Your entrepreneurial drive to achieve financial freedom and to practice your own way are key reasons you may want to start your own practice. There are two main avenues to build a professional business for yourself, first as a locum, and second by owning a physical practice with equipment and staff.
Becoming an independent locum can offer many benefits including the freedom to set your own hours and take extended vacations and to work at the practices that you prefer and limit your management involvement. However, being a locum has one major drawback, in the long run, it is not possible to build value in your business beyond your own time and skills. Thus, when going into retirement, there is no practice to sell.
On the other hand, owning your own practice will let you leverage not only your own time but also the time of your dedicated support staff and other doctors and specialists employed by you. When done right over time, you can build a business that is not entirely dependent on you, and one that can operate and generate profit beyond your own day-to-day involvement.
Although today equal number of females and males graduate from dental schools and the majority of current veterinary school graduates are females, women are quite under-represented as practice owners. However, many women that do take on the challenge of practice ownership, build very successful practices due to their strong interpersonal and organizational skills.
Starting your own practice might seem like a daunting task, but focusing on the following key areas will help you hit the ground running in no time:
1. Finding the right location
a. Like the old saying goes, location, location, location. When selecting the right location it’s important to consider your competition, your target demographic, the ideal size of the premises (not too large or too small) etc.
It’s important to note that the price you will be able to charge your clients will largely depend on the perceived quality of your medical/ dental/veterinary services and will be influenced to a much smaller degree by having a trendy location or luxury décor. As a result, approach very trendy, large and expensive locations with caution. As a rule of thumb, the base rent should not exceed 7% of your revenues by the end of the second year of operations. Thus, if your base rent is expected to be $45,000 a year (1,500 sq foot x $ 30 per sf), your revenue should be close to $650,000 by the second year of operations. Similarly, if the expected base rent is $67,500, your expected second year revenue should be over $950,000.
b. Lease negotiations
Although some practice owners will buy the land and building on which they operate it is far more common for them to lease their premises from a landlord. The main reason being that buying the land and building requires a significant cash outlay that could otherwise be deployed in setting up the practice itself. When approaching the lease negotiation process with the landlord, it is important to read the whole lease agreement carefully and, if possible, get professional advice. Particularly, you should pay attention to any relocation clause, demolition clause and exclusivity clause that may get inserted into the lease.
A relocation clause is often used in large retail centres, whereby the landlord may require you to relocate your business to another unit in the same complex at some point during the lease. This may cause significant business disruption as well as additional cash outlays to outfit the new unit with appropriate leasehold improvements including cabinetry, electrical and plumbing upgrades. If this clause is present in the lease contract and cannot be removed entirely, it would be advisable to negotiate for significant incentives from the landlord to cover the costs of relocation.
Demolition clauses are common in certain urban centres that are growing and may be eyed for redevelopment in the near future. They offer the landlord the opportunity to cancel your lease and evict your practice on, often short notice, to destruct the premises and redevelop the land. Demolition clauses present significant challenges in financing your business due to the uncertainty of the ultimate term of your lease. Moreover, demolition clauses may present a significant obstacle in selling your business in the future. For this reason, when possible, I would suggest avoiding lease contracts with demolition clauses altogether.
Unlike the two above, exclusivity clauses are inserted into lease agreements in the interest of the tenant. They prevent the landlord from leasing another unit in the same complex to a direct competitor (i.e. another veterinary practice) during the term of your lease.
They are most relevant for multi-unit mall complexes, as it is important to limit the competition within the same area to protect your business’ goodwill. If this clause is not present in the standard lease agreement prepared by the Landlord, your advisor should draft one for you and negotiate its inclusion in the lease agreement.
Finally, it’s important to consider the overall feel of the location and the types of neighbouring businesses. As we previously mentioned, it is the perception of the quality of medical delivery and services that will determine the fees that your business is able to generate. Make sure that there is an overall positive family atmosphere in the area and stay away from strip malls with establishments that might be perceived negatively by your clientele (questionable massage parlours, cannabis dispensaries etc.).
2. Setting a Realistic Business Plan
a. Leasing/Purchasing Medical Equipment
One of the major considerations in setting up your practice is acquiring the necessary medical equipment. Start by putting together a wish list of equipment and leasehold improvements and obtain multiple quotes to ensure you get the best price.
Common leasehold improvements include plumbing, electrical, cabinetry and reception area furniture. It’s important not to forget the cost of taxes, delivery and installation and to build in an appropriate contingency allowance for unexpected costs.
Generally speaking, it costs approximately $300,000 - $400,000 to set up a practice for a veterinarian or dental business and a bit less for physiotherapy and chiropractic businesses.
Some of the equipment can be leased rather than purchased outright. This would have the advantage of spreading the upfront cost of the equipment over the term of the lease. It must be noted that leasing will often result in a higher overall cost of the equipment over the term of the lease as compared to buying the equipment outright relying on the general term loan funding (due to higher interest rates embedded in the lease as compared to interest rates that are applicable to term loan financing). Occasionally deals may be available in the marketplace as lessors compete for market share or brand awareness, which could bring the cost of the lease down or offer other incentives.
b. Preparing Cash Flow Projection
The next step is to prepare a realistic cash flow projection for the next two to three years of operations taking into account your expected:
Revenue (including growth and seasonal fluctuations)
Direct expenses are variable expenses and will fluctuate with the level of revenue. Most often these are budgeted based on industry averages with some consideration given to factors specific to your practice.
Direct expenses include employee wages, cost of drugs, medicine and consumables, professional salaries and wages, including owner(s), specialists and other fees.
General and administrative expenses are the fixed costs of doing business such as rent, utilities, telecommunications, subscriptions, leases etc. These will not fluctuate based on revenue levels and can be forecasted based on actual signed contracts and general industry knowledge.
Interest costs will be directly related to the amount of borrowing required to purchase the necessary equipment and outfit the practice with leasehold improvements.
3. Obtaining Financing
All major Canadian banks have designated programs to finance professional businesses, sometimes under the “health care professionals” team or the “small business” lending program. In many cases, the financing is available at very low rates so long as the following major criteria are met (not an exhaustive list):
- Proof of Education
- Personal Guarantee of the Loan by the Owner
- Postponement of Claims
- Assignment of Life Insurance for the amount of the borrowing
- Acceptable Lease Agreement (see above)
- Business Plan including 2 – 3 year cash flow (see above)
Often the bank would provide 100% financing for opening your practice, even if the owner has outstanding student loans and/or a principal residence mortgage. However, it will take time to acquire new clients and get the business up to capacity which often means taking a temporary pay cut to conserve the cash flow of the practice. This reduction in owner wages is often in the range of $40,000 to $50,000 per year for each of the first two years of operations. Thus, depending on your current lifestyle, it would be recommended to have some savings to supplement your earnings or, alternately, plan to adjust to your personal spending in the first two years of opening your practice.
I would love to help you with your business start-up from initial discussions and a simple idea to a blossoming operation. I could help you make a professional business plan and obtain bank financing as well as provide any general advice related to the practice start-up.
#set-upprivatepractice
#start-upbusinessplan
Kommentare