Every financial plan begins with knowing where your practice is today and where you want to take it in the years to come. Once you have that clarity, you are able to develop a strategy to help you to get there.
Which means you’re going beyond your revenue. You should analyze your financial performance, important practice metrics, and long-term trends to find inefficiencies, control expenses, and discover possibilities to grow. Your location, services, patient demographics and available resources also influence the financial plan that helps you develop lasting wealth.
In this article, you will learn practical ways to potentially raise the value of your practice, keep more of what you make, and create wealth beyond your dental clinic.
Increase the Value of Your Dental Practice
Your practice should do more than generate income. It should be a good business asset that generates consistent cash flow, supports healthy profit margins, and appreciates over time. Every financial decision you make from controlling overhead expenses to improving operational efficiency adds to the long-term value of your practice.
Drive EBITDA Growth Through Better Financial Management
EBITDA is one of the most straightforward ways to assess how financially healthy a dental office is. This is a critical part of the valuation process, as it reveals the practice’s profitability and will be heavily scrutinized by buyers, lenders, and investors. No one thing will grow your EBITDA. That is achieved through steady revenue growth and prudent expense control.
A good place to start is your overhead. Without frequent monitoring, running costs can quickly eat up more than 70% of your practice earnings. Reviewing your overhead regularly allows you to catch excessive spending before they become a major problem.
Little tweaks can make a noticeable difference. Renegotiating vendor contracts, keeping supply costs at 5 to 6 per cent of collections, having the correct workforce levels and terminating software subscriptions you no longer use can all improve profitability. In certain circumstances, as basic as deleting redundant software can increase your practice’s valuation by more than 15%.
Build Predictable Revenue Through Membership Programs
Practices that rely on insurance reimbursement or emergency care can have irregular cash flow. Some months are hectic; some are difficult to forecast. Membership plans help balance that by encouraging patients to come in for frequent preventative treatment rather than waiting until something goes wrong.
They give a reason for emergency patients to return. Those patients are more likely to stay with your office for normal care, rather than a one-time visit. This results in more repeat visits, more stable recurring revenue, and better patient retention. A consistent stream of revenue also increases the value of your practice, as buyers will pay a premium for a business with reliable cash flow.
Standardize Operations to Increase Practice Value
A practice that depends wholly on its proprietor frequently becomes hard to scale or sell. Buyers want companies that can operate well without being tied to one individual.
Document standard operating procedures for patient registration, appointment scheduling, treatment planning, billing and collections, and hygiene workflows. Clear systems help to promote operational consistency, make it easier to train people, and reduce owner dependency. The business that can run without the owner is worth more than one that can’t.
Track Financial KPIs That Drive Better Decisions
Financial planning isn’t a set it and forget it affair. It needs regular check-ins to make sure your practice is going properly.
Review your key performance metrics monthly, so you may see patterns before they become profitability issues. Watch production, collections, new patients and overhead closely. Metrics like Case Acceptance Rate, Collection Rate, and Hygiene Reappointment Rate will help you see where your revenue is sliding through the cracks. Catching these things early is key to protecting your cash flow and keeping your practice financially healthy.
Preserve More of Your Income Through Smarter Financial Planning
Growing your practice is just the first step in building wealth. But preserving what your practice earns is just as important. Without a tax-efficient financial strategy, you could pay more taxes than you have to or lose the opportunity to save more of what you’ve worked hard to earn.
No two dental practices are alike, so your tax plan shouldn’t be either. As your practice grows, it’s a good time to assess your business structure, retirement contributions, equipment purchases, and real estate selections. Small changes over time can lower your tax bill, increase cash flow, and keep you on target with your long-term financial objectives.
Review Your Business Entity Structure
Your practice’s legal structure will determine your tax liability and your personal income. A lot of dentists start out as sole proprietors or LLCs since these are simple business structures to establish. But as profits grow, it may also not be the most tax-efficient alternative.
Some practice owners will elect to become an S-Corporation and lower their self-employment taxes. With an S-Corporation, the owner can give themselves a reasonable income and not pay self-employment tax on all of the business profits. The additional profits can be taken out without paying self-employment taxes. Review your business structure from time to time, as it can help ensure it continues to meet your financial objectives.
Maximize the Section 199A Qualified Business Income Deduction
Section 199A Qualified Business Income (QBI) deduction allows eligible business owners to deduct up to 20% of their qualified business income. Dentists are regarded as Specified Service Trades or Businesses (SSTBs); hence, your ability to take the deduction is based on your taxable income.
You may qualify for a higher deduction with proper financial planning. Contributing more to retirement funds or reducing taxable income through tactics such as changing W-2 wages, when appropriate, can help you stay under the income restrictions and make the most of this tax benefit.
Plan Equipment Purchases Around Section 179 and Bonus Depreciation
Dental technology requires significant capital investment. Often, a practice is faced with a high cost in CBCT systems, intraoral scanners, dental chairs, CAD/CAM equipment, and other clinical assets.
Section 179 and bonus depreciation provisions allow eligible practices to deduct a substantial percentage, or even the full cost, of qualifying equipment in the year it is put in service. New law allows qualified businesses to expense up to $2.5 million of qualifying new or used fixed assets. When you combine these purchases with your overall tax plan, you can help cash flow and assist in practice growth.
Maximize Retirement Plan Contributions
Retirement planning is not about saving for the future. It can also help lower your tax bill today.
One of the smartest places to start for many practice owners is to max out a 401(k). If you’re earning more money, a Cash Balance Plan could be worth investigating. It allows you to contribute a lot more than a standard retirement plan, which could assist reduce your taxable income while you grow a larger retirement nest egg over time.
Separate Practice Real Estate From Your Operating Business
If you own the building where your practice is located, consider placing the property into a separate real estate LLC.
Separating the real estate provides more asset protection, a formal lease between the practice and the property owner, and the ability to deduct lease payments as a business expense. Rental income may also be exempt from self-employment tax in certain cases. Structuring practice real estate this way can boost your tax approach and your long-term wealth goals.
Create Multiple Paths to Long-Term Wealth
A successful dental practice creates wealth, but it shouldn't become your only financial asset. Relying on one income leaves your plan to grow your assets in and outside of your practice vulnerable to unnecessary risk. Building your assets in a range of ways provides you with greater financial security and creates opportunities for growth.
Diversify Your Clinical Services
If you practice only one form of treatment, you are subject to fluctuations in patient demand. Adding orthodontics, dental implants, cosmetic dentistry or other specialized services to your clinic creates additional sources of income and increases the value of your practice over time.
It also helps you keep more of your patients in-house. Instead of referring patients out, you can provide the care they need under one roof, build stronger patient connections, and create more opportunities for therapy.
Develop a Multi-Location Growth Strategy
As you develop to a second or third location, you will be able to serve more patients, raise your earnings and build the total value of your business. It also enables you to leverage the systems, processes, and leadership team you already have in place.
Growth calls for cautious preparation, but when the timing and money are right, adding sites can enhance your firm and provide more long-term profit.
Apply the 80/20 Rule to Improve Profitability
The Pareto Principle suggests that roughly 20% of your services, patients, or business activities often generate 80% of your revenue.
Profiling high-value procedures helps you know where to put your resources to get the best financial return for your effort. It makes you more efficient, helps improve profit margins and increases your practice profitability without necessarily needing more patients.
Explore Strategic Acquisitions
Growth doesn’t always have to be from opening more appointment slots. Sometimes, the better move is acquiring another practice or joining forces with one.
With the right fit, you can share staff, reduce administrative overhead, and cut costs by combining purchasing and operations. Over time, that can make your business stronger, increase its value, and leave you with more options if you ever decide to sell to a Dental Support Organization (DSO).
How BNG Wealth Advisors Helps Dentists Build Lasting Financial Success
Operating a dental practice involves making key financial decisions well in advance of retirement. You’re building your practice, preparing for the future, safeguarding what you’ve built, and thinking about the life outside of work you want. All of those decisions deserve a plan that works together.
That's where BNG Wealth Advisors can assist. Regardless of where you are in your career, we help dentists establish a financial plan that will help them achieve their practice and personal goals.
This is what we do:
Financial Planning & Investment Management - Design your investment portfolio, provide IRA rollover services, invest according to your Risk Number®, lower your taxes with tax-efficient strategies, develop a student loan repayment plan and save for your children’s future with a 529 College Savings Plan.
Retirement Planning - Create and maintain 401(k) Plans, Defined Benefit Pension Plans and retirement income plans that are aligned with your long-term goals.
Risk Management - Safeguard your income, your family and your practice with disability insurance, liability coverage, business overhead protection, key person insurance, life insurance and long-term care insurance.
Practice Planning - Discover the value of your firm with a free practice valuation estimate and prepare for ownership changes with buy-sell agreement planning.
Estate & Legacy Planning - Develop tax-efficient wealth transfer strategies, create trusts and establish Donor-Advised Funds to leave the legacy you desire.
As your practice expands, so should your financial plan. The appropriate approach enables you to make smarter decisions today while planning for what’s next.
Contact BNG Wealth Advisors to create a financial plan that safeguards your practice, increases your wealth and provides you confidence.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.