future income , so that makes it good debt . Debt for an unaffordable expensive car would be considered bad debt since it is an unnecessary expense that provides no income and depreciates in value . Debt for something that depreciates and provides no income would certainly be considered bad debt . An education is an investment that appreciates in value by increasing future income potential ... the car is a depreciating expense that will provide no income and will rapidly depreciate in value ( uses up income instead of providing income ). The expensive car may be more fun to have , but the education will be the best investment .
Good debt provides income , bad debt provides expenses .
Now , let ’ s take a look at good and bad debt for the average dentist who is preparing to enter private practice . Many new , young dentists get caught up with opening brand new , shiny offices with all the latest and expensive dental technology . This idea is promoted heavily by businesses that profit from the sale of such gadgetry . Hundreds of thousands of dollars can be invested by a new dentist for equipment , furniture and leasehold improvements before the first patient ever walks through the door . Interestingly enough , patients do not flock to a new dental office only because the equipment is the newest ! No one has ever had a dentist say that a patient was passing by and looked in his window , saw his new equipment , and decided to pay a visit . It just doesn ’ t happen .
Now , if you think cars depreciate quickly , wait until you see the resale value of dental equipment . The resale value of a car may depreciate up to thirty percent the first year , but dental equipment will depreciate up to ninety percent of its original cost the first year ! Since purchasing new , expensive dental equipment does not produce patients and is a rapidly depreciating asset to boot , it represents “ bad debt ”. However , purchasing new equipment that allows the dentist to provide new or additional procedures can increase income and therefore is considered “ good debt ”. We all surely recognize that .
Now , what is good debt for a dentist ? Where can a dentist find investment or income-producing debt ? Where can a dentist invest in an income producing asset that appreciates in value , not depreciate ?
The answer ... buy an existing dental practice . The doctor incurs debt , but the current income stream of the practice exceeds expenses and debt service ( the money required to pay off the debt ), thereby providing income ( income-producing debt ). Good income producing dental practices do not depreciate in value , they appreciate . It is not an expense , it is an investment . You will almost assuredly be able to sell it someday for more than you paid for it ( if you don ’ t pay more for it than you should ).
Buying a practice is similar in many ways to buying a bond or a bank CD . Both are income producing investments ( the CD pays interest , the dental practice provides income ). Both appreciate in value ( the interest accumulates in the CD , the dental practice increases in value over time ). In addition , they both are considered a sure and safe investment . The biggest advantage a practice has over the CD ( in addition to the dental practice making you more money ) however , is that the IRS allows you to depreciate the cost of purchasing the dental practice even though the practice appreciates in value ! This means buying a dental practice represents a pre-tax investment which is considered the most desirable investment made by astute investors . Of course , you cannot depreciate the CD so this represents an after-tax investment which is far more costly and the income from the CD pales when compared to the income produced through the investment in a dental practice .
“ Whether ” you choose to invest wisely or foolishly is your choice .
Income-producing debt is good debt ... non-income-producing debt is bad debt . It ’ s a simple rule based on logic . Whether you choose to invest wisely or foolishly is your choice . Invest in a dental practice you can call your own – and you will end up with more money than you can spend . Borrow to invest in a dental practice , and that debt won ’ t be around too long !
Dr . Richard Lyschik ’ s practice transition , staff training and doctor coaching services are customized for the single dentist , as well as the multi-practice owner and entrepreneur . His Dental Office Network Team has helped thousands of dentists acquire , expand , merge , and build from the ground up . Retiring , disabled , “ burned out ”, and relocating dentists have sold their practices with dignity and for top dollar . The Dental Office Network Team has broken numerous national sales records – just ask any major lender !
The Practice Rescue Department additionally offers expertise with fraud detection , policy , and compliance issues , and has resurrected practices in demise . Our Practice Rescue experts have lectured across the country on healthcare fraud to sold-out crowds .
To discuss your practice ’ s future pathways , its income security , and your ultimate transition plans , or if you need expertise with a current critical practice related emergency , work only with a Premier Transition Specialist ; a seasoned dentist who “ speaks your language .”
Contact Richard V . Lyschik , DDS , FAGD , CFE at : Info @ OfficeNetworkUSA . com , or call ( 214 ) 893-0410 www . northtexasdentistry . com | NORTH TEXAS DENTISTRY 27