5 Simple Steps for a Purposeful Capital Expense Purchase

Setting a strategy and budget to avoid surprises while supporting practice goals.

Capital Expense Budget

You either love or hate shopping. And, sometimes it’s even more painful when you need to buy something expensive for your business. But what if it didn’t have to be that way? What if capital expenses could be something planned out, instead of a five-alarm emergency?

Most dentists view their capital expense budget like a consumer, instead of a business owner. They fail to ask what will most benefit their business. They over-invest in technology or allow tax deductions, financing options and competition to drive decisions. Sometimes, because they do not have a good strategy in place, operatory chairs, computers and imaging equipment can all fail at the same time, leaving unprepared practices with huge, surprise costs.

“Dentists should invest regularly, purposefully and strategically in their business when those investments increase practice income and improve patient outcomes,” explains Chuck Cohen, managing director of Benco Dental, a leading dental product and equipment distributor.

“Every dentist should have a capital expense conversation with their CPA so that they can forecast, build a wish list, and succeed. Cain Watters is particularly helpful with this.”

Here’s a step-by-step process to define your capital expense budget and figure out how those investments will set you on the best path toward your goals.

STEP 1: Articulate your practice strategy.

“You can’t act strategically if you don’t know what kind of practice you are building. The secret is that every practice has a strategy, even if it’s not articulated. There’s no right or wrong answer and your practice strategy can be as short as two to three sentences that guide your investments and decisions,” notes Chuck.

Your strategy can and should evolve over time, so don’t be afraid to revisit it. It doesn’t need to be complicated. It’s simply a roadmap for where you want to go.

Ex., “I want to provide the best patient experience for patients and provide Medicaid-based dentistry. Our practice delivers high-quality care with cost-efficient treatment.”

“A strategy makes it easier to shape your capital expense budget. For example, a fancy 3D imaging machine may not be the right fit for your practice if you want to focus primarily on Medicaid care,” explains Chuck.

STEP 2: Calculate your capital expense (cap-ex) budget.

“The rule of thumb is that on average, about 2-4% of gross sales should be reinvested in capital equipment annually. Cain Watters can help define this number for your practice. It shouldn’t ever be zero,” Chuck said.

With our clients, planners use a worksheet during consultations to determine a replacement budget and schedule based upon your current equipment. Each year, you should re-invest; however, this figure may fluctuate. Some years you may invest more or less. If you’re not spending something close to this number for a few consecutive years, you’re probably under-investing or falling behind.

Chuck also points out that if your practice’s infrastructure doesn’t support the level of dentistry being done from the business side, this can truly limit growth. The business team won’t be able to support the clinical side of the practice. Keep in mind the greater team’s needs, whether that’s a larger office space or enhanced technology systems.

STEP 3: Build your wish list.

The example above is an important reason why bringing your team together to build a wish list may provide valuable insight into budget expenditures.

“Make sure it’s not just you, the dentist, because you may have your blinders on. You could do this once a year during a retreat. I would recommend sitting down with your dental team to see what they feel they need to achieve the practice strategy,” urges Chuck.

The best investments support your practice strategy and check all of these boxes: improved patient experience, efficiency and productivity, back office requirements and clinical functions.

STEP 4: Evaluate and compare.

During this phase, you’ll want to consult experts, whether salespeople, colleagues in a study club, or your accountant.

This may also be a good time to visit one of Benco Dental’s CenterPoint Design Centers, which showcases equipment offered by the company, from entry to operatory. Each showroom can inspire you with design elements such as wallpaper, flooring, reception area furniture and high-tech clinical spaces.

“Benco’s Build Your Future seminars, held six times a year, help dentists understand and manage the process of building a new facility.  And they’re absolutely free of charge,” Chuck shared. “Every attendee will walk away with a plan for building, equipping, and designing a dental practice.”

Chuck also noted that the most successful practices make purposeful investments on an ongoing basis. And, they undertake big projects when appropriate because they’re not afraid to invest in their practice.

STEP 5: Take the plunge

Right now, in 2019, interest rates are low and tax policy encourages small businesses to reinvest. Most practice investments pay off in the end, especially if they’re supported with a good plan. Don’t be afraid to make an investment in your practice once you’ve adequately planned and budgeted for it.

Many dentists wait until the end of the year to make investments because they want to balance out profits before the end of tax season. Remember: the same tax advantages apply year-round. You’ll be better positioned to buy the equipment that aligns with your strategy in any month other than December. At the end of the year, you are less likely to get a great deal, and installation before year-end may be a challenge for your supplier.

“Have the confidence to invest in your business carefully and purposefully,” Chuck encouraged. “Most dentists should invest more proactively because their businesses are hugely successful. If they were to invest, it would be even more successful. Use the process, take the plunge and don’t get cold feet.”

Need help developing your practice’s plan?

Schedule a complimentary consultation with Cain Watters & Associates. Together, we will define your practice strategy and develop a capital expense budget to bring it to fruition. Contact us at info@cainwatters.com or cainwatters.com/contact.