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Practice Financing

Practice Financing: Part 1

The Business Plan

Following the interest we recieved after last months feature of The Dental Spa, Smile approached RICHARD LISHMAN of money4dentists, to discuss the essentials of a business plan when looking to set-up your own practice.

As specialist independent financial advisers to dentists, we deal with all aspects of financial planning, but recently dental care professionals (DCP's) are finding it more difficult to arrange practice finance due to the "credit crunch". So lets look at practice finance and what you should consider to make the transition as smooth as possible.

There are as many financial challenges for DCP 's looking to go private, as there are opportunities. These are often compounded by the reality that whilst the majority of clinicians are excellent physicians, they may have limited financial experience.

Any dental professional who wants to buy a practice or who wishes to join an existing practice as an Associate or buy in as a partner, should study the historic performance carefully.

Although the acquisition price of a practice can vary significantly, it's not unusual for the purchase price to be upwards of £400,000.00 - £500,000.00. In appropriate cases this can be addressed either through a 100% bank loan or a combination of bank loan and other financial sources.

The essential elements of your 'Business Plan'

In order to confirm viability, it is important that the acquiring DCP consolidates their understanding in a suitable business plan. Core elements in this plan include:

  • The sales particulars of the business in question –

a. What the practice is costing to buy/rent and refurbish,

b. The location of the business,

  • Three years historic accounts for the business in question, as well as accounts for the individual DCP.

  • Forecasts and narrative for the next few years,

  • Some background on the acquiring DCP 's own personal accounts

a. Are they a high earner,

b. How long have they been practicing.

Your personal account perspective can be easily identified as part of the 'Asset Liability' or Income and Expenditure analysis, which helps client's review where they are financially. This 'snapshot' can demonstrate the sound platform off which the DCP seeks to build. You can either prepare this statement yourself or your independent financial adviser can help facilitate this with appropriate forms, which can be completed with ease.

Generally speaking, a bank will lend to a practice against a combination of the freehold property value, the practice's 'goodwill', and its fixtures and fittings, so personal investment is not always necessary. It is vital that your independent financial adviser negotiates the best terms with all the specialist lenders.

Key elements of the business plan:

  • What do you want to achieve with the practice? What steppingstones do you need to take things forward over the next few years?

  • How are you going to achieve these goals? What will you need to set-up, refurbish, upgrade or purchase in order to realise this and how much will this cost? This then needs to be supported with financials including cash flow, profits and loss and balance sheet forecasts. How do these fit into your forecasts?

  • Where are your future patients going to come from? – Can you acquired more commitment from the PCT? Will you be looking to convert them from the NHS to private plans or are there planned 'local marketing initiatives'?

  • How are you going to differentiate your practice? Will you be offering cosmetic treatment such as dental bleaching in addition to your day-to-day dental services?

  • Who will be working with you and what specialities do they offer? Will you employ a dentist who can refer patients, as well as performing additional dental procedures?

  • How will your practice be different from the competition? What will set you apart?

  • Last but not least, proof that you are a registered hygienist or therapist! This can be easily achieved by citing your registration number within the business plan.

  • Developing a robust business plan will often throw up new challenges and opportunities that you had not considered before. However, you can work many of these through with your independent financial adviser to find a bespoke financial solution to


For further information about the issues mentioned in this article, please phone - 0845 345 50 60, or e-mail -

Practice Financing: Part 2

Calculating The Financial Realities

Following on from last month's feature on how to contruct a financially-sound business plan, in this second part Richard Lishman further explores what is needed to gain the financial backing in order to set-up your own practice by looking at ways you can estimate income and expendature and predict the business' turnover.

In the last issue of Smile, we stripped-down the crucial elements of the Business Plan and discussed the areas that lenders will assess when considering financing your project. The next step is considering the proposal in detail and analysing the financial aspects of the practice, which will help you ascertain whether or not this is a sound financial decision and can generate the kind of income you had hoped to gain.

Richard Lischman once again uses his business expertise to elaborate on some of the costing issues for you to consider and helps to take you through the final stages of securing practice financing.

Calculating the financial realities

Once you have developed a business plan you will need to consider whether your funding request is financially viable.

Typically a bank will lend money against both the practice's freehold – often up to 100% of the value - as well as up to 70% (or possibly more in London and the South East) of the practice's existing turnover (something which is obviously only applicable if you're buying a practice that has already been established).

You need to ensure that you build into your calculations not only the interest costs, but also other key factors like your own salary and capital costs.

Let's look at an example

  • Assuming 100% finance on a purchase of £500,000,

  • Twenty year period,

  • Capital and interest payable from day one

  • Monthly payments of approximately £3,530.00 per month or £42,360.00 per annum,

  • Interest only in year one would be around £29,000.

A full-time dentist's income is usually from £70,000 upward (principals tend to earn circa £150,000 plus, whilst high earning associates can earn £200,000 plus). In my experience hygienists & therapists earn around £25-45k per annum so don't have the earning potential of dentists.

Add to the monthly payment a sum equal to the generic income for a current associate of say £75,000 gross, then from year one the practice needs some £122,000 (excluding tax implications) on the bottom line to cover its commitments without discomfort.

A new practice will not have any good will, so when arranging finance the hygienists/therapists will only need to fund the lease, & fixtures & fittings, along with any additional expenses incurred.

The risk would be far lower if a hygienists/ therapists purchased an existing practice, as there is a patient base, as well as potential associates to continue working within the practice to allow continued care. However, purchasing an existing practice incurres additional cposts such as good will which can cost around 100-150% of turnover

As such, dentists should look realistically at the value of the practice balanced by the return on the investment it offers.

Management of income generation together with cost control through great teamwork and understanding within the practice will be vital to making the success the owner seeks.

Let's look at the structure

The structure of the facilities the banks will provide to meet a successful funding application will depend entirely upon your individual circumstances. Typically, such dentists will come to us with a global sum that they need to raise. We will analyse the case to see if the banks can provide this funding with a capital loan for a prescriptive period. A small overdraft may also be provided to help cover any emergencies in the practice's cash flow and banks readily work with specialist equipment providers when required. On the few occasions when banks cannot provide enough traditional loan finance, we can usually help individuals acquire an additional loan from an alternative source.

One of the problems for any business is the inability to predict future interest rate movements. To mitigate against possible rises, you should first consider the options around variable rate and fixed rate. For the more financially sophisticated practices, you can consider tailormade packages to suit individual needs.

A growing number of dentists we deal with are focussed on taking their practices into almost purely private income either through a monthly payment plan like Denplan or pay per item.

An increasing number of clients are setting up their own bespoke payment schemes that compliments their practice, and a number are introducing these schemes, that are essentially a hybrid, which they are developing in-house on the basis of cost savings. This approach does require the upfront purchase of specialist billing software, as well as bank approval, to underwrite the direct debit patient payments.

Working with a professional team

We recommend you work with specialist accountants and solicitors such as a member of NASDA (National Association of Specialist Dental Accountants) or ASP D (Association of Specialist Providers to Dentists) as they have a detailed day-to-day knowledge of the intricacies of the dental world. They will be able to share their vast experience and knowledge in this area, which in turn will save you time and money.

Also work with specialist independent valuers to evaluate freeholds, as they have their finger on the pulse of the dental marketplace and can accurately assess goodwill, equipment, fixtures and fittings. They will ensure you are not paying over the odds!

In order to secure the best possible funding targeted to your specific requirements, you should also ensure that you look to establish a solid partnership with a bank that has its own Specialist Healthcare Managers who can provide a creative and effective response to your requirements.

We look at what the banks offer regarding flexibility in its financial structures allowing clients to fix rates for new entrants to create some security around initial repayments and we always try to present the best options to clients within 48 hours, which helps you move quickly and with confidence.

Whilst many of DCP's may have modest financial expertise, it will be a relief to learn that there are specialist independent financial advisers available to do all the leg work for them, whilst guaranteeing to provide them with the best overall deal available. As if buying a practice isn't stressful enough, at least with the right professional team working alongside you, you can consider putting your feet up!


For further information about the issues mentioned in this article, please phone 0845 345 50 60, alternatively you can e-mail -

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