Private practice playbook: The discipline of debt reduction

Most of our clients come to us because their practice is struggling financially. The first step in our recovery program is to teach independent practice owners how to immediately increase the number of new patients in their practice so they have more revenue and cash flow to start paying down the debt that got them into trouble. 

The next step is to get them to fess up to the debt they have, be honest about how they got there, and stop being emotional and embarrassed about it. Only then can we teach them the difference between good and bad debt and how to systematically reduce debt to free up money for investments that generate growth and income, increase the value of the business, and aid in accumulating wealth. 

The debt trap

The purpose of credit is to allow you to buy things you don’t have money for. As detrimental as that is, buying on credit has become so easy and is such a habit in our society, we don’t think about it like that; it’s just the way we shop. The trap is that it is so much harder to pay off debt than it is to take it on. Creditors structure payment terms to their advantage and encourage you to pay the debt as slowly as possible to maximize the interest you pay over time. 


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Some level of debt is inevitable, and when done right and for the right reasons, taking on debt can be a profitable business strategy. The key is to have the discipline to pay down the debt you have and stop overspending on things you can’t afford that aren’t good for your business, especially on the personal side. 

Types of debt

These are the four types of debt, starting with the most damaging: 

Consumer/personal debt 

Credit cards enable people to overspend on an endless glut of consumables and succumb to Parkinson’s Law, which states that expenses will rise to meet income (plus available credit). The fallacy is believing that with more money comes more needs. That’s not true. With more money comes more wants, and numerous creditors are willing to give you more credit, so you just rack up more debt. 

Creditors encourage you to make only the minimum payments, which keeps you perpetually in debt and wasting money on interest. Instead of overpaying for something by paying credit card interest over time, we teach you to have the discipline to put money aside each month to accrue enough to pay cash for the things you need and/or want to buy. 

Residential real estate mortgages 

Few people stay in a home long enough to build much equity, since the lion’s share of every payment goes toward interest, not principal. That’s how banks make sure they make money up-front, regardless of whether you ever do. Every time you move and get a new 30-year mortgage, you’re back to paying the bank instead of building equity. Likewise, if you refinance at some point to get a lower monthly payment, you’ll pay hefty fees up-front that undo the gain, or they get rolled into yet another 30-year term that’s to your disadvantage. 

Build equity more rapidly by making a slightly larger payment each month and insist that the extra goes toward the principal. No matter how low the interest rate, paying down a mortgage faster than the original term will save you an enormous amount over the years and ensure you walk away with more in your pocket when you sell. 

Capital expenditure loans/financing 

As a business owner, you probably need to have some debt in the category of capital expenditures. Smart debt is used for investing in ways that drive growth by impressing patients, increasing cash flow, and improving productivity. In addition, you should plan ahead for capital investments that increase capacity so you don’t plateau. Examples of smart capital investments include the following: 

  • Student loans 
  • Business loans to buy or start up and equip a practice 
  • Lobby renovations 
  • Addition of treatment rooms 

Ideally, capital investments should generate enough additional revenue to cover the payment, increase cash flow, and be amortized in five to seven years or less. Making larger payments will speed up debt reduction and help begin to free up cash flow. 

The most common example of an unwise capital expenditure is equipment or technology that doesn’t drive revenue, despite what the salesperson tells you. Patients are impressed by a great end-to-end experience and a high-performing team, not the latest gadgetry. 

Commercial real estate mortgages 

Buying your own office building is the single best long-term investment you can make, not only for your business but also for your personal future. As a building owner, you earn additional income by paying rent to yourself. Ideally, the building will have additional office space for which tenants pay you rent, and that gives you room to expand, whereas a lease landlocks you so you can’t add treatment rooms when you grow. 

While initially more expensive, commercial real estate is a valuable, income-producing asset with significant tax advantages. Unlike residential property, you continually recover your investment through rent, and once paid off, that income is pure profit for a lifetime. We teach this as one of the most fundamental long-term strategies for becoming financially independent. 

Know where to start

Tackling heavy debt can be overwhelming when you don’t know where to start. Begin by making a list of every debt, from smallest to largest, with the largest probably being your mortgage. Systematically pay down the smallest one until you can cross it off the list entirely, and then move on to the next. 

Breaking your total debt into smaller bites and using an approach that gives you quick wins builds confidence in the process and in your ability to take control. Even small extra payments will eventually lead to big balance reductions, and applying discipline will help you avoid the debt trap because you’ll be loath to undo all you’ve accomplished. 

It may take a while, but eventually you will get to the point of being able to pay extra on your mortgage. By then, you will have positioned yourself to leverage credit responsibly to make strategic investments that are designed to grow your business and its value, begin to accumulate wealth, and build your net worth. 


Editor’s note: This article appeared in the May 2022 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.

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