Dentist's Office
Fremont Dental Office

31145 Brownell Blvd.
Fremont, California 90010

Upon graduation from dental school, three partners took a unique approach to finding a dental office without incurring a lot of debt. This business plan outlines the steps they took to establish themselves in the industry.

EXECUTIVE SUMMARY

Joshua Williams, Eric Grey, and Rich Trame all had just graduated from dental school. All three were determined to open their own dental office. However, they knew this may not be possible due to large debt they were carrying from their education.

In discussions regarding the funding necessary to open a new dental office, the three students agreed they would call the local dental shops in the towns they grew up in. They were hoping there might be an opportunity to get sponsored by a local dentist who knew he/she was retiring in a few years, and was looking for a successor.

Joshua Williams made a call to his hometown of Fremont, which has a population of about 120,000 people. There are two dental offices already in practice; both are husband and wife teams. One of these offices is Fremont Dental Office; the owner (Don Snyder) is sixty years old and his wife is fifty—eight years old. After speaking with Joshua, Don Snyder invited Joshua and his partners to come up for the weekend.

Don Snyder told the partners that he and his wife had been planning their retirement for a few years and had actually hired a business broker to start looking for buyers. This process had started almost ten months ago, and resulted in a few offers. However, the offers were not close to the asking price.

Don offered that he would carry the financing for the partners, so they did not need to go to the bank to get funding. The only stipulation was that the interest rate charged for the loan would be 2% above market. The three partners said they needed some time to review the offer and get their partners' agreement in place. Don agreed and said he would hold the offer open to them for sixty days and would not take additional offers until they replied.

This is how this business plan came about. This plan was written to determine if there would be a large enough market to sustain all three partners and their growing families, while paying off this loan of $1,000,000. This deal included a turnkey dental office with equipment that was only three years old. The office had the most current x-ray equipment and surgical supplies.

MARKET ANALYSIS

Fremont is a city with a population of about 120,000 people. It is an older city and was founded in 1894. Over the years it has seen boom and bust economies. For the past ten years, the economy has been recovering from a long drought. However, recently the city was ranked in the top 100 for fastest growing cities. The farm sector which the city was dependant on for so many years is starting to be replaced by new economic industries.

These new industries are mostly related to the high tech sector. About six years ago, Technology USA set up a new manufacturing plant in the city. This plant employs over 1,200 people. Then Informtech saw the quality of production workers and opened an assembly plant that employs 800 people. While these numbers are small, the key to this change is important. In the last year, the local economic development manager has had over thirty requests from Fortune 500 companies hoping to start manufacturing or assembly shops in this region. This is a 250% increase in requests over the past five years.

The average household income in Fremont is $36,350 and the unemployment rate is only 5%. Based on our telephone surveys of local employers, over 69% of employers have a paid dental plan for employees. The other companies did not have a medical or dental plan, usually because they were still establishing the company or they simply could not afford to provide health care plans for their employees. We also determined that the companies that did offer dental plans to their staff employed over twenty employees. This is important because this means a higher percentage of the potential clients were covered by a dental plan. People who have a dental plan are 78% more likely to use the service, leading to more potential clients.

The average sale in Don's dental office was $198 plus x-ray costs; this average rose from $122 five years ago. This is because the fees charged by the dental offices are dictated by the insurance companies that pay these bills, not the dentist's office.

Since Don was already preparing to retire, he had started not accepting new clients. Instead, he would forward them to the other dentist in the city, who was overwhelmed with business. This office's waiting list was growing longer and potential clients were going to other cities to get this work done faster. In some cases they would drive one and half hours each way. The fact that clients had to travel so far confirmed that this was a great location. Instead of buying a new shop, they would acquire the existing shop with the cliental already in place.

Financial Analysis

The partners' management consultant told them that this was a great opportunity, but reminded them that the owner had been there for almost thirty-five years and had built up a great track record. The new owners would have to build up this same track record with the community. The consultant advised the partners to go back to the owner and make the following offer:

The partners would pay $700,000 for the business with a loan that carried no interest. If at any point the average revenue for the previous twelve months was not the same as the twelve months Don managed, the $700,000 would be reduced by the percentage of revenue reduction. This formula would only be used for the first twelve months. After this benchmark was achieved, the partners would pay off the remainder of the loan over a five year period.

The owner made one small addition to this offer. He proposed that if the revenue exceeds the $500,000 mark, he would get a bonus based on the same formula. The three partners accepted this and the deal was done.

BUSINESS STRATEGY

Operations

The transition from Don and his wife to the new owners took place over a thirty day period. Don and his wife worked side by side with the partners, helping clients as well making sure the partners would get a good foundation and start to their new dental office.

Because the office was a turnkey office, all the equipment was already in place and there would be no need to buy or replace any of the equipment.

There was a full-time assistant, and the partners agreed once they got up and running they would need to hire another full-time assistant. They also would hire an office manager to handle all the heavy paper work related to the insurance companies. Their market research determined there was a need in the city for an office that offered longer hours. Therefore, the partners expanded their hours from 9:00AM-5:00PM, Monday to Friday, to 7:00AM-7:00PM Monday to Saturday. These longer hours would allow them to grow the revenues and the profits for the business. It also meant they could increase their market share.

The dentist's office will be changing ownership in four weeks. All the required legal agreements will be signed and everything will be concluded. Our research determined that the average dental studio sells for 1.2 X gross revenues. Based on this figure, this purchase was right on the mark, and the fact that the partners were offered a good financing package from the owner was a bonus.

In order to facilitate the transfer of this business, the company will be set up as a joint practice, with each partner sharing in the company with 33 1/3 ownership and voting shares. All management decisions will go through board meetings which the partners will hold every two weeks for the first year, then once a month after that. Of course, the partners will be working very closely in a small office, so they can discuss issues at any time. It was agreed though, in order to run a professional office, they would leave all decisions which required in-depth talks or negotiation to the scheduled board meetings. This would allow for the management of the office to be smooth.

When the partners cannot get consensus, they will ask the management consultant for advice. This outside third party advice will be invaluable.

Advertising

The partners will follow the local state laws when it comes to advertising a dental office. They will join the state dental association; this will allow them to take part in joint advertising programs. They will run a larger ad in the Yellow Pages and they will include a photograph, so clients can become more aware of them. They will also include the name of Don's dental clinic and advertise with his logo. Since the partners needed to register a new phone number when they created a new business entity, they will have incoming phone calls transferred from the previous office number to the new office number for one year.