The Alternative to Selling a Practice (No One Talks About)
Most dentists considering leaving their office consider two main options. Number one sells their practice to another dentist or partner, and number two sells to a DSO. What you don’t often hear is option three – turning your practice into a source of passive income.
Let me be clear: building a business that runs when you’re not there takes planning and several years of hard work. But in the long run, maintaining the practice does not offer you the opportunity to sell the practice, but the greatest financial freedom.
In the next few paragraphs, I’ll share how I’ve slowly turned 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 field. I had been in clinical practice for more than 20 years and was ready to retire from clinical work. I also decided to move to Fort Lauderdale, Florida and leave my practice behind. So selling seemed like the obvious choice, right?
Well actually no. I have decided Not to sell my practice Why? Because I realized that wasn’t wise. 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 and allowed me to earn quarterly profits from the business just like other high-level entrepreneurs? Could my practice be run by a practice manager and integrator acting 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 Yes indeedand that became my reality.
how to get there
As I turned my practice into a source of passive income and led others to the same result, I learned that to be successful you need to focus on a few key areas: developing the right people, creating processes for everyone to follow , and providing tools to get integrated in accountability. One of the key hires in this process was my office manager and integrator, who could act as COO and guide the team to execute my vision when I wasn’t there.
I’ve also hired several exceptional providers to take on my patient burden and offer new services – like clear aligners, sleep devices, and laser dentistry. In short, I hired great people, invested in tools and training to help them excel, and gave them opportunities for tremendous earning potential.
Three reasons to continue the practice on the side
Did we have to invest in our knowledge to complete this transition? Yes. Was the work worth it? Absolutely. For my transition, I started reducing my hours of work by one day per week each year without making any less money. Today my business runs like a charm. I don’t micromanage my team because they are all rock stars and receive the best training in scheduling, insurance, leadership, case taking and even marketing.
Best of all, after 20+ years of clinical dentistry, alongside passive income, I have a second passion in dentistry: teaching, speaking, and coaching other dental entrepreneurs on how to accelerate building their multi-million dollar business, so they do it too can generate more residual income.
Here are three reasons why you should keep your practice instead of selling it:
Keep making an impression. 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. If you sell your practice to retire or pursue other passions, you lose that connection with your patients and the positive impact you have on your team and community. Many retired dentists end up regretting the sale because they miss that connection.
Build more wealth for longer. After more than 20 years of practicing dentistry, I have seriously considered selling. I could easily have made two million – a pretty decent nest egg for a lot of people. However, I realized that I could make more if I kept my practice and that two million wouldn’t last very long given the state of our economy and inflation.
With this model, I can take profits from the business to replace my salary and quarterly dividends and still keep my practice. Would you rather have two million from a lump sum sale or an ongoing profitability of $500,000 or more per year with unlimited growth potential? Seems like a pretty obvious choice to me.
Multiply your wealth by financing tax-free investments. A strong base level of passive income allows you to think big and invest in tax-free opportunities, further accelerating 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 that you can borrow from to invest in other opportunities). You could invest in multifamily properties that have an extremely high return on investment and offer additional passive income and massive tax benefits.
The possibilities are endless. In other words, your passive income can generate more wealth, more passive income, and fund an even greater wealth-building strategy that will impact you, your children, your grandchildren, and generations to come.
If you are willing to put in the work upfront, you can develop a practice that not only serves your patients and the community, but also creates an opportunity for significant wealth. By maintaining 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 as you pursue your next adventure achieve another career goal, or maybe even just enjoy greater freedom to take all those vacations you skipped while building your practice.
Editor’s note: This article appeared in the September 2022 print edition dental economics Magazine. Dentists in North America are eligible for a free print subscription. Sign up here.