00:00:04:09 – 00:00:55:15
Jay Shorr
Welcome to Shorr Solutions: The Podcast. I’m your host, Jay Shorr. I’m the CEO and founder of Shorr Solutions, a national and award-winning consulting firm, assisting aaesthetic and surgical practices with their operational, administrative and financial success. I have an amazing team of practice management experts and clients across the U.S. and as an industry expert with firsthand experience owning a multi-million-dollar cosmetic dermatology and plastic surgery practice. Listen in as I lend you my expertise and best tips to successfully manage and grow your aaesthetic practice. I will also be bringing in guests along the way, so get ready to be equipped to operate your aaesthetic practice strategically and profitably. Welcome to Shorr Solutions: The Podcast.
00:00:55:17 – 00:03:37:16
Jay Shorr
Welcome everybody, and welcome to another episode of Shorr Solutions: The Podcast. And I’m your host, Jay Shorr. Today we’re going to be speaking about the key elements of funding your aaesthetic practice through a bank. And I have the pleasure of having a special guest, Kevin Wills. Now, Kevin is a seasoned financial specialist and helps health care practices increase their profitability and improve cash flow. He holds a strong knowledge of the health care industry and understands how to capitalize on the changing market conditions that directly benefit our industry. Health care practices. Throughout Kevin’s career, he’s helped health care practices accomplish many objectives such as expanding operations, changing locations, adding partners, and ancillary services, and purchasing the latest health care technology and equipment. Kevin’s a lifetime resident of the Chicago area and graduated with honors from the University of Illinois at Chicago with high distinction in accounting, and he passed the Uniform Certified Public Accountant examination on his first attempt in 1999. For those of you out there that know anything about the CPA exam, it’s not easy to do. In June of 2013. Kevin also obtained his Certified Medical Practice Executive designation with the MGMA Kevin is a senior vice president with PNC Bank Health Care Territory practice manager. Kevin, it’s a pleasure to have you join us in this presentation today in this podcast, because as a normal podcaster, we have many guests, many of them I do myself and I have sent many of our clients to PNC. When it comes time to get a loan and our company will do the feasibility study, the business plan, the operational, the administrative, the marketing plan. And yet, we always have so many questions about what happens when it finally gets to the bank and the underwriter. And I always want to know what banks to choose, because I always feel that when it gets to the underwriters, similar to when it gets to the attorneys, that’s when it stops or it gets held up. So what I’d like to do is ask a series of questions, and we’re going to try to move on with this. I have no personal disclosures other than I use PNC Bank for both my personal and my professional and private bank. Hence, that’s why I went to PNC to ask if they would be more than happy to join us. So Kevin, welcome aboard. Thanks for joining us.
00:03:37:17 – 00:03:40:11
Kevin Wills
Oh, Jay, thanks for having me I appreciate it.
00:03:40:13 – 00:04:09:04
Jay Shorr
All right. The first question I have is what are the key financial criteria the banks look for when approving a loan for an aesthetic practice? Now we only deal our company in the operational, administrative, financial, health of aesthetic, cosmetic, surgical and med spa practices. So I’m only interested in our industry to understand what the key financial criteria that you look for.
00:04:09:10 – 00:06:16:02
Kevin Wills
Great question to lead us off with. And it’s it’s a heavy one, multifaceted. And as you kind of alluded to in your opening remarks, it’s always interesting when that deal lands on an underwriters desk. And essentially the big question is, so what goes through the underwriters head as they try to decision that loan? I think it all starts honestly with the individual that’s backing that practice. A lot of factors that we want to look at personal credit history, big factor obviously. Do they have a track record of paying on time? How much credit do they have currently outstanding. You know what’s the monthly debt load. Those sorts of factors certainly go into the analysis. We also want to look at, you know, professional designation and experience to ensure that. Again let’s assume that it is a start up practice for that start up practitioner. You know, based on the business plan that they put together, do they have the credentialing that they need to, in effect, put that business plan into motion and capitalize on the opportunity that they see within the marketplace itself? And then I think, you know, lastly, it comes down to, I know this is going to sound maybe a bit simplistic, but does it all make sense? And I think where we have to get to is can based on the great plan that you and the team have put together on behalf of that client. So as we go through the feasibility, the business plan, the projections, does that business generate enough profit to service the debt? And also, importantly, does it spin off enough cash flow for that owner to maintain a similar lifestyle that they have today? And I think that’s an important component. We’ve had discussions with clients in the past where we look at the projections. Maybe they’re working as an associate somewhere, making 3 or $400,000 a year. We look at the projections in post debt service. They’re maybe going to net 250 to 300, you know, if that’s for a span of the first 3 or 4 years, we just want to ensure that they’re aware that they’ll be taking a step back, and certainly that they have the personal reserves to do so. And so I think those are the three, roughly three major components of kind of how we approach it from a high level.
00:06:16:04 – 00:07:59:12
Jay Shorr
All right. Well, when they first start dealing with us, we already tell them that I’m going to share with them that when we’re ready to do this, you have to understand as a business owner, you are the last to be paid. And what you have to understand is don’t think that you’re going to be profitable in your first year. Now, I know that they said, well, what is the bank gonna say? And my answer is, quite frankly, the bank understands this because you have so many operational, administrative and financial debt to do in the opening of your business. They just want to know how are they going to get paid back, and when are they going to get paid back, because there’s so many different types of loans. And we’ll get into that in a little bit. So you mentioned something about a business plan. And many times when a new client comes to us, I’m going to speak about new clients for a second, more so than the existing client or existing client already has cash flow. They may need a little bit money for expansion to build an operating room to buy additional equipment, but for the most part, I’d like to talk about the new practitioner like you just mentioned, that was either working in academia or that was working in institutional meaning, collegiate medical centers or working for a large group working for a prior physician or 1 or 2 doctors, and now wants to venture out on their own. Everybody feels, and I mean everybody, that they’ve made enough money for the man, enough of money for the lady. Now it’s time for me. So how important is that detailed business plan in the loan approval process? With that feasibility study?
00:07:59:13 – 00:10:08:04
Kevin Wills
I’ll speak specifically here at PNC. It’s everything for us. It’s really the underlying language or story that we’re going to take to the underwriter to, again, tell that story about what it is we’re trying to accomplish. But I don’t want anyone to ever feel that, you know, if they are going to go with PNC or and go through a process that we just view the business plan as, hey, it’s on my checklist of items. Just supply that with your two years or three years of personal returns and a personal financial, I just need to collect it. So we have it in the file. Our underwriter, as well as the relationship manager that the client’s working with on the front end, are going to dig into that, read it, absorb it, probably come back with some questions. And again, the idea or the end goal is to make sure that we have a full understanding of what is trying to be accomplished. The plan for us is all of the who, what, why, when, how behind the projections then, which is what we’re going to use to underwrite that loan. So the plan tells the story, helps us with some of the assumptions that were used in the financial projections, tells us about the demographics and the opportunity that they see in the marketplace, that they want to go ahead and start that practice up into, and we take all of those components together as a complete story, and we’re going to take those projections and actually use those almost like we would use historical tax returns if someone was purchasing a practice. We’re going to actually use that as the basis of our cash flow to get to a place where we answer those questions like I had previously mentioned, you know, does doesn’t make sense. You know, can can the business service, the debt, does it spin off enough cash flow to go ahead and service the personal needs of the owner of the practice as well? So for us, it would be a nonstarter if someone did approach us and say, hey, you know, I’m willing to give you, my personal tax returns, my PFS I’ve worked with some other lenders. That’s all that they wanted. I don’t have a plan. I don’t have projections. I know that wouldn’t be with your clients, Jay, but, you know, just broadly, for instance, that would be a nonstarter for us. We wouldn’t even be able to get them into our process because we would have nothing to to do in underwriting.
00:10:08:04 – 00:11:59:21
Jay Shorr
So that’s amazing to know because we actually if they were our client, we wouldn’t even allow them to go to the bank. Whether it’s PNC or any bank without a detailed business plan, because there are so many components to it. You did mention demographic. Ours is demographic. It’s geographic. It’s a separate study. We do have feasibility studies, which are basic cash flow analysis of three years out. So it shows it’s a negative projection in the first year. Hopefully we can come up somewhat positive in the end of the second year. And then definitely cash flow positive in the third year, depending upon how you structure the loan, if you’re in an interest only type of loan or a line of credit, then that’s a better, way to go, because you’re not going to be ridden with that servicing of that debt. But how important is that? Because this is very important when we create a business plan, it is an autobiographical study of the doctor or the owner of the business. But in addition to the financials, we have demographic and geographic contingent upon where do you want to go? I always call it the noun conflict, person, place and a thing. Who are you going to service? Where are you going to do it, and what services are you going to provide in that business plan? But we also try to do a study is what is the demographic of the patient base in the area you’re going to? Race, education, median income, housing, competition, everything that goes in there. Then we’ll pick a zip code and then we’ll do maybe a 10-15 mile radius with the old compass with the pointer. All right. And draw a circle around it. And then actually do studies. Are they important to a bank when we’re submitting a business plan?
00:11:59:21 – 00:13:12:17
Kevin Wills
Another awesome question. And I would say 100% without a doubt. Absolutely. And and I think, you know, if we look at when we get to the financial request itself and let’s just assume for a second it’s a seven or a $750,000 loan request. That request is going to include the three major buckets Jay, which you’re aware of, build out, equipment and working capital. You know, those are the big ones. The biggest bucket of all is going to be around the buildout. Once anyone picks a location, signs the lease, and invest 4 to 500,000 in a build out to put their practice there. That is something we cannot undo and fix after the fact, right? Maybe some access to working capital after the fact. You know, some things happened during the first 12 to 24 months. Happy to look at that. Moving the practice because we started up in the wrong place. It’s a nonstarter. You’re going to have to figure it out and so you bring up a great point. I think that’s where it all starts from, which is this is the type of practice I want to build and based on the data I had available. This is exactly where I see the greatest opportunity for me to open my doors and find that level of success.
00:13:12:17 – 00:13:27:05
Jay Shorr
Yeah, I’m glad you mentioned that. Because when we do a business plan for a client and naturally, the business plan is not something that we just admit for the loan, it is a major part. However, we want to follow the business plan through its cycle.
00:13:27:05 – 00:14:17:08
Jay Shorr
Once we’ve been funded, then for the financial analysis, we may want to revise it, revise it and revise it again for actual true numbers to see. Well, this is what we projected. Now where are we each time in case we ever need to come back to the well. All right, now you make a great point because you’re not coming back to the well for the buildout. That was probably 50 to 75% of your number. I always say it’s your buildout, your capital equipment, it’s your supplies, and it’s your HR, figure for 6 to 9 months of payroll before you’re even generating money because you need to open the doors. You know, after you’ve hired your team. So can you explain the role of cash flow projections in securing a business loan?
00:14:17:08 – 00:14:43:12
Kevin Wills
Absolutely. You know, and I touched on it in some of my, prior comments, but I think one of the things that I just brought up and you are touching on with that HR component as we label it in, the banking industry, you’re working capital. I think that looking at that cash flow projection, since it’s not a hard number, right. Like you can get a hard number of a quote from your contractor about what the buildout is going to be. You can get…
00:14:43:12 – 00:14:45:13
Jay Shorr
It’s never on time or on budget, by the way.
00:14:45:19 – 00:14:49:18
Kevin Wills
That’s a whole different podcast, Jay. That’s a different that’s a whole different podcast.
00:14:49:22 – 00:14:52:23
Jay Shorr
We did that one already!
00:14:53:00 – 00:16:57:18
Kevin Wills
You can get you can get with your equipment wrap and get an actual hard number on that. The whole idea around the working cap is what gets fleshed out in the projections themselves. And so, you know, I’ll give you an example, not one of your clients, but had a client that approached us, didn’t start with a business plan and projections, had this number in mind of what they felt that they needed. I’ll use the air quotes, felt that they needed X dollars. We went back, you know, coached them on the business plan projections are a necessity. The doctor, I’ll say, maybe haphazardly threw some together, but it was at least a starting point of a discussion with us. Doctor said, okay, I did it. I need just like I thought I needed 450,000. We reviewed the business plan of projections and we went back, and the way that we approached it on the feedback was, hey, happy to move this forward. We were really excited that you wanted to put in $50,000 of your own money into the project. And the doctor kind of stopped dead in his tracks and said, I wasn’t planning on funding any of my own money. Why are you guys, you know, saying that? Where is that coming from? And we walked him through his projections and we saw that he was 50,000 short on the working capital, that he was going to need to get through those first six to 8 to 9 months in terms of, you know, some of the lag at that point of some of the receivables. So we also want to do our best. And I think that’s where the cash flow projections come in, is we want to do our best to ensure that the easiest time to get something done is on the front end of a loan. Sometimes coming back on the back end, there’s going to be a lot of questions of so what assumptions were wrong? Why was it delayed? Why are you struggling from an operational perspective? Why aren’t there enough new patients, whatever the case is? So we want to make sure that we’re not causing sleepless nights for that new practice owner because we need them 110% laser focused on driving the outcome in the practice. The best way to do that is to make sure that there’s not financial stress to the best of our ability, and that’s really why we rely on the cash flow projection so heavily.
00:16:57:20 – 00:17:38:03
Jay Shorr
That brings up a very good point, so that when people like us or other consultants or CPAs or attorneys, whoever’s going to create it, should you over project it to make up for what you just said? Because I’ve always said to a client, let’s over project what our expenses are, and maybe under project what our revenue is, you can’t get hurt doing that. If you over project your revenue and under project your expenses when you’re going to have a shortfall, where are you going with it. So is it better to over project your expenses when you’re doing a business plan for a loan?
00:17:38:05 – 00:18:12:20
Kevin Wills
Wow. Trying to put on my underwriter hat on that one. They would probably take, certainly some issue with the, the over projecting. What I would say is this. And this happens a lot with doctors. I think they’re relatively conservative by nature. Most of them they want to ensure, especially with this risk I’m about to take. I’ve got to get this right. This may be my only chance. And that’s another component. You know, as we approach it. Jay, and I know you guys do, as well as a team, which is they’ve invested heavily in their education, the amount of time it took for them to get their professional degree, the dollars.
00:18:12:20 – 00:18:15:09
Jay Shorr
Many of them, Kevin, are already in debt when they come to us.
00:18:15:09 – 00:18:16:08
Kevin Wills
No doubt. Right.
00:18:16:08 – 00:18:20:16
Jay Shorr
And you know, that deal with hundreds of thousands of dollars absolutely.
00:18:20:16 – 00:19:59:14
Kevin Wills
And the pathway. Right. For them to get out of that debt is to have an incredibly successful career. They may get one chance of ownership. You know, the one one of the things that certainly is tough from a banking perspective is if you’re applying for another startup loan and on there you mentioned that you’ve had a previous bankruptcy, let’s say, with a prior practice. Yeah, that that may stop us dead in our tracks. So why did the first one fail and what are we doing differently this time. And so we want to again, make sure that we’re putting that person in the best position. So going back to they they’re probably going to be conservative by nature. I say there’s kind of the spectrum, right? A lot of times we get super conservative projections to your point of, hey, I’m going to underestimate revenue. I’m going to overestimate my expenses, and that’s going to create this very little, very slim margin. At the end of the day that may not service the debt. And then we’ve got other people who are certainly super aggressive about having to overstate my revenue. I’ll understate my expenses and shows that, you know, 1.2 million in revenue. Look at me. I’m taking home $1 million a year, which we know isn’t going to be the case, right? Right off the bat, we’re looking for something that is that likely scenario in the middle, because if we can get to that likely scenario, we don’t want to burden them with more debt than they need. The likely scenario really helps us have that dialog around, hey, based on all of the assumptions, all the factors you put in here, we strongly feel that this is what you’re asking for. This is the right number to support the startup, and also based on our 20 years in the space, 20 years of doing health care banking and looking at billions of dollars of applications, we feel good with where you’re at. And so I do think it’s that middle ground is probably where we’d be shooting for.
00:19:59:16 – 00:21:27:20
Jay Shorr
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00:21:27:22 – 00:22:30:02
Jay Shorr
Okay, so a new doctor coming in and did not have a prior successful LLC. And I’m not going to say that was an, prior unsuccessful LLC. What I mean by that is they didn’t have an LLC. They’re starting it now. So they’re coming to the bank for a loan, and they’re basically not going to be able to put up the collateral of the LLC for the loan, all right. Or their PLLC or their MDPA or whatever the structure is. So what type of collateral typically is required for a loan? And how can an aesthetic practice owner prepare for that? Because I am a former practice owner and we were a very successful practice and of course we were able to self collateralize the existing practice assets. However, when we went for several additional million dollars for another location and more equipment, we had to self collateralize that as well. So what are you looking for as a banker for collateral for a new aesthetic practice?
00:22:30:02 – 00:24:21:12
Kevin Wills
Awesome question. Yeah. And this is, this is a great one. And I would say I’ll tackle it in two different answers. Because there’s two different loan types that I’ll just touch on briefly. You’ve got conventional bank loans, and then on the other side you would have something that’s backed by the Small Business Administration, the SBA, as we do. And I’m again speaking to PNC as we look at our underwriting, you know, guidelines and procedures and in terms of how we structure a, you know, startup loan more often than not, as you mentioned, the LLC may not have assets when they’re applying because they’re starting fresh. But we know that the build out, the equipment, obviously, the receivables is they start rolling through or collections at time of service. As they come through, there’s gonna be cash in the account. We know that those will be building over time. And so we still would look on a traditional basis for a start up. We would look at just taking all business assets of that particular entity that they created to house the business within. So whether it’s an LLC or an s corp you know, it doesn’t really matter to us. Whatever, whatever structure the team decided from a legal standpoint to put them in. It’s a UCC filing, which is the Uniform Commercial Code. I won’t dive too much into that, but for ease of example, I can’t file a mortgage, a piece of equipment of aesthetic, a laser. I can’t file a mortgage on that because it’s not real property like real estate. The UCC code allows us to either file a lien on the laser specifically, or we can file what what is an all business asset lien on that entity, that LLC, that s corp. What the UCC does is that if that practice ever went to another bank to say, hey, I’d like to apply for a loan if that bank were interested in doing something that was also going to be secured by a UCC, they’re able to go out and do a UCC search through the Secretary of state.
00:24:21:14 – 00:24:23:12
Jay Shorr
And see that it already has the one.
00:24:23:12 – 00:24:50:10
Kevin Wills
It’s already been encumbered, much like you would do with a title company looking at a mortgage. So all intents and purposes overwhelming, actually, for all of our startups that go down the conventional path at PNC, the collateral that we would be looking at is that all business asset filing with the UCC, we would not be looking at taking any of the personal collateral of the owners of the practice, single owner or multiple owners of the practice.
00:24:50:12 – 00:24:52:05
Jay Shorr
Even as a new practice?
00:24:52:05 – 00:25:00:03
Kevin Wills
Even as a new practice, Jay. And that’s going down our conventional pathway. There are times where.
00:25:00:05 – 00:25:02:02
Jay Shorr
You don’t want a hair removal laser, do you?
00:25:02:08 – 00:26:11:16
Kevin Wills
I don’t we really don’t. I know most people will look at us and this is you know, this is that’s a great lead. And most people would look at the way that we structure these. And let’s be honest, not only do we not want the hair removal laser to do anything with, 4- $500,000 build out in an aesthetic practice, there’s nothing we’re going to do with that either. Right. And so correct. Some some may look at that is, you know, we’re under collateralized. A lot of that goes back to as I mentioned, we’ve got 20 years of experience within the health care space doing this. You know, this type of loans supporting independently owned practices. And so over the years we’ve been able to morph our guidelines to address or to change with the risks that we see in the space. The good news for us, health care practices have remained incredibly healthy and profitable, within the United States. Let’s hope that continues for many, many more decades. And so again, the collateral of the deal will probably never measure up with the dollar amount of what we’re funding. We’re okay with that. Given the track record that we have within the space of health care.
00:26:11:17 – 00:26:14:05
Jay Shorr
Unless it’s real estate and we don’t go into a bubble.
00:26:14:09 – 00:27:49:18
Kevin Wills
Totally agree. Totally. And again, to your point, there’s never any guarantee that whatever collateral we take that a bank would ever be able to get fully repaid on. So there is inherent risk in what we do every single day. As a banking institution. I would say if we just quickly and I and I won’t hit all the nuances of the SBA, but for all the right reasons, there’s some really great SBA programs that are available to support, you know, if someone we’re looking at also wanting to do some sort of building purchase, as a part of that startup, you know, the SBA might be a really great opportunity for us to help make that all come together. The difference really, the primary difference with the SBA is that aside from taking the UCC filing, the all business asset filing on the practice assets based on the standard operating procedure that the SBA has, they would also look to take any available assets of those guarantors as well. So a lot of times that means there may be a second lien that’s placed on the primary residence. If there’s enough, you know, equity in the home to support the fact that we would want to place a lien. So those things would certainly be discussed with any client up front in regards to, hey, we see a couple of different pathways, and, you know, the SBA may allow us to go out on a longer term or Am than we could on a conventional basis. We’re going to show them what’s possible, and we’re going to ask for them and their advisory team to come back and tell us what path makes the most sense based on what they’re trying to accomplish. We’re agnostic as to whether it goes conventionally or via SBA. It’s whatever is right for that particular client.
00:27:49:20 – 00:28:19:11
Jay Shorr
All right. Now, for the purpose of this podcast, I chose PNC. Disclaimer only because of my personal affiliation. There is no financial remuneration between PNC and Shorr Solutions for this podcast. It was just that I am more comfortable knowing in the nuances, both from a client perspective, where we have had many of our clients and they go to other institutions as well. But how does PNC Bank assess the risk of lending to new practices as compared to other industries?
00:28:19:13 – 00:31:30:08
Kevin Wills
Yeah, no, that’s, very healthy. As I said before, I was speaking broadly to the umbrella of health care, as we define it, as health care previously, here, which, you know, includes physicians, certainly within the space that we’re discussing today, we also include dentists, veterinarians, optometry, all within our health care umbrella. Jay. Sure. Broadly across that, again, we’ve been at it for a little bit over 20 years at this point. We’ve done billions of dollars. And so I think really the assessment of risk for us, we’re blessed comes from the track record that we’ve had over those 20 years of being able to look back. And if you think about, let’s say, the most recent 20 years, two notable times come to mind for sure, and I know they’ll resonate with you. 2008 A bad time to be anywhere in the US. Certainly a bad time to be in banking. Right. And that’s actually when I started my banking career was April of 2008. So maybe that was the only time in my life I felt like a first responder. I was running in on my first day, and everybody else was heading for the exits because they knew something I didn’t, but, you know, 2008 and kind of the 2 to 3 years post was a was a really good, if you want to call it a stress test for us about how resilient was the healthcare sector going through a very difficult financial crisis that affected everyone broadly in the United States. And so, again, was a period that was hard, something that was unanticipated. We certainly had start ups that took place in 2006-07. That made it through even the financial crisis on the aesthetic side of the business, where you would expect less discretionary income, people hunkering down, but they were able to still weather the storm, you know, grow their practices. And so that was the first test and then certainly the most recent. And I hate to bring up bad times, the pandemic, another one that none of us could ever anticipate happening and certainly the the ramifications through the financial system and really everyone’s day to day lives that that caused certainly a ton of disruption on the health care side for a period of time. When you think about who was able to, to even do procedures for a period of time, practices, just having to close their doors for, you know, 6 to 8 weeks potentially, and shut it down. Great news. The bank very much, you know, certainly through the help of the US government and some of the programs, we were able to help our clients through those tough times. But it wasn’t just utilizing you know, the Paycheck Protection Program. We certainly were doing, you know, deferred payments for clients, you know, if they called. So you having a really tough time looking at a 3 to 6 month payment deferral. We want to help our clients get to the other side of a tough financial burden that they may have in front of them. Our goal is not to, you know, cut bait and run. We want to figure out how do we wrap our arms around you and how can we help you get to the other side of this. So, the good news is, again, I think those two showed us that health care is incredibly resilient. Through hard times in the United States. And so for us, it is absolutely one of our preferred industries. We love lending into this space. We do a ton of business here. And really, for the foreseeable future, I don’t see many changes within the policy itself to to address any risks that have come into our purview.
00:31:30:10 – 00:32:59:17
Jay Shorr
You know, one of the things I’ve always learned is that even in downtimes, people, they’ll still continue to spend on their travel, their entertainment, and their face and body. The way they look, you know, might be a little bit deferred. Of course, you mentioned pandemic. We did have non-essential in some states and Commonwealth’s not able to perform some of these functions. And other states and commonwealths, they did. A we don’t talk about the politics behind any of that in any of our podcasts. However, it did recover. And, you know, I know that PNC and other banks did. I’ve come to PNC for on behalf of my clients and said, hey, we had three, 4 or 5 months worth of some downturn. Can we defer meaning whatever debt was owed, if it was 2000 a month for five months, can we take that $10,000 and roll it into the subsequent remaining 24-30 payments? And the bank said, sure. I mean, what was the other option? Put them out of business and you get nothing, right? And then you help them recover and then help them prosper to even hopefully borrow and lend more money. Now, we talked about some of the common mistakes about not having a business plan, but beyond the initial loan, what should a practice owner look for for a long term banking relationship, whether it’s PNC or any bank?
00:32:59:21 – 00:37:57:13
Kevin Wills
Awesome question. And I’ll tackle one of the things that kind of happens in the loan process when we get to the back end of it, is we issue a term sheet, right? PNC is going to issue something. If you’re talking to any other bank that participates in the healthcare space, you’ll get a term sheet which lists out all of the pertinent facts of here’s how much we approved you for. Here’s the borrower, the collateral, the term, all that good stuff. A lot of times people got really wrapped around the rate in the fee. It’s usually on the first page of the term sheet. It’s an easy two things to highlight, and you can just set 4 term sheets side by side and say, well, you’re bingo. This is the one with the lowest rate and the lowest fee. But really digging into that term sheet is important to understand all of the conditions of closing and kind of the actual structure. I know one of the comments you made before Jay. As we looked at that kind of cash flow forecast, and are you going to get an interest only period on the front end? Are you immediately got to be on a full payment? What does that do over time, really us trying to find that structure that speaks to what the cash flow projection is, what would be the right interest only period for that particular client before putting him on full principal. And interest payments is important. But as you dig deeper into some term sheet, and I’m reminded of one that came up recently down in the southwest, one of the states southwest, the United States. We had a client that ultimately chose to go with, you know, a competitor bank. And this was an acquisition of a practice. And they knew that probably within 24 to 36 months, the real estate where it resided was going to be available for them to purchase. For whatever reason, we were giving them full, you know, 100% financing with permanent working capital to acquire that practice. The bank that they work with was willing to get them there, but they required them to put a 250,000 into a CD that they were going to hold as collateral. We went back and we had that discussion about, but you mentioned to us, you’re going to want to purchase the building. I think you’re going to need access to the 250 to make that happen. And they said, well, they’ve they’ve given us assurances that as long as everything goes right, they’re going to release the lien on that. Well, lone behold the building came available in month 14, Jay, they approached the lender that they went with to see if the 250 could be released. At that point, the bank said no. And so they were back asking us, do you have any solutions for us to make this real estate purchase happened in the absence of having any available liquid funds, and unfortunately, we just weren’t able to to help them. Right? So really digging in and understanding it wasn’t that they didn’t understand they were signing up for putting 250 in the house because they they were willingly putting it into that CD, doing something with the bank, saying, oh, but hey, assuming everything goes great, and then in 36 months we’ll do this. Well, if something changes prior to that, make sure that you’ve got a structure that’s in place that can allow you the flexibility to capitalize on the opportunities that may be ahead of you. So go into your question, aside from that term sheet and really digging in there as we get into what we like to focus on is we can all spend with the help of your team and every other advisor that’s at the table, we can all spend 60-90 days doing nothing but focusing on the loan and trying to get that to the closing table and get the client access to the funds that they need. We know we know that there’ll be this gap of time until the doors officially open, but we should be having a discussion about when the doors open operationally. How do you want to run this practice and what can we do as an institution to make you efficient and secure in the way that you’re transacting with your patients, ensuring that there’s not risk of embezzlement within the four walls of your practice, which can be absolutely catastrophic, especially if it happens, happens unfortunately, all the time. Yeah. And as we’re exploring the whole concept of startups, there’s not a ton of excess capital that you can lose. I’m not saying embezzlement is good at any point. For anybody, but it’s really catastrophic for startups because of how tight the cash flow is. You can’t afford to lose a dollar of that revenue. It needs to be all flowing. And so we have a team here, Jay, that focuses really on two major questions, which is around let’s talk about how money is going to come in. And then on the back end let’s talk about how money needs to go out. And then in the middle who needs to have access to all of that, whether it’s reporting, depositing, whatever that’s going to look like. We want to ensure that we’re going to set you up with something that is scalable and sustainable over time to where you’re not spending a ton of time on your banking relationship. You shouldn’t you definitely shouldn’t be run into one of our branches every day. There’s you need to be electronic, just like health records are. Let’s get to a place from the start that we’ve put those things in place, which actually may even reduce the type of staffing levels that you need. If they’re not focused on doing some of those menial tasks around the collection and disbursement of funds.
00:37:57:15 – 00:38:51:11
Jay Shorr
Right. So as we wrap this up, any final comments that you would share to the listeners? This is going to be streamed and it’ll be available. Are there any final comments that you have when it comes to how a practice should go about this right from the very beginning, because we get these calls for physicians and med spa owners every week saying, I want to start. Grandpa left me 50 or $100,000 and I want to open up my business. And my answer is, save what grandpa gave you. You’re not going to do it. What would you tell your younger self if you were going into a business? And of course, we all have these visions of grandeur or else we wouldn’t even think about it. What would you tell the listeners about what to do when they’re thinking about it?
00:38:51:12 – 00:41:05:10
Kevin Wills
Wow. I think this does speak probably to my younger self, and it’s a phrase that I use at times. I coach my son’s basketball team, and when we put a new drill in place, or we’re working on skill work as we get started with that, the thing that I reiterate is let’s do it right, not fast. And I and I think that speaks for a lot of things in life. We can start working on you being faster, dribbling the ball up the court. But first I need you to get the basics of dribbling down. And so let’s just make sure that it’s not going off your foot. So let’s just slowly get going. We can start building pace beyond that. And so I think the best advice I can give is the team of advisors that you have around you will set you up for a lifetime of success. So let’s start there. Make the investment you know, I was talking to a doctor the other day who was trying to get a whole bunch of legal advice from us. We’re a bank. We don’t give out. We don’t give legal advice. He said, well, but if I call my attorney, he’s going to charge me, you know, $350 an hour. And we said, that’s probably the best 350 you can spend. Don’t skimp on legal advice. Get the best structure. When we think about, you know, you and your team get a great plan put together, put that ax on the map about where you could be the most successful at planting your your roots for that practice in the community that you want to support. And then I guess the tertiary is make sure that you’re selecting longer term partners. You know, I think about the banking side. One of the things that is in those term sheets I didn’t mention, is that all of us are going to say, well, if we’re doing your loan, we expect that you have your primary banking relationship with us. And so, again, how are we going to support you? Do we understand what you’re not just startup plan is, but where do you want to be in five years and ten years? Do you want to add associates? What would that look like? How can we participate? And so really building not just, hey, I’m here to help you today. I can get you this funding. And then if you need something in the future, let me know. Our goal is not to fund loans. Our goal is to grow relationships. And I think that’s incredibly important for every new practice owner. And I appreciate what you and your team do to put your arms around, brand new practices, because it does take all of us coming together to ensure that, you know, no one is failing. We don’t want to see any practice left behind.
00:41:05:12 – 00:42:26:23
Jay Shorr
Right? I call it in our team. We call it the executive management team versus, you know, consultants or coaches, but executive management team, which consists of your accountant, your CPA, it includes your attorney, it includes your banker, and it includes your consultant all working in tandem with one another. And don’t pick one or the other that won’t deal with the others. We’re collaborators. We’re not competitors. All right? And I would have told that client of yours when they mentioned that the attorney wants to charge 350, that I might want to consider looking at a different attorney, because 350 today is very inexpensive. I’d say no, you’re getting, you know, always get what you pay for. Just like people look at the basis points on a loan. All right. And for a couple of basis points, they’ll switch to another bank without thinking about the service that they’re going to get from a bank. Kevin Wills, vice president, PNC Bank. Thank you so much for sharing a part of your day for our audience to speak on the key elements of funding your aesthetic practice through a bank. Thanks again. As I say on every one of my podcast, ladies and gentlemen, we wish you all the best. Good luck and God bless.
00:42:27:01 – 00:44:00:02
Jay Shorr
So that wraps up today’s episode of Shorr Solutions: The podcast. If we mentioned any website links, you can find them in our show notes to work directly with me and our award-winning team of consultants to increase efficiency, increase revenue and decrease costs in your aesthetic practice, schedule a free consult with us today. We will help you establish and refine your aesthetic practice’s protocols for maximum efficiency and productivity, decrease your expenses and increase your profitability with an expert financial analysis of your business. Attract more patients, convert calls to consults, convert consults to treatments and keep patients coming back for more. With our sales training, coaching and complimentary access to our conversion cascade online course. Recruit, hire and train new team members and manage any staff turnover with our human resource expertise plus more, head over to our show notes and click on the link to schedule a free 30-minute consult with us today. And if you enjoyed today’s episode, don’t forget to spread the word and share this episode with your friends, colleagues and the rest of your team. Remember to also follow us on social media @ShorrSolutions and sign up for our e-newsletter. You’ll learn about our latest tips, blog posts, services, videos, webinars and more. Links to our social media channels, and to sign up for our e-newsletter are in our show notes. So see you next time and remember to leave us a review and subscribe or more valuable content.
