The financial plan is the heart of the business plan. It is the section that lenders may review first and most thoroughly. If it doesn't make sense, they will read no further. If the financial plan makes sense and is credible, the lender will likely read on.
The financial plan puts the business plan in terms of numbers ... revenue, expenses, repayment of debt, etc. It demonstrates how you plan to make the practice work, covering all expenses and eventually turning a profit. While you are a dentist first and foremost, you are also operating a business.
Putting Numbers to the Plan
The underlying critical foundation of the financial plan is that it has to be built on and tie back to all the assumptions and other information put forth in the business plan. It cannot be inconsistent.
For example, if the average fee for service is $50, the business plan can’t use $100 as the basis for the financial projections. If the business plan, based on the analysis of the marketplace, projects that 100 patients will be seen in any given week, the financial plan can't project the financial results on an assumption that 200 patients will be seen in a week.
The following items should be explained in writing so the reader can understand your thought process and how the plan was developed.
- All assumptions — Explain the basis for revenue, expenses, repayments, number of patients, etc.
- Capital investment / borrowing needs / use of funds — How the initial and ongoing cash needs of the business will be met. Explain what funds will have to be borrowed, what will come from personal investment resources, and in what way, if any, significant individuals will help in financing the proposed cash needs, such as providing money and/or cosigning for any borrowed money.
- Written summary of the "numbers part" of the financial plan – The "numbers part" of the financial plan should consist of:
- Pro forma financial projections of revenue and expenses in spreadsheet form, covering the first year of operations at a minimum.
- Cash flow projections of revenue collections and payment of expenses.
- Personal financial statements on the principals of the practice. The personal financial statement should provide a substantial amount of detail, particularly in regard to student loans and how those will be repaid out of the salary that is drawn from the practice by the practitioner.