Buy, Build Or Lease Your Dental Practice? Tips for Dental Practice Startups

So, your lease is almost up and your practice is growing. By now, you know your options. You can renew your lease, move to a larger space and continue renting, purchase an existing building and convert it to accommodate your practice, or buy land and build.

Few dentists regret their decision to purchase or build their own practice, especially after they have owned the building for some time and have paid the mortgage off. This is often part of a sound retirement plan. Under the right circumstances, it can add substantial equity and income at retirement.

That's not to suggest that you should go out and buy or build a huge office complex hoping it will solve all your retirement needs, but careful planning and understanding of your financial capabilities should make buying or building a very rewarding and financially sound choice.

Unfortunately, many traditional lenders don't make a distinction between a dental practice and, for example, a clothing store or a sandwich shop. They're all businesses to your local bank. However, finding a lender who understands dentistry and is willing to take a vested interest in your success is often key to not only getting off to a great start, but maximizing the value of your asset many years down the road.

"Our clients see us as more than a lender," said Todd Bowe, Director of Finance for Clarion Financial, one of the very few firms dedicated exclusively to dental practice financing. He says his firm has helped thousands of dentists, many of whom came to Clarion after talking with other lenders first.

"Clarion Financial has the products and solutions to assist dental professionals in each stage of their practice needs," he added. "Through our products, our customers see us as a partner within their dental practice." That's important, he says, because virtually all traditional lending sources simply hand you a check and wish you luck. Lenders like Clarion Financial, by contrast, become invested in your success.

So…how much you can afford without getting in over your head? Start by understanding your current overhead in relation to the physical space you are located in. Many practice development experts would say that 5% to 7% of your collections would be a good gauge of how much your facility expenses should be. The categories are rent, taxes, utilities and any maintenance costs. All leases are different, so understanding all the things you are required to pay for is critical in the analysis.

Once you have established your cost basis for renting, you now have a number to work with to compare to a future budget. The real estate will have similar categories with an added expense of closing costs, principal & interest and the increased utilities of a larger facility. Statistically, each operatory has the potential to produce on average $125,000 to $150,000 of production. The rest is simple math. Take the number of operatories times the production times 8% - 7% and that should give you an amount to work with, give or take whatever you feel comfortable with. Of course, buying verses renting could affect your taxes so consult your accountant before diving in.

If the clock is ticking on your current lease, don't wait until the last minute to carefully consider your options. If a real estate purchase is in your future, every year you delay could end up costing you money in the long term.