Financial Planning for Dentists: Why You Need a Long-Term Financial Plan

It’s Never Too Early to Develop a Retirement Plan

By Doug Fettig, CPA, MBA

I met with a client recently who asked for advice regarding the sale of his dental practice. He has served patients faithfully for over 40 years but is ready to retire and spend more time with his family, pursue hobbies, and take dream vacations.

I’d like to tell him the road ahead will be easy.

If he had a long-standing corporate or government job, he might have had the flexibility to set a retirement date and then sit back and wait for his gold watch, going away party, and retirement benefits. Unfortunately, he isn’t guaranteed a successful sale of his practice or a firm timeline for ending his life’s work. Even if he finds a suitable buyer, the net proceeds from the sale may not meet his expectations. For dentists, the difference between a smooth and bumpy road to retirement is advanced planning. Whether you are just starting out or heading into your encore years, the sooner you get a handle on your long-term financial picture and the keys to building a salable practice, the better off you’ll be.


Since 2001, the average retirement age for dentist increased from 64 to 69. While a variety of factors contributed to this five-year extension, the following speed bumps played a role for many practitioners.

  1. Unrealistic Assessment of the Practice’s Market Value
    Purchase prices for dental practice generally range between 70-80 percent of annual collections. This figure includes the present value of the tangible assets (e.g., building, equipment, receivables) as well as goodwill. The latter equals the estimated future value of patient revenue streams and comprises the overwhelming majority of the valuation. A drag on valuation occurs when:
    • The operatories and front office use dated technology that is inconsistent with modern dentistry and practice management
    • The building and/or office space needs substantial repair to function appropriately and attract the desired clientele
    • The number of active patients has dwindled and/or reflects a healthy share of loyalists who may defect when ownership transfers
  2. Insufficient Wealth Accumulation Outside of the Dental Practice
    While dentists count themselves among the upper echelon of wage earners, many labor under the weight of an immense amount of debt. Student loans for recent graduates can tip the scale at $300,000. They may need to come up with $700,000 or more to buy into a practice. Hefty home mortgages, car loans and tuition payments for their offspring add to the debt load. Add in the country club membership and annual family vacations, and there’s little cash to sock away for retirement, let alone the rainy day fund.
  3. Poor Experience with Dental Associates
    A popular exit strategy calls for adding a younger associate to whom the practice could be transitioned at the appropriate time. Some dentists opt for candidates with impressive technical credentials without giving due consideration to the cultural fit with existing patients and staff. Others strike it rich on technical and interpersonal competency but fail to craft a mutually beneficial business arrangement. Parting ways with that associate robs the practitioner of valuable time to groom a replacement.

Having a clear picture of the end game will inform the life decisions you’ll make along the way.


With advanced planning and attentive implementation of your retirement strategy, you can avoid the speed bumps and enjoy a smooth road to retirement. The following three steps will help you prepare for a successful transition.

Step 1: Get Real About What You’ll Need to Support Your Retirement Years
Whether you are starting out or closing in on the final years of your dental career, a clear picture of the end game will inform the life decisions you’ll make along the way. This end game considers where you hope to live, the lifestyle you intend to support, the places and activities you want to explore, the enduring financial commitments you’ll have, and the legacy you’ll leave behind. With these aspirations in mind, your financial planner can develop a snapshot of what it takes to fund your vision and help you explore options for realizing it.
If you are an established practitioner, your dental advisor can assess the value of your practice while taking a close look at other retirement savings and social security benefits. In consultation with a tax specialist, you can identify future tax liabilities and make determinations on the optimal timing for realizing gains. A close inspection of outstanding debt may reveal opportunities for refinancing that could improve your cash flow.
If you are decades away from retirement you can take action now to increase the likelihood you’ll retire comfortably in a time frame of your choosing. As noted in the chart above, every year you wait to start saving ups the ante on how much you’ll need to set aside to reach your goals. Armed with these facts, you’re in a position to make informed choices on a variety of lifestyle choices, from the size of the house (and mortgage) you’ll support to the leisure activities and vacations you’ll pursue. You’ll also devise a strategy for retiring your outstanding education and practice debt while considering the obligations you’ll want to absorb on behalf of your children.

Step 2: Make Your Practice Attractive to Prospective Buyers
Just like selling your home, a team of skilled experts can take a close look at your practice and help you develop strategies to maximize its value. Best-in-class dental practices demonstrate mastery in seven key areas:

  • They have a strong support team that operates at peak efficiency
  • They’ve instituted effective patient management processes that ensure a stellar customer experience in all aspects of their engagement
  • They make sure their patients come in for routine hygiene appointments and work with them to take appropriate action on recommended treatment plans
  • They have the right equipment and software applications to manage the practice, and staff leverages these tools to good effect.
  • They manage staff time expertly by setting realistic time allotments for all procedures, encouraging strong communication between clinical and scheduling staff, and developing backup plans to address the unexpected.
  • They cultivate patient referrals and make effective use of their marketing dollars.
  • Their financial management provides guidance on fee structures, budgets, cash flow, collections, daily deposits, and bank reconciliations on which the owners and staff take action

If any of these areas prove undesirable, your dental advisor can provide the road map and associated support tools to make the necessary improvements. These enhancements will sweeten your bottom line as you continue to own and operate your practice while also increasing its appeal to prospective buyers. Your dental advisor can also provide guidance on whether to sell or lease your property and equipment when you close up shop. This assessment could include input from a commercial real estate broker on the strength of the local market as well as recommended improvements to make the building attractive to a prospective buyer or tenant. Tax incentives may be available to lower the threshold at which incremental investment makes economic sense. Your dental advisor can point you toward dental-specific lenders who can provide practice loans, working capital and building loans to fit your particular situation.

Step 3: Develop a Transition Plan for Your Practice
If you’ve had the good fortune to build up a loyal collective of patients and talented staffers, you need to consider how you’ll care for them once you ride off into the sunset. Perhaps you’ll choose to add an associate and lighten your workload gradually as you make the transition. Or you may prefer to have a flash cut, after which you’ll simply launch the next chapter in your life story. Either scenario presents considerable impact on others as well as implications for the lead time necessary to implement your strategy. Your dental advisor can share best-case and worst-case scenarios based on experience with similar transactions and help you devise the tactical plans to place your name in the win column. In addition to maximizing the potential for staff and patient retention, your advisor can provide guidance on employment and non-compete agreements for prospective associates and navigate the contractual arrangements for selling your practice. This can make it possible for your continued participation in the field if you so choose.


The sooner you get a handle on your long-term financial picture and the keys to building a salable practice the better off you’ll be. If retirement plans are on your near term horizon, give yourself a five-year lead time to map out a strategy and take action. If retirement is a distant reality, use the plan to make intelligent decisions today that give you the greatest degree of felxibility in the future.


At Health Professionals Alliance (HPA) we are providing solutions to help doctors grow their practice, improve their financial status, and secure their retirement. To learn more about the HPA model contact us today.