[See TDA Perks Supplies.]
There’s a large amount of interest in dental practice financing from a plethora of lenders, including local, regional and national banks; money loan brokers, and SBA. You’ll find some lenders are very experienced with financing dental practice start-ups, and others that are simply general small-business lenders.General small-business lenders typically want to lend against the collateral in the transaction, and are not very interested in the “soft cost,” which includes your build out or tenant improvement and working capital. Dental-specific lenders who provide start-up financing are very familiar with the cost of a new-practice project, which may run upwards of $450,000 (of which only a third is equipment costs).
Working with a lender that understands the project breakdown is very important. As your practice grows, other dental-specific advisors may cross your path that can play a major role in your key business decisions. You may need a dental-focused attorney and practice management consultant that can help bring your practice to the next level. Practice management consultants can be an excellent source early in your practice plans, and assist with establishing internal control systems and personnel decisions. They’re focused on helping you become and stay efficient while you’re growing your practice.
3. Secure financing.
Although the past few years there’s been a significant amount of press about how banks have pulled back on lending to small businesses, I have not seen this to be the case with dental practice financing. There’s no shortage of banks wanting to lend to dentists. However, you may find that your local bank and others are unfamiliar with the cost and funding allocation requirements for a start-up practice.
There are many major lenders that are very familiar with your needs, and willing to provide you with the required funds. Make sure your loan decision isn’t based solely on interest rate. Although the rate is important in keeping your payments lower, it should only be one factor when deciding on a lender.
Here are some other loan features to consider:
You should consider the longest term available i.e.; 10-15 years. This will allow you to make lower payments as you begin to grow your revenue stream. If your business does better than expected, you can always pay down your loan, as you can with your mortgage. Loans can typically be prepaid without a penalty after 3-5 years.
Your loan pre-payment terms are less important in the earlier years, when you’re building and opening your practice. Loan pre-payment options will vary from lender to lender. Pre-paying your loan may become an option after your practice is no longer considered a start-up and lenders view it as an established practice. This will occur when: you have proven practice collections, your business revenue less your business and personal expenses provides adequate cash flow, and the new loan you’re considering is in your best interest or more attractive than your existing one.
The payment structure is crucial. Having a loan with graduated payments in the first 2-4 years provides you with breathing room and flexibility as your practice grows. Graduated payments can range from interest-only payments for 6-12 months to a tiered payment structure for up to 3 years.
Rates can be fixed for the term, or adjust with prime or other rate indexes. Although payments may be lower with an adjustable rate, rates will eventually begin to rise; so locking in a competitive fixed rate today for the next 7-15 years is your best solution.
Lender Service levels
During construction of a new practice, better dental specific lenders have internal processes in place to pay the building contractor, equipment company, and other vendors who may require deposits and incremental payments. They will also make sure all disbursements are made as planned.
4. Have a business plan.
If you haven’t already, you’ll learn how to present a treatment plan to a new or existing patient. You’ll want to be very specific and include protocol for presenting a comprehensive exam, diagnosis, and a course of action involving quality care. Similarly, developing a plan on how you’re going to run your business from A-Z is instrumental to the success of your practice. You can find business plan templates for your start-up dental practice from the ADA resource center and dental specific lenders.
5. Develop your business acumen.
After all, you will be a business owner! What comes to mind when I reflect on the worst economic downturn since the Great Depression is the need for new practice owners to develop business skills and acumen.
With the lack of a business curriculum in dental schools, from the start of your career, it’s wise to allocate a certain amount of time to learning the business of dentistry. If you’re a student, ask your professors who they recommend you speak with that’s running a successful practice. You may be surprised how a colleague or school alum that once had the same anxieties you have about starting a practice is willing to lend a hand and share his or her successes. These contacts are already living the dream of practice ownership, and can help you save time and money as you begin your journey.
Also explore what type of business model and practice philosophy you’d like to incorporate in your practice. Attend practice management seminars in your area. And download and read articles on the business of dentistry. Dentaltown is an excellent source of information where you can learn from your peers.
6. Maintain a high level of credit worthiness.
This is not a secret, and I hope already you know how important your credit score is—personally and professionally. A negative or low credit score can significantly impact your chances of qualifying for a practice loan, the amount you qualify for, and the interest rate you receive.
If you’re not sure what’s reflected in your credit file and would like to obtain your credit score, you can go to myfico.com. To obtain a free copy of your credit report, you can go to annualcreditreport.com. To inquire about a reported creditor on your credit bureau report, you can contact one of the three major reporting credit bureaus: equifax.com (800-685-1111), TransUnion.com (800-888-4213), or Experian.com (888-397-3742).
7. Keep your debt load at a manageable level.
Temptations exist around every corner. Attend the next dental trade show or speak with your colleagues, and you’ll hear industry buzz about the latest amazing equipment and technology. The companies that sell this equipment and technology will tell you how it will help your practice generate revenue, and why you can’t live without them.
While some of the buzz may be true, you need to be very careful that you don’t acquire equipment before you can cost justify it. New technology can be very expensive, and a burden to your cash flow if you’re not ready to optimize usage and see immediate revenue or expense savings.
This is also true with equipping all operatories from the start. Typically a 1,500 square-foot office has room for 4 operatories. Many dentists equip 2 as a start-up, as a practice can equip a third or fourth room later when it’s able to support them.
8. Stay on Budget.
We’ve seen practice start-up total costs range from $250,000 to $500,000, with the average cost at just under $400,000. The total amount includes a landlord allowance (some landlords provide one for the build out), construction costs (for a leased space), equipment needs (dental and office hardware /software), dental and office supplies, and working capital (typically $75,000 to support expenses while a dentist sees new patients and insurance reimbursements).
Once you’re approved by a lender and your project begins, it’s crucial you and your team remain on track to finish within budget. It may be helpful to apply for a little more than you forecast, to allow for any cost overruns while your office is being built. Lenders may accept a slight overrun, but one that’s 10% or higher may create concern for the lender.
9. Establish professional goals.
I’ve always believed in establishing goals—short, moderate or long term. A goal is nothing more than a target that is believable, achievable and measurable.
Once goals are established, the measureable component will help you stay focused. Adjustments can be made as your business grows. Professional goals can include a target number of new patients per week or month, number of hygiene appointments, amount of monthly production, and collections, for example.
Be disciplined, as only you are responsible for the performance of your business. Having specific goals for you and your team may mean the difference between your practice enjoying success and facing challenges.
10. Maintain your associate position as you grow your practice.
No one is more familiar with your debt load than you. With your student loans, car loan, and mortgage or rent (which can be as much as a mortgage), and now your practice debt, the numbers will seem enormous. It will be very important to maintain guaranteed (i.e. predictable) income after you open your practice and while you’re building its revenue.
Once a practice is open for business, we found that maintaining an outside associate position for 2-3 days per week helps a dentist better predict cash flow and pay bills while adding patients to his or her new practice. You may consider working as an associate for up to 3 days a week, and reducing days as you add days to your own practice. The associate position would typically be in another town or city, so there’s no threat of taking patients from for the dentist you work for.
John Fiore is a senior vice president at TDA Perks Program partner Bank of America Practice Solutions, provider of customized financial solutions for practice start-ups and purchases and growth or restructuring. For more information regarding Bank of America Practice Solutions, please call: 800-497-6076 (Mon-Thurs, 7 AM-7 PM; Fri 7 AM – 6 PM. Mention TDA-member code: INA0107A.