Are you looking to expand your dental practice, increase the number of locations, or add technology or providers? If the answer is yes, then you need to make sure you have the financial data that banks and investors want to see.
Dentists should have 12 to 18 months of financial data to secure a loan or to sell their practice for the highest valuation.
Financial Data Dentists Need to Know
Before a bank or investment firm decides to provide a dental loan, it’s going to want to see how you’ve performed over time. That’s why it’s important to start tracking your financial metrics for at least a year to 18 months.
Mike White, CPA, is a Principal, Health Care at CLA, one of the largest accounting firms in the United States. He’s one of the leading authorities on accounting for dental practices, multi-location groups, and DSOs, and is a frequent speaker at national conferences.
“When we have the opportunity to meet with new dental practices or groups, we always start with an understanding of the story the practices are trying to portray. Then we evaluate their income statement and balance sheet to see if that story is coming through. It is imperative to have good financials to help you find financing, bring on partners, or for ultimately a liquidation event. It could devalue the organization significantly otherwise,” he said.
“People are used to looking at their end-of-day reports and the cash they have in the bank, but we want to make sure the practice management system, the balance sheet, and the income statement are all telling the same story. We want to be able to show patient volume growth, revenue growth, and your consolidated EBITDA (earnings before interest, taxes, depreciation, and amortization).”
Mike White, CPA
Principal, Health Care at CLA
What Banks Want to Know Before Lending to Dentists
Mike Montgomery is a Vice President at Live Oak Bank, specializing in Healthcare Sponsor Finance. When Live Oak started working with the dental industry in 2009, it focused on private practices and financed $2.5 billion in origination. Now, in addition to private practice financing, it finances dental groups that have a minimum of five locations and $1.75 million in EBITDA.
He said banks want to know:
It’s important to take a long-term view of your financial story.
“If your tax returns are driven by write-offs, then you’re not showing any profit. That makes it really hard for a bank to fund your company,” explained Mike Montgomery.
One of the biggest challenges is finding funding at different stages of growth. As you get bigger, banks and lenders are going to want to see more sophisticated reporting and infrastructure.
Dental Practice Accounting Also Drives Operations
Lori Noga, DMD, is the founder and CEO of Tranquility Dental Wellness, a dental group with three practices in Washington. She tracks her group’s financial data closely and uses the information to drive both short-term and long-term decisions. She established a priority checklist to ask questions including:
“Knowing what your benchmarks are from Day 1 is crucial. I knew I had to track things like production by provider, new patients, growth over time. I project out a budget for the next 12 to 18 months, looking at expenses and margins.”
Lori Noga, DMD
Owner, Tranquility Dental Wellness
Financial Planning for DSOs
Barry Deirmenjian, DDS, is the CEO of Smiles West, a fast-growing DSO with 19 locations in California who turned to Mike White for help.
“We never planned to grow this big,” laughed Dr. Deirmenjian. “You need to have a plan. You need to know how you want to enter this market and how you want to exit, and what your goals are for what you want to be doing on a yearly basis. We spent a lot of money fixing the problems we had because we didn’t do it right the first time.”
“The biggest challenge for a group this size and beyond is going to be information overload,” said White. “We needed to prioritize and set 90-day goals. Dental supplies were the first goal and we had tremendous results. Then labs. Next up is the fee schedule. We’re going through it piece by piece to review and rebuild.”
“As we scaled and got larger, we needed more data to get financing so we could show that we had the ability to run the offices. We were using my personal CPA, but Mike’s workbook really opened up our eyes as we scaled up and realized the necessity of the KPIs and dissecting information that we had never really looked at.”
Barry Deirmenjian, DDS
CEO, Smiles West
Having the right data to drive smart decisions makes all the difference. Click here to download our guide “The KPIs Every Dentist Needs to Know” for real-world examples of KPI scorecards for dental practices and groups.
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