In our last blog post, we discussed how equipment specialists play an important role in the dental office design project. However, their expertise is not just limited to equipment. Equipment specialists like Bart Miller lend a hand in nearly every aspect of the planning process.
“Bart is way more than an equipment specialist. He is a financial advisor, a design consultant, a project manager, and sometimes acted as a counselor for me. He was absolutely instrumental to the entire project,” says Dr. Roy Reinarman, whose practice employed Goetze Dental for a new office buildout in 2016.
Financial concerns are often top of mind for doctors and play a major role in shaping the rest of the project. Common questions include:
- How risky is it to take out a loan?
- What does the application process look like?
- Will I have to use personal assets as collateral?
- What can I afford while remaining profitable?
Many doctors are surprised by how much they can afford with a strong financial plan in place. Working with your equipment specialist and an experienced banker, doctors can significantly reduce their financial risk while ensuring their new practice will return the profits they expect.
Reviewing Your Financial Health
Preparing for financing should start well before plans for a project are even finalized. For many doctors, the first question they have is, “Can I afford this?” To answer this question, you need to look at the financial health of your practice from every angle. This is not unlike the health checkup you give to new patients. You should look at your financial books, but also the day-to-day operations of your practice.
Here are some key metrics to look at when conducting a financial review of your practice:
- Profit and Loss Statement. A practice’s bottom line is the most important number when it comes to financial health. Look at your practice’s revenue, costs, and expenses to determine your net profit. Most banks will want to see at least a 1-year P&L, but prefer two or three years.
- Fee Schedules and Pricing. The way you price your services will clearly have an impact on your bottom line. Fee schedules for different dental procedures are well-documented by a national database of fees that are broken down by zip code . Most practices find the sweet spot for fee schedules is between the 70th and 80th percentiles.
- Hygiene vs. Dentistry Ratio. What percentage of your work is hygiene vs. dentistry? This ratio can say a lot about the health of your practice. Too much dentistry and your patients may be routinely missing their recare. Too much hygiene and it could mean that treatment acceptance requires some attention. The ideal ratio of hygiene to dentistry is 40/60.
- Production vs. Collections. This is a look at how revenue is distributed between insurance payouts and fees. Tracking this metric ensures you stay cash flow positive to run the practice day-to-day.
- Booking Schedule. How far out are you booked? Ideally, you want to stay scheduled out 4-6 weeks. If you have appointments scheduled further out than 6 weeks, you risk cancellations and lost business. If you’re scheduled out less than 4 weeks, you might need to grow your patient base. Being booked too far out is a good indicator that it’s time to expand your practice.
- New Services. Offering new, high-demand procedures is a great way to serve your patients and generate more revenue. Like your booking schedule, plans to add new services is a good indicator that it’s time to expand your practice.
Goetze Dental equipment specialists try to ask the same questions a bank underwriter is going to ask so you can be prepared for the financing process. Once you’re comfortable with the outlook, we will recommend an experienced banker for you to work with. However, it is always up to you whether or not you want to move forward with a project.
“Our philosophy at Goetze Dental is that this is the client’s business, not ours. They need to be 100% committed and comfortable with an idea before we proceed,” said Miller.
If you give the green light, the next step is to apply for financing.
Applying for a Loan
Banks are generally favorable towards dental practices because of their stability and low percentage of loan defaults. Still, we recommend working closely with banking professionals with experience in financing dental practices. Your equipment specialist is also an invaluable resource. They can help you prepare to meet with the banker so you can get the best terms possible.
When you’re ready to explore financing, follow these steps:
1. Choose trusted partners
Goetze Dental has built strong relationships with dentist-friendly banking services, and you can tap into these relationships by working with us for your equipment and design needs. Our clients get premium rates and faster application turnaround times from many of our banking partners.
“We’ve had a long and good relationship with Goetze Dental and Goetze’s customers, who get our best rates, terms and also have the easiest path through our credit department. That can’t be said for all vendors that we work within the dental industry.”
-Helen Giotopoulos Kaminski, Business Development Manager, Group Financial Services
2. Understand your options
Every practice is different, and therefore each financing scenario will be unique. Before committing to anything, be sure you understand all of your financing options. A few things to consider are:
- Financing devices. Typically, doctors choose one of two financing devices: a loan or a line of credit.
- Loan structuring. One common concern for doctors is the risk associated with taking on financing. Banks that specialize in dental practices understand your unique circumstances and offer beneficial loan structuring to reduce risk. This could mean lower interest rates, longer payment terms for smaller monthly bills, and 100% financing without pledging personal assets.
- Special Programs for Dental Practices. Some institutions offer unique programs just for dental practices. Commerce Bank has the Fast Track Dental Loan program that offers a hassle-free pre-approval status for equipment loans. Bank of America Practice Solutions has the Practice Heartbeat Program, a two-year program for practice owners that provides ongoing financial, marketing, and business support.
- Renting vs. Owning. If you’re moving offices, a big question to consider is whether to rent your office space, purchase an existing structure, or build one to suit your needs. In some cases, buying the space can make financial sense. Not only do you have complete control of the space, you have the options of including additional storefronts to rent out to other tenants. This provides you with additional revenue sources on top of the appreciating property value.
If you’ve prepared for the financing process and have the right partners on your side, then the application process is relatively easy. Your application will be submitted as part of a larger financial package that includes two or three years of tax returns, your year-to-date P&L, and other financial information.
At this stage, it may be time to involve your CPA to fill out the more financially complex parts of the application process. This leaves you with just two or three pages of personal and professional information to complete.
After the application has been filled out, everything will go to the financial underwriters for review. The approval process can take anywhere from a couple of days to a few weeks. Once the results are in, you can discuss options with your equipment specialist about moving forward with the project.
Keep in mind that you don’t have to wait to apply for a loan until you’re absolutely ready to begin your dental office project. In fact, many financial experts recommend applying for a loan before you absolutely need it. This way, your plans are not derailed by surprise results.
Getting Started with Financing
At Goetze Dental, we’ve cultivated strong relationships with some of the most trusted financial institutions in the region. Not only do we help you secure better rates and faster approval times, we will also help you navigate the entire process.
Get started on building your dream dental office today by going to Goetze Dental Financial Services or contacting your local Goetze Dental representative.