Howard Speaks: Money Talks by Dr. Howard Farran

Global competition could make practice ownership more of a “must”

by Howard Farran, DDS, MBA, publisher, Dentaltown magazine

The estimated average total startup cost for a McDonald’s franchise in the U.S. ranges from $1 million to $2.1 million, depending on where it’s located.

Let’s compare that to dentistry for a moment. That dental office you’re thinking about buying—$750,000 is the average liquid practice selling price these days, and I’d say it’s trending upward toward a million … which is still, basically, the low end of a McDonald’s.

The estimated average annual profit of a McDonald’s is $150,000, and I’m shocked how many dentists hear that and say, “I can’t believe it costs so much to buy, but you make only $150,000 a year.” That $150,000 number represents pure profit: Profit dollars are not production dollars. You weren’t in the kitchen slaving away, making Big Macs; you earned that just owning the business. Health care people have an abnormal view of accounting.

Profit is from having capital deployed. Let’s say I decided instead to put my money to work in a savings account: To earn $150,000 a year with today’s interest rates of around 0.7%, I would need to have more than $21.4 million sitting in the bank. One-year Treasury rates are 0.1% right now, compared to 1.53% last year. When the Federal Reserve testifies before Congress that its goal for the United States is 2% inflation, what sort of moron would put their money to work buying a bond or in a savings account, when they’re losing money? It’s a scam that’s not going to go away soon.

Financial risk has a new meaning

I think the U.S. economy is on a house of cards right now—not because of the recent election but because we’re at a rare historic crossroads where one superpower is getting ready to take the No. 1 leadership role. This is never a peaceful transition, because everyone wants to be the same thing—the alpha dog.

China, just by its population size alone, has four scientists for every American one. They’ve already developed technology where you can store currency in your phone digitally, go to a store, transfer a stored digital currency of your dollar to the store and you’re good. There doesn’t need to be a bank, there doesn’t need to be a Federal Reserve, there doesn’t need to be an exchange rate based on the U.S. dollar. So I think the end of the U.S. dollar is more probable than ever before.

I’m sitting here with four kids and six grandchildren, taking a historical perspective, saying you need to see the big picture and be prepared for what could be a normalization of economic history. When that happens, I’d much rather own the land, the building and the dental office. I’d want to own my means of production!

Even during a downturn, people are still going to need root canals, extractions and the like. (We saw that earlier this year, during the first wave of the coronavirus pandemic, with the emergency dentisty patients we were allowed to treat. What kept other patients out of our offices wasn’t their lack of need, but caution about the virus’s contagiousness.)

And if I didn’t want to do the actual dentistry anymore, I’d hire a dentist who doesn’t have the inclination or resources to own their own means of production—see last month’s column for more about that!—and pay them to do the work. If you’re making $150,000 a year off a million-dollar dental office while staying home and not working, you should have a grin on your face that’s so big I couldn’t remove it with a crowbar.