About This Series
Have you been pondering striking out on your own, making the leap from employed associate to practice owner? Or are you just starting out in practice, and wondering if it’s worth going even deeper into debt to start your own venture rather than getting “a job”?

Whatever your situation, Physicians Practice is here to help with our comprehensive six-part guide to starting a medical practice. In addition to the pre-opening day planning advice you may have seen in other such guides, we’ll delve deeper into the key milestones you’ll need to meet for success long after you cut the ribbon.

Assuming you’ve lent some serious thought to your practice philosophy and dream location, as we described in Part One of this series on launching a practice (“Start It Up: Planning”), the next step is constructing the financial model. To form the underpinnings of this crucial bit of strategizing, all you need are reliable expense and revenue projections, plus a solid budget, for the first couple of years after opening. Piece of cake!

OK, we admit this task is not easy. But you must pay sufficient heed to the financial side or risk losing everything. It’s your practice, your money — and your job, says consultant Keith Borglum. “You can’t abdicate financial controls … to a staff person. The physician doesn’t have to learn to be an accountant, but they have to be able to read the reports intelligently.” On the bright side, says Borglum, “It’s a lot easier than learning medicine.”

Durable data

Too little financing is a death sentence for any new business, especially one whose major commodity is dependent on — and in most cases entirely limited to — its owner’s time. As a key part of your business plan, you’ll want pro forma statements listing best, worst, and average-case scenarios for a realistic mix of patients in your geographic area and specialty. These documents should cover at least two years and would typically include startup expenses, revenue and charge analyses, a fee schedule, and a break-even analysis.

One way to get started is with a consultant. We recommend someone experienced in helping guide startups, and who has particular expertise in developing budgets for new businesses. Sherry Migliore is one of many such consultants. “We work very closely with the physician to develop the assumptions for the financial analysis,” she explains, describing the process at PMSCO Healthcare Consulting in Harrisburg, Pa., where she’s director of consulting. “What are their revenues, their anticipated costs? If the physician is leaving another practice, they do have some track record of revenues and income … so sometimes we have a base to work with.”

For doctors straight out of residency, “we have a little more work to do,” Migliore says. “We’ll go back and look at similar information on similar practices, using our considerable data to work through the revenue and expense scenarios.”

“The more unusual your practice, the more important it is to have a consultant who can evaluate the business and marketing aspects of it,” says Borglum, citing the example of a dermatologist client whose practice is restricted to contact dermatitis. You might not think that such a narrow focus would be a viable business, but in this case it works because she started with a sound foundation of financial planning and is one of only a handful of such subspecialists in the region.

Your accountant is another source for help making sure your numbers are meaningful. In terms of the data behind those numbers, “Generic national figures are almost irrelevant,” says CPA Jerry L. Love, who’s been working with physician clients for nearly 30 years. He notes that instead of turning to an accountant, people sometimes unwisely obtain data through common-size financial statements, which express figures as a percentage of a common base term.

This is a mistake, he says. You may find, for example, that salaries represent 20 percent of gross revenues, “But the doctor doesn’t know what his gross is going to be,” says Love. “At the end of the day, if the doctor is going to have a nurse, an office manager, and a receptionist, he needs to know how much those salaries are going to cost.”

Love, a former chair of the Texas Society of CPAs, maintains that the best way to get this sort of comprehensive data is through a CPA in your area, who “will either know the answers to those questions or know where to find those answers rather than guessing.”

Just like in construction, there’s a real danger of underestimating the expenses for which you’ll need to plan — everyone knows someone who’s blown their kitchen remodeling budget by a triple-digit percentage. “We always tell doctors when we’re working with them on a feasibility analysis that we like to be conservative in terms of adding in more costs than we think we’re going to need,” says Migliore.

Physicians becoming practice owners for the first time, says Love, “will have a tendency to get the really major items like rent and labor and malpractice insurance and things like that, but they won’t necessarily remember or understand that there are a lot of other things you might have, like office supplies.” Drilling down into these seemingly trivial areas, which you might understandably overlook if you’ve always been a salaried employee, is crucial.

It’s relatively easy to estimate the expense side of the financial statements. Revenues can be tougher to build in, but it’s simple to find the Medicare rates of payment in your geographic area for the CPT codes you use most often — just search online for “Medicare reimbursement CPT” or a similar term, or ask your practice management consultant to supply them. Check out our annual Fee Schedule Survey for further guidance on average commercial rates.

But be careful about your assumptions. “Making up your own fee schedule: Now there’s a mistake!” says Borglum. He recommends using an RVU-based system, noting that this will be a simple proposition if you enlist expert help or purchase the pertinent data yourself (again, a quick Internet query should produce the results you need).