#5: The Build-Up Weekly

Dear friends and colleagues,

Welcome to the 5th edition of The Build-Up, where we deliver weekly insights and inspiration for dentists on every stage of the private practice journey.

Today is World Backup Day, so I figured it would be appropriate to remind everyone to ensure their practice servers are backed up safely. We’ve all heard about (or experienced 😬) data loss horror stories - don’t let it happen to you.

Here are some official backup options for OpenDental, Eaglesoft, and Dentrix. The best practice is the ‘hybrid backup’ (using both cloud storage and physical backups). You can even keep that external backup computer at your house (and check whether the backups are functioning properly by logging on to check that the crown you seated today is reflected in your backup).

It’s also the end of the mask era for dental practices! Starting Monday, April 3rd, masks are no longer required in California except when performing clinical procedures.

Here’s what we’ve got lined up for this week:

• 🚀 The Acquisition: Dental Loans #4: Debt Service Coverage Ratios

• 🪴 Growth Stage: One Simple Question to Lower Your AR

• 🤝 The Transition: Supply and Demand, part 4407 (and a birthday)

• 💡Weekly Inspiration: To Have Time at All

Please use the link at the bottom of this email to share the newsletter if you feel inclined. And with that, let’s get started!

Debt Service Coverage Ratios

As the fourth and final part of the series on obtaining dental practice loans, this week's topic is debt service coverage ratios (or DSCR).

Three weeks ago we discussed how lenders want to see a credit score of 700+; two weeks ago we looked at how much money you need to have in the bank (liquidity) in order to qualify for a practice loan; and last week we looked at the production history requirement.

This week we’re focused on the fourth and final thing lenders want to see in a potential borrower: making sure that the profit from the practice can cover your expenses (and then some).

In fancy lingo, this is known as the debt service coverage ratio.

Lenders want to know that your debt will be adequately covered by the money coming in from the asset you’re buying (in this case, a dental practice).

The basic idea here is simple: the bank wants you to remain solvent and continue paying month after month.

Before we get to the basic math behind this ratio and exactly what lenders are looking for, let’s look at good debt vs bad debt.

Good Debt vs Bad Debt

You’re probably familiar with this distinction, but it’s worth repeating.

Not all debt is created equal.

When folks like Dave Ramsey talk about how debt is bad, they’re talking about financing depreciating assets, like cars, clothes, and other consumer goods. The basic idea with bad debt is this: if it doesn’t provide an income or go up in value, you shouldn’t go into debt to buy it.

On the other hand, if something goes up in value or provides an income, then going into debt to acquire it can make sense. The debt service (your loan payments) should be adequately covered by the income from the asset you borrowed to purchase. Things in this category include education and cash-flowing businesses like dental practices.

You can think about it this way:

It doesn’t make sense to buy an actual ATM. It would gather dust in the garage or require you to fill it with cash and make your own withdrawals - pretty pointless.

But if you could purchase a magical ATM that provided cash every month, then there is a certain amount of money that it would be worth borrowing to acquire that ATM.

How much should you borrow? It depends on how much money the ATM produces. This is the debt service coverage ratio.

Let’s now move away from magical ATMs and talk dental practices.

If you want to borrow money to purchase a dental practice, the bank wants to see that your income exceeds your expenses by 120% - 130% (or a 1.2 - 1.3 ratio).

Income includes the free cash flow available from the practice (your take-home income), your spouse’s income, and any other money you have coming in consistently (perhaps you’ll continue working one day a week as an associate).

Expenses include living expenses (calculated by the bank based on your zip code, dependents, and other factors), your practice loan payment, and any other debt you carry (car, home, education, etc.).

If you total everything up and your income exceeds your expenses by 125% - and you meet the other qualifications we’ve discussed in the last few weeks - then it is very likely that you’ll qualify for a practice loan!

If you want a deep dive into debt service coverage ratios, check out this Investopedia article.

The idea of purchasing income-producing assets is hugely exciting! It’s the primary generator of wealth in this county. And, as a dentist, you have an incredible opportunity to generate wealth through practice ownership!

If you haven’t already registered as a buyer with us, please do below.

Register as a Buyer

We have 65+ listings for sale at Integrity Practice Sales, with new listings coming on the market weekly.

Click the button below to set your criteria and receive personalized updates when new listings hit the market.

One Question to Lower Your AR and Decrease Cancellations

Sounds too good to be true?

That’s what most doctors and front office team members think when I present this, but it’s worked in the 1000+ offices that Kimball Consulting has worked in over the last 25 years, and it can work in yours, too.

Here’s the question:

That’s right, we’re talking pre-payment.

It’s so simple, it’s hard to believe that it’s transformative.

But it is.

Here are a few reasons why:

• It creates less work for you in the long run. No fighting for payment, sending out statements, etc.

• It offers a powerful incentive for patients to show up for their appointments. Patients are less likely to cancel their appointments when the financial hurdle is already cleared.

How to Implement a Pre-Payment Courtesy

“Ok Trevor, that’s all well and good. But I don’t think it will work in my office.”

I hear you. I’ve heard this a million times before. You’re probably wrong.

Here’s how you get this up and running.

First, remember that - even though you’re asking for payment upfront (before they schedule!) - you’re still offering your patients good news. You’re giving them a discount!

Second, you ensure that the front office has plenty of time before the patient reaches the front desk (or wherever you present treatment plans) to assemble the treatment plan and calculate the pre-payment. We recommend getting the chart up (either manually or digitally) five minutes before the patient.

Third, this happens after the patient has already said yes to treatment. We will discuss this more in upcoming newsletters, but this is an effort with contributions from the entire team.

Fourth, this pre-payment applies only to the patient portion. It can be used with insurance, but if you’re worried about the individual insurance companies, call them to confirm that you can adjust the patient portion.

Fifth, this shouldn’t be combined with any other discounts. We offer 5% for the pre-payment. If the patient declines, offer CareCredit (or whatever external financing you use) and spend that same 5% offering interest-free payments to your patients (again, through the external financing source - you are a dental practice, not a bank!).

Sixth, solid fees are a prerequisite for a pre-payment courtesy. If you haven’t raised fees in years, this should probably be implemented first.

There is more to this, but I wanted to give a brief overview of one of the most powerful systems you can implement in your practice. It’s one of the only places where I recommend you follow a script exactly as written. Each word of the question above is carefully crafted, and I’ve had successful front-office team members tape the script up under the desk.

Don’t sleep on this! And if you have more questions about implementing a pre-payment, please reply to this email! I’d love to be a resource.

Supply and Demand, part 4407

🎂 🥳. Integrity Practice Sales turned 12 this month! 🎂 🥳.

For 12 years, we’ve been laser-focused on providing the best services possible to dentists looking to sell their practices.

That’s 4407 days.

4407 days of dedication to helping dentists navigate the market for practice sales.

4407 days of supply and demand.

4407 days of forging meaningful connections between sellers who are ready to retire (or move, or focus on their other practice) and buyers who are ready to take up their mantle.

It’s been an honor and a privilege. We’ve learned A LOT.

And right now we’re in a market situation where we have far more qualified buyers than we have doctors who want to sell their practices.

If you’re collecting $700k+ near a large or mid-sized city, we have a plethora of highly qualified buyers looking for your practice.

We also have buyers for smaller practices and practices in rural areas, but there is less demand, and so the sales process can take longer.

If you are considering a sale and want top dollar for your practice, now is a great time to talk to a practice sales broker.

You deserve to have buyers compete for your business, and now is the time to make that happen.

If you’d like to discuss your transition options, one of our professional brokers would be happy to sit down with you for a confidential, no-obligation consultation.

Get connected with your local Integrity Practice Sales broker here.

It’s worth having a conversation no matter your current transition plans. You never know what you’ll discover together.

I remember seeing a poster reframing chores many years ago: when you’re frustrated that you need to vacuum, be grateful that you have floors.

Oliver Burkeman applies that thinking to the time we have for our lives in his great book, Four Thousand Weeks: Time Management for Mortals.

IPS has been in business for over 4400 days.

If we live to 80, we have closer to four thousand weeks.

That’s not a long time - or is it?

Here’s Burkeman:

The time we have is miraculous - incomprehensibly so.

Let’s use it to do amazing things.

And with that, I hope you enjoyed our fifth edition of The Build-Up Weekly!

Please consider using the link below to share our newsletter. 🙂 

With best wishes to you and your families,

Trevor Kimball, PhD

p.s. feel free to respond to this email! I’d love your feedback and suggestions.