The $10,000 Question
The $10,000 Question
A multiple-choice question is asked in a seminar to a group of dentists who own practices:
At the end of the month, you have an extra $10,000. What will you do with this money?
Pay down your student debt bill.
Put it in a savings account at the bank/investment firm.
Purchase equipment for the office to increase production.
Take a CE course to improve clinical skills/confidence.
Grow your practice by adding new patients.
What are your thoughts? What choice, as the owner of the practice, would you make?
All situations are different and require additional insights on an individual basis. Let’s review how each of these answers can affect you, the practice owner.
1. Pay down student debt.
Generally this has been the most popular choice. The dentist sets a goal right out of school to pay this debt off as fast as possible. This is absolutely the worst choice! It would be a better choice if you weren’t a business owner. But lets examine the consequences of this choice.
You can pay down the debt by $10,000 and save the interest on that amount over the first year. Let’s say your loan is at 6%. Thus over a twelve month period, you save about $600 or $50 per month.
But tax wise, you will owe approximately $3,000 in taxes by doing this!
So you save $600 in interest, but pay $3,000 in taxes. Not the best choice, but you decide.
Student debt should be paid each month as payment comes due. But do not accelerate the amount. Your focus must be on increasing your abilities to improve monthly cash flow!
2. Put it in a savings account at a bank/investment firm.
It is imperative that as a business owner you first build reserves to protect the financial integrity of your business and yourself. Once those reserves are in place you will have the choice to put the extra funds elsewhere to benefit your business and yourself (See “Growth Guidelines for General Dentistry” booklet to determine recommended reserves). If you simply place your $10,000 in a bank account, the result after one year might be an increase of $150 in interest. You will also owe approximately $45 in taxes from this increase in addition to the $3,000 from the original $10,000. And to top it all off, what does inflation do to the value of your money? That $10,000 may be worth a few hundred dollars less in purchasing power. Thus, your money shrinks due to taxes and inflation. You will have a hard time getting ahead doing this.
A better option in this scenario is to save money in a retirement program. Taxes are deferred until you draw the money out. Interest accrues inside without a tax consequence until withdrawn. You should have a small program doing this in a conservative amount each year to understand how it works. As your income grows you can contribute more. The return on investment with this option can grow, but it can also be diminished by inflation and increased taxes when you make future withdrawals.
3. Purchase Equipment for the Office to Increase Production.
You have some excess funds to invest into your practice. Purchasing equipment to upgrade treatment by making it more productive, efficient, or profitable makes sense. An investment to improve your practice can give many positive returns. Over time, this investment can generate a nice return in the range of 20-30% annually. The investment is tax deductible.
There exists the need to continually replace aging equipment and upgrade to newer and better technologies. If the need exists in your practice, this becomes a priority. It must be understood that, as the business owner, you should budget to repair, replace and/or upgrade equipment.
4. Take a CE Course to Improve Clinical Skills/Confidence.
This is an excellent choice, especially for a younger dentist. Learning new skills or improving on existing abilities can return many times the original investment.
An example would be taking a course in endo procedures. Several dentist/clients have taken Steve Buchanan’s course in Santa Barbara, California. His three-day course allows you to have confidence and quality of care to complete endo procedures on your patients. Too many dentists give up on doing endo procedures after one or two difficult cases.
This investment could result in $100-200,000 per year for many years because of your increased acumen on this procedure. Dentists tell me they can keep more patients in their office by treating them for endo procedures after taking this course.
Another course to improve your skills may be in orthodontia. Five starts a month with ortho cases can bring in an extra $20-25K each month. That is $240-300K per year. Pay down your debt with that cash flow.
Additionally, you could take a course in dental implants. There are dentists who take advanced courses in implants and now see between 20 and 40 implant cases per month. They have confidence to do the treatment. With that confidence they present implant treatment consistently. Patients accept and pay for dental implants if they have confidence and trust with the dentist.
As you can see, there are many courses that can add to your capacity to meet the needs of your patients. This added production creates additional cash flow and increased practice value. The money invested by the business to have you take these courses is tax deductible and the return on investment is enormous. This investment also gives you confidence to diagnose and complete these higher end cases.
If you bring in an extra $100,000 per year for the next 20 years because of increased production, it becomes a $2 million return for a $10,000 investment! Use the higher earnings to improve your cash flow and thus making monthly payments on the student debt (or other debts) becomes more palatable.
Because you chose to invest $10,000 into continuing education (CE), it is written off as a business expense. Thus, you don’t show that money as income and owe taxes on it.
On the other hand, that investment should turn into hundreds of thousands of dollars over many years. Is that a good return on your money compared to other choices?
5. Grow Your Practice by Adding New Patients.
Your career of being a dentist is all about relationships. You must master the ability to attract and keep patients under your care. They come to see you, accept treatment, and pay you for it. They see you because you have a positive relationship with them. The most important number in your practice is how many active patients you have!
The ADA recently reported that the average patient spends approximately $650 in dental care during a one-year period. If you have 1000 patients, you can be generating about $650,000 per year. If there are 2000 patients, you should easily generate close to $1.3 million per year. If you have 1000-2000 patients and net 40% you should net between $260,000-$520,000.
The focus must then be on obtaining and retaining a large active patient base.
Here is an example that will show the real value of how an investment in new patient generation can work.
Take your $10,000 and invest in proven new patient generation techniques. If your cost per patient is $100, then you should generate 100 new patients in your practice.
100 new patients should then generate $80,000 in new revenues (ADA reports that new patients spend an average of $800 in their first year with the practice). Of that $80,000, you can conservatively expect $24,000 in profits.
Therefore, if you invest $10,000 in new patient generation and net $24,000 profit in less than six months, you realize about 480% return on your investment!
Taking it a step further, the $80,000 in increased revenues increases the value of your business approximately $56,000 while showing a phenomenal return of over 800% on your original investment! Do this repeatedly. Gain in market share around your office.
You must see, then, that as a dental business owner your best place to put your $10,000 is into practice growth! This is how you develop financial security for yourself and those around you.
As you come to understand each of the above concepts on where to place your investment funds you can open doors to a better future.