How to Write a Dental
Business Plan
Allen M. Schiff, CPA, CFE
If you are thinking about going into business and decide to meet with a dental lender, they might tell you, “The first time you took a trip, you had to use a road map.” Well, this is your road map to your dental success: a dental business plan.
While attending dental school, you may have been given the option of attending a business class, but instead you opted out for the clinic or the lab at school. Now, you are kicking yourself for not attending that one particular course were an expert was brought in for one day to teach the dental students how to write a dental business plan. Dental Entrepreneur recognized that this may be the case for many individuals and asked me to share my thoughts and ideas on creating a dental business plan.
Once completed, your dental business plan should include all the information the lender will need in order to make an informed lending decision. In fact, if your business plan is written correctly, your lender will not ask you for any additional information.
Here are some initial thoughts for you to consider about your dental business plan:
Does the writing reflect your enthusiasm?
Does it demonstrate your understanding and commitment to the business?
Does it answer all the financial questions that a dental lender may have?
Would you approve the financing requested (if you were the dental lender)?
Introduction
Within the introduction of your dental business plan, please be sure to indicate who the borrowers are and what form of entity you choose to create to borrow the money from the dental lender. For example, you could borrow as a corporation (C or an S), as a LLC (a limited liability company) or as a sole proprietorship. Please be sure to consult with a dental CPA, a professional tax advisor as to which entity makes sense for you.
Furthermore, in the introduction section of your dental business plan, you should:
Identify the purpose of the loan in detail
Explain exactly how the loan proceeds will be used
Identify the specific loan amount needed and for what the funds will be used
Identify the timing of when the funds are needed
Explain how the loan amount will be taken and repaid
Show how the loan amount is not too small or too large
If you are purchasing an existing dental practice and have agreed to the purchase price, as well as the allocation of the purchase price with the seller, then you should reflect that information within this section of your dental business plan. Within the exhibits section of your dental business plan, you should include the legal documents, such as the purchase agreement, in order to support the above.
If you are starting a practice from scratch in the form of a dental start-up, then you should inquire to the various vendors the approximation of the cost of their services and reflect that information in the introduction. For example, you may want to inquire to the dental contractor as to the build-out costs, the dental equipment vendor as to the equipment costs, the dental practice management software consultant as to their costs, etc. Once you are able to obtain these quotes, they should be summarized in an orderly fashion within the introduction section of your dental business plan. Within the exhibits section of your dental business plan, you should then include the detailed quotes from the vendors.
Description of Business
Within the description of business section of your dental business plan, an outline of when and how the business started and who was involved in its direction should be included. For example, you could state that you have decided to purchase Dr. Smith’s Dental Practice who has been located at 123 W. Main Street, Anytown, USA, for the last 30 years. It should be evident in this section if you are just purchasing Dr. Smith’s assets or if you are just purchasing Dr. Smith’s entity. In any event, your company’s legal structure (Corporation, Sole Proprietorship, LLC, etc.) should be stated.
You may also want to briefly mention the goods and services currently offered by Dr. Smith and how you will offer them, as well as introducing the new dental technologies that are currently not offered.
If you are considering a dental start-up, then you should describe why you have chosen this community over others to hang your “shingle.” You may want to consider including a demographic analysis of this community. A demographic analysis displays information about the population within the community that includes information normally obtained from the US Census Bureau as well as an analysis of your local competition. Currently, the ADA offers these services through their for-profit division ADAidm, which stands for ADA intelligent dental marketing. You can visit their web site at www.adaidm.com.
Management of Business
If you have decided to purchase an existing dental practice, one of the largest assets you are acquiring is the continuity of the current dental team. Please be sure to include in the management of business section a list of key management personnel and the job responsibilities of your newly acquired team. I like to list these by department: clerical, chairside and hygiene. Naturally, if there is an associate already employed and you have decided to retain their services, they should also be included within this section of your dental business plan.
Additionally, I would encourage you to include your curriculum vitae (CV) or your resume. Please be sure to list all of your professional accomplishments, like papers written and awards you may have received while attending your dental school. You may also want to include a copy your current driver’s license and dental license. In addition, you should include a list of any or all of your following professional advisors, such as:
Dental CPA (www.adcpa.org)
Attorney
Equipment Specialist
Contractor
Insurance – Commercial Agent
Insurance – Life & Disability Agent
Commercial Real Estate Advisor
Dental Lease Specialist
Other
Description of Services/Products
In the description of services/products section you want to inform the dental lender what products and services you will be offering. You should also consider major changes and developments that will occur once you acquire Dr. Smith’s dental practice. For example, Dr. Smith’s practice is still using an automatic processor, while you plan to use newer technology like digital radiographs. In addition, you should mention any special training that you plan to implement that Dr. Smith currently does not offer. For example, you may have been trained to perform simple endo, while Dr. Smith currently refers out, or perhaps you were trained through Align Technologies on Invisalign since you graduated dental school and are planning to offer that service to your new clients.
Also, within this section of your dental business plan, please include a current fee schedule in ADA nomenclature that Dr. Smith is currently using; or if you are considering a dental start-up, what your new fee schedule may be also look like in ADA nomenclature. Your dental CPA can help you with this.
Financial Information
The financial information section is imperative for the dental lender to make an informed business decision as to whether they can approve your loan proposal. They will need various financial documents to review. Many of these documents will come from the selling dentist, but some you will have to prepare. In order for financial documents to be considered current under current lending guidelines, all documents should be no older than 90 days. For example, if you are purchasing an existing dental practice whose current business accounting period ends as of Dec. 31 each year, than those documents must be obtained within 90 days of the year end (March 31) otherwise they will be considered “stale.” It is important for the selling dentist to cooperate with you in order to avoid unnecessary delays and costs.
Here are some suggested financial documents:
Three years of historical financial statements
Three years of business income tax returns
Three years of individual income tax returns
Current personal financial statement
Prospective financials for five years (forecasts, projections and cash flows)
Current business financial statements (within 90 days)
Current copies of your credit report (www.freecrediteport.com)
Copy of current accounts receivable aging schedule
Additional Information
Included in this section of the dental business plan should be a copy of your proposed lease, facility layout, trends in dentistry and any testimonials you may have received from colleagues, patients, professors, neighbors, etc. Prior to graduating from your current dental school, you may want to politely request of your current (as well as prior year) professors to write a reference about your professional abilities. If you are one of the lucky dental school students to receive a testimonial from a patient you have treated within your dental clinic at your dental school, you should save these to include in your dental business plan as well.
Final Thoughts
Please try to avoid superlatives such as “unbelievable profits” and “incredible sales.” Put together your dental business plan so that it is interesting, concise, readable and reflects your enthusiasm. Now that you have your business road map completed, you will be more confident in dealing with the dental lender and arriving at your business life’s destination! ■
Allen Schiff is the Managing Member of Schiff & Associates, LLC (S&A). Prior to forming S&A, Allen was a Partner with Smart and Associates and was their Practice Leader for Dental Practice Management Services. Allen has over 30 years of expertise in the areas of dental practice management. He provides clients with services in the areas of business planning to include obtaining financing, succession planning, exit strategies and long-range planning. Allen is a founding member of the Academy of Dental CPAs (www.ADCPA.org). This group of CPA firms across the nation specializes in practice management services to the dental industry. The ADCPA combines its outstanding resources and expertise to share information and jointly develop resources to better serve the dental community.
Allen can be reached at aschiff@schiffcpa.com