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Where Are Your Dental Office Profits Going? by Dr. Howard Farran

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Where Are Your Dental Office Profits Going? 

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

How should you be spending the money that you’re earning in your dental practice? The specific answer will vary according to your particular personal and professional situation, so making the right choice requires taking a deep inventory of where you and your practice are today—and where you hope to be in the future.

How you allocate your capital is not only the most important business decision you’ll ever make, it’s also the most important financial life decision you’ll ever make.

Keeping it in the business

 Dentists usually dedicate lots of dollars to retained earnings—net income profit dollars that are reinvested into the dental practice. This makes sense, because keeping your practice up to date and timely is a necessity in today’s competitive age. A few situations where this would be a smart decision:
  • Is it time to expand your office and add another operatory, so you’ve always got the room to accept emergency dental patients who, if you can’t treat them right away, will walk out to someone who can?

  • Would a CBCT machine help you place implants more effectively?

  • Have you upgraded to intraoral scanners, instead of relying solely on physical impressions?

  • Could you benefit from a comprehensive series of CE courses to improve your adult minimal oral sedation skills? [Editor’s note: We just added a 19.5-credit series by Drs. Mark Donaldson and Jason H. Goodchild to Dentaltown’s online CE lineup. To learn more about the 10-course series, click here.]

  • When’s the last time you updated your website and the photography on it?
Choosing outside interests

 Retained earnings stay straight in the practice, and aren’t paid out as income. Some doctors prefer to extract their earnings, though—like a wisdom tooth!—and redeploy them elsewhere. Maybe they believe that instead of taking $1 of profit and deploying it into their practice, it’s more likely to turn into $2 of capital value creation if they invest it in real estate, stocks and bonds, another business, or other categories. (And sometimes it’s just a case of deserving a treat like a new car, boat or a well-deserved vacation!)

More practically, debt reduction will always be a great choice because there’s a certainty involved: If you pay off an interest-bearing credit card, for example, it’s guaranteed that you won’t be paying that 18% APR on the balance. Meanwhile, the inverse is not true of stocks—there’s no guarantee you’ll make an 18% profit on your investment, and in fact there’s a chance you could lose money. Investments involve risk, which requires you to take a good look at your specific situation and how comfortable you are playing the odds involved.

But eventually, you will need an exit strategy from working with your hands all day to having your money work for you, and that will likely involve investments. Luckily, over the long run, having a portfolio you can retire and live off is very likely, given the typical dentist’s income and the miracle of compound interest. Not only does the money make money, but the money the money makes makes even more money, so you can do other things with your time than drilling, filling and billing.

So watch how you allocate your capital! Investment guru Warren Buffett calls it the most important decision you make in business, and it’s up to you to determine the smartest direction for your particular practice path. 
 
 

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