Want to buy a practice? Great, now show me your $50,000 bank account balance.
Okay, it’s not for me, it’s the banks that want to see that balance. In fact, $50K is the bare minimum. They’d love to see as much as 10% of the purchase price in your liquid, easily accessible accounts.
Why? Not because you’ll use it in the purchase process. This requirement is more of a demonstration to the bank that you have some capital of your own and your practice won’t be “living paycheck to paycheck,” so to speak.
So if you don’t have it yet, how do you get it? I’ve got three suggestions.
Suggestion #1: Lifestyle management
Save your money. This is a pretty obvious one, so I won’t belabor it. Honestly, though I’ve seen too many new associate dentists who started making more money than they’ve seen before (and still only about half what they’d make as owners) and ran out and got their sweet new Tesla, or the massive house in the gated neighborhood.
When you were an undergrad, and through dental school, you probably had a lot of Top Ramen meals and lived in a modest apartment. I’m not saying you need to keep doing that! But be sure you’re living in such a way that you can put away several thousand dollars a month, if possible, in preparation to buy a practice.
Suggestion #2: The family loan
What if the perfect practice comes along NOW, and you don’t have time to save like in suggestion #1? Well, good news, the money the banks want to see doesn’t actually have to be yours.
If you’re fortunate enough to have a rich uncle or parent or close (REALLY close) friend, you can borrow the money from them, put it in your account, and then after the deal is closed, give the money back to whomever you borrowed it from.
This isn’t as sneaky as it sounds! The banks are actually okay with this because, again, the purpose is to show that you have access to capital if your practice experiences a stumbling block.
Suggestion #3: A loan from a dentist
This is the least common option that I see, but it definitely happens. If you don’t have the time to save enough money, and you don’t have a family member who can help you out, then look to another dentist.
There are dentists out there—I know several—who will lend money to another dentist so they can buy a practice. These loans are usually short-term, and have relatively high interest rates, but these dentists are willing to make them because they know you’re a safe bet. And probably because they were in your shoes once, too.
If you have dreams of practice ownership, then along with building your network, you should start saving money now. The best time to start was the day you got your first job out of school. The second best time is now.