The Influence Inflation and Interest Rates Have on Dental Transitions

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Will this new economic landscape stand in the way of your professional goals?

Rising inflation and interest rates are impacting daily life from increases in consumer prices to volatile stock and bond markets.

If you’re a dental practice owner or an aspiring owner, and you’re preparing for a practice transition, you may feel anxious about how these factors are going to impact your future business plans. Should you put a halt to your plans and wait until the economy steadies? Charge forward as planned? Or should you take a detour and change your intentions?

“The economy is throwing a lot of obstacles at practice owners,” Partner Christy Ratcliff said. “I know it looks terrifying and feels like an imperfect situation to be in when you’re trying to buy or sell your practice, but there are still plenty of positives to keep moving you forward.”

With a little bit of education and awareness, you should be able to make a confident decision on what to do next.

The Concerns

We all know that life hasn’t been a walk in the park the past couple of years. The pandemic, staffing shortages and supply chain disruptions have been a roadblock for practice owners, so what can we expect now that rising inflation and interest rates have arrived?

According to the Department of Labor, the Consumer Price Index (CPI) increased 8.3% from April 2021 to April 2022. Inflation is felt everywhere, from the grocery aisle, the gas pump to the services we need. It’s specifically affecting the dental industry through higher wages, supplies, rent and the inflated cost of personal protective equipment (PPE).

Additionally, the Federal Reserve raised the federal funds rate by 0.5% in early May, the biggest increase since 2000, and they’re expecting to gradually raise rates throughout 2022. As the federal funds rate is the benchmark interest rate at which banks borrow and lend to one another, it impacts the interest rates people receive for home mortgages and business loans. It’s making practice owners question if they should rush into a business loan to lock in lower rates.

While there’s reason for caution amidst inflation and interest rates, there is also a bright side to alleviate these fears.

The Good News

Despite adversity, dental practices have survived, and the majority are thriving. There are certainly reasons to be optimistic for the future of the dental industry as people still need and seek dental care.

Regarding inflation, it’s not permanent, and it’s expected to normalize throughout 2022. In the meantime, practice owners shouldn’t be afraid to increase fees to keep up with the higher cost of doing business. At the end of the day, cash flow is still important. Having an appropriate amount of cash on hand will keep you prepared for obstacles that pop up from time to time.

While interest rates are increasing, they are relatively low in comparison to where they were in the early 2000s. It’s important to be mindful of the trajectory and timing as business loan rates move at a slower pace than consumer loan rates. Couple this awareness with the assessment of your specific situation, and you’ll have a better understanding of the right timing for you to apply for a loan.

“If you’re a buyer with an existing opportunity on the table, it is wise to lock in a rate now before they increase,” Christy said. “However, this should never be a reason to settle on a practice that isn’t the right fit for you. It’s more important to stay the course toward your long-term goals rather than settling just to save a percentage point or two.”

Despite the current state of the financial market, inflation and interest rates aren’t substantial enough factors to prevent you from moving forward with your professional goals, whether that involves buying or selling a practice, purchasing new equipment or making office renovations. It’s not a perfect situation, but it is possible to grow your practice even with the circumstances. The past couple of years are perfect examples of this.

“At NDP, we are still seeing many doctors overcome market hurdles and make progress toward their goals,” Christy said. “These aren’t reasons to hold you back if a transition is truly what you want.”

As dental transitions contain various obstacles that arise along the way, our analysts at NDP can help alleviate the emotions and guide you through your specific situation. Feel free to contact our team with your questions or concerns.