Are you finally accomplishing your dream of opening your own medical or dental practice? As all of the pieces come together, it’s important to set yourself up for financial success from the start. This is where effective budgeting for medical and dental practice startups comes into play, helping you properly allocate resources, understand your bottom line, and reach your growth goals.
In this article, we’ll cover everything you need to know about budgeting for your startup, including what initial costs to expect, how to create a realistic budget, and the importance of ensuring cash flow and funding options.
Initial Costs: Equipment, Lease, Staffing, and Marketing
Before you can open your doors and start taking on patients, you will have a handful of initial costs. First, you need to secure your office space. Before you go shopping for a place to open your practice, you need to have a baseline understanding of your goals. For example, it wouldn’t make sense to lease a space that can see ten patients at once if you won’t have the staff to see them all. When signing a lease, you will most likely need to put down a security deposit and the first month’s rent.
Once your lease is signed, you will move on to equipment purchasing and leasehold improvements. If the leased space wasn’t used as a prior medical or dental office, you may need to make improvements to tailor the space to your needs. Depending on the type of practice you are opening, equipment can be a large upfront cost. If you’re short on cash, consider shopping used.
While you are making your space perfect, you can start the hiring and marketing processes. A recent study found that it takes an average of 59.5 days to fill healthcare positions. This means you should start looking for qualified talent two to three months in advance of your opening date. Similarly, start building your brand image and filling appointment spots prior to your opening.
Budget Planning: Creating a Realistic Budget and Tracking Expenses
When putting together your budget, it’s crucial that you are realistic about both your time and money. One of the many reasons new practices fail is because they don’t budget effectively. Starting a successful business requires both factors. If one is low, the other has to compensate. Let’s say your time is low, but you have sufficient funds. In this situation, you might consider outsourcing your marketing or other backend functions.
Before you open your doors, create estimates for your variable and overhead costs based on market data. For example, you can use employment sites to determine the average pay for a hygienist in your area or the going rate for the monthly rent of an office suite. Although these items are just estimates, they are a great starting point when piecing together your budget. Go through every cost you expect, including office expenses, supplies, insurance, bank fees, salaries and wages, employee benefits, debt service costs, and rent.
With these costs in hand, start bottom-up forecasting. How much revenue do you need to cover your costs? How will you generate that revenue? For the first few months of opening, your expenses can vary, especially as you establish your patient base. However, once you’ve been open for a few months, use your actual expenses to create your budget. For example, if you sign a 12-month lease, you know what your lease expense will be for the next few months. You shouldn’t use an estimate when you have an actual expense. The same goes for salaries, wages, and supplies.
Financial Stability: Ensuring Cash Flow and Funding Options
As you’re creating your budget, it’s important to ensure you have adequate cash flow and funding options. Even if you have enough cash to bootstrap your way through the opening, financial stability depends on having options when an unexpected event comes up. One of the most common financing options is a line of credit, which works like a credit card.
If you are taking out a term loan to pay for equipment or renovations, negotiate principal payment deferment. Instead of making monthly principal and interest payments, you will make interest-only payments for 6 to 12 months to conserve cash. Even if you can make regular monthly payments, taking a conservative approach is always best to make it through any roadblocks or hurdles thrown your way.
Summary
Budgeting for medical and dental practice startups takes time, effort, and practice. In the first few months, it’s not uncommon to have significant variances, especially when unexpected costs pop up. However, each month, your budget variances should be minimized and you should start reaching your financial goals. If not, it might be time to bring in an accounting professional or financial consultant. If you have questions about effective budgeting for medical and dental practice startups, please contact us.
