Leaving a static state of steady employment and entering a dynamic state of practice ownership is no easy feat. As human beings, we like to remain in a static state where routines provide stability and comfort. Removing yourself from a secure situation of bi-weekly paychecks in order to gamble on the unknown can seem daunting to most of us. In truth, the responsibility of ownership is one of the biggest deterrents of private practice.
However, once you look past all the fear of instability and the unknown there is a lot to gain from choosing to own a practice. Ask yourself this, on a weekly basis how many times do you wish you could change what goes on in your clinic. Little things like managing the schedule, filtering insurance, training staff and patient communication can make or break your spirit within a day. The benefit of practice ownership, besides the obvious financial gain, is actually a sense of responsibility. Not the same responsibility which is feared, but the responsibility to create a day-to-day workplace that will provide you the ultimate satisfaction from your career.
When choosing to enter the world of private practice ownership there are two roads you can take, start cold or purchase an existing practice. Starting cold has many benefits, the overarching theme being that you get to set the design and tone for your office from the gecko. In a cold start, you don’t have to fall into someone else’s practices, equipment or inventory; you can build your brand from the ground up without any baggage. Essentially, the look and feel of the office can be exactly how you envisioned it.
The other is a road less taken.
Let’s begin with the cons. Purchasing a private practice can seem difficult especially if you are not an existing employee. The learning curve, in the beginning, is steep and must be exponential in order to survive and succeed. People say that starting a practice cold is like having a newborn baby. It needs a lot of attention, nurturing and the first year is crucial to its developmental success. Well, if this is true for a cold start, then purchasing a practice is like adopting a teenager. Your teen has potential for growth, but she has already met a lot of milestones and is a little set in her ways. Introducing change has to be subtle and handled with skill.
Pros: There are definite perks to purchasing an existing practice. You have immediate access to patient records such that as soon as the deal closes you will have cash flow. Next, even if your goal is to change/revamp the brand, you still have an existing, familiar brand from the previous owners which you can piggyback on to see patients. The previous owners can give you invaluable insight about patients, surroundings, and industry to grow the practice. Also, if you have a specialty that you are looking to build, it helps to have a baseline structure for general practice which can sustain your overhead until the specialty grows.
While none of this is particularly new information, it is perhaps a recap about why it may be appealing to become an owner. The purpose of this article is to shed some light onto the steps you need to take to get your business started, whether it’s a cold start or a purchase. The road I chose was the latter one so we will focus on practice purchase.
So you’ve decided to purchase a private practice, now what?
Create a Business Plan
Remember that time in optometry school when you had to design a business plan for your future practice? Well, I hope you didn’t sleep through that class because now it comes to use. Creating a business plan can seem daunting, but there are a ton of resources that can help you climb this mountain. The platform we used to create our business plan was liveplan.com. As first-time owners, we wanted as many things spelled out for us as possible so we could be prepared. LivePlan gave us excellent insight into the key things we needed to research before locking in on one practice. It contained multiple sections and subsections which held us accountable to do our market research, line up projections for the first three years and come up with a clear and concise definition of our brand and services. When it was time to meet with the bank, our business plan looked professional, researched and thorough. While this is not a free platform, at $15/month it was worth the investment. This plan is something that we can circle back to in order to ensure that we are meeting our goals.
Secure a Business loan
Unless the lottery gods are in your favor, it is very likely that you will need a business loan to fund the purchase of your practice. Luckily, we are in a profession that has some of the lowest default rates so banks are willing to lend to optometrists and usually at low-interest rates. It is very important to create a good relationship with the person who will be overseeing your loan. This person will be your go-to contact through multiple steps during the acquisition, from getting approval for the loan to making sure you have all the necessary documents to make the payment. They will also be the key liaison between you and the underwriters for the loan, making sure that everything is executed in a timely fashion. The entity we chose was Bank of America Practice Solutions because it partners with AOA excel. In doing so we were working with bankers who were well versed in optometry loans. It also gave us peace of mind to have a large financial institution such as Bank of America look over the practice numbers and make sure that this purchase was beneficial to all parties involved.
Forming a corporation
When purchasing an optometry practice you need to decide on your business structure to formalize your optometric corporation. Depending on the state where you choose to practice there will be some restrictions as to how your corporation can be structured. For example, in California, we needed to form a professional optometric corporation. Forming only an LLC is not an option in this state. Many articles have been well written about the different types of business structures within optometry, and I am certainly not going to pretend to be an expert in this topic. What I can say is, having a skilled CPA on our team who is well versed in this area is extremely beneficial. Your CPA will give you a list of forms to fill out and then submit them to the IRS.
In order to form a corporation, you need to have a name. Once again, this name may have certain restrictions depending on the state you practice. For example, in California, we needed the word “optometry” or “optometric” in the doing-business name. In doing our research, we found the secretary of state website to be of help when trying to figure out if there was another corporation with the same name. Based on the advice of our CPA we formed an S-corp for tax benefits. Note: If the name you choose for your business is not the same as your doctor name then you may have to apply for a fictitious name permit with your state board.
Articles of Incorporation
Once you have decided on a business structure, you need to apply to be a corporation with the IRS (a task that can be completed by your CPA). Articles of incorporation will provide you with legal proof of your business structure and your business tax ID. This tax ID is extremely important and will be used through various steps of transition. You will need it to set up accounts with vendors, get on insurance panels, set up banking, credits etc. Your articles of incorporation will also have a list of assigned roles to structure the hierarchy within your corporation such as CEO, president, CFO, and secretary. It is important to have an understanding of these roles especially if you are going into business with a partner. Oftentimes, vendors and insurance panels will ask for the title of your role within the business which should be the same role as listed in the articles of incorporation.
Get a Business Address
Securing a business address without a business location can be tricky. However, there are ways to use an address until you actually purchase the physical practice location. As always, depending on your state there may be some restrictions. In California, we could not use a PO Box as our business address. In fact, the California secretary of state would reject a filing if a business address is listed as a PO box. They will, however, accept a UPS box that can be found at your friendly neighborhood UPS store. This is because a UPS box has a physical street address and is not just a number.
At first, you may be tempted to use your home address as your business address. However, keep in mind that a business address is public knowledge so you may want to keep your work and home life separate. Another downside to having your home address be the same as your business address is that it becomes the hot spot for junk mail.
Let’s pause here for now as I am sure there is a lot more to digest. The hardest part of choosing private practice ownership is the first step so hopefully, with this information, you can make that choice with some ease! Next up, how to write a business plan. Stay tuned!
“I wanted to become an owner and set my own hours so I quit my 9-5 job. Now, I work 24-7!”
-Practice Owners Everywhere