There has been a significant shift in the medical industry according to recent research from the American Medical Association (AMA). Only 47.1 percent of surveyed physicians own their practice, down from 50.8 percent and 53.2 percent in the previous two reporting periods, respectively.
Why is there a downward trend reflecting fewer physicians owning their own practice?
One factor is that younger physicians are embracing the security of employment over the pursuit of an independent practice. But one of the AMA’s bigger concerns was that most physicians lack the strategy and resources necessary to sustain their own practice.
Fortunately, that is a solvable problem! Each decision you make during the formation period will have long-term ramifications on the success of your practice. Let’s take a moment to review the key points and get you started down the right path.
Keep These Points in Mind When Starting a New Practice
1. Create a Thorough Financial Plan
Although it can be tempting at this point, do not make the mistake of rushing past a thorough financial planning process. Here are just a few of the questions you should ask yourself:
- How much money do you need to launch and operate?
- Do you need a loan? If so, where will you get it?
- Should you have a partner?
- Do you have any capital expenditures?
- How much do you need to spend on equipment and furniture?
- What are your monthly operating costs/overhead?
- How many rooms should you start with?
- How will you staff the practice?
See something you haven’t thought of? Remember, this is just a snapshot of what you need to consider. Following a checklist will prevent you from missing any important decisions early on that could save you from costly mistakes down the road.
For example, the typical medical practice has three exam rooms per doctor. You’ll need more if you plan to add providers. The question to ask is: during the term of your lease, how many providers do you plan to have?
If you plan to run with only one provider, keeping overhead low becomes even more critical as you get your practice up and running.
2. Choose the Right Location
Location. Location. Location. It doesn’t just apply to residential real estate. In this case, medical real estate is incredibly important to evaluate before launching a new practice. What do you need to be mindful of?
- Based on your practice area, who is your target audience?
- Where is that population growing? Where is it not growing?
- Where is there an under-served segment of your target market?
- Where are there already enough doctors or specialists in certain areas?
- Where is the rent affordable? Where is the rent not affordable?
You may think that you want to open a practice near your home to have a nice, short commute every day. But if your area is already well-served by similar practices, or the population is not growing, it may not be the best location for the success of your practice.
Take the time to evaluate all of the contributing factors to choose the right location that will allow your practice to grow for years to come.
For instance, if you’re a specialist, is there a significant concentration of potential patients that typically need your speciality in the area? Also think about office space — will it be easy for patients to access your location and parking?
All of these things are important to be aware of since you will likely be working with a tenant rep that is paid by the landlord. They know the commercial terms and concessions that are customary in the area you are looking to open the practice.
3. Develop Your Operational Plan
When you own a practice, you are in charge of caring for your patients AND running the business.
Your checklist needs to include the critical step of planning how the business of your medical practice will run. Don’t wait until you are sitting in front of the loan officer without an answer to the question, “How long it will take your practice to start turning a profit?”
You will have a stronger start if you have a clear plan for all of the operational and financial aspects, including:
- Billing and collections
- Accounts payable and receivable
- Tax planning and submission
- Financial statement management
- Marketing and new client acquisition
This is not an area to cut corners. If you are unsure whether you have your operational plans buttoned up, it’s never a bad idea to ask for some help. We work with a lot of practices during start-up. We would like to help you get a good start during the launch of your practice so that you can have a long run.
Stick to Your Checklist When Opening a New Practice
There is no such thing as being too diligent when it comes to business operations. For many medical professionals, the operational requirements of running a practice can quickly syphon away focus from the most important thing — the patients.
Don’t make this mistake. Plan early and plan well. We’ve compiled this checklist to get you started. And if you find that you need additional support, we are here for you.
Caudell & Associates specializes in practice advisory, tax, and accounting services for medical practices. We are experienced healthcare CPAs that have specialized knowledge to support your newly forming medical practice during each critical phase.
We are rooting for you as you start you new venture!