The alternative to selling your practice (that nobody talks about)
Most dentists considering leaving their practice consider two main options. The first is to sell your practice to another dentist or associate, and the second to a DSO. What you don’t often hear about is the third option: turn your practice into a source of passive income.
Let’s be clear: Building a business that works when you’re away takes planning and years of hard work. But in the long run, not selling your practice, but rather keeping your practice on the sidelines will provide you with the greatest financial freedom.
In the next few paragraphs, I’ll share how I slowly transitioned my practice into a source of passive income and how you can too.
Passive income versus selling
Not long ago, I made the decision to leave clinical dentistry to focus on the next phase of my career: teaching and speaking in the dental industry. I had been in clinical practice for over 20 years and was ready to step away from clinical work. I also decided to move to Fort Lauderdale, Florida, leaving my practice behind. So selling seemed like the obvious choice, right?
Well, actually Nope. I’ve decided not sell my practice. Why? Because I realized that wasn’t the smart thing to do. When I looked at the numbers, the practice was worth two million dollars. I live in Florida. In today’s market, with inflation and rising house prices, I could spend that money on a house and it would be gone pretty quickly.
So I started looking for another option. What if I could turn my practice into a passive source of income, just like real estate, allowing me to withdraw profits from the business quarterly, just like other top entrepreneurs? Could my practice be led by a dental practice manager and an integrator who behaves like a COO? Could I continue to serve the community and patients hard, without having to be there, and generate a passive stream of ongoing income? The answer was yesand it became my reality.
How to get there
By turning my practice into a passive source of income and leading others to the same result, I’ve learned that you need to focus on a few key areas to be successful: developing the right people, creating processes that everyone follows, and having tools to create accountability. One of the most important hires in this process was my office manager and integrator who could operate as COO and lead the team to achieve my vision when I was away.
I have also hired several outstanding vendors to support my patient load and offer new services, such as clear aligners, sleep devices, and laser dentistry. In short, I’ve hired great people, invested in tools and training to help them excel, and given them huge earning opportunities.
Three reasons to continue running your practice on the side
Did we have to invest in our knowledge to carry out this transition? Yes. Was it worth the work? Absolutely. For my transition, I started by reducing my work time by one less day per week each year without earning less money. Today, my business runs well on its own. I don’t micromanage my team because they’re all rock stars and get the best training in planning, insurance, leadership, case acceptance, and even marketing.
Even better, after more than 20 years of clinical dentistry, in addition to passive income, I can also pursue a second passion in dentistry: teaching, speaking and mentoring other dental entrepreneurs to accelerate the building of their multi-million dollar business. of dollars so that they, too, can generate more passive income.
Here are three reasons to keep your practice instead of selling:
Continue to make an impact. As dentists, we have the privilege of making a difference in people’s lives. We improve their health and well-being and even save lives. When you sell your practice to retire or pursue other passions, you lose that connection to your patients and that positive impact on your team and your community. Many retired dentists end up regretting selling because they miss that connection.
Build more wealth for longer. After more than 20 years of practicing dentistry, I seriously considered selling. I could have easily made two million, a pretty decent nest egg for a lot of people. However, I realized that I could earn more by keeping my practice and that two million wouldn’t last very long given the state of our economy and inflation.
In this model, I can withdraw profits from the business to replace my salary and quarterly dividends while maintaining my practice. Would you rather have two million from a one-time sale or continued profitability of $500,000 or more per year, with unlimited growth potential? Seems like a pretty obvious choice to me.
Multiply wealth by funding tax-free investments. Having a solid base level of passive income allows you to see the big picture and invest in tax-exempt opportunities, further increasing your income and preparing you to build generational wealth. For example, you could invest in insurance policies with cash value components that can grow tax-free forever (and from which you can borrow to invest in other opportunities). You can invest in multi-family real estate transactions, which have an extremely high return on investment and provide additional passive income and massive tax benefits.
The opportunities are endless. In other words, your passive income can generate more wealth and even more passive income, funding an even greater wealth-building strategy that will impact you, your children, your grandchildren, and generations to come. .
If you are willing to work from the start, you can develop a practice that not only serves your patients and your community, but also creates a significant wealth opportunity. By retaining ownership of the practice during retirement in a way that generates passive income, you can continue to benefit from all the years of hard work you’ve already put into building your business while pursuing your next adventure, achieving a different career goal or maybe even just enjoying greater freedom to take all those vacations you skipped while building your practice.
Editor’s note: This article originally appeared in the September 2022 print edition of Dental economy magazine. Dentists in North America can take advantage of a free print subscription. Register here.