Dentist (Financial Plan)

Executive Summary

Marketing Plan

Operational & Organizational Plan

Financial Policy

Financial Plan

The practice will be set up as a Limited Liability Company (LLC). This will be done to receive the limited liability of a corporation with the option of selecting taxation as either a partnership or as a corporation. Upon counsel with my lawyer and accountant, I will decide which setup offers me the best result in regards to taxes.

I am looking at a practice worth approximately $250,000. One shortcut method to determine the selling price of a practice is to take the average of the last three years gross sales and divide it by two. To purchase the practice I will take out a $300,000 ten-year loan at a negotiable rate (I used 15 percent in my financials) that gives me the opportunity of renewal every three years and has no penalty for early repayment. I am estimating that $250,000 will go for the practice, $30,000 will be used for any start-up costs (such as updates to building or equipment), and the remaining $20,000 will be used to maintain positive cash flows at start-up and to be used in case of any unforeseen problems. I don't foresee any problems attaining a loan, as there are many brokerage companies that will fully finance your dental practice with no down payment if you can prove that there will be no significant decline in gross sales resulting from the purchase of the practice. Another financing possibility is that the current owner of the practice could seller-finance some or the entire sales price. This would allow 100 percent financing without titled collateral, but would preclude a higher than market rate. Similarly, a dental broker could finance the project with the same general benefits and drawbacks of the seller-finance option. Also, we could approach a bank for the loan, which will generally ask for a 20 percent down payment, titled collateral, and an aggressive amortization rate, but a lower interest rate than the other options.

In doing my financial statements, I have had to make many assumptions and use many numbers, averages, and percentages given by the American Dental Association (ADA). Some of the numbers seem either too high or too low, but I used them to maintain consistency. For instance, in the first five years of business, marketing and legal/professional costs will probably be higher than the national average. I think that insurance will be much higher than the amount attained by using the percentage given by the ADA. Also, the average patient charge per patient includes dentists who do all of their own hygiene work, dentists who accept capitation insurance, and dentists who do public health dentistry only. Therefore, the $183.56 national average as stated by the ADA seems very low.

The number of total employees the practice will have upon my purchase is dependent on the structure prior to my buyout. My first year in practice, I will need one full-time assistant and one full-time bookkeeper/receptionist. Until I feel I have a sufficient client base, I will do much of my hygiene work. One hygienist will work one or two days a week dependent upon need and on a percent of work completed basis. This will give the hygienist greater incentive to see more patients and to insure the recall system works efficiently. Building the patient base to have enough patients to allow for two dentists will take about a year and a half. Optimal full-time employment upon my father joining the practice is two full-time assistants, one full-time bookkeeper/receptionist, and one hygienist with the same conditions. After the larger client base has been established, which will probably take about a year of working with my father, another hygienist will be added so that there will be a hygienist in the office four days a week and my father and I will not need to see any hygiene patients which will make our per patient charge increase. If need arises, one part-time office helper will be employed.

As we will be living in the central region of the United States, I have used the wage rates quoted in the Journal of the American Dental Association for dental employees in that region. Median hourly salary for a receptionist/bookkeeper is $11.65/hour. The average hourly wage for an experienced chairside assistant is $11.00. Finally, a hygienist in the central area will make around $200 a day. This sounds like a lot, but hygienists often rotate between practices as to support a broader client base.

My father and I will discuss a contract whereby he receives a certain percentage of his gross production, probably 40 percent the first year. With working the same hours per week that he currently does and seeing fewer patients, he will make a comparable salary to what he pays himself in Lincoln. Lincoln is a farming and industrial community that does not see the benefits of the highly profitable aesthetic dentistry. Although my father has the largest practice in the area, he does not make as much money as comparable practices in more educated areas due to the demand for restorative dentistry only. Working for Stanley allows his father, Jeremiah, to make as much money as he wants, while only working the amount of hours that suits his lifestyle. Also, he will not have the risk or responsibility associated with running a business, but will have significant input, as he has so many years of practice experience. The money he will make by selling his practice can be invested to use in his retirement.

We will establish written bylaws that address issues such as how the relationship between my father and I will be handled. As my parents will probably help with a small portion of the down payment on the loan, both my mother and father will receive a percentage of profits based on their contribution. The other portion of ownership will be divided between my wife and myself. We will have guidelines on buying back and selling ownership shares. This is to ensure the business does not suffer from problems within the family.

My family is a very close one that is intent on building our futures together. We have held many discussions concerning the control and management of the practice and are in agreement to this point. Before my father actually decides to move and sell his practice, we will sit down and write up an agreement about practice management. We will have a lawyer that is familiar with dental practices and family businesses look it over and add suggestions. Me and my wife will have the final say in matters pertaining to the practice, as we will have a greater share of ownership. As I have not had as much experience managing a practice, my parents' input will be greatly appreciated and sought. A policy of mutual respect between the four of us and documented policies will make our working relationship as positive as our personal one.

My first year after buying the practice, I will be able to see about seven patients per day and will work five days a week. The average cost per patient visit is $183.56 for a normal solo practice. Using these numbers, I should have an average monthly gross income of $25,000 and first-year gross income of approximately $275,000 based on having four weeks' vacation. My client base should be somewhere around 2,000 to 2,500 (a small drop from initial patient base) active patients, and I expect to exceed the average growth rate of 32 new patients per month for new dentists. I should have patient capacity for my father within two years. My financial statements assume that Dr. Jeremiah Kramer will join the practice after two years. I have also included income statements that show the practice's standings if my father and my dream of working together does not become a reality. Note: the practice still garners a reasonable profit, but not nearly as significant as the one earned with both dentists practicing. An exit strategy has not yet been planned, as this business will be the main source of income for my father for many years. When my father decides to retire, I will either hire another associate or rent out his facility to another doctor or specialist.

Price List

Customers will be charged the going industry price for the geographic area of practice plus a premium for the convenience-based value-added services. An example of a price list for services from the May 1996 issue of Dental Economics for the central region is as follows. We will use prices similar to these plus a premium for some treatments.

Financial Statements

Possible Pitfalls

Positive Aspects

Appendix