Let’s assume after taxes and professional expenses, the
average dentist’s take-home pay is $250,000 per year—a
salary that allows the dentist to service education debt
and enjoy a comfortable family lifestyle.
When it’s time to retire, many dentists look to sell
their successful practices to the next generation of
practitioners. Valuation of dental practices can vary by
region and location. But let’s use the national average of
65% of revenue, as cited in Dental Economics by Timothy
Giroux, DDS, of Western Practice Sales, a dental practice
2 Tat would make an average lump-sum
sale of $780,000 for a typical one-doctor general dentistry
Don’t get too excited about this fgure because the IRS
is frst in line to collect its share. As a lump-sum sale,
the proceeds will count as income on your tax return
for the year of the sale. Te sale may qualify for capital
gains treatment, depending on how the transaction is
structured, but is likely to trigger the Alternative Minimum
Tax (AMT). Estimating an efective tax rate of 30%, the net
proceeds from this lump-sum sale drop to $546,000.
Can you live on a $546,000 nest egg in retirement?
Hardly. Using a standard annual withdrawal rate of 4%
for retirement assets, the retiring dentist’s annual draw
would be $21,840. Trading a $250,000 annual paycheck for
$21,840 per year isn’t anywhere close to being a good deal.
Te retiring dentist would need a substantial amount
saved back in other retirement assets to maintain his or
her standard of living.
On the other side of the lump-sum sale, the newly
graduated dentist comes into the market with an
overbearing load of school debt—$241,000 on average
in 2013, according to the American Dental Education
3 Between paying of this loan amount and
trying to start and raise a family, most young dentists have
little or no money to open and sustain a practice or to buy
one from a retiring dentist.
Tis is why corporate-owned dental practices are
proliferating these days. Retiring dentists often have
no viable options other than selling their established
practices to corporate behemoths. Tat means trading
30 years of sweat equity for pennies on the dollar. And
new dentists have scant resources to purchase existing
practices, trading the dream of business ownership
and independence for indentured servitude under a
A WIN-WIN ALTERNATIVE FOR
SELLING A DENTAL PRACTICE
BY RUSTY HOLCOMBE, CFP
PRESIDENT, HOLCOMBE FINANCIAL
Most dentists still follow a well established path to a
successful career: Start a practice after dental school
graduation; build a business over time while raising a
family; provide impeccable service to a base of loyal clients;
then, sell the practice and use the proceeds to retire to a
tropical locale or mountain retreat.
But these days, the path is more difcult to follow.
Tis isn’t just the case for newly minted dentists who are
launching their careers with heavy loads of education
debt. It’s also difcult for established dentists who face
fnancial uncertainty and insecurity when looking to sell
their practices in today’s market.
However, there is a win-win alternative that allows a
retiring dentist to realize a better fnancial outcome from
the sale of a successful practice and allows a young dentist
to realize the lucrative dream of owning his or her own
practice. I call it the retirement income method.
Before I explain how it works, let’s do some math to
illustrate the problem facing both retiring and newly
On average, a one-doctor general dentistry practice
brings in $1.2 million in revenue each year, according to
a 2013 report by CPA frm Cain Watters and Associates.1
After direct and fxed expenses, average net income for
the same practice is $491,000 per year. (Tese numbers
are slightly higher for specialty dentists and multidoctor