December 17, 2021
According to Cloud Dentistry the average dentist that is employed at a dental office makes an annual salary of approximately $170,000; whereas, the average dentist that owns their own practice makes an average of $175,000. So if you are a dental associate at another practice you are probably wondering whether it is worth it to simply work as an employee, or should you try to launch your own practice?
Clearly based on this data the $5,000 increase in annual salary is not worth the risk to launch your own practice, so why should you consider starting your own dental practice?
Owning your own dental practice allows you to build an asset that has value and can be sold in the future. The value is not in the salary that you can make year to year, but the value that you are building and will recognize when you sell the practice in the future.
Continue reading on to learn about the financial details that go into starting your own dental practice. Although we can make general estimates about how much the average dental practice owner can make, the amount of profit that your specific dental practice might be able to generate will depend on a number of factors like the number of dentists, the location, your ability to acquire patients in a cost effective fashion, and more.
We developed a Dental Practice Financial Model that will allow you to enter in your own assumptions about your practice and create a forecast for your dental office. You can check out a demo video of the model below and continue to read on to learn more about things like startup costs, dental office revenue, profit margins and more.
What is the value of a dental practice?
According to a Dental Economics, a rough starting point for valuing a dental practice is 70 to 85% of prior year revenue. So for example, a practice that generated $1,000,000 in revenue in the prior year could be worth approximately $700,000 on the low end.
Let’s say it took you 7 years to build your practice to a $700,000 valuation, on average, you would have built an additional $100,000 per year in value. So even though you may have made a similar salary to other dentists that work as employees, you should consider the extra $100,000 in value that you are creating that will be recognized in the future if you sell your practice.
Based on this logic, it seems clear that owning your own dental office has a much higher upside and may be worth pursuing.
Once you decide you want to own your own dental practice, you have a couple of options:
- Buy an existing dental practice
- Start your own dental office
How to Buy a Dental Practice
If you decide you want to buy an existing practice ADA Practice Transitions has a marketplace of dental practices for sale. Keep in mind that when you buy a practice you are paying for the value that someone else created, so it will be more difficult to create additional value in the practice beyond what you will be able to pay yourself in a salary. A few key steps if you decide to buy a dental practice include:
- Find a practice you are interested in purchasing
- Provide a letter of interest in order to get access to details of the practice
- Agree upon a price for the practice
- Complete due diligence to ensure the financials are accurate and that operational best practices are being followed
- Find financing through investors, lenders or personal savings to purchase the practice
The Small Business Administration (SBA) provides some great financing options to acquire a dental practice. There are a number of SBA lenders that like to make dental practice acquisition loans like Bank of America’s Dental Practice Financing Program.
When you are considering whether to acquire or start a new practice you can run the numbers both ways and determine what you think is best for your situation. Our acquisition financial model template will allow you to enter in historical revenue and expenses for the practice you are looking to acquire, build in your own growth assumptions, and forecast the potential return when acquiring a dental practice.
One major advantage of acquiring an existing practice is that you have de-risked the business by acquiring a practice that already has a patient base. When starting a new practice there is no guarantee that you will be able to acquire new patients in a cost effective way, but let’s go ahead and dive into more about starting your own practice.
How to Start a Dental Practice
If you decide that you rather build your own practice from scratch, some key steps to start a dental practice include:
- Find a city or community where you would like to practice
- Decide whether to purchase a building, construct a new building, or lease an existing building.
- Create financial projections for your dental practice
- Find startup funding for your dental practice from lenders, investors or personal savings
- Purchase required equipment
- Ensure that you have the proper license and insurance to operate
- Develop a marketing plan to attract new patients
- Hire office staff, hygienists, dental assistants etc according to your business plan
- Open your doors!
Create Dental Practice Financial Projections
At ProjectionHub we believe that you should create a set of startup dental practice financial projections so that you can fully understand what it will take to launch and grow a successful practice. Your projections can help you answer a number of questions about your startup costs, expected operating expenses, potential revenue, and ultimately what it will take to breakeven and generate a profit.
Using our startup dental practice financial projection template I am going to help you answer these key questions for your specific business plan.
There are 5 key questions that we will answer as we create your financial projections:
- How much does it cost to start a dental office?
- How much revenue can a dental office with one dentist generate?
- What are the cost of goods and services sold for a dental practice?
- What are the common operating costs for a dental office?
- How much profit can a dental office make?
Let’s walk through each question.
How much does it cost to start a dental office?
The average startup cost for a dental practice is $430,000.
Of course the cost to start a dental office can vary depending on your location, size, and whether you buy a building, construct a new office, or lease a move-in ready office. Additionally, will you buy or lease your dental equipment? Based on 3 different sources (DentistryIQ, DentrixAscend, Amplify) you can expect the following startup costs for your dental practice:
- Minimum startup cost for a dental practice = $250,000
- Maximum startup cost for a dental office = $550,000
- Average startup costs for a dental office = $430,000
The majority of startup costs for a dental practice will fall into 3 categories:
- Leasehold improvements (construction)
- Equipment, furniture and supplies
- Working capital (advertising, salaries, rent, utilities, etc)
I will show you how to enter in your dental practice startup costs into our financial model in this 4 minute video.
How much revenue can a dental office with one dentist generate?
The average dental practice with one dentist can generate $941,600 in annual revenue.
The amount of revenue that a single dentist can generate depends on the location, the amount of hours you are willing to work, the success of your marketing plan, and the support staff that you have around you to help maximize your potential revenue.
Some key revenue assumptions to build into your revenue forecast include:
- One dentist can service approximately 1,300 to 1,500 active patients.
- The average American spends between $500 and $750 on general dental services per year.
- The average American spends $290 per visit to the dentist.
- The average dentist can see approximately 3,500 patients per year
If we take 3,500 patients X the average $290 per visit we can estimate that one dentist can generate up to $1,015,000 per year in revenue.
So we can see that the math checks out on the potential revenue. We also wanted to pull some revenue numbers from multiple sources.
- Minimum revenue for a sustainable dental practice with one dentist = $650,000
- Maximum revenue for a dental practice with a single dentist = $1,125,500
- Average revenue for a dental office with only one dentist = $941,600
There are a number of things that impact your revenue potential:
- Advertising cost to acquire a new patient
- Conversion rate of new patients into regular patients
- Capacity of active patients based on staffing and physical office space
Once we settle on revenue forecasts, the next topic is to look at dental office expenses.
What are the cost of goods and services sold for a dental practice?
The cost of goods sold for a dental practice include the direct materials used in providing dental services and the direct labor required to provide dental services. Our template allows you to enter in a material cost for each service you provide. In this video I will show you how to calculate your cost of goods sold for your dental office.
What are the common operating costs for a dental office?
Common operating costs for a dental office include:
- Credit card fees
- Professional services
- Subscriptions and software
- Utilities / Internet
In addition to these general operating expenses, you should also consider your salaries expense based on your dental office staffing plan.
In this video I show you how to project your dental office operating expenses and salaries in your financial projections.
How much profit can a dental office make?
The average dental office can generate $353,100 in annual profit.
We were able to calculate this by finding 3 sources for the typical profit margin for a dental office, and the average dental office profit margin was 37.5% as seen below:
- Minimum profit margin for a dental practice = 30% of revenue
- Maximum profit for a dental business with one dentist = 40% of revenue
- Average profit for a dental office with a single dentist = 37.5% of revenue
Then we took the average revenue per dental office of $941,600 x 37.5% profit margin to calculate an average potential profit of $353,100.
We finally made it! So as we think back to the beginning of this post with an average dentist salary of $170,000 per year, we can now see that the upside of owning your own dental practice is clear. Whether you are looking to acquire a practice or start a new practice, let us know how we can help you develop a financial model for your unique situation.
You can get the Dental Office financial projection template used in this article!
The template is simple to use and will save you loads of time while still producing professional looking Dental Clinic projections. ProjectionHub has helped more than 50,000 businesses create financial projections so you can be confident that you can do it too.
The dental office projection template includes:
5 Year Dental Clinic Pro Forma Financial Statements
CPA Developed & Completely Customizable
Free Support & Projections Review
Compatible with Google Sheets
Free expert review of your completed projections
The template is easy to use and you do not need to be an excel wizard to fill it out. Editable cells are highlighted in blue, a video guide is included, and our team is available to answer any questions you have.
You can see the complete walkthrough and demonstration of the dental clinic business forecast template here:
Get the template today for just $99
If you have any questions before purchasing, please feel free to begin a live chat or email us at firstname.lastname@example.org
100% money back guarantee in accordance with our terms and conditions