Buisness and Finance Plans for Doctors - Australian Doctor
1. AN AUSTRALIAN DOCTOR SUPPLEMENT – AUSTRALIA’S NUMBER 1 MEDICAL PUBLICATION
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Building
BLOCKSA guide to running your own business
3. Introduction
Setting up your own practice can feel like an enormous endeavour. In this supplement, we
break it down into smaller, more manageable steps.
From how to go about writing a business plan, to marketing in traditional and social
media, to thinking about the design of your building and getting the most out of your
potential employees, we look at all the challenges you might encounter if you’re thinking
about stepping out on your own.
Go ahead, take the plunge.
Contents
3 Introduction
4 Taking the plunge
7 Piecing it together
10 All systems go
13 Let’s get physical
16 The personnel touch
3...
4. Alternatively, a group practice can provide benefits such as having in-house CPD, but then you need
to be prepared to deal with the potential for professional conflict. The number of GPs also determines
critical economic cut-off points that may influence the business plan goals.
“At two FTEs, you can run the practice yourself and just have a receptionist, whereas hiring a prac-
tice manager will negatively impact on profits,” Dr Tye says. “But by five FTEs, you generate enough
grunt to hire a full-time practice manager who can be gutsy enough to do all the hard work and make
the hard decisions required for a profitable practice.
“From five FTEs onwards, you can bring in pathology and generate income from their rent. Then at
10 FTEs, there is enough turnover to bring in allied health such as a physiotherapist and dietitian.”
The decisions you make about this and other aspects of your new practice always come back to
your vision and your goals for striking out on your own. Figuring out exactly what you want is the
first step to getting there.
WEB RESOURCES
Medfin www.medfin.com.au
Maus www.maus.com.au
Maus ebook www.maus.com/Ebooks/EB_BusinessPlan/BusinessPlan.html?id=18
RACGP Toolkit www.racgp.org.au/publications/tools
Piecing it together
Working out the finances of setting up a brand-new general practice can seem daunting. But think of
as a jigsaw puzzle — a task most easily achieved by sorting all the pieces into separate piles.
For our purposes, the piles look a bit like this:
1. Working capital and cashflow.
2. Equipment and other assets.
3. Buying the building that houses the practice.
4. Tax and business structure.
Included in working capital and cashflow are staff wages. These will have to be paid from the start,
before enough income can be generated from seeing patients to pay the wages.
This negative cash flow usually only lasts for up to six months in the current climate of GP short-
age, but nevertheless another financial source needs to be in place in the meantime. Other similar
outlays are the ongoing expenses of office and medical supplies, utilities and marketing.
All the pieces in each pile can be put together and all these piles can be connected to produce the
whole financial picture so that on day one, when the doors to the new practice are opened, the financ-
es will be in the right place and you’ll be ready to go.
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5. Big picture
Many pieces of the new practice financial puzzle are fairly straightforward, for example, equipment
such as a vaccines refrigerator: after choosing a model, this involves finding the best price, then pay-
ing for it through a loan. Other puzzle pieces are more a little complex.
It might seem reasonable, for example, that the solution to a negative cashflow for a GP with cash
in the bank is to use that cash to pay for staff wages. However, using borrowed money from a loan is
the better choice, says Terry McMaster, a solicitor and accountant, and owner of McMasters’ Ac-
counting Services.
“You should use your cash to pay off your home loan. Borrowing money to set up a new practice
can be a tax deduction, whereas home loan repayments can’t, so it’s a more effective way to reduce
your overall tax,” he says.
Once the decision to borrow money is made, the next question is: Which lender should you go to
for a loan? Fortunately, GPs don’t find it difficult to get loans for a new practice because they are con-
sidered low risk, so all lenders are potential candidates, Mr McMaster says.
“The best advice is to go to a single lender to avoid duplicating the administrative process, and if
you are a solo GP, it is easier to go with the institution you are already with for your home loan,” he
says.
“However, if you are a group of GPs, go with a different institution to the one the GPs are with to
avoid the bank charging higher interest rates if one of the GPs defaults on any of their other loans
such as their own home loan.”
Shopping around for the best lender is generally advisable, but GPs are likely find the institutions
that specialise in medical finance tend to offer the best terms and conditions “because they are more
familiar with the risk involved”, Mr McMaster says.
TIP
The business structure for your new practice will either be as sole trader
(or self-employed), a company or a trust fund.
Business structure
Another complex puzzle piece is the business structure for the new practice. There are three choices
available: sole trader/self-employed, company or trust fund.
“The best advice is to set up as a trust-based structure. The other two alternatives are less tax effi-
cient and not as simple to operate,” Mr McMaster says.
“Trusts work best when the practice is a business for income tax purposes. The trust’s net income
can be legitimately distributed between the beneficiaries of the trust, normally family members.”
For example, a net income of $74,000 at the 30% marginal tax rate means a total annual tax bill of
$15,750. But split the income between two people — $37,000 each — and the tax is paid at the 15%
marginal tax rate, which equals $4650 each for a total tax bill of $9300. That’s a savings of $6450.
“It should be added that trust-based structures are supported by previous tax commissioner rulings
and are the most common structure for businesses in Australia — not just for doctors,” Mr McMaster
says.
Insurance
Of course, medical indemnity insurance is required for medical registration purposes. After that, it all
depends on what your risks are and what you need security for, says Dr David Tye, who has success-
fully set up two new practices in Adelaide and Brisbane.
At a basic level there is building insurance, if you own the building, and building contents insurance
for both owners and those leasing. After that, there is a long list of products including disability insur-
ance, income protection and more.
“For example, if your area is a natural disaster risk, you might consider business interruption insur-
ance to pay for moving to a new building, fitting it out, contacting patients and paying wages,” says
Dr Tye.
However, Mr McMaster cautions against being overinsured.
“Insurance premiums will hopefully be a waste of money because those things won’t happen. You
also should be sceptical of the hard sell from insurance agents who are usually on a commission for
products sold,” he says.
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6. Government assistance
Government assistance is available for setting up a new practice, but only when relocating to an area
of need. This includes the Rural Relocation Incentive Grant, which is for moving from a major city
and varies according to areas of remoteness.
It is valued from $15,000- $120,000. Another grant is the More Doctors for Outer Metropolitan Are-
as Relocation Incentive Grant, for moving from the inner city, valued at up to $40,000.
ALL accountants and commercial lawyers should have the required skills to set up the tax and business structure for a new
practice.
However, like a complex and challenging medical presentation where it probably pays to see a specialist, a professional with
good experience in medical practices is preferable, says Paul Nadge, SA state manager at medical finance specialist Medfin.
“This should be done at the earliest opportunity. Planning, or lack thereof, is often the difference between early success or pain.
A good accountant or firm will do more than manage your tax return, business activity statement lodgements and the like.
“They should be able to assist you at the planning stage and grow with you as your practice and personal situation grows,” he
says.
Accounting and legal matters
Building — buy or lease?
The conventional wisdom is that rent is wasted money and buying is better because it provides an
asset and there are tax benefits, says David Dahm, CEO of accounting and practice management con-
sultancy firm Health and Life.
“If you set up a self-managed superannuation fund, it can be the owner of the property so that your
repayment of loans is taxed at the lower rate [of] a superannuation fund,” Mr Dahm says.
“However, buying a property does involve some risk. For example, several GPs working for you may
suddenly decide to leave to another practice, leaving you in the lurch with a white elephant,” he says.
“More important than the property is the practice, because without the practice, the ... property is
worth a lot less. So if you’re a doctor with limited time and financial resources, perhaps you should
put the main effort into developing the practice and worry about buying later,” he says.
“You should purely regard buying or leasing as a property investment decision determined by the
market conditions of the area you’re setting up in,” Dr Tye says.
“So if the lease costs are less than buying, and there is little prospect of property capital gains in the
short to medium term, then it makes sense to lease. But if the costs of leasing and buying are similar
— even if the only prospect of capital gains is long term — it makes sense to buy,” he says.
“However, the bottom line is that if it seems too hard, it’s reasonable to lease for the first few years
and decide whether to buy later.”
Financing the building
Buying the building for a practice will require a commercial property loan, which usually has tough-
er terms and conditions compared with a home loan. The loan should be obtained from a lender as
guided by the earlier advice.
“With leasing, you will need to find a financial source for the payments, along with other ongoing
expenses, until the cashflow becomes positive,” Dr Tye says.
“However, one other way of reducing this initial burden is to negotiate a rent-free period with the
owner. Up to six months is reasonable in the current economy. Once your income flow improves,
you’ll be able to cover the lease payments.”
TIP
The two main medical finance specialists in Australia are Medfin, now owned
by NAB, and Investec, previously Experien.
Working capital and cashflow
Along with building lease payments and loan repayments, working capital is required for ongoing
expenses, including staff wages, utilities (including electricity, water and phone, office and medical
supplies), advertising, and insurance premiums, says Paul Nadge, SA state manager at Medfin.
“It is important to have a budget that is realistic. It not only needs to include all expenses and
income, but importantly the timing of such. The GP will also need to take into account personal ex-
penditure items such as home loan, school fees and personal living expenses,” Mr Nadge says.
“Overestimate if necessary and ensure within your budget planning you have the necessary reserves
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7. in place to cover all payments pending receipt of all income,” he says.
Mr McMaster says setting up finance for working capital is relatively easy. “It is usually provided
by a lender as a line of credit or draw-down facility, which is attached to your existing home loan or
new commercial property loan, depending on which is relevant and at the lowest rate for you.”
Equipment and other costs
These are the last pieces of the puzzle and include the IT system; systems for covering medical re-
cords, appointments and billing; medical equipment, like vaccine refrigerators; and marketing such
as signage and a website. Once the costs have been determined, a single lender can usually provide a
loan for these.
Web resources
Medfin
www.medfin.com.au
Investec
www.investec.com.au
Rural Relocation Incentive Grant
www.medicareaustralia.gov.au/provider/patients/rural-programs/general-practice/relocation-incentive.jsp
More Doctors for Outer Metropolitan Areas
Relocation Incentive Grant
www.health.gov.au/outermetro
All systems go
Once you’ve developed your business plan and done your financial plan, the next step in setting up
your new practice is getting the systems right. A system can be defined as a set of components forming
a complex whole. It’s commonly used to describe computer systems, but it’s a useful way to look at
your new practice as well.
Running with the computer system theme, a new practice could be described as having a front end
and a back end. The front end is made up of the processes and activities that directly involve the pa-
tient, such as a consultation, making an appointment or processing an account. The back end involves
those processes and activities that support the practice, without direct patient contact such as soft-
ware, payment processing, education and training.
Front and back ends work separately but require integration and plenty of planning to get them
right. Let’s start at the back.
TIP
About one-third of your daily appointments will be taken up with urgent
con ditions and two-thirds will be for routine presentations.
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