StudentDC Interactive

I talked this morning with a student who is just starting her last year of school.  She is going into her clinical experience, but she is also trying to decide where to practice and whether to open her own business or associate.  After we talked a while she said, “There is not a lot I can do right now, is there?”  Well, yes and no.

Here are some things you can do in your last year while you are waiting anxiously to graduate.

1.  Settle on a location.  Visit towns and cities where you are interested in practicing.  Talk to the doctors in those places, especially the ones who are doing the technique you want to do.  Drive around; walk around; talk to people in the town or city.

2. Search out used equipment to buy. Check on software vendors and get demos.  Check on prices for expenses like rent, utilities, phone.  Go to practice management seminars and decide if you want a practice management company or not.

3.  Look for practices to buy, particularly in areas where you are considering moving.  Talk to the doctor; maybe you can get a externship experience with that doctor and see how the practice works.

4.  Read books, like my Planning for Practice Success, so you know the start-up process.  Start filling in a business plan, with numbers for things you will need to buy for start-up and costs for expenses (like utilities, rent, Yellow Pages).

5.  Prepare for your discussion with a bank.  Get your personal credit in order.  Seek out co-signers.  Learn about banks in your area.  Talk to vendors about leasing equipment.

5.  Finally, be flexible.  Sure, you can work toward a goal, but don’t ignore other possible opportunities that come along.  One might be THE place, THE practice you have been looking for.

You’re headed off to the bank with fantastic business plan in hand, but you have no cash, no co-signer, no collateral.  Don’t be surprised if the bank turns you down. Banks want to loan money via “secured” loans - loans that have something of value behind them that the bank can take if you don’t pay.  That “something of value” has to be something that the bank can quickly turn into cash without much loss.  Obviously, cash is best.  Next would be something like a building that you or your co-signer owns that the bank can expect to get money out of.  In these times of decreasing home values, don’t be surprised if the bank says the equity in the home has to be much greater than the loan value.  The equipment that you bought has value, but it depreciates (loses value over time), so the bank will take a loss if you have to sell it.  That’s why they often ignore all that great stuff you just bought.

Why is the bank so picky about this?  Businesses go bankrupt, including chiropractic businesses.  And banks want to be “first in line” to get their money back.  So they want a solid assurance that they can get that money back, easily and quickly.  In these tough financial times, banks are even more skittish than usual, because business bankruptcies and mortgage foreclosures are more common.  The bank will fail (like Washington Mutual) if they continue to make high-risk loans.

Just one more point:  If you want a line of credit for working capital, in the past a bank might give you this money unsecured, but these days they want security, for the reason I discussed above.  It’s often said that “banks loan money to people who don’t need it.”  This is what they mean.  Be prepared to pledge assets, or find a co-signer who will do so.

I just saw a great article by a business funding expert, discussing the reasons why business plans fail.

Some of these failings I have been talking about with classes for many years.  In particular:

* Value Inflation - Many DC grads have an over-inflated idea of their value to society.  Just because you think chiropractic is wonderful, doesn’t mean others will too.  You must PROVE your value by providing care that relieves pan and through outstanding customer service.  Don’t toot your own horn until you have something to toot about.

* “We have no competition.”  Yes, you do; it’s every other chiropractor in your community, in addition to orthopedic doctors, physical therapists, and osteopaths.  This statement shows an ignorance about the basics of business that turns off banks and lenders.  Until you can prove to prospective patients that your practice is valuable to them (see item 1), you are just like any other chiropractor.  People who don’t know chiropractic don’t know the difference between NUCCA and Gonstead.

 *Trying to be all things to all people.  I know when you start out, you want to take everyone.  But you need to more specifically define your market.  What kind of patients are you really looking for?  What do they look like?  What kind of care do they want that you can provide?  Limiting your market actually brings you MORE people rather than fewer.  Trust me on this; I’ve seen it work many times.  If you don’t define your market very tightly, no one will know they are supposed to come to your office.

* Unrealistic financials.  I see lots of business plans with very high income projections and minimal expenses.  Back way off on the income projections.  Even if you think you can start out with an income of $10,000 plus a month, the bank won’t believe you.  And be sure to put all possible expenses in your cash flow listing.  Put a large amount in Miscellaneous (at least $500 to $1000 a month).  Remember Murray’s rule:  Over-estimate expenses and under-estimate income.  And you’ll be about half right.

* Forgetting Cash.  Speaking of cash, understand the difference between cash and profits.  Just because you bill it, doesn’t mean it wil be collected.  You must manage collections to bring in the money you need to pay your bills.  If you bill $10,000 a month and you only collect $5000, you may not have enough to pay expenses.  This is the place where I lecture on keeping down expenses (but I’ll save that for another blog post).

In conclusion, read the About.com article carefully and follw what he says.  If you follow the ideas in this article, it could mean the difference between getting your loan accepted or not.