The New Dentist

April 1, 2002
Writing your future: The business plan and loan proposal

by Drs. Matt & Ann Bynum

The business plan and loan proposal informs the bank of your intentions and future direction.

Without a doubt, the most important and often-overlooked step to your journey is the business plan and loan proposal. Once you have finished the investigation process and have established your vision and philosophy (see "The New Dentist" column in the February and March issues of Dental Economics), it is time to evaluate the tangible components of your practice.

Starting, buying, or buying into a practice requires a substantial financial contribution. Unless you are independently wealthy, you probably will have to seek financial assistance. Unfortunately, in dental school and postgraduate education, not much information is available to assist you in the skills necessary to compose a business plan and loan proposal, or even to know how much money it will take to start your practice.

The business plan and loan proposal serves two fundamental purposes:

1. It allows you to better investigate and research the business you are about to undertake.
2. It provides the financial institution with a roadmap of your direction.

These are tangibles that allow both you and the financial institution to explore your endeavor together, as well as provide the bank's financial officers with conclusive information about the business of dentistry.

The components of the business plan and loan proposal should read like a storybook. From beginning to end, it should be filled with information that intrigues the financial officer and leaves him feeling confident that this would be a wise investment. While there are many facets to a business plan, some basic, key elements need to be addressed.


This is where it all begins. The lender's attention is either gained or lost in this section. The introduction summarizes pertinent information about you, your goals, and your requests. Basically, you want to illustrate what your intentions are, what your history is, and where you want to be in the future.

For example: This loan proposal is to provide you with information that will enable you to accurately analyze and assess our request for a business loan to establish a dental practice that will support the greater Timbuktu area.

Where is the practice going to be located? How many dentists are in the surrounding area? What is the economic climate and growth status of the surrounding community? Explain the location and demographics of the surrounding community and dental community at large.

The proposal must contain descriptive information about you and your history. When will you or when did you finish dental school? Are you from this area, or are you planning to move here?

Include detailed information about how you plan to use the money. Will you build and finish the entire project at once, or do you plan to grow in phases and prepare for subsequent construction? How big will the project be? How many operatories will you have? Will the equipment be restored or new?

Spell out the components of the loan as you would like to see it drawn up, including a repayment schedule.

For example: The loan will consist of three parts: building/construction expenses, $500,000; dental expenses (equipment and supplies), $170,000; and operating expenses (working capital), $50,000. Based on detailed financial projections, we will require a line of credit in the amount of $720,000 to cover these costs. Repayment of the loan will be interest-only for the first year, and principal plus interest thereafter.

Curriculum vitae

A curriculum vitae (CV) is basically a resume. Your CV is used in the business plan and loan proposal to illustrate organization and thoroughness, as well as give the lending institution a history about you, your education, and your previous experience. Your CV should cover the last three to five years.

Begin with basic information such as your address, phone number, email address, birth date, hometown, and marital status, followed by your education and employment history. Next is a bragging session of sorts: List your professional affiliations, presentations, awards and honors, and extracurricular activities.

Your vision and philosophy

The information from our last two articles (in the February and March issues of Dental Economics) will help you define your vision and philosophy. This portion of the business plan must be clear and concise.

A lending officer can gain vast knowledge from your vision and philosophy statements. They tell something about you – how your thought process works and how you view yourself and your future practice; they give insight into the direction you plan to travel, as well as the confidence you have in your business skills.

Mission statement

A mission statement spells out your practice direction and the way you intend to handle your business. Include your mission statement near the vision and philosophy section. It may be as simple as this: Our mission is to make people feel better about themselves when they leave than when they came in. Or, it may be more complex and a full page long. How much detail you go into is up to you.

Remember, the purpose is to provide an overview of how you plan to treat patients in your practice. Anyone reading your mission statement should be able to understand your plans for the practice. If you want to treat the masses, then encompass them in your mission statement. If you want to treat just a particular sector of the population, spell that out clearly.

Short- and long-term goals

It has been proven that those who write down their goals are more likely to succeed. Short- and long-term goals are unique from person to person. As philosophies vary among individuals, so do goals. List and order your goals.

Here are some possible short-term goals:
• Participate in local and state dental organizations
• Break even on a monthly basis within the first nine months of the new practice
• See two new patients every day
Long-term goals might include:
• Repay student loans and other debt
• Be financially able to provide pro bono dental work on a selective basis
• Add future dental operatories and office space
• Hire an associate/partner

Marketing strategies

Some dental communities frown on terms such as marketing and advertising. However, in the eyes of a lender, a dental practice is a business, and businesses must be able to compete in the marketplace. How will you go about getting business?

You used to be able to simply open the doors of your practice and that was enough to survive. Today, there is such a wide variety of needs and wants that more is needed to be successful. Marketing is only one aspect of achieving success.

Divide your marketing strategies into two categories: internal and external. This gives the lending officer an idea of what you will be doing to increase patient flow and cash flow, thus reducing the lender's risk.

Internal marketing usually involves little cash outlay; it focuses mostly on customer service. Here are some examples:
• Greet patients by name
• Ask for referrals from established patients
• Provide complimentary toothbrushes with your name and phone number imprinted
• Decorate for the holidays

External marketing is used to contact potential patients who haven't heard about your new practice. Here are some examples:
• Host an open house
• Patronize local businesses
• List your practice in the Yellow Pages
• Advertise on radio

The key is to be as open as possible and list everything you can imagine that you might pursue. Your lender wants to be assured that your business will succeed.

Staff model and structure

This helps the banker look into the future and see how you plan to add additional staff members to accommodate expected practice growth.

Start with those you plan to have on board initially: one doctor, one assistant, and one receptionist, perhaps. In six months, maybe you anticipate adding your first hygienist and an additional assistant. The staff model should look five years into the future.

Financial arrangements and collections

Your lender will have more confidence in collecting his money if you have a clear plan for collecting your money. List your intentions clearly and concisely. Will you accept assignment of benefits from insurance companies? Will you use outside financing institutions such as Dental Fee Plan, American General, or Care Credit? Will you give discounts for cash payments upfront? Which credit cards will you accept? What type of collection system will you have? Will you utilize a collection agency if necessary, or will you involve the local court system or magistrate? What will be your course of action concerning bad checks? How will you track and monitor transactions?

The answers to these questions will form your strategies for the exchange of business, thus providing some security for the financial institution.

Calendar of events

Lenders like to see that there has been some thought put into the schedule of events surrounding the dental practice itself. What are realistic dates for the scheduled construction and practice opening?

Detail weekly and monthly events leading up to your practice opening. When will/did you determine the location? When do you anticipate final loan approval? When will construction get underway? When will you hire your employees? When will the practice be ready for business?

Create your own timeline. Begin with the investigation process and end with the first day of operation, providing as much detailed information as you deem necessary.

Personal budget and financial statement

The personal financial statement gives the banker an idea of your liabilities and assets, as well as your spending history. Too much credit card debt, high student loan debt, minimal assets, etc. are red flags to your lender.

We suggest running a personal credit check prior to starting this project to avoid surprises. On our credit reports, we found credit cards that we had cancelled still listed as "open." You don't want the banker to find out information about you that you didn't know. Various Web sites exist that allow you to check your credit report. Try – for a small fee, you can have a credit report run instantly.

Your financial statement should include your assets, liabilities, a credit summary, and (if you have outstanding student loan debt) an educational loan summary. You can obtain a basic financial statement form from any financial institution or certified public accountant.

On the credit card summary, list all credit cards, even those with a zero balance. Illustrate that you have control of your credit and that you do not live beyond your means.

Your personal budget must be comprehensive. Detail essentials such as food, utilities, and insurance, as well as nonessential expenses such as entertainment. Keep the figures realistic. Lenders are not easily fooled by inflated numbers; they want to see how much money you can live on and what you would be willing to sacrifice for your practice. They will be taking a financial risk and want to know that you will do the same.

Production, collections, and cash-flow projections

This information is critical for your banker, but it is even more beneficial to you. This is your first look at how a dental practice is run month-by-month and year-by-year. While this is a true estimation of what you hope the practice will do, it is also a reality check into budget assessment and practice growth. Try to provide a five-year projection.

Using Table 1, break down estimated production and collections on a monthly basis and project those numbers for the entire year. Collections should be no less than 97 percent. The purpose of this table is to demonstrate several things:

• Practice growth
• Number of patients seen
• Profitability
• Receivables
• Financial posture of the practice

As your number of patients increases, so should your cash flow.

Next, illustrate how the monies coming in will be distributed within the practice using cash-flow projections. See Table 2.

Following this table should be a comments page, functioning as a legend for the cash-flow table, explaining details about the 18 items. For example, let's look at Item 5 – janitorial and maintenance. You could explain it further like this: Basic office maintenance will be performed by team members, with a professional cleaning service utilized every fourth month.

A banker gave us this advice: Reformat Tables 1 and 2 to illustrate what the projections would look like if your performance is 20 percent worse than anticipated. Then, examine a scenario portraying a 20 percent increase in your original projections. These two additional outlooks serve several purposes. The 20 percent decrease illustrates that you can still make ends meet even if things don't go as you anticipate. It also shows the bank that you have thought about a worse-than-expected scenario and know what it would mean to your business, your personal life, and the lending institution. The other scenario (20 percent increase) indicates that you have success in mind, and that you have considered what could happen if you exceed your anticipations.

Obviously, an extensive amount of research is needed to assemble this information. You will need to contact insurance agents, dental supply representatives, other dentists who will share their practice statistics, utility companies, realtors, and others. Dental Economics is another excellent source of information, as well as other dental publications and Web sites. You can often find information pertaining to staff salaries and benefits, insurance issues, national fee schedules and statistics, and much more.

Other information

Toward the end of the business plan and loan proposal, include tax information from the last two years on both you and your spouse, if applicable. This encompasses a copy of the tax return itself, as well as any 1099s you have received. Without a two-year history, you will be scrutinized far more.

Lastly, include a well-thought-out list of references. These do not necessarily need to be dental professionals, but they do need to be people who know your character: friends, family, people from church, a previous banker from your hometown, past employer, etc. Be sure to notify these references ahead of time and tell them that they may receive a phone call and why.

Now that your business plan and loan proposal contains all of the essential information, it needs something to make it stand out on the loan officer's desk. We recommend a covered, bound copy with color – not overly bright, but enough color to add flair to your hard work and make the statement that you are not afraid to stand out.

Be confident in your future and never accept "no" for an answer. If a lending institution has no interest in your proposal, ask what it would take to gain their acceptance. If your proposal is still denied, find another financial institution or consider other avenues. Be professional, cordial, and confident; but most of all, be business-like.

Coming up ...
Next month, we will discuss how to present your business plan and loan proposal to a bank and cover the steps necessary to begin the building process.

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