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Poor Planning On The Front End
Do not make this mistake with your project.
A dentist came to us because he was expanding his office. He needed a larger facility to accommodate the demand for his services and was adding equipment and leasing additional office space. Prior to coming to us, his dental equipment rep told him he had obtained an approval for "all of the money he needed to complete his project".
With his confidence at an all time high, he signed a 10-year lease for the new space.
This is the point in the project where he engaged us to help him. We looked into the details of his financial situation and project and discovered these costs:
$300,000 in new equipment $500,000 in leasehold improvements $800,000 total
We discussed the loan approval with the equipment rep. We discovered, after an in-depth discussion, that "all of the money he needs" really means that the he has $500,000 available for equipment purchases, not total project costs.
Since the project will cost $800,000 and he only needs $300,000 in equipment, he has a capital shortfall of $500,000.
His new lease payment starts in four months.
The plot thickens. His current lease payment is $3,200 per month. The new lease payment is $9,600 per month. That is an annual difference of $76,000. The practice revenue and expenses (which include his current debt service) currently do NOT generate enough cash flow to service the projected debt of $800,000 and the higher lease payment.
His cash flow immediately after the project is going to be negative. He is going to have 80 cents for every $1 in debt after he completes his project. That means it's going to be very tough for any lender to approve him for the $500,000 he needs.
While he is seeking financing, his second lease payments commenced. He was planning on occupying the new office and generating extra cash flow to cover the new higher rent payment from an increase in his productivity. Now he has a higher rent payment and no new patients to generate the cash flow to pay for everything. Checkmate.
The bigger challenge was that he already spent another $60,000 in design fees for the new office project (that is not moving forward). This used up all of his available liquidity. Now what are his options?
He could negotiate with the new property owner and offer $100,000 to get out of the 10-year lease agreement because that is the likely amount the property owner would get if the dentist declares bankruptcy.
WHAT COULD HAVE PREVENTED ALL THIS? The Financial Leadership Solution
The dentist could have saved wasted money and time by investing a little bit of time and money with AN EXPERT (not an investment advisor or stock broker ... or a loan officer or equipment rep) who can review and analyze the his entire, complete financial situation BEFORE he talked to his equipment rep or signed the new 10-year lease.
The review and analysis would result in a very clear picture of his financial situation. He could have a realistic FINANCIAL PLAN that laid out the financial constraints, the financial tools and the correct timing or sequence of events needed to secure the right financing that supports successfully expanding his office.
The cost of having the financial plan to avoid the financial implosion that occurred in this situation is a SMALL FRACTION of the lost or wasted money he will spend to extricate himself from this downward spiral.
You need The Financial Leadership Solution, here's 2 ways to get started:
PRIVATE ONE-ON-ONE CONSULTING This is ideal for the person who likes to delegate. Click here or send a blank email to hireageek@getresponse.com
PEER CONFERENCE COACHING (material arrive Dec. 2nd, class starts Dec 9th) This is perfect for the do-it yourself type person. Click here or send a blank email to getacoach@getresponse.com
We understand that you are a do-it-yourself type of person but you do not want to make a $100,000 mistake. We help by providing you with the confidence, capabilities and creativity through our Peer Conference Coaching.
The complete Financial Leadership Solution delivered in a Peer Conference Coaching format includes:
· All forms, templates and calculations with easy to follow examples · Four, two hour, facilitated Conference calls, held on Friday mornings · Facilitated by a Finance Geek expert · Maximum of 10 dentists per Conference · All Conferences are interactive so you will learn from each other · Unlimited email support for nine months · All Conferences are recorded and are free for your unlimited use · The process will make you a better business person · Develop a much higher level of financial sophistication · Understand at a much deeper level how finance can help or hurt you · Develop confidence, capabilities and financial creativity
You complete the forms prior to the scheduled conference call. You email your questions prior to the call and we will organize the call based on them and the specific agenda topic.
The materials for your first conference will arrive by December 2, giving you 1 week to review and get prepared for the first call.
What will you receive when you are part of the Peer Conference Call
To hire us for your project or if you have questions call 317-581-5664.
David Catalano Finance Geeks www.FinanceGeeks.com |
