Presenting a business plan to your bank

There maybe a number of reasons why you would seek to present a business plan to a bank for example to obtain finance to purchase a practice, to obtain finance to develop an existing business or to obtain finance for a new practice start up. Clearly if the requirement is triggered by the first two options then you have some considerable advantages in that there is historic data in relation to the business on which you can draw where as the start up situation is by definition far more speculative.

In creating a business plan you should keep in mind these days everyone’s time is precious and that whilst therefore there is always information that is needed the presentation should be concise and to the point. State therefore early on what it is that you require. For example

I am seeking to purchase the dental practice of John Smith and have agreed a purchase with him as follows

Freehold property 250,000
Goodwill and Equipment 150,000
Consumable stock 10,000
Total price 410,000

In addition and in order to cover initial trading fluctuations we are seeking an overdraft facility of 10,000.

At this point you should then seek to state how much you wish to borrow and over what term for example 410,000 over 25 years and include details of any cash contribution that you may wish to make taking into account your overall financial position, tax advice that you may have had and other considerations.

The next thing the bank will wish to know is something about you. Include brief curriculum vitae but do not include your full life history. State where and when you qualified, give a brief synopsis of your practicing history and include details of any post Graduate Education and Training particularly anything that is relevant to your proposition. For example if you have undertaken implant training and are seeking to introduce this into your practice then this is clearly most relevant.

The next stage is to describe in more detail the practice either that you are seeking to purchase or alternatively your development or establishment plans how big will the practice be? How many Principals, Associates, Hygienists etc will be engaged, will this be straight away or at a later date? If this is an existing practice what if anything will you be looking to change? Will you need more money for this?

If you are starting from scratch you will need a marketing and development plan. Why did you pick the location? What is your target patient base and marketing strategy? How quickly will the business build up? This is perhaps the area where it is easiest to become side tracked into making unrealistic statements. Clearly a business plan for development or start-up is by definition speculative however you will obviously have picked your location for a reason so state it and detail any practical research that you have carried out that justifies your decision. For example, if this will be the only practice in the vicinity say so. State any unique selling points about your business. If you find yourself having to adjust the business plan in order to “make it work” then you are probably on the road to deceiving yourself and of course potentially deceiving others.
Financial Forecast
Your business plan will need to be accompanied by a financial forecast, which looks at the overheads of running the business and also the costs of getting it established. It should therefore include marketing and development budgets, cost of stock acquisition etc and even in cases where practices are being taken over allowances for example that you will wish to undertake patient mailings, obtain new stationary and perhaps carry out some initial refurbishment work. For example changing that waiting room that really is not to your taste.

Your financial forecast needs to explore in some detail how and when fee income will be generated i.e. from what source for example NHS, registration scheme and treatment charges. Over what time scale will it build up and who will be carrying out the necessary work e.g. yourself, Associate, Hygienists etc as it is likely that you will be showing an income stream that rises do not forget to include the rising payments to these individuals.

There are some fundamental differences between a financial forecast and historic trading accounts even for a business where very little change to the overall structure is envisaged. Firstly trading accounts include such items as depreciation, which are not expenditure but are accounting adjustments as the name implies to allow for the fact that equipment depreciates in value. The accounts do not take account of any capital expenditure which could of course be required at the practice. Income is normally relegated to one line entitled Turnover or Gross Fees where it is our belief that in a financial forecast more consideration needs to be given to who generates the income and when it will be generated and finally the accounts do not take into account the timing of payment or the generation of income. There are items of expenditure, which will be generated quite early on following the establishment or taking over of a practice, and they may well also be delays in receiving payment. This will most definitely be the case in the establishment of a new practice but even with existing practices it is quite likely that there will be a gradual build up in income following acquisition due to the need to carry out examinations, prepare treatment plans, rebook patients etc; before any real income is generated.

In many cases it all too apparent that the provision of a financial forecast is just yet another hurdle that has to be jumped in order to persuade a bank to lend money. In reality it should be an important tool in planning your proposed business and after the business starts it should be the financial track on which the business will run for its early stages. The forecast should not be consigned to the drawer but instead should be used to monitor performance of the income and expenditure of the business going forward.
Common mistakes
It is probably fair to say that the most common mistake in the creation of a business plan is to get carried away and to endeavour to produce an over complicated and overly long document. Keep in mind that bank staff are under considerable pressure for time and need to be able to get to the essential information quickly if they are broadly happy with your proposition and require additional information or clarification you can be sure that they will come back for this.

Whilst in principle there is no reason why you should not be able to produce your own business plan it sometimes helps to have a “reality check” through a third party. I have yet to see someone produce and submit a business plan for a business that is destined to fail and yet some do even within the dental sector. Once you have a dream in your head it is quite easy to adjust the figures to fit the solution that you want even if this is unrealistic. I have also seen business plans submitted with significant omissions in expenditure which have been highlighted very quickly when the available data as been substituted into our own pre-prepared forecasting spreadsheets.

Finally there is always a temptation in producing a financial forecast to be overly optimistic about the speed of which money will come in and how slowly money will go out which is often not matched by the reality. Be realistic and in approaching the bank ask them to fund an overdraft facility in line with a realistic forecast from the outset rather than putting yourself in a position of having to go bank to the bank three or four months into the project for additional funds.
To summarise, in producing your business plan:

1. Keep it simple and concise.
2. Keep it realistic.
3. Count everything but only once.
4. Don’t be afraid to ask for help.

Author – Mike Hughes of DPCS

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