How much savings should you have before considering dental practice ownership?

How much savings should you have before considering dental practice ownership?

This is a common question I am asked by associates. Cash savings are important for the cash flow of any new business. Unexpected bills at the wrong time and quiet periods in the industry can cause significant problems if you do not have enough cash reserves. Quarterly BAS payments, super or insurance bills are all examples were new owners may be caught out. Further, quiet periods around election time can also lead to cash flow problems.

So how much is enough?

For me thinking back ~10 years to my first practice I had very little savings before purchasing that practice. The industry was different back then with minimal competition and I didn’t have to put any cash into the business. It was profitable from day one. However, this is not something I would recommend to any new owner today as the industry has significantly changed.

I posed this question to our Practice Owners Facebook group and received a variety of responses from experienced owners. It ranged from no savings required to 1 million dollars! However, the general consensus was around the $80,000 mark. These experienced owners felt, that was the number with which they would be psychology comfortable before considering dental practice ownership.

I do agree with that number. However, if you set up in a poor location or buy a ‘dud’ practice no amount of cash savings will be enough. Yes, with significant cash savings you will be able to stay afloat longer but it will run out at some point. You also need to consider the lost opportunity cost of your own earning ability, if you were working as an associate at a busy practice.