29: The Business Plan

Chapter 29

The Business Plan

It’s not the plan that is important, it’s the planning.

Dr. Graeme Edwards

At the completion of this chapter, the student will be able to:
1. Describe the typical process that banks go through when evaluating a loan application.
2. Describe the information that loan officers will require for loan processing:
     Loan application
     Personal balance sheet
     Pro forma income statement
     Cash flow analysis
     Business plan
3. Define the sequence of investigation of practice opportunities.
4. Define the more important factors used in evaluation of the economic state of a community.
5. Define the more important factors used in evaluation of the worth of a dental practice.
6. Describe the typical series of events in negotiating a practice transition.

Key Terms
business plan
cash flow analysis

The purpose of this chapter is to prepare students to effectively interact with bankers, loan officers, and other representatives of financial institutions during the practice transition process.

Starting and running a successful dental practice has never been easy. In the volatile and competitive marketplace the profession now faces, this task has become even more difficult. One common trait of all successful dentists (and small business people generally) is that they have a solid plan of what they want to do with the business. A dentist’s financial, personal, and emotional energies will be tied to the success or failure of his or her practice. The dentist will invest a lot of his or her soul into a dental practice. The sad truth is that some dental practices never succeed or only barely “scrape by.” Many of these unsuccessful dental practitioners are there by their own devices; they have simply failed to plan the small business adequately. Particularly during these competitive economic times, trying to start a business without a plan is akin to going to sea without a chart or compass. Rational people would want to know where they are going, whether sailing the ocean or the financial seas. A business plan is a chart of a dentist’s practice voyage. It is a plan of where he or she wants to go or what he or she hopes to accomplish with the business.

Most new dental practitioners will need to secure some financing from a bank or other lending institution. Bankers are in the business of lending money to people that will repay them. One of the best ways to help convince a loan officer that a person is a good business risk is to present a business plan with a loan application. Much of the information that is required in the loan application is also included in the business plan, so the additional work is not as formidable as it first appears.

Strictly speaking, a business plan is a document that is a dentist uses to project the future performance of the practice. It begins with general statements and conditions and moves through a more detailed explanation, ending with numbers that the dentist projects to represent the financial outcomes of the practice, based on previous conditions. The process of developing the business plan is important for more than just the pieces of paper that result. The dentist learns about his or her business through the process of writing the plan. This is where the dentist writes down concisely what he or she expects his or her financial health to be in a year and why. So developing a business plan forces the dentist to decide in an organized way, rather than just letting things happen and responding to them in a crisis fashion. The banker, or loan officer, then will be interested to see that the dentist has thought out these problems, determined solutions, and committed them to paper. He or she may have specific forms that the bank needs to be completed to process the loan application. Once the business plan is completed, the borrower will generally only need to shift information from one form to the other. The additional work is well worth the effort when the bank approves the loan!

The format of the business plan given here is an adaptation of the standard business plan format used for any small business. Many bank loan officers, especially in rural areas, may never have processed a dental practice loan. This business plan format makes a special focus on dental practices. Often the dentist’s job, as applicant, will be to educate the banker to the special business needs that the dentist, as a practice owner will have. The banker, or loan officer, usually can not make the final decision on a loan. Instead, he or she must take the package of information that has been developed to the bank’s loan committee, which is composed of senior bank officers, owners, or board members. They are the ones who make the final decision on a loan. The loan officer is the borrower’s spokesperson in this ­process. The chances of a dentist gaining a loan under favorable terms will obviously increase if the loan officer is in his or her corner. The best way that a dentist can do that is by showing the loan office that he or she has done background work, is well prepared, and has provided all of the information that will be needed to represent the dentist in front of the loan committee.

The Written Part of the Plan

The written part of the business plan or loan application details the information and ideas the dentist has developed when considering a possible practice opportunity. The overall purpose of the plan is to convince the banker (or other lending entity) that the dentist and dental practice are a good place for the bank to invest its money. The plan should lead the bankers down a logical path that shows the reader that the dentist will use their money wisely and that the borrower is likely to repay as agreed. The dentist should anticipate any significant questions a lender might have about the application or plan and answer them before he or she asks them. The dentist should be absolutely honest in the planning process. If there is a significant potential problem in the business, the borrower should bring it in the open and offer potential solutions. If he or she lies about or tries to hide a problem, the bankers will probably reject the whole application. Bankers understand that there are many problems involved in running a business; they are primarily interested in knowing that the dentist understands them and has a good idea how to craft a solution to the problem.

The following section gives a brief idea of what should be in each section of the written plan. A more detailed description and checklist will appear in subsequent sections.

A. The Cover Sheet The cover sheet identifies the applicant and the institution or organization from whom the dentist is asking for funds. This sheet also gives contact numbers so that the banker or lender knows how to reach the dentist.
B. Table of Contents The table of contents gives the reader the overall organization and locating specific sections of the plan.
C. Statement of Purpose The statement of purpose may be the most important single page in the document. It tells the reader, in a paragraph or two, why the dentist is applying for this loan.
D. Description of the Community The description of the community defines the area in which the dentist is planning to establish a practice. A dental practice is a small business and will respond to economic variables like any other small business. This section describes those variables and the planned response to them. The dentist should show that he or she has “done homework” regarding the background of the community. If there are problems in the local economy, then those should be noted along with the strengths that are seen in the business climate of the area.
1. Demographic Considerations Demographic consi­derations in the community include all of the “numbers” that have gone into the decision to locate in the area. These include the population, age and income distributions, location of the town or city, per capita savings rates, or other specific numbers that the dentist believes will have an impact on the small business.
2. Economic Considerations Economic considerations are similar to ­demographics and are often included in that ­section. This section should describe economic factors that the dentist believes will lead to the success of the practice. The major employers in the area, the amount and type of third-party coverage, and projected housing and industrial growth are all economic factors that will influence the business.
3. Competition The dentist should detail competition in the area, concerning numbers and types of practitioners. If some are practicing part-time, then an adjustment for full-time equivalents is in order. These numbers should be compared with national, regional, or state averages to give the reader a better frame of reference.
E. Description of the/>

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Jan 4, 2015 | Posted by in General Dentistry | Comments Off on 29: The Business Plan
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