Leveraging the Equity in a Dental Practice.

This is a guest post from Stephen Trutter at Bank of America Practice Solutions. 

Have you ever wondered what
the value of your practice is?  Are you at a point in your practice where
you want to expand, renovate, or even relocate your office?  Do you have
debt that you would like to refinance in order to free up more cash? These are
all questions that I am being asked from dentists on a consistent basis. 
I wrote this to provide some answers. 

The equity in your practice
is the buying power of your practice.  It gives you the ability to market,
expand, and ultimately when you retire, sell your practice for top
dollar.   So before you can determine what you would like to do with
that equity (which you may have built over the years), let’s just get an
understanding of what equity is. Equity is the residual claim (or interest) of
the most junior class of investors in assets – after all liabilities are paid.
In the dental world, it is typically (last year’s revenues x 75%) less your
current practice debt. 

The best place you can invest
your equity is in your practice.  Today’s young dentists are trained on
the latest technology and today’s dental consumer wants their dentist to be
utilizing the best technology as well.  This gives them comfort and it can
get you more patients. Along with updating your office with this equity,
you can market your practice more effectively, rejuvenate your practice (dental
practice makeover), expand with additional space, or take advantage of
historically low interest rates and consolidate debt. 

The question that comes up is
whether or not it is a good time to spend money.  The current economy is
rocky, however, the dental economy is still strong.   Interest rates
are at all time lows so it is possible to take advantage of this to borrow to
improve your practice.  Landlords are generally giving generous
improvement allowances.  Equipment vendors have incentives to take
advantage of. Talk with your dental CPA, accountant or tax advisor, there
may be significant tax advantages of upgrading now versus later. 

To recap, your practice is
the main investment you can control.  No stock, bond, etc… can give you
the same return as your practice.  Take advantage of the current economic conditions
to improve your practice, consolidate debt, and/or expand.  The funds you
spend today may give you huge returns in the future.