Practice remodels and build outs are a great way to enhance patient experience, workspace functionality and design aesthetics. Oftentimes remodels and build outs are also a necessity to manage growth, expansion or a new practice location. There are many factors to consider when planning a practice remodel or build out – one to consider early on is practice financing.
As a commercial banker, there are two numbers I look at going into every practice remodel or build out – cash flow and project cost. These numbers are not mutually exclusive. Together they represent the feasibility and financial practicality of a practice remodel or build out.
Cash flow analysis is something a good banker, CPA or practice consultant can help you with. A quick way to look at cash flow is to take total annual income divided by total annual debt servicing, taxes and living expenses. This number needs to exceed 1.0 to be considered cash flow positive.
Project cost will ultimately be determined by a construction bid and any equipment or furniture that will be purchased.
Once your cash flow and project cost are determined and validated through credit underwriting, you are ready to begin the work. During the remodel or build out period, the approved financing is disbursed in stages to your vendors, contractors or as reimbursements for out-of-pocket expenses. These distributions continue throughout the remodel or build out until the work is completed, at which point the sum of the distributions, minus any interest paid, are converted to a term loan.
Practice remodels and expansions are some of the most rewarding projects I work on with dental professionals. These projects can also be quicker and easier than expected with careful planning and a holistic view of the process.