Three things I didn’t realize when I took out my practice loan
In early 2011, I had been in practice for about two and a half years as an associate dentist, and I knew it was time to move on and start a practice of my own.
After briefly considering some purchase options, I decided to do a start-up practice. Financing from the bank was the next step. It’s been a little over five years since I went through that process, and like most all practice owners I’ve learned an MBA’s worth of business information since. I did research beforehand and listened to a lot of advice, but a few important parts either slipped through the cracks or didn’t resonate with me. If I could get in a time machine and talk to my past self, like in Bill and Ted’s Excellent Adventure, I would emphasize these points:
- You Don’t Have To Spend All the Money the Bank Gives You. Banks approve you for a big loan and they give you a plan of how much the typical office spends on initial equipment, supplies, build out, etc. It seems like there’s no way around it, but there typically is if you get creative to cut costs. Looking back, I bought way too much equipment and supplies, spent way too much on finish out, and prepaid way too many people. Everyone around me was paid up, the clock was ticking on the interest, and I wasn’t making any money with my business yet. You can always go back later to upgrade things and buy fancy things when you can afford to with cash. When I think back on my initial spend, I could easily shave off at least $100,000 in non-essential items. Seriously.
- Interest Adds Up! When you realize how much money in interest you really pay on a loan, it’s quite unbelievable. The language and presentation of how loans are talked about and sold is difficult to understand. For instance, borrowing $500,000 at 6 percent interest sounds like you’re going to have to pay back $500,000 plus 6 percent of that. When you factor in how the interest compounds and the additional fees, you might end up paying back the $500,000 plus around 30 percent when it’s all said and done. Sometimes big numbers don’t seem real, but if you do the math yourself you can make better decisions.
- Negotiate! There are so many things that are way more negotiable than I realized when I started my practice. Why not get a few banks to bid for your business? Same with equipment and supplies. Same with tenant improvement allowance. I’ve since met dentists that have had most all of their finish out paid by the landlord, which I didn’t even know was possible. Also, most businesses are receptive to payment arrangements.
I’m not suggesting you go crazy on cutting costs, but a little crazy might not be so bad. The less money you borrow, the less money you pay in interest, and the quicker your practice is profiting and free from debt.
Dr. Larry Dougherty is a New Dentist Now guest blogger and on the board of the San Antonio District Dental Society. He grew up in Georgia and graduated from Nova Southeastern University College of Dental Medicine in 2008. He moved to Texas in 2010 and opened Rolling Oaks Dental with his wife, Dr. Ana Paula Ferraz-Dougherty, in 2011. He enjoys spending time with his family, playing music with friends, and going to Spurs games.