Key Takeaways

• A dental practice startup budget should account for both the cost of opening and the cash needed to operate while revenue builds.
• Financial projections are most useful when they are based on realistic assumptions about patient growth, collections, staffing, insurance participation, and operating expenses.
• Early commitments such as leases, financing, equipment, technology, and staffing can affect the practice’s cash flow for years.
• Your startup plan should account for your personal income needs as well as the financial needs of the practice.
• Involving your accountant, attorney, and other advisors before making major commitments gives you more opportunity to evaluate your options and make changes.

Owning a dental practice can give you more control over how you work, the patients you serve, the team you build, and the kind of business you ultimately create. But getting from an idea to opening day requires a lot more than finding office space and buying equipment.

Some of the decisions you make before seeing your first patient can affect the practice for years. You don’t need to predict exactly what the business will look like five years from now, but you do need a realistic picture of what it will cost to open, what it will take to operate, and how long it may take for revenue to catch up with expenses.

Start With the Practice You Want to Build

Before creating a budget, think about what you’re actually building. A solo general dentistry office has different needs than a multi-provider practice or one designed to add providers relatively quickly. Location, number of operatories, services offered, insurance participation, and growth plans can all affect how much space, equipment, staff, and financing you’ll need.

Think about patients, too. Where will they come from? How much will you need to invest in marketing before and after opening? How quickly can you realistically build a patient base?

These decisions become assumptions in your financial plan, so it’s worth thinking them through before you start plugging numbers into a spreadsheet.

Know What It Will Really Cost

Most dentists planning a startup know to account for major expenses such as buildout, dental equipment, furniture, computers, software, and supplies. But those aren’t the only costs that matter.

Deposits, professional fees, permits, insurance, technology setup, initial marketing, hiring, and training can add up quickly. Construction delays or changes can increase costs as well.

Then there’s the money you’ll need after the doors open.

Payroll, rent, loan payments, and other expenses begin whether your schedule is full or not. Collections take time to build, and insurance reimbursement can create another delay between doing the work and receiving the cash.

That’s why a startup budget needs to answer two questions: 

1. What will it cost to open the practice?
2. How much cash will you need to operate until the practice can support itself?

Build Projections Based on Real Assumptions

You’ll probably need financial projections to obtain financing, but they should be useful for more than satisfying a lender.

Good projections help you understand what needs to happen for the business to work. How much production do you need to cover expenses? How quickly do collections need to grow? When can the practice afford another employee? When can it begin paying you what you expect to earn?

Pay close attention to the assumptions behind those numbers. If you’re projecting a certain number of new patients each month, where will they come from? If you’re estimating payroll, have you used realistic compensation for your market? If you’ll participate with insurance plans, do your projections reflect what you’re likely to collect rather than your full fees?

It’s also useful to model a less favorable scenario. What happens if the buildout costs more than expected, patient growth is slower, or it takes several additional months to reach your target production?

You don’t need to assume everything will go wrong, but you do need to know whether the plan still works when everything doesn’t go right.

Be Thoughtful About What You Commit to Early

One of the challenges of starting a practice is deciding what you need on day one and what can wait. It can be tempting to build and staff for the practice you hope to have in several years. But every additional square foot, equipment payment, software subscription, and employee increases the amount of revenue you need to generate each month.

That doesn’t mean choosing the cheapest option. Spending too little on something important can create its own costs later. Instead, look at what the practice needs to operate well from the beginning, what you’ll realistically use, and where it makes sense to leave room for growth.

Pay particular attention to long-term commitments such as your lease and financing agreements. A decision that looks manageable during the startup phase can have a very different impact once you’re making the payment every month.

Make Sure the Plan Works for You, Too

The practice isn’t the only thing that needs cash while you’re getting started. You still have personal expenses, and you need to know how long you can realistically go without drawing your expected income from the business.

If the practice needs to begin paying you a certain amount relatively quickly, build that into the projections. If savings or another source of household income gives you more time, account for that as well.

This is also where good professional advice can make a difference. Your accountant, attorney, and other key advisors should ideally be involved before you sign a lease, finalize financing, or make other major commitments. It’s much easier to evaluate the financial or tax implications of a decision while you still have the ability to change it.

Most importantly, don’t make opening day the finish line for your planning. A successful startup isn’t just a practice that gets financed, built, and opened. The business eventually needs to generate enough cash to cover its expenses and debt, pay its team, provide you with an appropriate income, and leave room to reinvest and grow.

There will almost certainly be things you didn’t anticipate. A solid startup plan won’t eliminate those surprises, but it can give you the financial room to deal with them without putting the entire practice at risk.

Before You Open the Doors

There is a lot to keep track of when you’re starting a dental practice, and the financial plan is only part of it. Our Starting & Running a Dental Practice: What First-Time Owners Often Forget checklist covers many of the legal, financial, technology, staffing, operational, marketing, and facility decisions that come with ownership. Download the checklist to help make sure important details don’t get overlooked.

Considering starting a dental practice? Edwards & Associates can help you evaluate startup costs, develop realistic projections, introduce you to other advisors, and plan for the financial needs of the business before you make major commitments. Contact us to talk through your plans.