Creating a Business Plan for a Dental Practice

“The value of a business plan simply cannot be overstated. Putting ideas and concepts down on paper is invaluable and the act of researching and compiling data about your competitors and the market will prove to be very useful in the years to come.”

Stefan Topfer, The Importance of Business Planning (2)

Why creating a business plan is essential when buying a dental practice

I started this article with a quote that I wholeheartedly agree with. A well put together business plan is at the centre of every successful business. It’s also an essential factor in successfully obtaining acquisition finance. I have had this conversation with many clients over the years. If they cannot show how they are going to be a success, why should the bank have faith in them?

The fact is that a business plan helps anyone who is starting or buying a dental practice to clearly see their current position and the way ahead. It also means that financial professionals can see the reliability and promise of a dental business, before they make a lending decision.

What to include in a dental practice business plan

A well-written business plan needs to be comprehensive and succinct. It should cover all aspects of the business, without going into minute detail.

Remember, while a comprehensive business plan is essential, keep it concise and use bullet points. Lenders will have limited time to review your application, and a 50-page business plan can be overwhelming.

Items to be covered include:

The aims and objectives of the business.

What do you want to achieve with your practice? Make sure that aims are well-considered and transparent. It’s also important to make sure that these aims reflect the personal CV of the practice owner.

• Set clear business objectives: Revenue, staff, treatments, surgeries, profit margins, and work hours.
• Establish goals: Short-term (first 12 months), mid-term (1-3 years), and long-term (5+ years).
• Plan for expansion: Determine when you want to expand (e.g., adding more surgeries or services).

The services that are available at the practice.

Make sure that the resources, facilities, products and qualifications are in place for all of the services that are included.

• Detail Your Service Offerings: Clearly outline the dental services you will provide, such as general dentistry, cosmetic treatments, and specialized care (e.g., orthodontics).
• Tailor to Market Needs: Ensure services align with the demographics and needs of your target market.
• Revenue Streams: Highlight how each service will contribute to the practice’s revenue, helping lenders understand your financial projections.
• Competitive Advantage: Explain any unique services that differentiate your practice from competitors, such as advanced technology or niche treatments.

Information about the market and competitors.

Research should be completed so that details of the current market, and the level of competition, can be provided. Consider the threats the business may face and the opportunities it can explore. I have found that a SWOT analysis is often useful at times like this. It helps with full exploration of strengths, weaknesses, opportunities and threats that can be summarised in the business plan.

• Market Research: Analyze the local demographics to ensure there’s a demand for dental services in the area.
• Identify Competitors: List existing dental practices nearby, their service offerings, and their market positioning.
• Differentiation Strategy: Explain how your practice will stand out—whether through unique services, superior technology, or customer experience.
• Pricing Strategy: Compare local pricing to determine your fee structure and ensure it’s competitive yet profitable.

The cost of purchasing and running the business.

This is a good indication that all financial implications have been considered. Remember to understand the risks of hidden costs and indicate that there is a mitigation plan in place. This information helps banks to recognise the reliability of the business.

• Initial Investment: Setting up a dental practice requires significant capital for premises, fit-out, and equipment.
• Investment Range: Depending on the level of finish and equipment needed, anticipate an investment of £250,000 to £350,000.
• Surgery Setup: Start with one surgery, along with a decontamination room and reception area. Consider plumbing additional rooms for future surgeries to streamline expansion.
• Lender Requirements: Provide a detailed breakdown of build and equipment costs for lenders.
• Funding Proportion: Lenders typically fund 70% of start-up costs, so you’ll need to contribute your own funds and ideally have some cash reserves for initial cash flow support.
• Bank Lending: Banks remain keen to lend to the dental market, but they require a robust business plan and realistic cash flow forecast, especially since there won’t be historical financials to rely on.

How the practice is going to be run.

Proposed hours of operation should be included. This information needs to be backed up by details of the amount of staff required and the working hours that will be needed.

• Management Structure: Outline the roles and responsibilities of key personnel, including practice managers, dentists, and support staff.
• Day-to-Day Operations: Describe the daily workflow, patient scheduling, and how you’ll manage appointments and emergencies.
• Technology Integration: Explain the use of dental software for patient records, billing, and appointment management.
• Quality Control: Include protocols for maintaining high standards in patient care and compliance with health regulations.

Financial forecasts.

Anyone starting or buying a dental practice needs to have informed knowledge of how the financial situation looks for the coming months, and years. Banks also need to see that they are lending to a business that is going to be profitable. Be realistic with the figures that are included and back them up with research and evidence where possible.

• Income Projections: Be realistic and conservative. Overestimating income could lead to lenders questioning your projections.
• Expenses: Factor in ongoing costs such as salaries, utilities, rent/rates, and suppliers. A detailed cash flow forecast will help project these expenses.
• Finance Expenses: Ensure loan repayments are included in your cash flow projections.
• Break-even Point: Identify your break-even point. Cash flow management is key to reaching this point by balancing income and expenses in the early stages.
• Future Investments: Outline goals for expanding your practice, such as adding surgeries or services. Include potential costs in your financial planning.

Anyone starting or buying a dental practice needs to have informed knowledge of how the financial situation looks for the coming months, and years. Banks also need to see that they are lending to a business that is going to be profitable. Be realistic with the figures that are included and back them up with research and evidence where possible.

Present the figures in a clear, easy-to-understand format for lenders. The forecast should cover at least three years, with the first 12 months detailed in monthly figures. Annual figures will suffice for years two and three.

How to format a business plan for a dental practice

Any good business plan should have three distinct sections; the executive summary, the narrative and the financials. It should also include appendices with relevant charts and graphs. It’s vital to understand the importance of each section.

The Executive Summary.

This is the most important part of a business plan when looking for acquisition finance. Lenders like to know important aspects about a dental practice business, before they provide any funding. Details of what services are going to be provided, how much funding is required and how it will be repaid should be included in this section.

It’s important to make the executive summary persuasive. Include details of the vision for the future and why the business is such a low risk when it comes to lending. What will make the business succeed?

The Narrative.

The main section of a business plan should be broken down into defined parts, for ease of reading and understanding. These parts should include.

1. A business overview including aspects such as structure, staffing, loan repayments and risk management.
2. Location of the business. Is this likely to change as the dental practice succeeds and grows. What are the strengths of the location?
3. Marketing and analytics. What demographic will marketing be aimed at, what form will it take and what will the investment be. Make sure that the marketing strategy for the practice is defined.
4. Operating the business. What will happen on a daily basis? What sort of equipment will be used at the business and what supplies will be needed? All aspects of the day to day running of the business should be included here. This includes how the business will be managed and what the staffing requirements will be.

The Financials.

In the final section of a business plan, the finances of the dental practice should be addressed. This should include projected income and cash flow figures, together with any assumptions on which these figures have been based. Provide a comprehensive vision of the financial standing and future of the practice.

Appendices.

This part of the business plan is where supporting evidence and background information is provided. This can include charts, graphs, action plans and schedules.

Putting a business plan together may sound like hard work, but it’s an essential aspect of buying or starting a dental practice. Once the plan has been completed, it’s time to consider funding options for the purchase.