they don’t want to go into that kind of debt. You have to look at a number of other factors besides the sticker price of a piece of equipment like that. What will having your own CAD/CAM unit do to your lab bill? If you’re doing more crown and bridge work and slashing your lab bill in half, how long will it actually take you to pay the loan off? Does the technology attract more new patients because of same-day appointments? Does adding a CBCT unit mean you can start performing more complex implant procedures in your practice?

Work with a dental CPA

Work with a dental CPA to see if a big purchase is a good move. When I say dental CPA, I mean a CPA who works exclusively with those in the dental profession, not a CPA who has one or two dental clients. To find one, check out: The Academy of Dental CPAs (ADCPA.org) and The Institute of Dental CPAs (INDCPA.org). These professionals specialize in dentistry and can help you to best determine if a purchase will be beneficial to your individual practice.

Look at the reports that matter

There are three main reports when you’re looking at your practice finances: the statement of cash flow (Fig. 1), the balance sheet (Fig. 2) and the statement of income (Fig. 3). They’ll all reflect debt differently.

Your statement of income (P&L) shows numbers like depreciation, deferred taxes, etc. It’s mostly used for tax purposes.

Your balance sheet is only used when you’re trying to get a loan. It’s not used to make business decisions. Debt will always make your balance sheet look ugly. The statement of cash flow is what actually matters. This statement is what really shows what’s happening in a business. As humans, we tend to be emotionally connected to the debt on a balance sheet.

But your statement of cash flow can be solvent. It’s what makes leverage out of debt, and debt is what separates the billionaires.







The data provided in the Financial Statements is based on an average from the clients of Naden/Lean, LLC. These reports were provided by Tim Lott who is a partner with Naden/Lean, LLC, a professional services and CPA firm with a specific concentration in the dental industry. He has been working with dental professional for thirty years and w e appreciate his contribution. Timothy D. Lott, CPA, CV A; Naden/ Lean, LLC; tlott@dentalcpas.com; (410) 453-5500 Local; ( 800) 772-1065 National; www.dentalcpas.com

In memory of Dr. Rou’aa Diab

Dr. Rou’aa Diab, a female dentist, was arrested by the Islamic State on August 22, 2014. She was arrested with four others in Al-Mayadeen, a city on the border of Iraq. Without proper trial, Diab was charged with the crime of “treating male patients,” and was executed.
As fellow dentists, Dr. Diab was a colleague to each of us. She was beheaded for helping prevent and treat dental disease. She should be recognized for her bravery and dedication. And her name should never be forgotten.
Howard Live
Howard Farran, DDS, MBA, is an international speaker who has written dozens of published articles. To schedule Howard to speak to your next national, state or local dental meeting, e-mail jenna@farranmedia.com
2014
17
OCT		 Acadiana Southern Society
Lafayette, Louisiana
Daniel Dominguez – 337-235-1523
18
OCT		 Patterson Dental Supply Valencia Branch
Pasadena, California
Sue Doran – 888-761-0020
susan.doran@pattersondental.com
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