Steps to prepare for financing your dental practice

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Now is an exciting time for dental professionals with many opportunities on the horizon in the year ahead. Before you contemplate your next move, it's important to take the time to develop the right path. Taking this strategic approach is essential for you and your business partners to yield a successful outcome.

Do your research

Before walking into a bank and filling out a loan application, knowing how your industry is performing is important. Keeping your finger on the pulse of these items can go a long way:

Jordan Arovas is the senior vice president of specialty business banking at Webster Bank. Image courtesy of Webster Bank.Jordan Arovas is the senior vice president of specialty business banking at Webster Bank. Image courtesy of Webster Bank.
  • Take steps to secure a free credit report from one of the three nationwide credit reporting agencies to find your credit score. Look closely at the information, and use this chance to fix any issues with your credit before going to the bank.
  • Check U.S. Census data to see distribution of dentists by state and region especially when considering practice location. Choosing to locate your practice in an area already concentrated with other practices will create more competition for you.
  • Know business valuations to ensure you're in the ballpark when looking to buy or sell a practice. Look to your certified public accountant (CPA), attorney and other personal advisors for this guidance.
  • Network with colleagues who can provide further insights into local markets.
  • Interact with national and regional trade associations to enhance your knowledge base.
  • Engage in social media to discover relevant trends and various business models.
“When seeking partners, it's important to find individuals who have experience working specifically with dental practices.”

Team of trusted advisors

When seeking partners, find individuals who have experience working specifically with dental practices. Like you built your dental team, build your team of trusted advisors -- including a banker, CPA, and other professionals -- who will help you to make informed decisions. With these partners, it's important to establish goals and get on the same page with a tailored financing package. Know your options with conventional and small-business administration financing programs.

Common types of financing requests

There are several financial products that make sense for dental practices.

  • Line of credit to meet short-term working capital needs
  • Term loans for fit-out, remodeling, and equipment
  • Partner buy-in business transition/succession planning
  • Merger or acquisition expansion plans
  • Commercial mortgage to purchase property for a business location
  • Refinancing to take advantage of lower interest rate or longer term amortization to free up cash flow
  • Investments in commercial real estate for your practice and also renting to additional tenants to help pay off the investment

Regardless of the product, it's essential to establish upfront the collateral used to secure the line of credit or loan. Understand what your monthly payment will be and budget accordingly. Have a plan in place for setting aside extra cash reserves in preparation for unexpected events.

How to get there

Before going to the bank, ensure that you are organized and have all the financial information and documents you may need. Depending on your specific situation, these items can include the following:

  • Business financial statements and tax returns, including all schedules for three years, balance sheet, interim income statement, account receivable, and payable aging
  • Personal tax returns for all parties involved
  • Individual personal financial statement for you and your partners that will provide a disclosure of assets, liabilities, annual income, and expenditures -- the financial institution will provide its specific form
  • Debt schedule of outstanding business obligations
  • Business plan with an executive summary, biographies on principals, competitive analysis, financial projections, and marketing strategies that will overall validate your request
  • Purchase and sale agreements
  • Building plans and specifications
  • Construction budget

As you know, in dentistry, preventive care is the best medicine for your teeth. Treat your business and your business opportunities with the same care and respect.

Jordan Arovas is senior vice president of specialty business banking at Webster Bank in Waterbury, CT. For more information, please contact him at [email protected].

The comments in this article are not meant to be taken as financial or tax advice, but are for illustration only. The author and recommend that you always consult with your financial planner before making any significant changes in your financial or tax situation.

The comments and observations expressed herein do not necessarily reflect the opinions of, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.

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