Building a Team You Can Trust
By Gordon F. Osterhaus Jr., D.D.S.
• Choose a trustworthy team that keeps your best interests at the forefront
• Understand and control the inherent pitfalls associated with new dental office development
• Reduce the risk of contractor change orders by preparing detailed design documents
• Research and find a mortgage that will work for you — and save money in the process
• Learn how to turn your dental equipment sales rep into a high-performance ally
Building a trustworthy team is a critical process in office construction or remodeling. While reading this text, you will come to understand the importance of certain steps, procedures, and services, along with the people who provide them. You will also learn about certain flaws that are deeply imbedded in the systems surrounding dental office development. Once you recognize these flaws, you can take command of them and make sure your project not only stays on schedule, but, more importantly, stays within your budget.
All the vendors you hire for your new dental office development project play an integral role in the success of your new practice. If any one of them drops the ball, you will lose both time and money, and you may suffer the effects of those losses for years. You are probably unfamiliar with which architects or contractors in your area are at the top of their field. You are going to have to rely on your dental equipment consultant/supplier or someone else you trust to help assemble a capable team.
Beware: there are far too many “I’ll refer all my clients to you, if you refer all your clients to me” relationships in the dental industry. You may benefit from asking the person who is assembling your team to give you several recommendations to consider in each field.
Here is a list of the team members who can help you successfully complete your new dental office:
• Dental equipment consultant/supplier
• Commercial real estate agent/broker
• Financial lender
• Technology specialist
• Practice management advisor
Dental Equipment Consultant/Supplier
A dental equipment consultant can initially meet with you to discuss your Ten-Year Plan (how you envision your business to be functioning in ten years, in terms of maximum production). Once a Ten-Year Plan has been established, he or she can help you determine the required square footage for your office. After you choose a commercial real estate agent, and preferably one with dental experience, your consultant can guide you on how to shop for a loan. While you are looking for your dental office space and applying for loan pre-approval, he or she can assist you in making intelligent equipment decisions. Your consultant should care more about getting the best value and staying within your dental equipment budget than about the commissions generated from your equipment decisions.
Once you sign a lease or purchase agreement, get loan pre-approval, and make all your equipment decisions, you and your consultant can see the architect to begin developing a space plan for your new office. While the space plan is being developed, the equipment consultant can help you to select a technology specialist with dental experience, who can help finalize technology decisions that fit within your budget. Dental equipment and technology decisions must be made before the space plan is approved and the engineering phase has begun. Failing to finalize dental equipment and technology choices and include all their requirements in your construction documents is one of the biggest inherent weaknesses in the process of dental office development.
The dental equipment consultant can then create, or help the architect create, a custom dental equipment specification sheet that becomes part of your construction documents. This custom dental equipment specification sheet gives essential directions to the architect’s engineers. While the engineers are working on their piece, the equipment consultant can aid the architect, with your input, on the design of your millwork (subcontractor-built) cabinetry. The consultant can also offer input into the design of your operatory ceiling grids as they relate to your ceiling-mounted dental lights, computer monitors, and microscopes. Once the architect sends construction documents to the city for permit, the dental equipment consultant can review the plumbing, electric, and mechanical pages (which the engineers have created) to ensure all equipment requirements are on paper. If items are missing after review, the equipment consultant can meet with the architect and create an addendum of these missing items to include in the bidding process to help eliminate contractor change orders.
Work with a qualified attorney to make sure that any contract you sign with a consultant or salesperson clearly spells out his or her responsibilities and the timeframe for carrying them out.
The construction documents and addendum can now be sent to the contractors for bid. Once the contractor is chosen, the tenant improvement stage begins. The dental equipment consultant can be present at the job site at all the critical stages to help ensure that the contractor meets all your dental equipment requirements. Depending on the dental experience of the contractor, your consultant may need to make between 14 and 20-plus visits to the job site during construction. Every piece of equipment has unique requirements, so the dental equipment consultant must do the homework necessary to ensure a smooth and uneventful installation.
Not all “dental equipment consultants” in the United States have the experience and training to handle all the responsibilities described above, and some have no expertise in dental equipment or reading construction documents. Not all dental equipment salespersons are qualified to handle all the responsibilities of a dental equipment consultant. If you are considering working with a dental equipment consultant or a dental equipment salesperson, ask him or her some hard questions about their experience, training, and commitment. Work with a qualified attorney to make sure that any contract you sign with a consultant or salesperson clearly spells out his or her responsibilities and the timeframe for carrying them out. If you assume that a dental equipment consultant or salesperson will spend the time necessary to perform all the above-mentioned services, but he or she doesn’t, the resulting chaos will cost you significant time, money and headaches.
Commercial Real Estate Agent/Broker
Commercial realtors earn money by receiving a “split commission” with the lessor or seller’s agent. You pay them nothing directly to help you find the space and negotiate a fair lease or purchase agreement. They have nothing to gain by steering you toward any specific property, because they get paid the same percentage no matter which space you prefer. (The exception to this rule is if they show you one of their listings.) The realtor approach gives you the widest range of choices and only one person to deal with. Commercial realtors only represent you, the buyer, while the lessor or seller has their own agent. Be sure any realtors you work with understand that you are only interested in viewing office space that meets the square footage requirements predetermined by you and your team. Also ask them to tell you if any of the properties they show you are one of their “listings,” to prevent any perceived bias.
In contrast, dental office transition specialists (“brokers”) generally focus on selling existing dental offices. In some states they can represent both the buyer and the seller, although a buyer or seller may perceive this as a conflict of interest and prefer that his or her broker not represent the other party. They sign a contract with the seller, entitling them to be the only person who may “list” a property for sale, but only for a limited period of time, usually four months. If the property doesn’t sell, the seller can sign a new contract with a different broker and begin the process again. The broker is also instrumental in determining the office sale price.
In addition to representing prospective buyers and sellers of dental practices, brokers sign similar contracts with property owners who would like to lease or sell. Because of time constraints, a broker may focus on showing clients his or her listings first, rather than other properties for which he or she will be required to split a commission. If you are considering working with a broker, it is important to understand whom he or she will represent and the range of the listings that he or she will show you.
An important item often overlooked during the office search is the number of electrical panels assigned to the space you are considering. Make sure your real estate representative gets adequate electric panels assigned. A modern dental office requires many dedicated circuits, electrical circuits reserved for a single piece of equipment. Sharing a circuit will either cause the equipment to function improperly, or overload and shut down the circuit. If the contractor has to dig a trench to a remote electrical source and install an additional electrical panel later, expect significant additional costs.
Other important terms in your lease or purchase agreement may involve the following:
• Tenant improvement allowances
• A covenant of exclusivity
• The lease term
• Contractors with dental office experience from which to choose for tenant improvements
Two of the most common sources for dental loans are banks and health care finance companies. There are many differences.
Most banks offer a variable floating rate, a fixed percentage over the prime rate, which will fluctuate with the prime rate. Health care finance companies, on the other hand, offer a fixed rate with simple interest. Health care finance company rates will be initially higher than those from a bank. When you assume the risk with a variable floating rate, the bank is covered. When health care finance companies assume the risk with a fixed rate, you’re covered. Your payoff with a fixed rate is the security that your monthly payment won’t change.
Banks will often ask for a 10-20% down payment of the amount borrowed. Health care finance companies require little or no down payment. Banks typically ask for collateral, such as a home or property. In most cases, health care finance companies will use the dental equipment or practice as collateral.
Bank loans and most health care finance companies can tie up your credit line for future purposes, such as personal loans. Because there are exceptions to this rule with some health care finance companies, check to see if any are willing to keep business and personal credit lines separate, as long as you don’t default. If you decide later to purchase a home, for instance, your business loan will not appear on your credit report.
Banks add points to cover closing costs, attorney fees, etc. Closing costs will increase the bank’s adjusted annual percentage rate (APR) when compared to a fixed rate. Health care finance companies have a minimal fixed-rate filing fee.
Health care finance companies have experience in dental loans. They know that only a small percentage of dentists default on their loans. Commercial loan bankers view you as “new business,” and their default rate for all new businesses is very high. As a result, funding a bank loan can involve significant red tape and paperwork. Funding with a health care finance company is typically less burdensome.
Health care finance companies have experience in dental loans. They know that only a small percentage of dentists default on their loans.
When financing a fixed-rate mortgage, by law the lender must provide you with a “truth in lending statement,” which explains the adjusted annual percentage rate (with closing and other costs factored in). What’s more, it clearly explains the total cost over the life of the loan. When banks offer a variable floating rate, they are unable to tell you what the total cost will be because it’s impossible to predict interest rates. Health care companies with fixed rates can tell you exactly what your total cost will be. However, they are not required to and generally won’t volunteer the information. So insist on it! This becomes even more important if you are offered, for instance, a 15-year loan as opposed to a standard 12-year loan. The monthly payment will be lower for the 15-year loan, but at what cost?
All architects are not equal. Some offer a wide array of services, but ot/>