The $80,000 Question: Should Your Dental Practice Lease or Buy?

The scene is familiar to almost every dentist in the Gallatin Valley. You are at a trade show or standing in your own reception area. A sales representative is standing in front of you. They are pitching the latest CBCT scanner or a CAD/CAM system that promises same-day crowns. The technology is impressive. You can immediately see how it would improve your clinical outcomes and patient experience. Then you look at the price tag.

It is eighty thousand dollars.

The sales rep does not blink. They immediately pivot to the monthly payment. They toss around terms like "Section 179" and "tax write-offs" and "positive cash flow from day one." They make it sound like the machine is practically free.

But you are the one who has to sign the check. You are the one who looks at the practice bank account on the Thursday before payroll. The excitement fades and paralysis sets in. You know you need to stay competitive in a growing market like Bozeman. You also know that a miscalculation on a capital expenditure of this size can suffocate your liquidity.

Making the right choice between leasing and buying is not just a matter of preference. It is a mathematical decision that relies on your specific cash flow situation and your long-term business goals.

The Liquidity Trap

The most conservative financial advice often suggests paying cash for everything. If you have the capital sitting in a low-interest savings account, it is tempting to simply write the check. You avoid interest payments. You own the asset immediately. You have no monthly obligation hanging over your head.

This approach has a hidden danger. It is called the liquidity trap.

Cash is the oxygen of a small business. Once you spend that $80,000, it is gone. It is no longer available to cover an unexpected slow month. It cannot pay for an emergency HVAC repair in the middle of a Montana winter. It cannot cover the severance for a staff member who leaves unexpectedly.

Buying equipment outright is often the cheapest option on paper because you pay zero interest. It is also the riskiest option for operational stability. Unless your practice is sitting on a massive surplus of cash reserves that you have no other plans for, depleting your liquidity to avoid a 5% or 7% interest rate is usually a strategic error.

The Bank Loan

Financing through a bank is the middle ground. You take out a term loan to purchase the equipment. You own the equipment. You can list it as an asset on your balance sheet. You can depreciate it over time.

The primary advantage here is clarity. Bank loans usually have simple terms and transparent interest rates. You know exactly what the debt service will be. You retain your cash reserves for operations while spreading the cost of the technology over its useful life.

There are downsides. Banks can be slow. Their underwriting process requires a deep dive into your financials. They may require a down payment of 10% to 20%. This still hits your cash reserves, though less severely than a full cash purchase. The debt also appears on your balance sheet. This could affect your debt-to-income ratio if you plan to apply for a mortgage for a new building or a practice expansion loan in the near future.

The Leasing Landscape

Leasing is the option the sales rep will push hardest. It is usually the path of least resistance. Approval is often instant. There is rarely a down payment required. The monthly numbers are manipulated to look very attractive.

Leasing comes in two primary flavors. You must understand the difference before signing anything.

1. The Capital Lease (or $1 Buyout)

This structure is very similar to a bank loan. You make monthly payments for a set term. At the end of the term, you buy the equipment for one dollar. For tax purposes, you are generally treated as the owner. You can often take the depreciation deductions.

The interest rate is the catch here. Lease documents rarely state an APR. They give you a "lease factor." If you run the math, you often find that the effective interest rate on a capital lease is significantly higher than what a local bank would charge. You are paying a premium for the convenience of 100% financing and fast approval.

2. The Operating Lease (Fair Market Value)

This is a true rental. You pay to use the machine. At the end of the term, you do not own it. You have the option to return it, renew the lease, or buy it for its "Fair Market Value."

This creates a cycle. The technology eventually becomes obsolete. You return it and lease the newer model. This is excellent for high-tech equipment that evolves rapidly. It prevents you from being stuck with an outdated $80,000 paperweight in five years.

The downside is the total cost. You will pay significantly more over the long run to perpetually lease equipment than you would to buy it and use it for ten years. You also do not build equity in the asset.

The Section 179 Distraction

We need to address the tax deduction pitch.

Sales reps love Section 179 of the IRS tax code. This provision allows business owners to deduct the full purchase price of qualifying equipment during the tax year it is put into service. This applies even if you finance or lease the equipment.

The pitch goes like this. You buy the $80,000 machine. You are in a 35% tax bracket. You save $28,000 in taxes. Therefore, the machine only costs you $52,000.

This is true. It is also dangerous logic if used in isolation.

Tax deductions are a discount. They are not a reimbursement. You are still spending money to save money. If the equipment does not generate a return on investment through increased production or efficiency, the tax savings are irrelevant. You should never spend a dollar just to save thirty-five cents.

Furthermore, utilizing Section 179 requires planning. If you deduct the full cost in year one, you have no depreciation deductions left for the following years. You save on taxes today, but your tax bill might be higher next year. You need to speak with your accountant to see if this aligns with your current year's profit picture.

Calculating the True ROI

The financial decision ultimately comes down to Return on Investment. Forget the tax savings for a moment. Forget the shiny brochure. Look at your patient data.

• Utilization: How often will you use this equipment? If you are buying a CBCT, how many scans are you currently referring out?
• Reimbursement: What is the fee for the procedure?
• Break-even: Divide the monthly payment by the profit per procedure.

If the lease payment is $1,800 a month and your profit on a scan is $180, you need to perform ten scans a month just to break even. Do you consistently have that volume?

If the answer is yes, the equipment pays for itself. The cash flow impact is neutral or positive. If the answer is no, you are subsidizing the equipment from your general practice profits. That is a drain on your take-home pay.

The Bozeman Factor

We operate in a unique economic environment here. Overhead for practices in Bozeman is higher than the national average. Real estate costs are climbing. Staff wages are increasing to keep up with the cost of living.

This means your margin for error is thinner. A practice in a rural town with low overhead might be able to absorb a bad equipment purchase. A practice in downtown Bozeman or out in Ferguson Farm has to be leaner and smarter.

However, the patient demographic here expects modern care. The competition is fierce. There is a cost to not upgrading. If you are the only dentist in town referring out for imaging or requiring two visits for a crown, you may lose patients to the practice down the street.

Making the Decision

You do not have to make this decision while the sales rep is staring at you. In fact, you should not.

Take the quote. Ask for the full terms in writing. Specifically ask for the amortization schedule if it is a loan or the lease factor if it is a lease.

Then look at your books.

If your cash reserves are healthy (3 to 6 months of operating expenses), you have the stability to take on debt. If your cash flow is tight, you need to be wary of adding a fixed monthly cost.

If the technology is likely to be obsolete in four years, look at an operating lease. If the equipment is a workhorse like a chair or an autoclave that will last fifteen years, look at a bank loan.

The goal is to grow your practice without risking its foundation. The numbers tell a story. You just have to be willing to read them before you sign the contract.

We Can Help You Run the Numbers

You do not have to guess. We can look at your historical cash flow and help you project how this purchase will impact your liquidity. We can coordinate with your CPA to ensure the tax strategy makes sense for this specific year.