April 14, 2006
Before pulling the trigger on your new practice, make sure you’re armed with enough capital.
Too many dentists underestimate the cost of starting a practice. So there they are, standing in their shiny new office – but with no cash flow left to operate it for the first several months.
This need not be you.
The first step in averting undercapitalization is to hire a dental consultant who specializes in new starts. You’ll save thousands of dollars by getting to where you want to be in the shortest, most efficient manner possible, and avoiding unnecessary steps and poor decisions which would have to be rectified later.
The step-by-step process includes:
Let’s look at each.
FINANCING
Today it’s advisable to have at least $50,000 in working capital in hand for a new start, and $75,000 would be even better. It may be necessary to open a line of credit along with your practice loan. The key is not to secure an initial loan which ends up not being enough to cover the entire project. Too many doctors who make this mistake try to repair it by making a bigger one: they run up thousands of dollars in debt on several credit cards, then have to make many high monthly payments that sap their practices’ cash flow far into the future.
Look for lenders that have a graduated payment plan. A good option is a four-month deferral on the front end with graduated payments. Again, this strategy is aimed at improving your monthly cash flow during the first year. Some dental-practice lenders loan money to a recent graduate instead of causing them to lose one year’s potential income in a dead-end associateship after graduation.
Shop for financing in conjunction with shopping for space. Building costs in Colorado are higher than in most parts of the country, so the office build-out will take a bigger bite out of your budget than it would in many other states.
Another crucial decision which must be made early in the process is whether you prefer to be a solo practitioner or take on an associate or business partner.
How much space you need is a balancing act. Don’t acquire too much space and overbuild, but also don’t invest in a tenant finish in a very small space you’ll outgrow within the first three to five years. Instead, find ample space for a number of treatment rooms but only equip two or three of them at first. You can always equip more of the rooms, one at a time, as your practice grows.
ARCHITECTURE AND DESIGN
You’ll need a full set of stamped plans from an architect. Many dental-supply houses offer generic floor plans, but their real purpose is just to give you ideas for ways to place treatment rooms and all the supporting areas necessary in a dental practice.
Those stamped plans for your office design must include the engineering for plumbing and electricity. Because general contractors’ fees vary, you’ll also need to get at least three bids to manage your tenant-finish costs.
Beware expensive tenant finishes such as granite countertops or prefabricated cabinets. Choose standard counters and millwork cabinets instead, and then upgrade them if you wish once your practice is prosperous.
LOCATION AND MARKETING
You’ve heard everybody say it – “location, location, location” – and they’re right.
Dentists’ preferences on where to locate their practices vary. In general, however, a dental office set up in a storefront retail space anchored by a large grocery store is best for high visibility and foot traffic. That kind of location in itself will be a big part of your marketing, helping get your practice off to a busy start.
Too many undercapitalized dentists choose to scrimp on logos and signage. Don’t do it! You want all that car and foot traffic to see that you’re there, and your patients should be able to find you easily.
Marketing plays a huge role in whether your practice has a hot start or a cold start. It may cost several thousand dollars for a proper marketing plan, but the investment will be returned many times over from the new patients it generates and the dentistry you’ll be doing for them. Moreover, those new patients who come in as a result of your marketing will tell their family, friends and neighbors about you. Word of mouth is a great advertising tool, but it needs the jump start marketing can provide.
Your marketing brochure is another catalyst in growing an active patient base quickly. The days are long gone when you could just hang out your shingle and be busy. Hire a specialized dental-marketing company which will brand your practice, create your logo and design a brochure mailer that will be sent to a targeted population within 20 minutes’ driving distance of your practice.
SOFTWARE
Undercapitalized new dentists too often scrimp on digital radiography and computer systems as well. Again, don’t do it! If you’ve run out of capital, you might end up with paper charts that are difficult and time-consuming to convert once you do become computerized.
Good practice-management software can be expensive, but if you want a modern, paperless office you’ll need to invest in software capable of driving scheduling, billing, imaging and digital equipment. Your management software must be able to provide all the reports on the practice necessary for you and your dental consultant to identify those areas that need improvement.
NOW, GET STARTED!
Once you’ve received quotes from everyone – the architect, general contractor, phone installer, dental equipment representative, computer company rep, marketing rep, dental-supply rep and all the rest – you and your dental consultant can calculate your project cost estimate and you’ll have a very good idea of what your project will cost. If the project is planned properly – with all the numbers gathered and put on paper – you and your consultant can set the starting point on your capitalization of the new practice, and then adjustments can be made as you proceed.
The longer you work as an associate, the more money you’re losing every day by not owning your own practice. A wonderful hot-start practice can be done, but it requires a lot of pre-planning, management, sound guidance and proper capitalization.
Go for it!
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