Let’s talk about money.
I don’t harp on this because I like to focus on the drivers that create higher compensation like patient-centric care. Higher income is just a result of being a quality practitioner.
Recently, I received some questions from readers who are on the fence about Practice Ownership. Some of these associates are making very healthy salaries, and while they admit they can probably make more as an owner, they don’t feel they want the additional income and headache. After all, they’re happy with their salaries, that’s enough isn’t it?
Unfortunately, this is a very short-term view, so I need to get to the bottom of this.
The median dentist salary as of December, 2016 was $145,308 according to salary.com. However, note that this number includes both owners AND associates. And obviously, this varies by city and state.
So for our example, let’s say Dentist A is an associate pulling in $125,000 in his first year. In his second year, he increases his production by 5% taking him to about $131,000. So for those two years, he makes $256,000.
Now let’s look at ownership. Doctor B purchases a practice grossing $750,000. According to Dental Economics, the average overhead for a dental practice is 73%. Mind you this is NOT good. This is average. But I love being conservative in math, so let’s use this number. That means that he has a net of approximately 27%. 27% of 750K is $202,500. This is his first year of ownership.
Let’s use the same growth rate of 5% in the second year. The office would go from grossing $750K to $788K. 27% of 788K yields a salary of almost $213,000. So for the two years, Doctor B takes home $416,000.
I don’t think I need to tell you that a difference of $160,000 is staggering. And that’s in JUST TWO years. Doctor B’s practice will continue to grow along with his net income. But Doctor A will reach some production ceiling because he can only do a finite amount of work in a day. Doctor B doesn’t face this issue because he can hire associate dentists and make money off their work.
Now extrapolate this to 5 years. 10 years. What about a lifetime? This is the concept of lifetime income. It’s not just about making more money THIS year. It’s about being efficient with your time and generating the maximum possible income over your lifetime with the training you’ve spent years developing.
I did the math on a spreadsheet and it’s just ridiculous. The average dentist works for 35 years, but I went conservative and did 25. If we increase the associate’s salary 5% every year to a max of $250,000 and the owner’s salary 5% each year for the 25 years, we get a lifetime income difference of almost $4.5 million. Seriously, look at the chart…
So now tell me, why on earth would an associate give up over 4 million to avoid running a business.
I’ll tell you why: Fear of the unknown. That’s why I’m doing this.