For all of these documents, start with a basic spreadsheet, which offers the flexibility to make additions and changes, and look at figures from a source such as the Medical Group Management Association’s Physician Compensation and Production Survey. In any case, “You need to make sure it’s a regional, not a national survey,” cautions Love. “A national survey taken in the metropolitan areas may not be representative of where you want to go.”

Tightening the belt

Taking into account personal finances will help in the construction of assumptions for the practice. It’s all but inevitable that you’ll bring home less than the average at first, so consider a conservative starting point for building your household budget — Love suggests a figure at or below 50 percent of mean salary for your specialty and region.

“There’s a startup period where money’s going to be tight,” he notes. “In two or three years, then you begin to move up to the lifestyle you want. Will most physicians be able to exceed that average income? Yes. But it’s part of being mentally disciplined not to walk in thinking that you’re going to make twice what that regional average is.”

If you can swing it, give yourself a margin of error by contributing at least some of the initial capital yourself. California family physician Eduardo Peña Dolhun, who started his own practice two years ago, explains how he made it through the startup period.

“I started out with nothing, just doing housecalls. I worked with other doctors who did housecalls — essentially I was referred out,” he recalls. “I had five or six patients, and I didn’t even have an office at first. I saved up my money and moved into my current office, and I shared the rent with three other doctors … for about a year and a half.” Two years after officially opening, Dolhun now has a satisfying cash-only practice with a comfortably sized patient panel.

Dolhun didn’t break the bank with outsized overhead. But many newbies do make that mistake, and many others overreach on lifestyle as well, resulting in a debt load too heavy for a young practice to bear.

Another common yet difficult-to-overcome problem for new practices is failing to pay quarterly estimated taxes. “The physician gets to the end of Year One and they owe $70,000 or $80,000 in taxes, and they don’t have it,” sighs Love. “And then they have to start paying on the next year’s estimated tax bill,” and so begins a vicious cycle of frustration.

Borglum has seen this particularly expensive tax faux pas, too, and says that hiring an accountant who doesn’t specialize in medical practices opens physicians to all sorts of additional pitfalls. “The default general ledger list in Quicken, for example, doesn’t distinguish between office and medical supplies, or between physicians and nurse practitioners,” he says. “And you do two or three years of accounting wrong before you realize it.”

After you’ve lined up the right software — and a teacher to help you get started with it — creating the break-even analysis will be an illuminating exercise. “Once you do that, you go from uncertainty to risk, and risk is measurable,” notes Dolhun. “So if you do want to get financing from friends, family, or a bank, you can go to them and say, ‘It’s going to take me six months to break even, and then I’ll be growing at 5 percent.’ Then you can talk with some numbers instead of saying, ‘I have this crazy wild idea of starting a practice … ’”

Negative cashflow

Your practice may be open six, nine, or even 12 months before any significant cash flows through the door. A little scary, yes, but as a savvy Physicians Practice reader you have no doubt remembered to include a (modest) salary for yourself in the list of startup expenses. Another expense many physicians fail to factor in is the actual cost of borrowing money — the interest you’ll be obliged to pay on your loan or line of credit.

But where is all this hypothetical cash supposed to come from? The bank with a branch on the corner and the friendly manager may not be the best place to start. “Lots of doctors waste a lot of time shopping around with community banks that make them jump through all these hoops, fill out SBA paperwork, and it takes six weeks, and then they deny them the loan,” says Borglum. “Most banks really don’t know about lending to doctors.”

So ask around — try your medical society, a practice management consultant, or colleagues in the area — to find an institution with a so-called “private banking” division. And note that although many major regional and national banks have a group that specializes in physicians (and sometimes other professionals as well), individual branches of those banks may not be aware of its existence.

All this is not to say that you don’t need to establish a relationship with an individual banker. On the contrary, you most assuredly do, as this person will offer help and guidance at every stage of your career. She will also be able to assist in fleshing out the pro formas.