• Business Plan Even before you launch your practice, it is crucial to have a business plan that covers operations, management, human resources, equipment, and marketing. A well-conceived business plan for a dental practice will also consider how employees fit into your plans. Finally, a business plan should include a financial statement detailing how much it will cost to open and operate the practice. In short, a business plan will serve as a blueprint for your dental startup and also allow you to present your practice to lenders and investors who specialize in the dental industry
• Office Space An important consideration for any dental practice is office space. Will you be renting space in a professional medical complex or purchasing commercial property? If you are renting, it is wise to work with a dental lawyer who can help to negotiate a commercial lease, negotiate rent, buildouts, renewals, and other key terms. Similarly, a lawyer who provides services to dental professionals can also help to negotiate the purchase and sales contract if you are considering buying property. Ultimately, the location of your practice will be a key determinant of your success.
• Dental Equipment Your dental startup must have the right equipment, including patient chairs, sterilization equipment, X-rays, handpieces, dental lights, and cabinetry. There are countless dental equipment providers so it is important to get the best deal. Whether you are buying or leasing dental equipment, it is wise to have proper legal representation.
• Marketing It is essential to market your dental startup to attract new patients and keep them coming back. A comprehensive marketing strategy includes building a website and having a digital marketing plan that includes social media. It is also a good idea to have a professional media company develop an SEO and PPC strategy.
•  Dental Software Having a modern practice requires dental practice management software that can manage patient intake, track dental appointments, and record diagnoses, treatments, dental patient records, and dental billing.

The Takeaway

Dental startups need a business plan, dental equipment, office space, marketing tools, and dental practice management software. When it comes to launching and growing your dental practice in the new normal, it is essential to have the advice and ongoing counsel of an experienced dental attorney.

That’s where LaMaster Law comes in. Lead attorney Matt LaMaster has extensive experience representing medical professionals on all aspects of running a practice from startups, to practice acquisitions and sales, to HIPAA compliance, to practice transitions. Contact our office today to get started.

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Understanding Your Profit and Loss (P&L) Statement

To understand dental practice overhead, you need to get a handle on your P&L statement, which can be broken down into the following basic expense categories: employee costs, variable dental costs, facility and equipment costs, other business expenses, discretionary costs, and owner’s compensation.

Employee Costs

Employee costs include your team’s salaries (front desk, dental assistant, and hygienist), items such as payroll taxes, retirement plan contributions, and other employee benefits, as well as the cost of outside services (e.g. employment agency costs to cover for an absent employee). It is worth noting that the costs of an associate are not included in employee costs, but are reflected in the owner’s compensation on your P&L. In any event, employee costs should be in the range of 24 to 26 percent of your practice’s revenues.

Variable Dental Costs

These costs may vary with the volume of dental services you provide, but normally include dental supplies, implant supplies, and lab fees. The costs for dental supplies should be no higher than 6 percent of your practice’s collections, although lab fees can vary further depending on the technology your practice is currently using.

Facility and Equipment Costs

Facility and equipment costs include such items as the depreciation of your dental equipment and the interest costs associated with financing your practice acquisition. Other costs that must be accounted for include:

• Rental costs of your space
• Equipment leasing
• Personal property taxes
• Real estate taxes
• Utility costs

A workable budget for facility and equipment costs is approximately 10 percent of the practice’s collections.

Other Business Expenses

Other expenses (e.g. advertising, bank charges, continuing education, dues and subscriptions, insurance costs, office supplies and postage, professional fees, telephone, uniforms, and laundry) should top out at about 11 percent of the practice’s collections.

Discretionary Costs

Discretionary costs (e.g. automobile costs, contributions, gifts, meals, entertainment, travel) should not exceed 2 percent of your collections.

Owner’s Compensation

The budget for owner’s compensation (your wages, your family’s wages, your associate’s compensation, and your portion of your retirement plan contribution) should be 35%–40% of your collections.

There are other considerations in controlling your practice’s overhead, not the least of which is setting and rebalancing your fees, which should be done on an annual basis at a minimum. It is also crucial to have a handle on the ratio of daily hygiene production to doctor production to ensure that your dental practice will maintain profitability while also generating sufficient income for you.

The Takeaway

Starting a new dental practice or acquiring an existing one can be an exciting and lucrative venture, provided that you control your overhead. By working with an experienced attorney and​ retaining an accountant, you can learn how to manage your expenses and achieve your objectives in the dental space.

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Background:

I was recently working with a dentist that was purchasing a practice and the accompanying real estate.  The practice was in a medical condominium complex with other dental and medical providers.  Originally, I was just asked to help the client clear up and obtain declination’s of first rights of refusal that the other co-owners of the condominium association were given in the original condominium documents.  After that, my client asked me to review and help with the financing and closing of the real estate.

The client was obtaining financing from a rather large bank that does not typically deal with financing dental practices.  The bank offered her the “opportunity” to bundle the practice acquisition loan with a small loan that she needed to purchase the condominium.  The condominium was only selling for $33,000, while the practice was selling for around $250,000. 

During negotiations with her dental practice broker and the bank, the bank told her that they would not be taking out a mortgage for the purchase of the condominium because it was such a small portion of the total loan amount and her credit was stellar. 

Well, a few days before the closing when I received the closing documents things had drastically changed. You see, the bank was in fact going to record a mortgage and it was going to be for the entire amount of the loan.  My client went from being told that she would have no mortgage to having a mortgage of almost $290,000.  I truly believe that without an attorney my client would have likely signed those documents not knowing the potential repercussions.

So you may be asking, what are the repercussions?  To put this simply, my client would have taken a mortgage out that would have immediately be in an amount greater than the property was worth.  That means that in order for her to sell the property she would need to release the mortgage, which would have likely required her to pay off the promissory note that was tied to the mortgage in an amount that would be much greater than the property was worth.  The only way she could have done that would have been to sell the practice, or find the money somewhere else to pay off the amount of the loan.  Now, you may say why would she want to sell the condominium and not the practice?  Well, she will likely be very successful and may need or want a bigger and better practice location.

So, in this scenario having an attorney review the closing documents prior to closing may have saved this dentist and her practice.

Lesson:

Work with an attorney that can help identify the hidden risks and costs associated with bank loans, mortgages, and closing documents.

The author, Matt LaMaster, is the Founder and Principal Attorney of The LaMaster Law Firm, PLLC, a boutique style law firm committed to delivering legal services to dental practices, chiropractors, and healthcare facilities. 

For more information about Matt LaMaster, The LaMaster Law Firm, PLLC, and mortgages, visit www.lamasterlaw.com.

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