How Much Cash Does It Take to Open a Dental Practice?

^{A Simple 5-step Feasibility Check For Dentists. Do It Before You Sign Anything}

Let's start with a confronting thought...

By the time you treat your very first patient, you may have already signed up for several hundred thousand dollars. The fit-out, the chairs, the lease and, quite often, a personal guarantee with your name (and possibly your house) sitting underneath it.

That's a big bet. So, before you place it, it's worth finding out whether the odds are any good.

That's all a feasibility assessment is: a dry run on paper, so you find the mistakes before they cost real money. And no, it doesn't need to be a 60-page report that gets filed in a drawer and never read again. It just needs to answer three questions in plain English:

Will it work? Can this practice make a decent, sustainable profit with a realistic number of patients and chair hours?
How long until I break even, and how much cash will I need to survive until then?
What could go wrong? And if it does, am I still standing?

If your assessment answers those three, it's done its job. Everything else is decoration.

Step # 1: Turn the Location Into Numbers

Here's the thing about location: you are the expert. You can walk the street, chat to the local suppliers, and work out what the neighbours think of the existing practices. No spreadsheet beats that. You need to turn your gut feel into numbers. For the site you're considering, work out:

Rent as a percentage of revenue. If rent is too much you're underwater from day one.
How many surgeries fit, which tells you your ceiling.
How many patients and chair hours you need to break even at that rent.
What happens when things go wrong. Rent is higher, the fit-out blows out, patients trickle in slower than you hoped.

And leave these to your local knowledge: where the suburb is heading, who else is nearby, what fees locals are used to paying, parking and visibility, and (importantly) whether you actually want to spend the next ten years there. Click here to download site selection checklist.

Step #2: Prepare a Cash -Flow Projection

A cash flow projection (click here for template) needs to be simple enough that you'll understand it, and detailed enough that you can trust it. Here's what goes in.

Money coming in

How many surgeries, and what hours they're open
Chair utilisation, which is the share of available time that's actually booked and treated
Your average fee per visit or per hour
Ramp-up. This is the one people get wrong. A new practice doesn't open with a full diary. It can take months, sometimes years, to fill.

Direct costs

Lab fees. Build these from the procedures you expect to do and your lab's price list, then sense-check against a percentage of fees. A restorative-heavy practice will sit higher than a general one.
Consumables
Associate or contractor payments

Running costs

Wages and on costs
Rent and outgoings
Insurance, software, marketing, compliance and registration
Accounting, legal and other professional fees

Set-up and funding (click here for start up expense checklist)

Fit-out and equipment, bought or financed
Working capital to get you through the ramp-up
Loan repayments, and any shortfall you'll need to cover

Step #3: Run Three Versions Of The Future

One set of numbers is a comfort blanket. Run three:

Base case: your honest, best guess
Downside case: patients show up slower, costs come in higher, or both
Upside case: things go better than planned (lovely, but don't bank on it)

The downside case is the one that counts, because it tells you how big your cash buffer needs to be.

Then ask yourself one blunt question: what would have to go wrong for this to fail? If the answer is something small, like patients taking three months longer to arrive, then your plan has no breathing room. Back to the drawing board.

Step # 4: Know your two break-even points

Most people only think about one. There are actually two:

Operating break-even: the month your revenue finally covers your monthly costs.
Cash break-even: the point where you've clawed back all the losses and set-up money you poured in.

Here's the catch. You can be profitable on paper and still run out of cash, especially if the ramp-up drags on or the loan repayments are heavy. Profit is an opinion; cash in the bank is a fact. It's common for a new practice to have a cash flow deficit in the first 12 months. That's normal, as long as you planned for it. Our rule of thumb is to keep a cash buffer of at least six months of operating expenses. Think of it as your "sleep at night" fund.

Step #5: Set Up The Right Practice Structure

How you set the practice up affects your tax, how well your assets are protected, and how easily you can bring in partners or associates later. Sort these out before you open:

What structure will you operate in?
Who owns the equipment, the goodwill and the building?
How will associates be engaged?
How will you get paid in the lean early months?
What bookkeeping system will you use to keep track of your numbers?

It's a lot cheaper to build the right foundations than to dig them up later.

How We Can Help You...

At Tolevsky Partners, we’re specialist medical and dental accountants with over 35 years of experience helping practice owners make big decisions with confidence. We’ve seen what makes a new practice take off, and what trips it up.

We keep it practical. No jargon, no 60-page report. We sit down with you, work through the location, your service mix and the numbers, and build the model using your assumptions. Then we walk through the scenarios, the break-even timeline and the biggest risks. You walk away with: A model you actually understand and a straight answer on whether to go ahead, tweak the plan, or walk away

So, If you're thinking about opening a practice, we'd love to talk it through. we invite you to make a complimenary appointment by click on the top right of this page.