By: Todd Oswald

You’ve just expanded your office space—along with a 25% jump in rent—and most of your equipment is already under lease. Now you’re eyeing new treatment chairs, updated tables, maybe even that new laser everyone’s talking about. Growth feels exciting…but also a little unsettling, because adding it all up means taking on yet another loan. The real question becomes: at what point does all this debt turn into “too much”? For small healthcare practices, recognizing when monthly obligations become too burdensome is essential, and your Debt-to-Income (DTI) ratio is one of the best indicators. 

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Calculating Your DTI

Banks and other financial institutions use the DTI ratio as one metric to determine a business’s (and individuals) financial health. You can estimate it quickly yourself:

DTI = Monthly Debt Payments ÷ Monthly Revenue

• Monthly Revenue: Use an average of at least 3–4 months of collected revenue.
• Monthly Debt Payments: Sum all monthly obligations, including rent, equipment loans, operating loans, and the minimum payments on your monthly credit card statements.

Example: If your practice generates $60K/mo and your debt payments are $20K/mo, your DTI is $20,000/$60,000 = 33%.

• Healthy Range: Aim for a DTI ratio of 30–40%.
• High Risk: If your ratio is over 45%, you are considered high-risk. This can lead to higher interest rates on new loans or possibly loan denials.
• Other Uses: You can also use DTI as a rough revenue benchmark. For instance, suppose your annual rent will increase $1K/mo at renewal. Using the 30–40% benchmark, you’ll need to increase revenue $2.5K–$3.3K/mo to retain a healthy leverage ratio. 

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Other Warning Signs

Since “too much” debt is very subjective, other leading indicators are:

• You’re unable to work the balance down on your credit cards.
• You find yourself juggling with which vendors to pay or not pay each month.
• You worry about making payroll or paying for supplies or inventory each month. 

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Taking Your Medicine

To lower your ratio:

• Eliminate High Interest: Use the “Debt Avalanche” method to pay off the priciest debt first.
• Reduce Costs: Seek to refinance old debt or find ways to reduce overhead costs to improve cash flow.
• Boost Revenue: Look for opportunities to increase prices, expand services, or extend office hours.
• Seek Expert Help: Managing debt for long-term growth can be complex. Firms like Maven can offer the guidance needed to keep your debt at healthy levels. 

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