The Long Road to Start-Up City
A first-hand account of my journey from residency, through associateship and attempted buy-outs, and into the adventure that is a start-up and partnership. Please join me as I learn while I go!

Start-Up Step 2: Real Estate and The Circle of Impossibility

Start-Up Step 2: Real Estate and The Circle of Impossibility

12/31/2017 5:21:03 AM   |   Comments: 2   |   Views: 189

In step 1, I described how we finally came to pull the trigger on this start-up thing.  But then in the immediate aftermath - the seconds that followed that pivotal decision, I realized I had absolutely no idea what to do next.  So we're officially committed to this project, and we picked a general location.  What now?  The next step was finding a commercial realtor who could help us find our actual office.  There are a couple ways to go about finding someone.  In our town, a reasonably big city with lots of dentists (yet not a major metropolis), we may have had an unfair advantage.  There are plenty of professionals available for every aspect of the project who specialize in the dental field (our realtor, our contractor, our decorator, etc.), but there aren't too many.  Hence, when we asked for referrals for any given job, the same few names would come up again and again, easily narrowing our options.  On top of that, because these professionals want to work in a pretty contained industry, they value their reputations and generally work hard to do a great job so that you'll refer them on to your colleagues.

September 2016

So back to our realtor search.  When it came time to contact someone, I recalled a contact I'd made in dental school.  He came for a lunch and learn, maybe a few times, and I hadn't necessarily been impressed.  I ended up on his email list as a "person of interest" who wanted to stay in the area, and he bombarded me with routine emails for years despite my assurance that I was not in the market for any real estate.  Frankly, I thought he was just an aggressive salesperson, and I had been eager to cut off communication.  Yet, oddly, when the time came, whose name should come to mind?  Yes, Bob's did.  It worked, damn it.  (My first lesson about sales? Annoying persistence unfortunately appears to be effective.)  Bob's wasn't the only name to come to mind, but it was one of the only three.  In addition to recalling my own previous contacts in the industry, we also asked around for referrals.  It turns out there are two (TWO!) realtors in all of the city who specialize in finding commercial spaces for dentists.

So we called Bob.  Darn him, he turned out to be a pretty decent guy - extremely well organized, had an impressive list of references compiled, was knowledgeable about the industry, and really well-versed in lease negotiations (an area where we very specifically lacked expertise).  Plus he was very eager to help us.  He'll do.  On top of that, he had helped enough people start or build second offices that he knew all the next steps we needed to handle and who we should talk to.

He was not, however, without quirks!  When he casually mentioned treating us to dinner (then mysteriously managed to be unavailable when we were paying) or refused to learn how to use the "reply all" button on his emails (he was afraid they would go to everyone in his contacts list), we were a little skeptical.  Only time assured us that we were in good hands.  He may not have been a technological genius, and maybe he was a little tight with the wallet, but we weren't looking for free dinners - just someone who knows how to negotiate a lease and communicate with a landlord.  This gentleman happens to specialize in dental real estate and practice transitions.  What he lacked in knowledge about emails, he made up for in knowledge about lease agreements and the dental industry, and he was the starting point for many of the contacts we made in the following weeks.  On top of that, while we at times found his paternalistic "I know what's best for you" attitude to be a little bit off-putting, we ended up appreciating the speed with which he redirected us from some of our own potentially misguided ideas.  (We wanted to toy with a five year lease - he shut that down, explaining that we would never get the best lease terms and then we would end up paying for an orthodontic build-out that would be perfect for a competitor to move into in five years.  Ok, good point, Bob.)

So now it's time for action, and your realtor starts to ask questions like, "What size space are you interested in?"

Oh, this start-up thing just got really confusing again.  How the hell am I supposed to know how much space I want?  It's like when people ask you what your budget is for the office.  Um... I don't know, I've never opened an office before.  I guess that since I'm not independently wealthy it's whatever the bank says it is???!  We asked a lot of people for their opinions on the size of the office, and frankly you can find someone to justify anything.  I have a friend seeing over 100 patients a day in little more than 1200 square feet.  Meanwhile, our accountant suggested we look for 2500-3000 sf.  (I guess he's an optimist?)

We both felt most comfortable keeping the space small to save money on rent and planning to be pleasantly inconvenienced if we grew too much too fast.  What a wonderful problem!  (I'll update you in five years when we still have five years on our lease on exactly how awesome that problem is... )

Other questions we needed to be prepared for included: 1) Should we rent or buy?  2)  Do we want retail space, medical office space, or free standing?  Basically we just answered all these questions with, "Um, what costs less?  Ok that."  The only exception was that we wanted to choose a highly visible location even if it was going to be more expensive.

October 2016

Before we started actually looking at spaces in person, Bob explained the next step, what I've referred to as "The Circle of Impossibility."  In order to make an offer on a space, he explained, we should be preapproved for a loan from a bank so that the landlord knows we're serious candidates.  Ok, fair enough.  Like getting a mortgage, right?  Wrong.  In order to get pre-approved for a loan, the lenders generally want to know where you're planning to open your office and one million other details like what your equipment budget is...  Most banks will require, in addition to more personal information than you even know about yourself, a complete business plan including cost estimates and projected income.  Um... and how many patients will we start in the first year?  A million, I don't know.  Ten?  A hundred?  The only real answer is, "As many as possible, duh..." but they want you to actually write down some numbers.

So we can't get a loan until we have a business plan that includes information about our location, how much money we're planning to make (a lot, ok?), and what our equipment is going to cost.  No one wants to give you an equipment budget until you know how much space you have, obviously, so that's tricky.  And you can't get a lease without securing a loan?  Where does this circle begin and where does it end?  How do you get into the circle?  Never fear, Bank of America is here.  Whether you lend with them or not, they helped us with pre-approval quickly and easily, requiring far less than any of the local banks.  Wells Fargo was another option with a similar policy.  Since they do so much dental lending, they didn't have as many hoops to jump through.

One thing that was NOT complicated about our start-up was choosing the location we wanted once we saw it.  After looking at maybe thirty or so spaces on paper, we were a little worried that nothing would fit the bill without breaking the bank.  We narrowed it down to two spaces to check out in person, and we found and fell in love with a cute little retail space across the street from the soccer field and next door to the ice cream shop.  It was our perfect spot!!  (Although the ice cream shop has since relocated... Sigh.)

November 2016

This was Bob's time to shine.  Now it was his turn to go to work - drafting an offer, a letter of intent to the landlord, making suggestions regarding price per square foot, the HVAC requirements to be included in the lease, etc.  It was early November when we submitted our letter of intent, and we waited expectantly for a response from the landlord.  We later learned that they were trying to renegotiate the space available so that they could accommodate all the tenants, but we received so little communication that I was terrified that it would all fall through.  I'd gone ahead and fallen in love with the space, and then it started to seem that this would fall apart just like all of the other career moves I'd attempted in the past couple of years.  Maybe I was doomed to stay in one place, treading water.  I wasn't going to get my hopes up or tell anyone until I had a signed lease in hand.

We made an offer on a 1500 sf corner space in the building we liked, and the landlord's agent responded with a different suggestion - to give us part of a different space - a slight negotiation of area that would result in every tenant being able to fit.  This would bring us to 1700 sf, and although I had gotten a little excited about how extremely cost effective we were being, those extra 200 sf were definitely going to come in handy, and it certainly was far from extravagant.  Let's do it.  We continued to wait for these changes to be reflected in a signed letter of intent from the landlord to assure us that this would happen.

December 2016

We, once again, appreciated Bob's paternalistic flair when we were copied on his occasional stern emails to the landlord's agent, emphasizing that we needed a response to our letter of intent as soon as possible.  (We weren't to be trifled with!)  After trying to negotiate a practice purchase on my own the previous year, it was refreshing to sit back and let someone else handle all these communications.  In fact, it was downright luxurious.  Nonetheless, the anxiety over whether it would happen or not kept tugging at me, and it was finally alleviated when our letter of intent was returned, signed, half way into December, not a moment too soon!

For the first time, it really felt like something was happening.  We had had a successful communication with a landlord who intended to draft a lease for us and our business.

If it weren't for the all the amazing people we encountered along the way, I think I would have remained stuck in the same place just spinning in circles thinking about opening an office and NEVER actually doing it.  As luck would have it, however, we stumbled onto a few people who had a clue.  It's easy to be skeptical.  I was afraid to trust anyone, assuming they were all just trying to sell me something.  Well, yes, everyone wants your business, but in a confined industry, it's easy to check reputations, and people know how important it is to do a good job so that you'll refer them on to your colleagues.  It turns out that choosing people to work with and trusting them to help you is the only way to really make progress.  Sometimes (ok, pretty much every time), they know what's best for someone in your shoes, whether it's a start-up or a second location, and their advice is pretty worthwhile.  In my next few posts, I'm going to discuss some of the other folks we encountered along the way - supply reps, contractors, banks, lawyers, accountants, etc.

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