How to create financial independence as a private-practice dentist

As a private practice dentist, you face a unique set of challenges. You are most likely in debt if you went through the government's Joint Admission Board and took HELB. And then you took large liabilities to start practice.

But perhaps the biggest challenge you face is that dental practice is a cash-flow business. It generates a lot of income over the years but it won't build much equity/ownership.

While the money is coming in, life is good. You're able to enjoy all the things you put off for so long. You are paying down your liabilities too. And you are building a business that should continue to grow over the years. But are you also building assets to create wealth independent of your practice?

That's the secret to creating Financial freedom for private dental practice. If you are not creating wealth separately from practice, you could end up being "chained to the chair" and unable to retire because you can't afford to lose the revenue stream.

You could also end up feeling unfulfilled by working so hard and having nothing to show for it from a Financial stability point of view outside the business.

One dentist who had a successful private practice for more than 20 years, sees it happen all too often. _“You see guys who are practising when they are 75 and you have to wonder. Is it the true love for dentistry— and sometimes it is — or is it because they have to?” 

Unlike most entrepreneurial ventures, a dental practice does not build value apart from its owner’s active participation. The real value of your practice is dependent on your ability to produce earnings. That means your practice’s largest asset is your future earnings, and its largest liability is your lifestyle. As you spend down your earnings, the value of this asset decreases.

As a dentist, your greatest asset is the present value of your future earnings.  As you consume your earnings, the value of that asset goes down.

By the time you get out of school, you’re several years behind your peers in the earnings game. It’s no wonder that dentists often exhibit the “caged lion” effect, where they’re anxious to buy all the things they’ve put off for so long—the big house, the nice car, the fun toys.

We heard this comment several times during our interviews with dentists who’ve been in practice for a while. “The generation of today wants it all now,” said one. “They want the Porsches now, the big house, now. It’s the pressures of lifestyle. I worry about those guys maybe not starting to save.” 

It’s a simple case of delayed gratification. Dentists graduate with certain expectations of lifestyle, and society has them as well. But spending as if one is making up for lost time means that there’s less money available for saving—whether it’s for retirement, for going back to school, or other things

So how do dentists “unchain from the chair” and enjoy the fruits of their labors? 

The answer lies in managing your lifestyle expenses and transforming your practice’s cash flow into productive wealth—independent of your practice.

An easy way to do this is to “throw some of it over the wall.” If you consistently take some of your earnings and put it into a plan independent of your practice, it will grow over time and create real, independent wealth.

Now that you understand the general idea of what needs to be done, let us insert a word of caution. The confidence that got you through dental school and makes you successful in your practice could actually work against you with investing. You’re smart. You’re successful. You’re certainly capable of doing your own finances, right?

Twitter@TheAbojani. www.abojani.com