Steps to Practice Ownership

What’s right for me?

Presented by: Jessie Kunkle

Bank of America Practice Solutions

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Today’s Agenda

1.) Practice Ownership Options

2.) Understanding Your Credit

3.) Business Plan

4.) Approval Process

5.) Financing Options

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Practice Ownership Options

Start Up

Practice Purchase

Buy In/Partnership

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Starting Up a PracticeStart Up Positives:

– Build a practice the way you want to build it in the space you like the most. New equipment, furniture, etc. that fits your personal style.

– Hire and train your own staff using your business and service philosophies.

– You ultimately get to reap the rewards of your hard work with 100% of profits

– Your work produces results that create value in a business that you own.

– Patient selection matches your personality strengths and weaknesses.

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Start Up Items to Consider:

– Stress of managing and running an office.

– No patient base– You have to deal with the growing

pains, i.e. staffing, billing, benefits, pay plans, scheduling, to name a few, and then provide dental care.

– You will have to continue as an associate until the practice can support itself.

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Practice Purchase Positives:– Your patient base is mature

– Established insurance relationships

– Have a patient base already established

– Staff understands their roles and are trained

– Staff maintains relationships with patients and can give you

guidance with individual needs and care

– You are purchasing cash-flow, enabling you to pay yourself

immediately

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Practice Purchase Details to Consider:

– Possible patient attrition.

– You are buying someone else’s practice

(philosophy, flow, treatment planning,

staff training, systems, etc…)

– The equipment and office may be old

and worn which will require additional

economic investment.

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Buy In/Partnership Positives:

– Same as Practice

Acquisition

– Very little risk of patient

attrition

– Management of staff is

constant

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Buy In/PartnershipBuy in Negatives:

– How well do you know your partner

– What do you own?• Undivided Interest….

– Do you share similar philosophies regarding treatment planning, practice management…

– Partnerships are historically difficult to manage and maintain.

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The 3 National US Credit Bureaus

Competitors: Equifax, TransUnion, Experian

Get a copy every 6 months

Review all 3 bureau files

Your rights under the Fair Credit Reporting Act (FCRA)

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Your Credit Bureau FileWhat is included in your file

• Contact Information• Trade lines/Accounts

– Installment loans– Revolving lines of credit– Open loans

• Public Record and Derogatory Information• Inquiries• Credit Score

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The 3 National US Credit Bureaus• Creditors can and will report derogatory information to the

credit bureau when you do not “pay as agreed”

– 30 days past due

– 60 days past due

– 90 days past due

– Charge off

– Collections

– Public Records

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Your Credit Bureau File

Public Record Information• Suits• Judgments• Tax Liens• Bankruptcy

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Credit Scores

Understanding Credit Scores

• Your Credit Score is a grade on your credit report.

• Scores Range from 300 to 850+

• Median FICO Score is Approx 723

• Average FICO Score is Approx 693

• Bank of America Practice Solutions 680

• Auto Industry- Tiered Based Pricing

A+

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Credit Scoring

How are Credit Scores Calculated?

35%

30%

15%

10%10% Payment History

Amounts Owed

Length of Credit

New Credit

Type of Credit

First Thing’s First – Create a Business Plan

1.) Summary Plan– A. Type of Practice– B. Mission Statement– C. Practice Structure– D. Market Opportunity– E. Competitive Advantage – F. Management Team– G. Office Manual– H. Benchmarks– I. Capital Requirements

2.) Target Market3.) Management Team4.) Business and Personal Budget5.) Marketing Strategies

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The best way to experience success in any venture is to plan.

Need a Business Plan Template???Email Jessie Kunkle for one at –Jessie.kunkle@bankofamerica.com

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The Approval Process• What does it take to get approved?

• The 3 C’s– Credit – We Covered– Collateral

• Your Personal Financial Statement• Liquidity• Are you a home owner?

– Character • Stay away from lavish purchases• Live within your means• Have you started a retirement plan?

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The Approval ProcessStart UpsApplication Information

• Dental Lic #

• Requested Amount

• Project Information

• Current Associate Info

• Application and Personal Financial Statement

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The Approval ProcessPractice AcquisitionsGet Pre-Qualified!!!Pre-qualified vs. Commitment letter (Approval)

Pre-qualified means the buyer’s credit, production capabilities, and financials qualify to obtain financing. THIS IS NOT a final approval.

Banks need to review the seller’s financials to review the cash flow, office information to ensure the practice is a good fit for the buyer

So why pre-qualify?: Getting pre-qualified could move you to the front of the line in buying a practice!

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Required Information-Practice Purchase

• Buyer-– Application and Personal

Financial Statement provided

by Lender

– Curriculum Vitae

– Last 3 years of tax returns

– 12 months of production

reports if available

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Seller Required Information• Seller

– Seller Profile form provided by Bank

or Broker appraisal

– Current Profit and Loss statement

– Last 2 Years of tax returns (3 years if

loan request is >$500,000)– *Note – If practice broker is

involved normally they can provide all seller information.

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What to Look for in a Bank Proposal• Practice Finance Loan Proposals-

Important Details to Consider– Terms Available – 5,7,10,12,15 years?– Approval VS. Proposal– Fees – Advance Payments, Admin Fees,

Closing Costs, Origination Fees– Interest Rate- Fixed or Variable? Balloon? – Collateral Requirements? Additional

Collateral? Read the fine print.– Ability to lock the rate?– Prepayment and Principle Reduction

Options?

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A Tale of Two LoansLoan A

• Interest Rate 5.99%• Term 84 months• Fixed for 5 years• Approved for $400,000• Cost Restrictions• Level Payments• 3% Doc Fee +10% down• 2% Prepayment Penalty

and no principle reduction

BAD LOAN

Loan B• Interest Rate 6.39%• Term 180 months• Fixed for 15 years• Approved for $450,000• No Cost Restrictions• Graduated Payments• 100% Financing• Principle Reduction and

no prepayment penalty after 12 months

GOOD LOAN

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Sample Loan Structures• Start up Loan

$450,000

• 6.39% 15 year fixed

• 4 months @ $0• 8 months @ $1,587• 12 months @ $3,175• 156 months @ $4,536

• Acquisition Loan $450,000

• 6.39% 15 Year Fixed

• 180 months @ $4,042

Questions?