High Interest Rate’s Surprising Impact On You and Your Practice
As a seasoned practice owner, with or without debt, you may feel insulated from high interest rates. If you are carrying debt, perhaps you secured low interest rates prior to a run-up in interest rates.
Whatever your situation, high interest rates can have a significant impact, both positive and negative, on you and your practice. Here’s how:
(+) The positive impact of high interest rates
On the plus side, practice owners who are transitioning their practices to new ownership in the near future can invest their net proceeds in relatively safe investments at an above average rate of return. Another amazing opportunity for practice sellers includes the mitigation or elimination of all tax liabilities resulting from the sale of practices and associated real estate. Contact our office to learn more.
(-) The negative impact of high interest rates
On the negative side, high interest rates and inflation go hand-in-hand. Interest rates rose over 5.0% from March 2022 to June 2023. Inflation rates rose a compounded 17.7% in 2021 through 2023. Many practice owners have experienced sky rocketing dental supply costs and increased staffing costs over the same period. But the biggest cost to practice owners may surprise you.
The biggest cost to practice owners
The biggest cost of high interest rates to many practice owners is the negative impact on the value of practices. While you may not be selling your practice today, you will eventually be selling it. This could occur sooner if you experience an unexpected event. On the other hand, if you are fortunate enough to transition out of practice ownership on your preferred timeline, a golden opportunity exists to take advantage of time by implementing a plan to increase practice value.
It is rare for practice buyers not to finance 100% of practice acquisitions. High interest rates make dental practices less affordable since a greater portion of loan repayment amounts have to go toward interest. This puts downward pressure on practice sale prices because the amount that lenders will finance puts an artificial ceiling on practice sale prices.
Will interest rates lower significantly?
Are you thinking about “market timing” the sale of your practice and waiting until interest rates lower significantly? Don’t.
Experts predict it could be more than a decade before interest rates reach 2021 levels. It’s no surprise that the “silver tsunami” of baby boomers has begun with 60% of U.S. business owners planning to sell their businesses over the next ten (10) years.
With all the downward forces in the market and all the opportunities to protect your wealth, why not maximize the value of your practice with a plan that covers you for both an unexpected event and a planned transition?
Take control of your future
PVA℠ helps practice owners prepare for the inevitable transition of their practices to new ownership.
J. Robert “Bob” Brooks, CEPA, CBI
J. Robert “Bob” Brooks, CEPA, CBI, leads Practice Endeavors, an Ohio-based practice brokerage and dental realty company. His company provides practice owners with the tools they need to prepare well for life after practice ownership and to find the best price/best fit buyers for their seller clients. Bob was integral in starting the first of its kind dental practice broker credentialing for the International Business Brokers Association.