During the next 20 years, a large number of dentists will likely retire. Many of these doctors are relying on the sale of their practices to finance a large portion of their retirement. It is projected that this trend likely will become a problem. The demand for purchasing established dental practices is declining, resulting in a downward pressure on the value of dental practices. This downward pressure is due to experienced dentists retiring faster than new dentists enter the workforce. Therefore, the supply of established dental practices is beginning to outweigh the demand in the marketplace.
Additionally, many dental graduates find the cost of new office equipment with advanced technology is almost equivalent to purchasing an established practice. When a doctor purchases an established practice, he considers two things: the fixed assets and the patient base. While the patient base is important, oftentimes, established practices have outdated equipment. This leads many to believe that starting their own practice and purchasing new equipment may be the better choice.
How can you increase the value of your practice?
As tax advisers, we recommend replacing outdated equipment to make your office more high-tech. Dental students are learning to use newer medical equipment and will expect to use it in their own practices. Generally innovative medical equipment in a dental office includes digital x-ray and intra-oral cameras. As you purchase new equipment, you should consult your tax adviser to determine the best way to maximize your deductions by using the Section 179 expensing option or depreciating the equipment over its designated life.
What should you do to plan for your retirement?
We recommend that you plan your exit strategy approximately five years before you plan to retire. You may want to consider using an associate placement program to hire a recent dental graduate. You could become a mentor as both a doctor and as a business person. Potentially, the graduate could develop an interest in purchasing your practice, and you could introduce the new dentist to your patients during the transition period. Introducing a new doctor to your patients in this manner could make the transition smoother and allow for a higher retention rate after you retire.
Dentists who plan to retire should plan to use additional methods other than the sale of their practice to finance their retirement. It is suggested that dentists should generate 70% to 80% of their current income from pension plans, investment income, social security, and the sale of their practices. If the value of your practice is driven down, you should begin to focus on the other elements of your retirement plan. You need to be confident that you will have the money for your retirement.
Henssler Financial can assist you with further information regarding the sale of any medical practice, as well as any other tax related issues. Please contact our experts at 770-429-9166 or [email protected].