3 Surprising Facts About Practice Financing
WHY DO MOST PRACTICE BUYERS HAVE ZERO (0.0%) RETURN ON INVESTMENT?
Practice acquisition lenders frequently provide 100% financing for acquisition and additional funds for operating capital and equipment. Most practice buyers have 0.0% ROI because they have no skin in the game, no down payment! Anything times zero is zero, right? As incredible as it may seem, most buyers can rent someone else’s money at a low-interest rate and net 40% or more of collections. Not only that, but buyers frequently grow practices for even more income. There is no wonder why corporate dentistry is working hard to purchase practices!
CAN YOU AFFORD TO LEAVE YOUR ASSOCIATE POSITION AND PURCHASE A PRACTICE?
Is it better to pay off debt making…
a)$250K - $350K+ per year after a practice loan payment or
b)$125K - $150K working in corporate dentistry?
a) is a no brainer!
On average, there is a default rate of only about 0.5% (.005) on both practice acquisitions and new start-ups loans. Odds are, you are going to make it but the biggest difference between practices is profitability. Profitability is highly influenced by decisions about which practice to buy and where to locate.
DO PRACTICE LENDERS CARE ABOUT PRACTICE VALUATIONS?
Well, not really. Most practice acquisitions lenders are cash flow lenders. Depending on a buyer’s financial history and credit rating, regardless of the asking price of a practice, if a deal cash flows within certain limits, lenders often approve it. Some brokers use inflated listing prices to secure listing agreements with sellers with little hope of actually achieving high sale prices. Buyer beware! Your ability to develop a strong supportable case for a lower purchase price may be the same as a practice broker’s ability to remove impacted third molars. Therefore, it is important that you depend on trusted advisors to assist you in evaluating asking prices of practices.