Whether starting, acquiring, or expanding a dental practice, a common theme among dentists is that they are exceptional at their craft but need more guidance with day-to-day financial management.
There is a great need for these professionals to engage a partner who understands the operational aspects of running a successful practice. Developing long-term relationships with an expert who can advise the business is one of the most critical aspects of developing a successful practice. This article takes a look at two key components for professional practices to achieve and sustain business success — financing and budgeting.
Financing your practice
The business side of running a practice can be complicated for some small business owners. They have historically put their trust in financial institutions such as a local bank. The relationship established with the local bank may have prompted the initial financing or purchasing of the practice/clinic. The challenge for a practice is that these institutions typically push short-term debt financing (five to seven years), which may not align with a dental practice’s business plan. Choosing the right length of terms and structure is critical to matching with the growth aspirations of the business.
Through our work, we’ve discovered that the first five years in the small business lifecycle are the most critical. Most practices fail between the 36th and 42nd months. These businesses need the proper guidance to help them navigate through the decisions that help them thrive past the critical moments. Whether looking to expand or acquire a business, a payment plan with the right terms will ultimately decide the success. The key is to have a plan that matches the cash flow of the practice.
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Establishing a budget
For any successful business, formulating a monthly budget that coordinates and estimates expenditures for the year is essential to the bottom line, yet in new practices this is often ignored or done improperly. Questions that need to be addressed include — Are you being savvy with your business income? What is your monthly inflow or outflow? Do you have enough money to fund day-to-day operations? What are your retirement or investment opportunities?
A common oversight among small business owners is not being realistic when planning a monthly budget. Some may tend to overestimate income and underestimate expenses. We see many practice owners who don’t have a good handle on their books. For this reason, it is a good idea to have a third party review estimations. Professional practice owners benefit from experts who have the knowledge, resources and tools to create a realistic budget for the practice, which draws from industry standards on practice revenues and expenses.
Having a monthly budget in place is part of having a path to financial success. However, it is important to remember that a monthly budget is a projected guess. Small business owners should accept missed projections as a learning tool. Living within a budget is informative, and knowing how much cash you need to keep on reserve and timing your expenses for payment to vendors will take some time. In addition, it is a good routine to review the budget once a week. It should take no more than 15 minutes to compare actual activities to what has been budgeted.
The most important reason for a monthly budget is to make your financial situation more predictable. The bottom line is a monthly budget doesn’t have to be difficult, but it is vital to any clinic/practice. Eventually, there will be a time for you to take on a new employee or expand the clinic/practice, and because you have been budgeting, you will be prepared.
When buying, expanding, relocating, or even starting a dental professional practice, it is crucial to enlist a partner that can provide you with sound guidance in order to help grow the business in a sustainable manner. Developing financing and budgeting strategies with the help of a partner such as Bank of America Practice Solutions can help a practice start off on the right track, and stay there.
**All programs subject to credit approval and loan amounts are subject to creditworthiness. Some restrictions may apply that include term, interest rate, and repayment schedule for your loan. The suggestions set forth above are not intended to express, imply, or infer any guarantee of success or promised result, and are intended as guidelines only.
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