Establishing a Budget for Your New Office
by Don Leighton-Burwell, AIA/Tenth Times August 1996

This is where the “rubber meets the road” and should likely be one of the first considerations that you look at in envisioning your new dental facility. Because the monetary commitment can be substantial, and a real consideration long after construction is completed, it should not be taken lightly. On the other hand, the money that you spend on this endeavor is an investment in your practice, a statement to your patients and your community, and ultimately a decision that can dramatically affect your quality of life.

I generally begin projects by performing a financial feasibility or pro forma on the project. This helps to establish the scope of design work to be performed, set a budget for construction and acts as a checklist for other miscellaneous costs of the project. As part of this effort, I also look at what the new facility and associated costs mean to your practice overhead and what actual increase in production needs to be realized in creating the revenue to fund your dream.

Capital (or hard) costs to be considered are the estimated construction cost of the new office. This is affected by the area or square footage (sf) of the project, the cost/complexity of the design on a square footage basis and the locale (such as Austin) that may require more extensive sitework expenses due to stringent regulations. Steeply sloping sites and other challenging conditions will translate into higher construction costs. While costs may vary widely and can only be estimated, generally full buildings (including sitework) can be built in the neighborhood of $230/sf and lease spaces for approximately $140/sf (updated 2010). These numbers are based on durable commercial finishes with a medium level of architectural sophistication. Ultimately, budgets can only be reduced up to a point after which basic project goals and functionality are greatly compromised. I believe a truly thoughtful designer is more challenged by a tight (yet realistic) budget, than a budget that has few constraints. Talk to your design professional about the latitude that they see in your budget relative to your project goals, especially if they have a lot of experience in dental office design.

Non-capital (or soft) costs consist of several items. Professional fees often encompass Architect and Engineering costs, and may include Interior Design Fees. These may vary widely and remember, you get what you pay for. When shopping for your design professional look at the comprehensiveness of the service provided, experience in dental design, and your comfort/trust level with them. When done successfully, I believe that the design process is about building life-long relationships, not just the new office. Other non-capital costs can include land cost, legal and accounting fees; topographic surveys and soils tests; construction/interim financing costs and points to secure the loan. It is important to set aside a portion of the construction loan (typically about 5%) as a contingency fund for unforeseen items that may occur.

Once you have determined the capital and non-capital costs that you will be financing (less your down payment) you can establish your monthly debt service. In addition you will want to factor in your monthly operating costs to determine the actual overhead or facility cost that you are taking on. By subtracting your current rent and operating costs on your existing facility, you can see how much increase in production is required to absorb this new debt and still maintain your long-term practice goals. The new facility may be a stretch at the beginning, but it should not be a inordinate burden to your practice.

Be sure and also factor in costs for new dental equipment as well as any new furnishings, artwork and accessories that you might want in your new office.

A comprehensive look at your financial situation and a carefully conceived budget (that is aligned with your practice goals) are the first and possibly most important steps in creating an office that will best serve your needs. Choosing to build a new office is a major financial consideration and a tangible investment in your career. Making this choice can literally transform how you relate to your practice, your staff, your patients, and heighten the enjoyment of your commitment to dentistry.