Do, you want to own your own practice, but there is just one little problem. No money. Before you can get money (capital) to achieve your goals, you have to understand what money is. Capital is the lubrication that keeps business and industry moving. Money is a commodity, and is bought and sold just like any other commodity, such as corn, oil and gold. In a society where the economy is based on a paper currency, versus a gold standard, money is a marker which determines how much of other commodities you can control. Lack of capital will starve even the best of ideas and will make fertile dreams turn to dust. In a society based on capitalism (and in Socialism, if you could find a Socialist who would honestly admit it), those who have capital want to make it work for them to gain even more capital. Therefore, money is also a very useful tool. If you look at money as both a commodity and a tool, you can begin to understand the dynamics of finance.
Now, let’s take a look at how to apply and distinguish the differences in how money can be used, by using the commodity corn. Corn can be used up as a commodity by eating it yourself, essentially ending its usefulness as a commodity or a tool. It could, however, be used as a tool by trading it for another commodity you desire, such as gold. A starving person would give up any other non edible commodity they own for your corn, increasing its value (profit). It could be planted, increasing itself one hundred times (return of investment). It can also be used to feed hogs and cattle, converting it to another useful commodity (a business loan to open an office). Before a farmer (lender) loans you a ton of corn (capital) to plant or feed, with a promise from you that he will get back his corn plus 200 pounds extra (interest), they need to know you will use this commodity properly, return their investment with a profit and not just eat it yourself or waste it. This requires the ability on your part to convince them that you are trustworthy and are able to do what you propose. To do this, you need to be able to write a good business plan.
Except for a poor credit report, no other document you can present to a lender will kill a loan faster than a bad business plan. These two things generally determine the success of a loan application. With so many misconceptions of chiropractic, the odds of obtaining financing are stacked against you. Your business plan must also be an educational tool for the loan officer. You have to be able to convey that you are knowledgeable, trustworthy and have the ability to keep their investment safe. Before you can present a business loan proposal, several months of ground work are required. Do the following things:
1. Get a copy of your credit report.
Check it for accuracy. If there are negative entries or inaccuracies on it, do what ever you can to fix the problem. When writing your business plan, bring out any credit problems you have, with the solutions or explanations for them. If, for example, you were injured in a car accident and off work for six months, you probably got behind in your payments and will have negative entries on your report. Have an explanation with actual or possible solutions put in both your credit report and your business plan. Lenders will many times look favorably on someone who got behind, maybe through no fault of their own, but still took care of their obligations. This shows that you have the character, integrity and tenacity to do the right thing. These are truly valuable commodities today and are valued by lenders.
2. Get the demographics of your region.
Contact the Chamber of Commerce in your target area and tell them you are considering opening a business. Request a new business information package. Most of the time they will supply it at no charge. Use the statistics to your advantage. If there are only a few DC’s in the area, play it up. If there are a lot, well it’s a great town for chiropractic. Statistics can be used to prove anything you want (just ask a liberal and conservative to interpret any economic statistic). Learn about the local industry and insurance compensation your area.
3. Learn the cost of doing business.
Get an idea of what it costs to build out an office. If you have construction experience, show that you can save money by doing much of the work yourself (please don’t even think that you are above doing this because you are now a doctor). Include a projected detailed office overhead incorporating items such as rent, utilities, marketing, etc. Make a list of what equipment you need and get bids on it. Learn what the prevailing staff wages are and what taxes you have to pay. Speak to sales people in the advertising media which you intend to use and design a marketing package with a cost/benefit ratio. Talk to the local malls and businesses to see about doing screenings and promotions.
4. Get a book on business and finance.
Learn the terminology of business and how to use it correctly. Remember, most lenders haven’t a clue about the subluxation complex, nor do they care. We speak a different language in our profession, so you must learn to use their language and terms fluently. Be knowledgeable about things like closing points, variable rates, amortization, depreciation and other terms. Lenders care nothing about chiropractic philosophy (I realize this may come as a great shock to some of you), but about making a profit for their stockholders and how their loan portfolio has performed.
5. Be able to give economic data about our profession.
Things like national averages of income, projected utilization and industry studies are useful. The ACA and ICA and state associations would be good sources of information for this.
36. Gather references from people and businesses you have dealt with.
A letter from Aunt Paula stating that you were a sweet boy growing up doesn’t count. If you worked for a doctor, ask them to write you a letter stating that you handled your duties well and gained valuable management experience while there. Two or three of these types of letters would be helpful.
7. If you are buying a practice, get all the possible information you can from the doctor.
Obtain documents such as the past three year’s taxes, a current profit and loss (P & L) statement, accounts receivable aging, and all the patient statistics you can lay your hands on. Be sure to find out what the core overhead is, versus what is claimed on the Schedule C tax form.
8. Have copies of all pertinent documents.
Your diploma and licenses should be included. Obtain a Federal Employer Tax Identification Number (banks have the proper forms) and any state or local paper work required with applications filled out to the fullest you are able, up to that point in time.
9. Cultivate a relationship with a lender.
If you are going back to your home area, and you or your family have a lender that you have had good dealings with in the past, work on cultivating that relationship. If you are still in school, see if you can’t possibly get a couple of small loans, and pay them off early. Remember, a proven, good track record with a lender will get you at least a small amount of good will. Every little bit helps.
10. Make sure you have no IRS problems.
This is a major road block and will kill a loan fast. If there are liens, you must get them paid off before any lender will look at you. If there are errors, you must get them off your report. Do not accept a “resolved” entry in the case of an error on the IRS’s part. Get it removed.
Now that you have done the field preparation, you are now ready to start your business plan.
By using a template supplied to me by a major lender and from my experience preparing three SBA loans, you can use the following outline in preparing your plan. I would break it into categorized sections. Be thorough, but don’t try to dazzle them with baloney. A concise, well thought out business plan is a large document that conveys a tremendous amount of information to the lender. For the purposes of this discussion, I am using the outline to purchase a business versus a start-up.
A. Introduction.
This is basically a cover letter to the business plan, and need only state some very basic information such as to whom this is addressed, who prepared it and for what reason. One page is sufficient.
B. Index page.
This will categorize and list all the portions of the business plan in order of appearance. This can look just like the index of a book. Easy, but it makes your plan much simpler to use.
C: Personal profile.
Who are you? Give a brief description of yourself and family. Give a brief history of how you got to this point in your life. Describe your education and work experience and bring out anything that would help a lender decide that lending you money would be good for his institution. If your were previously in some kind of trade or business, describe how it can help you in managing this business. If you ran a practice for someone else, describe your duties and its success. This is a good place to address any credit challenges with your explanations. Don’t put in things like you were chief bottle washer for the, “New technique of the month club,” in college. They can see that is filler and doesn’t matter.
D: Projected living expenses.
Lenders want to know that your business can support you. Detail what your base living expenses are. Show a lender that you can live within your means. Don’t estimate that you require a $120,000 per year salary (this is very important since most loan officers don’t make nearly that much); rather, show that you can live frugally. If you have a spouse who earns a good living and is willing to work to help meet your living expenses, all the better.
E: Demographic and professional data.
Here is where your research into the area and your professional data comes into play. Showing the lender that you have researched an area thoroughly and there is opportunity to use your skills to maximum benefit gives a good impression. You can include maps, demographic data, and regional economic data here.
F. History of the business.
Show how the business has (hopefully) grown over the years. Include things like when the business was established, current hours of operation, employee information such as duties, wages, years employed, etc. If this loan is a federally backed program, do not venture into decreasing the number of current employees, since these loans are in part meant to help create jobs. Why is the owner selling and who is the local competition? Describe the location and the area surrounding the business.
G. Get the legal description of the property along with a copy of the proposed lease.
The property owner should have the description. If not, go to the county tax office.
H. Cost projections.
Detail the projected costs to run and maintain the business. Include loan payments, utilities, wages, employee taxes and insurance. Obtain the information from the seller’s Schedule C tax forms. Point out areas where the overhead could be cut, since most doctors who own corporations deduct a tremendous amount of marginally acceptable deductions, such as taking Gigi, the family pet poodle, to the office once a week and claiming the vet bills as a deduction for a guard dog Also include a base wage for yourself.
I. Projections.
Here is where you can really shine. By turning negatives into positives, showing drive, ambition, and desire, you can show the lender you are worth taking a risk. Lenders like graphs. In a loan that I did, I graphed out what income could be derived for a clinic by taking three different case fees and three different projected monthly new patients. Using “worst case” scenarios I showed this office could make a profit on as few as 10 new patients a month. I also graphed how a practice will grow over six months on an average case of 20 visits per new patient. If you can take the existing data from a clinic and give realistic projections on how you intend to increase the revenue, your conclusions will seem well thought out and reasonable. Show them how the changes you propose will improve the business by building on the existing base.
J. Marketing plan.
Here is where your marketing research comes into play. Describe the cost and expected return of investment. Also, show them how you are going to market yourself in ways that cost you little or no money; for example, handing out business cards will bring you about one new patient for every 40 cards you hand out. Don’t forget to include internal marketing on existing patients and contacting past patients. If you are going to use a consultant, mention this, along with some of the plans they intend to implement along with any data they can supply about their client’s track records.
K. Loan proposal.
Hopefully, at this point, the loan officer is giddy with excitement, because someone has actually taken the time to prepare a package that can be taken to a loan committee. One that is well presented, thorough, makes sense, and won’t get them laughed out of the room. Now, after reading this exceptional plan, and seeing that you are a good candidate to loan money, the time is right to tell them how much money you require. I would request is enough capital to purchase the practice outright from the owner. If the owner does not have to carry a note on the practice, you should be able to negotiate a better price. You should also try to borrow enough money to run your practice for at least six months. Remember, it is better to borrow more than you need and pay down a loan early, than not to borrow enough and then scramble to borrow more. Break down the loan proceeds into use categories, such as goodwill, equipment purchase, covenant not to compete, accounts receivable and operating expenses.
Don’t forget to propose the length of repayment. I suggest that if you want a six-year payment schedule, propose eight years, just in case they want to shorten the loan term. Be aware that you are going to have to pay some fees in getting this loan, such a loan origination fees and points. A “point charge” is the amount of money you have to pay someone for the privilege of borrowing their money, or pay someone for finding you a loan, such as a loan broker (never, ever, pay a broker their fee up-front, only upon a successful closing). The higher the risk, the more points and the higher the interest rate. A point is one percent of the total loan proceeds. Therefore, if you pay three points on a $250,000 loan, you will pay the lender 3% of that, or $7,500, for the privilege of using their money. (Close your mouth; this is done all the time, with even multi-million dollar loans, is legal, and is part of the cost of doing business). Most of the time, you can roll these fees into the loan package.
Now that you’ve written your plan, have several people read it for spelling and grammar. Find someone with business sense who has done proposals before, and have them look it over. Don’t be offended at criticism, learn from it. If you know someone in lending, other than your intended loan officer, have them critique it. Polish it until it shines.
Go to the office supply store and buy the best bond or laser paper you can find (copy paper doesn’t cut it). Remember, you are trying to impress a lender enough to finance your life’s dreams and goals. Make multiple original sets of your plan and put them in a professional-looking, bound cover, so it stays in order.
After all this, you are now ready to present your loan proposal. Now, not only does your business plan need to look good, you need to look the part. The best analogy I can think of would be the president of the Young Republican Club. Have your hair cut two weeks prior to your presentation, in a style that says, “rock solid and conservative.” Be clean shaven, in a pressed white shirt, conservative tie, gray or charcoal suit, preferably pinstriped, black shoes, polished to a high gloss. If you don’t know how to do this, go to a men’s shop that caters to executives and let them make you over. If you have had various parts of your body pierced, studded, tattooed or otherwise adorned, I would suggest removing these objects from view. Women should be in a conservative business suit, and well groomed. Please, don’t show up in a tight mini skirt and a low-cut blouse (this is particularly good advice for you men out there). While it may be aesthetically pleasing, it does not convey a professional aura. Wait, you say, this is not me. I don’t care, do it. You only get one first impression and you had better make it good.
Making a good business presentation is a lot like farming. Both take a lot of field preparation, planning, a little fertilizer (bull manure) a lot of hard work and faith. After all this, you may achieve a good harvest. Good planting!
