Business side of dentistry: Financial considerations when going into practice ownership
Editor’s note: This is the sixth article in a series exploring the business aspects of the dental profession, from starting a practice and marketing to hiring staff and finances.
These are the questions we get very often in our New Dentist Business Club: “How do I prepare for this step?” “Am I financially ready?” and “When should I talk to a lender?”
Here are some key elements and answers the Business Club came up with for both practice ownership and startups:
- You should be in the habit of saving as early as possible in your career. Banks like to see a minimum of $50,000 or 10% of the practice loan in your savings account. You may never have to use it, but they like to know that you have built good financial habits and can take care of your family on a rainy day.
- Build relationships with two to threelenders as early as possible. When you have a practice you’re intending to put an letter of intent on, talk to two lenders and tell them you’re speaking to one other bank. This can get you the best terms and be more amenable to negotiating.
- If you’re a foreign-trained dentist, without a green card or citizenship status, ensure you mention this well in advance to your bank. Many banks froze lending for H1-B or H-4 workers due to the COVID-19 pandemic, others have a “cap” on how much they lend. If this is the case for you, consider talking to smaller local banks until you get the loan you need and the terms that make sense to you! Remember that there are always options for all of us, all we have to do is find them.
- Make a business plan and budget as early as possible before you hire anyone on your team. Stick to that budget, negotiate with everyone, and always ask “can you do any better than this?” Most companies do want your business and goodwill and will try to go the extra mile to give you a better rate. You’ll never find out if you don’t ask them for it.
- In your budget, account for at least $100,000 of working capital, and $80,000 of marketing budget. You may never use up all that marketing budget, but it is important to have it just in case. Remember: smart marketing is the only way to bring patients inside a startup.
- The lease on your future practice is probably the most important aspect in this entire operation. These two things are very difficult to change later on: location and rent! Ensure you find a tenant representative, with good referrals, in your location to help you negotiate the best possible terms. Some ask for a small monthly retainer, others find spaces purely on goodwill. At the end the cost of this boils down to $0, because most brokers will get compensated by the landlord and if you paid them a retainer, it can be refunded to you.
- When you find a lender you want to work with, remember that they approve you for a period of four months. If you get approved too many months in advance of submitting an LOI, you will have to apply again. Remember the toll it takes on your credit score every time you get approved for a loan, so be careful and do it just once. There is no rush in this process. Don’t feel pressured by anyone. Take your time and do things at your own pace.
- Keep a healthy credit score; most banks are happy if you have a score above 700. Do whatever it takes to ensure you and your spouse have a decent credit score, because this is one way you ensure you’ll get a good loan with decent rates.
All the best!
Editor’s note: We know that finding the right practice can be overwhelming and time consuming. That’s why the ADA created ADA Practice Transitions (ADAPT), a service that matches you with practices that fit your practice approach and lifestyle. We provide customized resources to ensure you feel confident in your decisions and an ADA Advisor supports you during each step of the journey. Learn more at ADAPracticeTransitions.com.