by Allison Farey
What’s the key to building a successful practice? I’m often asked that question when speaking to various dental professionals. While successful practitioners share many characteristics, they all have one thing in common: a good business plan.
In contrast, I have seen talented, hard-working practitioners struggle and even fail due to not having a good business plan. Others make a living but feel unfulfilled, never quite achieving their original goals. Many shared the mistaken belief that good clinical skills alone would be sufficient to ensure their success.
While your practice vision paints a picture of the kind of practice you want, your business plan offers a road map to get there. Having a vision is important, but without a solid plan to get there, it’s just a dream. Most business experts agree that people who succeed have one thing in common — they write down their goals and make a plan for how they will achieve them. A business plan is goal-setting on steroids!
Your business plan is a management tool to help you track, monitor, and evaluate your progress. By using it to establish timelines and milestones, you can gauge your progress against your original projections for actual accomplishments. It becomes a living document that you will modify as you gain knowledge and experience.
Believe it or not, your business plan is a marketing document! When you begin approaching lenders to finance your first practice, you’ll need to convince them that you’re a good risk. That means demonstrating that you understand that a dental practice must be run like any other business. A strong, well thought-out business plan says that loud and clear.
Wait a minute, you may say. I’m a doctor, not a business person. I got into this profession because I like being a dentist, not crunching numbers or managing and influencing people. That’s understandable. But realize that a little business savvy and planning go a long way toward supporting your clinical goals. So, let’s start by breaking the process down into steps. Although there is no official formula, most good business plans include three sections: an executive summary, a narrative, and the financials. Add to that any appendices that support the narrative, such as your curriculum vitae, organizational charts, or timelines. Now, let’s get started!
The executive summary
When you’re approaching lenders, the summary is the most important part of your business plan. In less than two pages, this plan must describe the services and products your practice will sell, how much money you need, and a repayment plan. This is where you need to “hook” the potential lender, just as a novelist must hook the reader with the first few pages. Make it persuasive, explaining why you and your team are uniquely positioned to make your business a success. This is a great place to include your practice vision, which we discussed last month.
Although the executive summary is the first thing a potential lender will read, it should be the last thing you write. That’s because you need the material you gathered for the narrative as back-up for the summary.
The narrative
This is the main body of the plan and follows the executive summary. To make it more manageable, break it down into these sections:
Business Overview — Begin with an overview of your practice for at least one year into the future. Describe its legal structure, as well as the services and products you’ll provide. Include staffing and practice goals. Also include an exit strategy — how will you maintain your practice in the event of disability or any other serious life change? Describe your break-even point, which is the production level that lets you meet monthly business overhead, loan payments, and your salary.
Include a description of the overall financial position and performance of your business sector and the role of governmental regulations such as OSHA. Next, describe the size and competitive nature of the general or specific type of dentistry you are going to offer. What, if any, are the barriers to entry and growth? Are there any economic swings that might affect the sector you’re targeting? If so, explain. For example, if you’re planning a high-end cosmetic dentistry practice, how will you maintain cash flow during a weak economy?
Location is an important criterion for your success. Discuss it in terms of client draw, access, zoning, cost, parking, competition, and even signage. Will your needs for space change in the next five years? Finally, list equipment you’ll need now and in the future as your practice expands.
Marketing Analysis and Plan — In the overview, you should have described your services. In this section, describe the kind of patients you hope to attract, including income levels, education, and lifestyles. Also, describe your competition in this market, and how you will differentiate yourself. For instance, if you’re starting a family practice in an area already served successfully by a similar practice, what will draw patients to you rather than the competition?
Next, analyze your marketplace. What are the demographics of your selected area today and in the future? Buying a demographic study (or market analysis of your area) can help you verify there is a clear need for an additional dental practice in a particular community. Your study should include statistics about the ratio of the population to the number of dentists, whether it is a growing area, the amount the community spends on health care, and the average household income. Keep in mind that, in general, urban areas tend to be more saturated with dental practices.
You’ll also need to define your marketing strategy to show the lender that you have a plan for attracting and retaining patients. Include internal marketing strategies (which rely on encouraging existing patients to make referrals) and external marketing (which aims to market directly to potential patients). List everything you plan to use: newsletters, open houses, brochures and posters, referral incentives, community public relations — whatever tools support your strategies.
Operations — The final section of your narrative should include a section on the “nuts and bolts” of your practice. List your practice hours and days of operation. Describe necessary equipment and supplies and identify major suppliers, including equipment-maintenance schedules.
Management and Organization — Include details about your planned operations. Will you structure your practice as a sole proprietorship, partnership, or corporation? If you’re going into business with others, attach a curriculum vitae for each principal owner or associate, along with a brief personal history. List your professional business resources, such as attorneys, accountants, and technology and management experts who form your practice team.
Staffing — List job titles for staff, and forecast personnel needs at the start and six, 12, and 24 months into the future. Discuss compensation strategies, including benefits. How will you handle performance evaluations, hiring, and firing?
Financials
This final section should include a projected income and cash flow forecast and a personal finance statement, along with supporting documents. Also describe the effects of seasonal variations, the business cycle, and other events that can be forecasted. Explain significant assumptions that you make about the business, the competition, the economy, and other financial and business influences. It is essential that your financial statement be consistent with the narrative.
Include a section describing the total funds needed by your practice over the next two years, detailing how borrowed funds will be used. List collateral that you are offering, including any personal guarantors. Provide a historical financial analysis that your financial partner has prepared or projections for the initial 12- through 24-month period.
Appendices
The appendices section should include any charts and graphs that represent data or items mentioned in the narrative or financial sections, such as your action plans, timelines for opening and growing your practice, fee schedules, and an organization chart. Of course, if your plan is going to potential lenders, attach your curriculum vitae. The lender will want to know about your education, experience, and any other interests, affiliations, or awards that demonstrate your character and likelihood of success.
Does it sound like a lot? It is! Your lender may not require this level of detail in your business plan, especially if you’re starting with a need for little capital (less than $300,000). But the financial well-being of your first practice depends on it. Remember, your business plan is a document that you will use and revise continuously over the years as your business grows, so don’t file it away once you’ve secured financing.
Next month, we will discuss how to present your business plan to a lender and successfully secure financing for your first practice.
Allison Farey, president of Matsco, has more than 25 years of experience in the equipment leasing and financial services industry. For more information about Matsco’s practice financing and Practice SuccessTM Program, call (800) 326-0376 or visit www.matsco.com.
