Medical accounting – get the fundamentals right
Buying an existing, or setting up a new medical practice? Solid groundwork is critical.
Setting up a new medical practice without first fully structuring your medical accounting and finance systems can be pretty much akin to performing open heart surgery on yourself. Without a proper plan - and the right advice - you’re almost certainly heading for disaster.
If you’re anything like our many medical clients you’re no doubt very good at what you do. Which means you don’t have a lot of time to devote to the accounting and administrative considerations so vital to your successful transition from paid employee to practice owner.
Here are some basic but extremely important dental and medical accounting questions to consider during your planning phase:
Establish a business plan
Strategic plan, road map, vision – call it what you will. It doesn’t have to be hugely long and complicated, but a clearly articulated plan for your new practice is crucial. It should include everything from your location and patients through to start up costs and ongoing cash flow requirements.
If you formulate your plan in writing right from the start, you’ll be so much better prepared for any stumbling blocks and nasty surprises you may encounter along the way. It will also prove extremely helpful in maintaining clear communication with your key stakeholders such as staff, financiers, banks etc. Not to mention properly benchmarking the progress of your practice.
It’s important to include any likely challenges, and strategies to mitigate these.
Your business structure
You should of course think very carefully about which legal entity you choose for your practice. Each of the following will have an affect on your tax position:
Company vs trust vs partnership vs sole trader
Use of a service trust
Business acquisition vs starting from scratch
Buying vs renting your commercial premises
Establishment of a freehold entity (if you’re buying a premises) - trust vs SMSF
To adopt a one size fits all approach is a rookie error, what works for your colleague may not work for you. A common structure is to trade via a company, combined with a service trust. The latter comprises just that – a trust which provides services to the main trading company. This includes everything from your secretarial staff to cleaners, accountants and equipment leasing.
A key element to assessing the most appropriate structure is identifying the end game, whilst keeping the structure efficient and simple for now. For example if you plan on bringing in a future practice partner(s), establishing a structure that facilitates this, without triggering unnecessary taxation events makes sense. As you continue through the business life the structure should be reviewed regularly to ensure it meets your requirements.
It’s important to clearly establish upfront whether your projected income will be classified as business or personal services income (PSI). Getting this wrong will result in major tax ramifications. You can read more about personal services income in one of our previous blogs.
Preparing a suitable cashflow report forms the basis of any good business plan. It’s generally a good idea to maintain this exercise even when your practice is up and running. It’s great for providing assurance that you’re on the right track, and can afford to keep your doors open or expand!
If you plan to buy an existing practice, there are finance options available which allow you to purchase 100% of the business, without requiring you to use other assets as security. At M+H Private we’ve teamed up with a number of trusted financiers, to provide you with your best finance options should you need them.
An important word on fitout costs. These vital expenses can be steep, so don’t forget to include them in your business plan. Fitout finance is also available.
Systems and technology
To make your practice run as smoothly as possible you of course need the necessary medical software and tools. Not forgetting, on the administrative side, practice management, billing, patient files, room allocation and accounting systems, plus bookkeeping and other add-ons.
Insurance and risk protection
Every business involves some degree of risk, so it’s important to make sure you secure the most appropriate insurance policies. The most common insurance products you’ll need as a dental or medical practitioner include indemnity insurance, public liability insurance and business owner’s insurance, among other options. You should also consider income protection, life insurance and other personal insurances.
Management, performance and growth
It’s important to make sure you have well formulated policies and procedures in place from the start. These can pertain to medical scenarios, staff, or be simply general ones. You’ll find that firm policies and procedures will definitely help you as your practice grows. They’ll allow you more time to concentrate on your core expertise - treating patients.
And of course don’t forget to give careful consideration to your best options in bank accounts, credit cards, equipment finance and other essentials for a healthy business.
Existing or new practice?
The big question – whether to buy a current practice, or start one from scratch. There are, of course benefits and disadvantages to both.
Pros of starting afresh:
When you start from the beginning you can control every aspect, including the look and the culture of your practice.
It’s often cheaper to start from scratch rather than buying into an existing practice, though this can vary according to what you’re after and also your location.
No existing patient base means you may easily develop cash flow issues while you’re getting established. However, this can be mitigated by bringing other partners into the practice. As is the case with any organisation, finding the right fit of colleagues can sometimes be a challenge. It takes time to find the right balance, but you don’t want to limit your future income by not having room to expand.
If you do decide to start from scratch, as with all business ventures it’s vital to cover every angle before taking the plunge. Here are some important considerations:
Obvious, but sometimes overlooked!: Does your intended premises have approval to be used as a medical practice?
Is it in a great location in terms of demand and access (population, numbers of nearby practices, parking and bus stops)
Does it have room to expand, perhaps in terms of allied practitioners such as pathologists and psychologists?
Contact M + H Private
Buying or setting up a new medical practice can be daunting, so it’s best to get help from highly experienced professionals. At M + H Private we’re experts in all aspects of dental and medical accounting, including planning, funding, business structure and tax. So get in touch with us in Brisbane today on +61 7 3036 7174.