If you are a healthcare provider looking to start your own practice, you may quickly realize the balancing act that financing a private practice requires. On one hand, you need enough capital to make the necessary investments in your business. On the other hand, minimizing your startup costs until your revenue stream is steady is paramount to success.
It is common for lenders to require minimum annual revenues to qualify for a loan. When first starting your practice, you may be able to minimize expenses to such an extent that you are able to cover your own startup costs. Later, a loan could supply additional capital to support growth.
Your business plan can guide you in making the right expenditures and help secure a loan. The U.S. Small Business Administration offers guidance on what your business plan
should look like and provides templates to make writing one easier. The financial projections in your business plan will be important in determining if and when you should apply for a loan.
Minimizing Expenses to Finance Your Own Healthcare Practice
These are the main expenses you are likely to face when starting your own practice.
1. Office Space
Consider whether it’s possible to practice out of your own home or your client’s home to decrease overhead. If you do need to rent or buy an office space, your lease or mortgage payment will likely be one of your largest ongoing monthly expenses.
Consider these factors when picking out your space:
- Location: Your office needs to be easily accessible to your target client. For example, if you are targeting elderly clients, a parking lot will be important. If you are only accepting cash, the relative affluence of the area could be a factor. If you are targeting athletes or adolescents, near a gym or school would be ideal. Combing through U.S. Census Bureau data could be helpful in choosing a location.
- Size: You need to have enough space to do your best work, but extra space may not do you much good. The right amount of space will largely depend on your equipment needs and your patient flow plan, so factor those into your decision. As a startup, keep in mind that you are trying to minimize your space requirements but may want to expand later. So, look for spaces that offer expansion possibilities in the same building or nearby.
- Utilities and services: When comparing spaces, remember that utilities may be included in the rent for some but not others.
Tour the offices of similar practitioners to get ideas on ways to conserve space and consider subleasing space from other healthcare professionals. You may also be able to work with a company that helps medical professionals find coworking space.
2. Support Staff
When your practice is new, it may be helpful to stay lean. If you can run the business successfully while also delivering your best care, consider starting that way. You can always hire help down the road when you have the revenue to support employees.
However, if you need help right away, consider hiring part-time help to start. It’s often time to hire help when you start turning away business.
Note, though, that paying support staff will be another significant ongoing monthly expense.
3. Office Supplies and Furnishings
These could account for some of your biggest upfront costs. Keep in mind that you may not need top-of-the-line equipment right away. You may be able to minimize cost by
- Buying used: Keep an eye out for practices for sale or going out of business. You may be able to get good deals on equipment and furniture.
- Bulk-buying: Consider partnering with other providers in your local community to buy supplies in bulk for better pricing.
- Leveraging equipment financing and leasing: These can lessen upfront expenditures but be mindful of the interest rate and how it impacts total cost
Financing Options for Starting Your Own Healthcare Practice
There are pros and cons to all types of borrowing. For example, traditional bank loans will most likely offer the best terms but tend to take the longest to fund. Consulting a finance professional and comparing multiple loan offers before taking any type of loan is advised.
Lenders are more likely to loan you money once you have demonstrated demand for your services and your ability to meet that demand.
If you are ready to apply for a loan, these are some common options:
- Family and friends: Consider presenting your business plan to someone you know who may be open to lending you money with an interest-free or profit-sharing repayment agreement.
- Grants: As a health practitioner, you may be eligible for grants meant to improve the health of local communities.
- SBA loan: A loan from a bank, credit union, and other community lenders backed by the U.S. Small Business Administration (SBA). The SBA also partners with local lenders to provide microloans of up to $50,000. You may have better luck securing a loan from a community bank. In 2019, the SBA reported that community banks make more small business loans relative to their total assets than large banks.
- Online lenders: These function as a marketplace connecting borrowers with both institutional and individual lenders. Lending will resemble a traditional loan but possibly with less stringent requirements and higher interest rates.
- Home equity loan: If you are a homeowner, you may be able to take out a second mortgage on your home to start your practice. Qualifying for this loan depends on your personal finances, not your business plan and current revenues, so there is often less paperwork involved. This type of loan uses your home as collateral, so if you default on the loan you could be forced to sell your house to repay it.
Less common options
include merchant cash advances, mid-prime alternative loans, crowdfunding, microloan services, and Rollovers as business startup agreement (ROBS
Protecting Your Private Healthcare Practice
As a small business owner, you may want to consider the full range of your insurance needs. HPSO provides professional liability coverage, property or renter’s insurance, license protection, and business income protection for healthcare practices.
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