Financial preparedness is never an easy task.  If you’ve taken out a mortgage to purchase a home, you likely remember how long and stressful it was.  Preparing your finances to purchase your own dental practice can be just as hard, but there are several things you can prepare in advance to reduce any added time or stress during the process.  Dental B-School has put together a list of 7 critical steps to financial preparedness to help you along the path to becoming a practice owner.

1. Determine which fee model(s) your dental practice will have.

2. Keep track of your production.

3. Make sure your credit is stellar.

4. Keep credit card debt to a minimum.

5. File timely income taxes.

6. Prepare a personal budget.

7. Ensure your dental license is clean and current. 

1. Determine Which Fee Model(s) Your Dental Practice Will Have

If you’ve had an opportunity to work with various dental practices, you may have gotten to understand the three types of fee models for dentistry.  The fee models comprise of three different ways in which you can charge your patients.  Most dental practices employ a combination of models, with a preference towards the Fee-For-Service model.

The three types of fee models for dentistry are:

• Fee-For-Service: Patients will pay the full fees to the dental practice.  This model is typically more profitable and one of the most desired methods amongst dental practice owners.

• PPO Model: The dentist contracts with insurance companies to become a preferred provider to the people who buy dental insurance from companies.  The dentist accepts reduced fees for all procedures other than their fee-for-service fee.

• HMO Model:  The dentist contracts with an insurance company to service a pool of patients and is compensated with a monthly check.  Through this method, your practice is also allowed to collect a co-payment at each visit from the patient.

After determining which fee model(s) you’d like to implement for your dental practice, you should update your business plan to keep it current.

2. Keep Track of Your Production

It doesn’t matter if you’re operating out of your own dental practice or in someone else’s, you should always keep track of your production. Your production reports should consist of the offices you work in as well as what procedures you do.  When seeking a loan, banks will ask to see a copy of your production reports.  Not only are the production reports good for securing a loan, but it can also help you determine which practice areas you excel at or even what areas you’d like to focus more on.

3. Make Sure Your Credit is Stellar

No matter which lender you choose, if there are any issues or negative reporting on your credit report, it could delay or even prevent you from securing a loan.  Aim for a minimum credit score of 700.  Have credit that is right at the line or just below?  Consider asking your spouse to co-sign the loan - providing their credit is stellar as well.

4. Keep Credit Card Debt to a Minimum

When you’re just getting started in business it can be tempting to max out your credit cards before realizing that you’ll still need the financial backing of a lender.  When securing a dental loan for your practice, lenders want to see a low credit to debt ratio.  Maxed out credit cards and a higher credit to debt ratio may send a red flag to lenders that you may be living outside of your means.  This is especially important to keep in mind if you have student loans.

Speaking of student loans, consider an income-based repayment program to pay off your dental school loans.  This can help reduce your monthly loan payments, freeing up some of your cash flow and ultimately, helping you out a little more when qualifying for a loan.

5. File Timely Income Taxes

Timely income taxes can demonstrate that you are responsible.  Slacking on income taxes may leave just the opposite impression, and for lenders, that’s a big deal.  In addition to setting the tone with lenders, if you’re behind on taxes, the IRS can place a lien against you, eliminating the possibility of securing a dental loan to open your practice.  So, pay your taxes on time!

Getting a refund on your taxes?  Consider tucking it away in a savings account.  Banks look favorably upon businesses who can show that they have sufficient funds set aside, demonstrating that you are in fact, a good credit risk.

6. Prepare a Personal Budget

Oh, the dreaded word… budget.  I said it.  The word budget may be sending shivers down your spine, but in order to know how big of a dental practice you can afford to buy, you need to know the amount of personal expenses that go into it.  And there’s a lot that goes into it: rent/mortgage, equipment, employees, utilities, insurance, etc.  It all adds up rather quickly and it’s not just the practice expenses that you’ll need to take into account.  Some other things you’ll need to take into account when determining your personal budget are your student loans, your rent or mortgage of BOTH your home and the office, car payments, credit cards, etc.  Your CPA can help you lay out the numbers and calculations to make the determination of what you can afford.

7. Ensure Your Dental License is Clean and Current

This is a big one.  Before applying for a loan, you need to ensure that there are no complaints or issues with your current state dental board.  If there are, it is likely that banks will reject your application.  Set yourself up for success by ensuring that your dental license is both clean and current before applying for a loan.

Financial Preparedness During COVID-19

The COVID-19 (novel coronavirus) pandemic has caused havoc globally.  During the lockdown, many dental practices canceled all routine operations and took to seeing those who were experiencing a dental emergency.  Employees were furloughed, enormous amounts of revenue lost causing even more financial strain.  Now that things are reopening, dental practices have been flooded with patients who had routine appointments scheduled AND all of the patients needing to reschedule that weren’t able to be seen during the lockdown - all the while having fewer patients in the office at a time to remain in compliance with guidance from the ADA and CDC.

For dental practices already established, there were several programs enacted to provide financial relief stemming from the hardship COVID-19 brought.  Some of those reliefs include the Payroll Protection Program (PPP) as well as the Provider Relief Fund.

For those with student loans after dental school, the Coronavirus Aid, Relief and Economic Securities Act (CARES Act), enacted by the President on March 27th, may also provide some relief.  While the federal government does not have the legal authority over private student loans, those with federal student loans have been granted some relief under the CARES Act.  Dental school students with private loans are encouraged to contact their lenders to determine if there are any provisions or other relief in place.