5 Pitfalls to Starting Your Dental Practice
Looking to start a new dental practice? Avoid these 5 pitfalls
I specialize in the dental industry and have worked with hundreds of new practice startups. With so many variables involved in starting a practice, it can be difficult to ensure the project will be completed without any hiccups along the way. This article will point out 5 common pitfalls you’ll want to avoid in order to ensure a successful dental startup experience.
Pitfall #1: Choosing the wrong team
Becoming a dentist takes countless days and nights of studying and can cost hundreds of thousands of dollars. When you’re working for someone else, you’re probably thinking and planning what you’ll do when you operate your own office. If so, one of the smartest things you can do is make sure you have the right team working on your behalf – people who understand the dental industry. These team members include:
- Real estate broker. "Location, location, location" is a phrase we all know. A dental practice is a specific kind of small business, and it’s subject to certain city requirements. By not choosing a dental-specific real estate broker, you can waste valuable time and energy looking at the wrong locations. Does your real estate broker know the requirement for the number of parking spaces (based on square feet of your office)? Does your real estate broker know if the landlord will provide you with a tenant-improvement allowance? Or if you can transfer your lease when you sell your practice in the future? Choosing a dental-specific real estate broker can save you time and money.
- Contractor. Selecting the wrong contractor can lead to all sorts of potential issues: project delays, uneven floors, incorrect countertops installed, wrong voltage for a CBCT system, doorways and/or hallways not up to American Dental Association compliance, change orders taking costs over budget, and more. This can easily be avoided by choosing the right dental-specific contractor.
- Equipment specialist. There are a variety of equipment specialists available to sell you what you need – and what you don’t need. Be sure to select a reputable equipment specialist who will work with you and have the best interests of your business in mind. Go visit offices they’ve built. Talk to clients they’ve worked with in the past. Interview your equipment specialist and ask if they’ll be with you during the buildout and will work with your contactor to ensure that your electrical systems are in the right location for your equipment. The top equipment vendors will also offer design services.
- Marketing professional. The best way to attract new patients is by marketing the right way, but if you start marketing your practice the day you open your doors, you’re 3 months too late. Hire a quality marketing company that will look at the demographics in your area and help you formulate an effective marketing strategy. Marketing companies can also assist with branding, website design, search engine optimization, proper use of social media and much more.
- Attorney. Hiring your friend who is a lawyer can cost you, because he or she may not have specific knowledge of dental practices. For instance, does he or she know the dental board requires you to establish an S-corporation and not an LLC in California? The dental board also requires your S-corporation to match your name. When reviewing your new lease, your lawyer needs to be aware of specific legal language that could cost you thousands (if not hundreds of thousands) if handled incorrectly. One last tip: When you interview dental-specific attorneys, ask if they charge a flat fee or bill by the hour.
- CPA. There are a number of special tax advantages available for dentists, so be sure to hire a CPA who has experience with dentistry so you don’t miss out on them.
Pitfall #2: Credit report surprises
As Matthew Christie, VP of Bank of America Practice Solutions, states in his article Five Pitfalls to Buying a Practice:
It’s imperative, before you apply for a loan, to understand what your credit file says about you. Clients often say they have “A+” credit without knowing what that actually means. There is more to your credit score than on-time payment history – such as length of credit history, utilization of existing credit and how often you apply for credit. Historically, most dentists have extremely good credit, with many approaching 800. FICO scores may range from 300 to 850 – the national average for consumers was 699 as of April 2016. (Source: FICO Scores Are at an All-Time High layer).
Dentists move frequently in their young adult lives. From dorms to off-campus housing, then to dental school, on to residency and perhaps one last move before settling in.
Through all of the moves, you may miss a small bill, and it could turn into a delinquency. Small creditors may not be as diligent at collections as a credit card company or bank, and this may affect your credit report. The doctor is often not aware this negative mark exists on his or her credit bureau report until it’s uncovered during the underwriting process. A debt like this can usually be resolved by paying the outstanding amount prior to the bank funding your loan.
To avoid situations like this, I recommend doing 2 things before you look to purchase a practice:
(1) Take some time to review myfico.com layer, where you can learn more about how scores are derived. Having a general understanding will not only make you a better consumer, but you may benefit financially: Many insurers review credit reports and use credit scores as part of their algorithm to determine your premiums.
(2) Obtain a free copy of your credit reports, which you can do at annualcreditreport.com layer. As a consumer, you’re entitled to reports from all 3 major credit bureaus (Equifax, Experian and Transunion) once a year (each reporting agency charges a nominal fee to obtain your FICO score). It’s also worth noting that this inquiry for your score is considered a soft credit inquiry for your score and doesn’t result in a reduction of your score.
Pitfall #3: Choosing the wrong lender
Now that you’re a licensed dentist, there are lenders lined up to provide you with financing for your practice. How do you know which one to choose? Is the interest rate the only thing that matters? Choosing the wrong lender could cost you tens of thousands of dollars in pre-payment penalties to get out of the loan. Here are some of the main things to consider when choosing a lender:
Reputation. Be sure your lender has an exceptional reputation. An easy way to do this is by asking peers, reviewing blogs such as dentaltown.com layer and researching information about any awards the lender has won for dental lending.
Loan term. Your cash flow is one of the most important things to consider when dealing with financing. A loan term plays heavily into improving your cash flow, because the longer the term, the lower your monthly payment. Make sure your lender has loan term options that fit the needs of your business.
Interest rate. This is usually the only item we think about when taking out a loan. Yes, a low interest rate is great, but make sure you know if the rate is fixed or adjustable, and if you have the ability to lock in the rate.
Fees, penalties & restrictions. These 3 things can make a loan costly. Make sure you’re aware of all of the fees, penalties and restrictions involved with the loan. Are there fees when you pay your loan off early, or fees if you don’t meet the conditions to open a depository account? Will your lender restrict your ability to pay extra toward the principle? No 2 lenders are alike, so you need to review everything carefully before signing.
Beyond the loan. Building a deeper relationship with your lender beyond simply making monthly loan payments can have its perks. For example, some lenders offer discounts when you bundle your checking, savings, merchant services, payroll, investments and business credit cards. Find out if your lender can help you expand, relocate, remodel, open an additional location and purchase commercial real estate.
Pitfall #4: Not consulting with peers and mentors
Peers and mentors have experience doing what you want to do, so turn to them often for their expertise. What did they like about opening an office? What would they change if they were to do it all over again? What technology is needed on day one, and what should you hold off on purchasing? These are only some of the many questions you can ask your peers and mentors. If you don’t have any, consider joining a dental networking group, dental society or social media group created for dentists only.
Pitfall #5: Forgetting to plan for your future
What does your ideal office look like in 5 years? In 10 years? Do you plan on owning your own commercial real estate? Make sure to plan for your future when building your dental office.
Gone are the days when selling your practice will provide you the money needed to retire. Let’s say you have a million-dollar practice and you sell it for a million dollars. If you hire a broker, they’ll take a percentage of the sale, If you have any outstanding practice debt, it will need to be paid off in full – then there are taxes to consider. You’re then left with an amount that may equal 2-4 years of what you made working in the office. That’s why it’s so important to start planning for your retirement the day you get your first paycheck.
As you build out your new dental practice, you’ll probably spend days on the phone, take hours replying to hundreds of emails and have a few sleepless nights. But if you avoid these 5 pitfalls, you’ll certainly have a more positive and successful experience.