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So you are prepared to budget your home expenses. Drive that car a little longer. Stay in that rental apartment or smaller home. Delay starting the new family.
Sounds like you are ready.
Having been involved in opening several hundred operatories over the last 3 decades – I have seen it all!! Some of my most successful clinics have opened on shoestring budgets, and others have struggled opening ginormous money pits.
Every single one of these will be discussed at some point over the upcoming years of blog-casting. The point today is to talk about how to open the cheapest dental clinic you possibly can. The good and the bad.
#1 Create a business plan
This is your first lesson in the business of dentistry. Your first taste of fantasy and reality.
EVERYONE wants to believe they will open an incredible business and “they will come”. It’s VITAL to believe in yourself and your abilities. In your investments. Talk to someone who KNOWS your business. Who has OPENED clinics in your area. LISTEN to the advice of consultants that will help guide you to a realistic game plan.
If you have an imaginary $300,000 business to build – how are you going to get patients in the door. What will make you OUTSTANDING in order to lure them away from the dentist they already have? Is it a PRIME location? Will you have PRIME technology or ABILITIES? How will you MARKET this message? What is the market for TEAM members? How much will you need to pay them in order to keep them? How much personal income do you need in order to survive at home?
If you want to build cheap – it’s possible. Cheap is not necessarily going to attract the right patients, especially in competitive health care!
#2 - Pick a cheap location.
Retail malls tend to have the highest rent. The good news is the traffic flow. A good location like this can result in an immediate flow of patients that are walking by you and find your location ultra convenient. Be prepared to eat high rent for a very long time. Be prepared to eat “crow” as the mall dictates how big you will ever be, where you will be located, when you will grow and move and what hours you will work. Be prepared to pay as much as 3X the rent a few blocks away….
RENT is a fixed expense. Every month…month after month…year after year….
If you want to make the most of this fixed expense – break down the rent by TIME. You may THINK that cheaper rent is better – but not always. There is a reason big anchor businesses find PRIME locations where there is a lot of traffic. They also understand that every SECOND the business is open is an opportunity to create cash flow. $5000 a month in a location with good traffic for 12 hours a day, 7 days a week works out to $13.88 per hour FIXED costs. In order to keep rent at 6% of costs they will want to generate $83,333 per month of gross revenue. $347 gross per hour x 8 hours x 30 open days per month.
If you want CHEAP rent - a CHEAP fixed cost you can pick a location off the beaten track. Inconvenient. Out of town. Maybe you can get your rent to $1500 a month as opposed to $5000 a month….but how many anchor businesses do you see in the area?
GOOD BUSINESS means considering your drawing area and demographic and local competition.
ALSO – you MUST negotiate the rent! Dentists are PRIME tenants that tend to stay for a LIFETIME. You have a HUGE investment in leaseholds and it’s rare that will be left behind. Make sure you retain the ownership of this space and negotiate your terms considering not only yourself – but the value of your business in the future.
THERE IS NO FREE RIDE. Landlords have an expectation of profit for a space. They DO NOT care if you are a dentist, or a bakery. They have a goal of making a certain return on their money. It’s a part of the negotiation. I have heard consultants tell dentists they will get a certain amount paid by the landlord towards improvement costs. They MAY be right – but more often I have seen these costs simply added into the formula for the landlord to retain their expectation of profit. It may seem like you are getting $100,000 towards improvements – but this is already built into the market price, or added after.
#3 Contract it yourself.
Everyone wants a cut. A designer, an architect. A consultant. The landlord.
The cheapest offices I have ever seen built are by dentists who have an electrician, carpenter and plumber in the family. They draw out the office on a napkin and think this is all they need. The chair goes here, the cabinet goes there. Let’s make the rooms really big!! I love a big operatory.
The ending result usually looks like something that had no particular, well drawn out plan. Ginormous rooms, tons of wasted space. Little efficiency.
But it’s cheap.
You may not feel like you “cut corners” but you wouldn’t know any better. The plumbing under the floor is missing some conduit for future growth. The vac lines are smaller than a manufacturer specification required. You live with the consequences.
You can build an office for $100 a square foot if you want. You will lose the efficiency and pricing that large contractors enjoy with full time, experienced trades people. Kind of like those people who go to another country to get dentistry – some times you get lucky….some times you don’t.
But lets’ build a 5 op clinic. You need 400 square feet for every op, you googled this and lots of people agree…so ok.
You draw out your napkin plan and transfer it to a piece of paper so everyone can have a copy.
You budget $100 a square foot because you priced it out with lots of friends.
$200,000 for 2000 square feet.
#4 – Buy cheap equipment
If you want a cheap car, you can buy one at a dealership. Most brands of cars make something that will get you from “A to B” on round wheels. Why buy “average” when you just want to get from “A to B”.
It can be done.
You can equip a dental operatory for $35,000 if you want. Get your neighbor friend to build some cheap cabinets, or buy them from IKEA. You don’t need commercial hinges and plumbing – you saw some at home depot for $75 for a sink and faucet – why buy the $200 version?? Crazy!! Bob the plumber will install this for $75, but you found Sam will actually install it for $50. SOLD!
You googled and found some equipment on ebay. A new chair that looks just like that European brand for $7500 instead of $75,000. SOLD!
Alternatively you can pick up some good used equipment for 40 cents on the dollar. It’s been around the bend a few times, but it still works. Why pay $35,000 for a new brand name package when the 5 year old one is just $15,000!! SOLD!
At the end you can equip an office with a mixture of new and used for $35,000 per room (make sure to include mechanical as a “room” in your average. And Technology is another factor.
Total 3 rooms to start with a panoramic xray $140,000.
#5 – All the other stuff, including your bleeding bottom line.
All the other stuff you can find “everyday” furnishings for the front. Some electronic store computers. A cheap knock off dental practice management and imaging program. You can buy your dental supplies and instruments from the cheapest sources.
Everything else for $50,000.
Be prepared to bleed cash. When you go back to step #1 in your plan make sure to include all your expenses before you have much cash flow. Generally I find it takes a good 12 – 18 months (or longer) just to cover expenses. This is before you start to service the loan. Another 12-18 months you will be starting to gain equity. This is a type of pay. It’s earnings – but it’s not free cash flow. The type of cash you need to pay for the mortgage and food.
In the above cheap example – the totals:
Total $390,000 with a do it yourself type set up.
It can be done, and it will be done.
This IS NOT my recommendation.
You can also go bat shit crazy and pay no attention to costs. It’s easy to build a business plan that has you a genius of the business world with incredible amount of patients flocking to your door. Your credit is good, so the banks are like “hell yeah!”.
If you want to go crazy and open all 5 rooms at once – but build it out for future 8 rooms. You hire the best architect, the best designers, get Chip and Joanna Gaines to design the clinic and build it. You find a spot in the “Fashion Mall” and they are more than willing to take your signature and first born as collateral to open that space.
Only the best equipment will do. CT, CAD CAM, Lasers, Premium cabinets, custom designed front desk.
The same example office from Mr Cheapskate now costs you $2,000,000 to open and you still have no patients or cash flow.
My recommendation is somewhere between the two examples.
First pick a good consultant with experience in your area that has opened dental offices. That has experience with business plans and projections. Learn the business of dentistry before you do ANYTHING!
Reality is still that an average office opening, after all costs are considered is still north of $1,000,000 (in Canada). After you have this investment – you should start to realize some free cash flow. Be prepared to leverage your assets and continually improve. Continue to invest and grow your brand and enjoy your earnings.