Dr. B recently graduated from dental school. He is preparing to go to the bank to borrow funds needed to open a new office and start his practice. He prepared a financial statement showing a negative net worth, but no one could expect him to have accumulated a positive net worth while going to dental school. The community in which he planned to start his practice was his hometown. He expected the bank to be enthusiastic about loaning him the money needed to establish a long-term business relationship with him.

Dr. B had borrowed money from his parents during his years in school, so he didn’t want to go back to them for financial assistance in getting his practice started. He was going to open a “first class” office and show everyone that he could build a practice on his own. He knew of another dentist who borrowed the funds they needed to get their practices started from a bank and he expected there would be no problem for him to do the same.

Dr. B made an appointment with the Vice President of a local bank. This banker knew Dr. B’s family and was very pleasant during the interview. Dr. B showed the banker his office plans, equipment list, financial statement and school transcripts, and then comfortably sat back and waited for a reply. Then the banker began to ask him questions. “Does the community need another dentist? What research did Dr. B do to determine the need for an additional dentist?” Dr. B replied that he wanted to return to the area where he grew up and that no other research was involved in the decision.

“What do you have to offer for collateral?” the banker asked. Dr. B said that the equipment and the practice would be the collateral. “Did you realize that the equipment is worth about ten cents on the dollar if it had to be liquidated, therefore it represents very little collateral?” Dr. B had no reply to this question because he had not thought about that issue beforehand.

“Did you also realize that there are two other dentists in the same community who have opened their offices recently and neither one is busy?” Dr. B said that he had heard that they had “problems” and that their inability to get a practice up and running was no indicator of his potential. “Well, as I see it, you want to borrow a substantial amount of money and offer little or no collateral; you have no basis for coming into this market to set up a dental practice other than wanting to return home. You have chosen to ignore the financial and business problems of the other dentists and the fact that there is no shortage of dentists in the same area.”

“Do you have a co-signer?” asked the banker. Dr. B replied that he didn’t want his folks to co-sign for him. The banker smiled and said he understood. The risk that Dr. B wanted to take was obviously too high to ask his parents to put their financial security on the line. However, the risk was also too great for the bank. The banker told Dr. B that he should do some additional research and come up with another plan, one that would minimize risks and provide a positive cash flow from the first day of practice. Dr. B scratched his head and told the banker that he did not know how that could be accomplished.

The banker then told him about three other dentists who had purchased their practices from retiring sellers and who were all doing quite well. He asked if Dr. B had considered that as a possibility. Dr. B replied that he didn’t want to buy someone else’s practice that he wants to design his office and do it his way. The banker said that if Dr. B bought an existing practice that had a patient following then he would have a positive cash flow and the bank would be more than happy to finance any improvement loans Dr. B would like to make to the office or even finance a new building for him.

The banker told Dr. B that he needs to get his priorities so that he needs to have a better understanding of income and debt. Having a nice, new, but expensive office does not create income, it creates debt. Too much income will never get you in trouble, and revenue without debt is excellent. Debt, however, can be dangerous, and debt without income is even more dangerous, but a lot of debt without any immediate income is disastrous!

The banker went on, “What you have presented to me is a plan for debt, with the hope that income will somehow follow at a later time. That is a plan that could get you into a lot of financial trouble. Get in touch with your market, explore your options and try to find a means of getting into a practice situation with an immediate positive cash flow. Even if the office is not what you would want right now, you can buy all the fancy equipment and furnishings for your office once you are making money. However, once you realize that the money you are making can provide you and your family with a much better quality of life, you may change your mind about all the expensive dental equipment. Life is much better if you are not burdened with unnecessary practice-related debt.”

The banker told Dr. B that he appreciated the opportunity to do business with him, but that Dr. B would have to come up with a better business plan. The banker said that he could not loan Dr. B the money he had requested under the terms of the business plan that was presented to him. Dr. B thanked the banker for his thoughts and concern for his future. He left the bank as a more informed person, but still no one knows what Dr. B will do next!

If you wish to check out better practice opportunities, then call AFTCO at 800-232-3826 or visit our website at www.aftco.net for more information. It's time to call AFTCO!

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