The Dental Guys Podcast Supplemental Reading
As part of our support of the Dental Guys podcast, we want to give you a little more information about each topic. As always, if you need even more information, feel free to reach out. If you have more than basic questions, schedule a meeting with Justin and the Financially Simple Team.
Envisioning Your Dream
Many dentists just like you become business owners every year. But should you buy a practice? Before you make this deep commitment, envision your dream. How exactly does your future practice look? Where is it located? Are you in a metropolitan area or a rural area? How many treatment rooms will you have? What is the color of the logo? What is the patient flow of your practice? If you can clearly envision your future, then your chance of success in reaching your dream is increased.
Where to start? Check out this article about the questions you need to answer before starting a practice (or any business.)
Setting up Your New Business for Success
You know, there are many great reasons to own your own practice. You can make your own schedule, guarantee the quality of work, and potentially increase your income. But are you aware that 80% of businesses fail in the 1st 5 years…and only 4% of businesses exit after 10 years? So I ask you, what are you going to do to avoid failure? My advice is to work with a competent advisor who has a proven track record. Rely on an expert’s experience vs peer insight.
Learn more about business coaches and how to choose one.
What Type of Dentist Are You?
Before you begin searching for your dream practice, first determine what type of dentist you’re going to be; “wet-finger” or “dry-finger.” Do you love the craft? Designing and implementing full mouth reconstruction? Or are you better suited to overseeing other dentists? Maybe fulfilling your role as a teacher? Whatever you decide, you must plan how you will spend your time BEFORE you decide to purchase. Having a plan in place greatly improves your odds for success.
For more information about finding the type of Entrepreneur you are.
Don’t Wait to Strategically Plan Your Practice
You have decided that buying your first practice or buying another. That’s awesome! Now’s the time to begin planning the specific details of your new practice. No doubt you can see your dream in your head. The look, the feel, and the patients’ lives you impact! Start committing these thoughts to paper. Ultimately, your goal is to draft a comprehensive business plan. Doing so will help you obtain financing and even increase the market value of your practice.
Learn how to build a strategic plan in your practice.
Choosing A Practice Location
Planning your new business is an exhausting and time-consuming process, but it’s worth the effort. Be intentional in the location of your new practice. Just like in real estate investing, location matters! Greater foot or vehicle traffic could mean more patients, but it could also mean greater competition and price compression. As you examine your potential location, make sure to weigh the pro’s and con’s. If you are not sure how to do this, reach out and we will be glad to help.
For more information about creating a competitive advantage.
Naming Your Practice
One of the very first things you need to do is to decide on a practice name. We often see the name of the dentist in the practice name, and there is certainly nothing wrong with this approach. However, do you intend to sell the practice in a 10-year time frame or do you plan on having more than one location? If so, you probably want to choose a corporate sounding name rather than using your own name. Next, you need to make sure your desired practice name is available both as a web domain and as the type of entity you will operate at the state level. Before long, you and the practice name will become known as one, so choose wisely!
For more information about how to learn more about your competitors.
Personal Finances
Building your first practice or another can wreak havoc on your personal finances. By proactively devising a holistic business and personal plan to increase your assets while decreasing liabilities, you set yourself up for financial success. More than this, bankers love seeing borrowers who are financially prepared and have detailed well-researched business plans. Think about it. You may be asking a bank to loan you 1MM dollars or more to help you accomplish your dream. We need to do everything in our power to help the bankers become comfortable with our desires.
Find out more about the importance of stable personal finances when starting a practice.
Blanket Mailing for Finding A Practice
When you begin shopping for your dream practice, you want the practice that everyone wants. But how do you find it? Young dentists often look at broker listings, but this is often not where the best practices lie. Instead, take the time to send out handwritten letters to dentists in the area that you are interested in. Through “blanket mailing,” you make a personal connection and stand the best chance of finding the practice that you are really looking for.
Read more marketing articles.
Finding Your Current Practice’s Value
When you find the practice of your dreams to buy, how do you know what it’s worth? Should you accept the appraised value provided by the Seller paid consultants? If so, you could be overpaying for the practice? Negotiating the purchase price of your future practice is not something you want to try alone. The seller’s representatives are going to do their best to get the seller the best deal. You need to have knowledgeable representation on your side to make sure you are receiving a fair deal.
Learn more about picking a business broker to help assess the value and sell your practice.
Financing A Practice
Financing your new practice isn’t as simple as just going out and getting a loan. It’s important that you don’t simply shop for “the best rate.” Financing a dental practice involves many complex strategies that could make or break you. Will you carry multiple loans with different terms so that your payments are lower while you’re starting out and higher once your income increases? Or maybe you’re better off accepting a longer, fixed-term, loan that allows you to defer your first year’s payments. Before making a decision that could put undue stress and financial burden on yourself, gain the wisdom of knowledgeable consultants.
Learn more about the pros and cons of bank loans vs loans from investors
Choosing A Business Advisory Team
t may feel counterintuitive to seek help in your practice. After all, you’re the one that put in thousands of hours studying and practicing your trade to get to where you are now. But in all of that time spent learning your skill, how much time did you spend on tax strategy, financial planning, and legal services? You’re an expert in your field but like the rest of us, you have blind spots. Don’t try to do it on your own. Having a competent tax planner, financial advisor, and attorney to support you allows you the freedom to focus on being the best dentist.
To learn more about who you need on your advisory team, click here.
Your Practice’s Current Business Efficiency
Have you really examined the practice that you’re thinking of buying? I mean…. really…. examined it? Inside and out? How are their business efficiencies? Do they have well-established workflows designed to maximize efficiency and client satisfaction? Or, are they lackadaisical and inconsistent in their daily systems and operations? Before buying a fixer-upper, a practice that needs an overhaul, consider the lost time and revenue that could come from fixing someone else’s problem.
To learn more about efficiency and other surprising advantages, click here.
Initial 2 Year Tax Break
During the first two years of practice ownership, most dentists see considerably lower taxes due to bonus depreciation. What’s the best way to use these tax breaks? Should you finally get that new boat you’ve had your eye on? Invest? Maybe lump it in with the rest of your working capital? These tax breaks have a short lifespan and once it’s over, your tax bill will reflect your earnings… actual and phantom. Make the best of this time by actively paying down your debts and reserving cash.
Click here to learn about “forward-thinking” CPAs that can help address this and other tax-related questions.
Having a Business Plan
Do you have a written business plan encompassing all areas of your potential practice? What is your marketing strategy? How much will it cost for you to be open each year? What is your growth plan? How many patients do you need to see on a daily basis to break even? What is your most profitable service? These are just some of the questions that your banker will want answers to when applying for financing. And they’re questions that you, as a business owner, need to know for maximum profitability.
Learn how to build your own business plan.
7 Types of Required Insurances
Chances are, you carry some form of malpractice insurance. But did you know that there are seven different types of insurance that you must carry to properly protect you and your practice from the inevitable risks that come from owning a business? Equally important, is having enough of each type of coverage. The last thing you need… is to find yourself in litigation because your insurance policy only covered $100,000 of a $250,000 claim. Ensure that the amount of insurance you carry on your practice will help it stand up to risks.
For more information about the required insurances click here.
RELATED CONTENT: Need to talk to Justin about growing your practice for its future sale? Click to schedule a meeting.
Exit Planning – Leaving the Practice
Contrary to popular belief, proper exit planning is a years-long endeavor, requiring lots of hard work, evaluation, and adjustment. From the moment you open your practice, you should be working toward your exit plan. Studies show that most small business owners have around 80% of their net worth tied to their business. Meanwhile, only about 15% of businesses are actually able to be sold. This means that 80% of business owners are left high and dry when it comes to their retirement. What will you do to prevent becoming a statistic?
Check out our series about exiting your practice with the most business value possible.
The Importance of Marketing
What’s your opinion on marketing? If you’re like some entrepreneurial dentists, you probably don’t put much thought into it. Even worse, you probably don’t put much money into it. I get it. If marketing isn’t done correctly, it is often a huge waste of time and money. However, when your marketing dollars are going toward a strategy that is laser-focused on your target clientele, the return can be amazing. Don’t skimp on your marketing budget when evaluating buying a practice. Use the early days in your practice to disrupt your competition and gain a foothold in your area.
Read more about marketing in your dental practice, click here.
Transitioning the Current Staff
Your team will make you or break you! One of the more difficult areas to be aware of when buying a practice is team transition. For example, will you honor the tenure and benefits that were accrued by the team under the previous owner? If not, proceed with caution. Taking away vacations earned, or 401k and health insurance benefits could find you need to completely overhaul the entire staff. However, if this was your plan to begin with, are you truly prepared for the time and expense that comes with hiring and training a brand-new team? You must consider this delicate area as you move into practice ownership.
Employees are tough to understand and deal with. That’s why we have an entire category about dealing with these valuable people.
Quality Control
One of the advantages of owning your own practice is the ability to guarantee your work. But how do you plan to ensure the quality of your services? Do you have a clear picture of what perfection looks like to you? How will you train your team to replicate it? Do you have a tried and true method for testing the quality of your services? Can the results be tracked? Furthermore, is your commitment to excellence something that could inspire and motivate your team? Quality control is about more than having high standards.
Visit our operations series of articles.
Vendors
Before you can start a new dental practice, you need to establish relationships with your vendors and suppliers. Negotiate prices that are fair for both parties and make sure that you have multiple suppliers at hand. Be clear in presenting your needs and expectations but show them respect. Ask all of the necessary clarifying questions with regards to your relationship. For example, will you have contracts with specific vendors? How long before you can revisit the terms of the agreement? Is pricing wholesale based or can it be broken down per item?
Read (or hear) more about dealing with vendors and outside suppliers.
Negotiating Pricing
Have you considered the upgrades and improvements that will be necessary to make when you take ownership? The loan amount you will need isn’t solely for the purchase of the practice from the seller. You may need to add equipment for services that weren’t offered by the previous owner. You may need to modify the building to fit your desire. Are the technological systems up to date and to your standard? These are just a few of the considerations you must address when negotiating the purchase price and seeking financing for the purchase.
Read (or hear) more about dealing with vendors and outside suppliers.
Get a Great Support Team
Owning your own dental practice is a rewarding experience that comes with extreme challenges that many young associates aren’t completely prepared for. Your first several years in business will feel as though you’re rushing from one fire to the next. However, with the right support team by your side, you’ll be better prepared for the challenges of owning your own practice and reaping the rewards of all of your hard work. Align yourself with those advisors who understand business ownership and more importantly, know how to make your business highly profitable.
Find out our list of “Required” advisory team members.
For more Dental-related content, check out our Dental Business section of Financially Simple.
Work with Justin and the Financially Simple Team
We are a team of highly experienced business growth professionals that work with many owners of dental practices. Schedule a call to see if we can help grow your practice to one that accomplishes your long-term financial goals.