In a recent blog post, Curate Studios explored some steps and processes in the financial process of establishing or expanding a dental practice. When considering the type of lender to partner with, whether a traditional bank or a specialty healthcare lender, it is clear that finding the right financing provider is crucial.
We are excited to expand our search for financial experts who advocate for their clients' best interests. Education, coaching, and relationship-building are critical to successfully fulfilling the client’s vision. We have reached out to a few of our industry partners to get a perspective from the lens of a financial expert. They had some great insights and advice! Following are summaries of those conversations.
Sam Faltas, Senior Small Business Relationship Banking Manager, Wells Fargo
Sam Faltas shared some fine details about establishing a new dental practice. While every situation is specific to the stakeholders involved, it is essential to consider the following steps:
Dental practitioners must first construct a detailed business template that assesses whether the vision is financially viable. This involves establishing a realistic plan, whether it's for a solo practice, a multi-practitioner clinic, or a specialty office. A financial advisor's role includes educating dental professionals about the intricacies of operating a dental practice.
Sam emphasized the importance of understanding the business platform to translate plans into profitability. Financial advisors or lenders should be able to guide you through detailed financial aspects, such as balancing costs and revenues and considering often overlooked expenses like utilities, maintenance, and overhead. It's crucial to have a month-by-month financial plan for the first year and a three-year horizon to ensure steady growth and improved profitability.
Common pitfalls include underestimating expenses and overestimating revenues. For example, outfitting an operatory can cost significantly more than anticipated when factoring in furniture, fixtures, and specialized equipment. Having a realistic profit margin and understanding how expenses will translate into revenue is essential. Advisors should also stress the importance of proper financial planning for expansions, such as moving from a smaller practice to a larger one with more operatory rooms and staff.
It is vital to understand what a lender offers before engaging with them and to ensure they have a specialized division for practice finance. The lender should have industry expertise and provide testimonials of similar successful projects. It's often better to seek financing specifically designed for dental practices rather than a general small business loan due to the unique needs and lower risk factors associated with dental practices. Finally, having a lender, like Wells Fargo’s Practice Finance, that offers relationship support throughout the life cycle of your business is invaluable, helping manage not just immediate financial needs but also long-term aspects like retirement planning.
Cori Ritter, Regional Health Care Manager, Panacea Financial
Curate Studios enjoyed catching up with industry veteran, Cori Ritter, who offered several unique points that could be vital for dentists to consider when planning to establish a new practice.
Panacea Financial encourages dentists to consider maintaining an external source of income while establishing their new practice. Building out and ramping up a new dental practice to a full schedule typically takes six months to two years. Dentists might need an outside income if the practice grows slower than anticipated.
In addition, dentists must understand their financing terms when choosing a lender. Dentists often turn to financial lenders for additional working capital after choosing another lender that uses projections and does not require an external income source. However, obtaining further loans could be challenging if another bank has a lien on the practice.
Dentists should also have a clear vision for their practice, including demography, physical location, client base, and services provided. This clarity helps them select a lender who aligns with their goals. Moreover, dentists must think long-term, especially if they plan to expand their practice. Traditional lenders might be hesitant to support rapid expansion, so finding a lender who understands and supports current and future goals is essential.
Cori noted that, unlike a traditional lender, Panacea's organization offers more flexible financing. Panacea was founded by doctors dissatisfied with traditional lending avenues, and its group partners with a large bank to provide tailored financial solutions. Additionally, being the preferred lender for the American Dental Association (ADA) underscores its commitment to the dental profession.
In short, some points of consideration are not necessarily quitting your day job immediately, building a solid team of trusted professionals such as CPAs, commercial real estate agents, and equipment vendors, and ensuring that all parties work well together to look out for the client’s best interests. These steps can significantly contribute to a new dental practice's successful establishment and growth.
Austin Cure, Sell-Side Advisor, McLerren and Associates
Curate Studios enjoyed catching up with Austin Cure. His firm, McLerran & Associates, has deep roots in the Texas dental industry. It focuses on assisting practice owners whether they are considering selling to another private practitioner or exploring an affiliation with a Dental Service Organization. Although Austin’s primary role is representing sellers in a transaction, McLerran and Assoc. help buyers with resources to ensure they are well prepared for practice ownership.
They encourage you to identify your ideal search criteria, which include practice location, patient demographic, and the type of practice you seek. Financial pre-approval from a reputable lender helps you stand out amongst your peers and gives you insight into the size of the office you can afford. Even though many people think an existing practice’s revenue stream, the way a practice earns money through its service, is the crucial metric for considering an acquisition. However, the practice’s cash flow is defined as the cash and its equivalents transferred in and out of a company. The practice's cash flow is the number one driving factor of value. It is also how lenders assess their risk tolerance when underwriting a deal and evaluate a buyer’s credit score, liquidity (cash reserves), and production levels.
Whether starting a new practice from scratch or acquiring an existing office, it is suggested that you evaluate both options and pursue the strategy that best fits your long-term goals. Remember, a new practice necessitates creating a business plan and starting from the ground up, but it allows you the flexibility to customize the office to your liking from day one. An existing practice comes with established systems and protocols, patients, and cash flow, but you must adopt what is already in place as you make gradual changes over time.
Preparation is key, and working with industry leaders that lead through education is vital to your long-term success.
KEY INSIGHTS
In summary, the insights from these financial experts highlight several vital takeaways for dental professionals looking to establish or expand their practices:
1. Create a Detailed Business Plan: Ensure your business plan is realistic and financially viable, considering all expenses and revenue projections.
2. Understand Your Financing Options: Choose lenders with specialized knowledge in dental practice financing and seek those that offer long-term relationship support.
3. Maintain External Income: While establishing a new practice, maintaining an external income source can help mitigate financial strain during the initial growth phase.
4. Have a Clear Vision and Plan for Expansion: Clearly define your practice’s vision, location, and services, and choose a lender that supports both current and future goals.
5. Consult Trusted Experts: Work with a team of professionals, including CPAs, real estate agents, and attorneys, to ensure all aspects of your practice are well-managed and to avoid common pitfalls.
Interested in connecting with these financial advisors/lenders? Please see contact information below.
Sam Faltas, Wells Fargo Practice Finance
Senior Small Business Banking Relationship Manager
Email: Sam.Faltas@wellsfargo.com
Phone: 201-280-6135
Cori Ritter, Panacea Financial | Banking Built For Doctors By Doctors
Regional Healthcare Manager
Email: cori.ritter@panaceafinancial.com
Austin Cure, McLerran & Associates | Experience Dental Transition Success
Sell Side Advisor
Email: Info@dentaltransitions.com
Phone: 512-900-7989