Unless you completed a joint MD-MBA program, it’s unlikely your medical training included much preparation for writing a business plan or sourcing capital to launch a new business. Don’t worry: here’s an overview of what you need to know to secure funding to launch your own medical practice.
Crunching the numbers on private practice
Starting any type of new business can be daunting and there’s always some element of risk. But if you’ve shared your goal of opening your own medical practice with others and, in return, been asked, “Are private medical practices even profitable?,” here’s some good news:
Yes, private medical practices can be quite profitable. In 2022, the Medscape Physician Compensation Report found that, on average, self-employed physicians earned $352,000 per year, compared to $300,000 for hospital-employed physicians.
Like all businesses, actual profit margins for medical practices depend on a variety of factors and can vary over time. Your bottom line will depend on your speciality, as well as your practice’s services, location, reimbursement rates, patient population, competition, overhead costs, and specific business model.
“On average, self-employed physicians earned $352,000 per year, compared to $300,000 for hospital-employed physicians. ”
To set yourself up for long-term success, it’s important to start to think of your practice as a small business and yourself as both a healthcare professional and a successful business person.
Securing funding for your new medical practice
Getting funding, whether healthcare practice loans or any other form, for a new medical practice can be a complex process. But with the right approach and strategies in place, you can obtain the capital you need. Below, we’ll explore best practices for creating a business plan and securing funding for a new medical practice.
Create a business plan for your medical practice
Before applying for funding from any type of lender, it’s absolutely crucial to develop a detailed business plan.
Your business plan will be your roadmap for your medical practice’s success. It will outline your goals and objectives, milestones, and a strategic direction for the future. A good business plan will help you not only launch your business, but also stay focused and aligned with your goals as you grow, and provide benchmarks to monitor and evaluate your progress. This will let you adjust as necessary.
A well-crafted business plan demonstrates to banks and other potential lenders, as well as malpractice insurers, that you’re serious about sound business practices. It shows your professionalism and strategic thinking, and that you understand the healthcare market in which you plan to operate.
If you’ve never created a business plan, work with a business consultant or a mentor. The Small Business Administration’s SCORE Program connects new business owners with experienced business mentors and provides business advice at no cost. Establishing a mentoring relationship can ensure that you have access to advice when issues inevitably arise later on.
It’s important to consult with an attorney and an accountant who have experience in healthcare management. Their services might come with a hefty price tag, but will help to safeguard your practice and set you up for long-term success.
When creating a business plan for your practice, include the following key sections:
The executive summary provides a concise overview of your medical practice, highlighting its mission, target market, competitive advantages, and financial projections.
A business description explains the nature of your medical practice. Include your specialty, the types of services provided, and location. Also include any unique features, such as evening or weekend appointments or in office procedures, that might set you apart from other practices like yours.
Include a market analysis that lays out research conducted on the local healthcare market. Identify the demand for medical services in your area, the demographics of your target patient population, and the competitive landscape. This section should also evaluate potential growth opportunities as well as any challenges you may face.
Outline your organization and management structure and explain key roles and responsibilities within your practices. Include your own credentials and experience, as well as those of any other employees you plan to hire, and any strategic partnerships or affiliations with hospitals, laboratories, or other healthcare providers you’ve established.
Provide an overview of your services and facilities, including medical services you will offer and emphasizing any specialized treatments or innovative procedures. Detail your facility requirements, including equipment, technology, and the physical layout necessary to deliver high-quality care.
Your operational plan describes the day-to-day operations of your practice. Include office hours, appointment scheduling, patient flow, medical records management, and billing processes. Outline your staffing needs, such as doctors, nurses, administrative staff, and support personnel.
Your marketing and sales strategy should outline your plan to attract and retain patients. Include details on your target demographic, marketing channels (such as online advertising, referrals from other doctors, and community outreach), pricing strategies, and how you’ll build strong relationships with patients.
Work with a business consultant to present a comprehensive financial forecast. Include revenue projections, anticipated expenses (such as rent, salaries, supplies, insurance), and projected profitability. Also include a break-even analysis and discuss your plans for securing malpractice insurance and funding if needed.
Address your plan for compliance with licensing and regulatory requirements specific to your medical practice. Discuss compliance with healthcare laws, patient privacy (HIPAA), insurance billing, and any necessary certifications or accreditations, as well as local business laws.
Include a section on risk management that identifies potential risks and challenges that may affect your practice. These might include changes in healthcare regulations, competitive pressures, or unforeseen events (e.g., natural disasters). Develop strategies to mitigate these risks and outline contingency plans.
Exploring funding sources for medical practices
Once you have a solid business plan, it’s time to explore different funding sources. Each funding source has its own advantages and considerations, so it’s important to evaluate each one against your specific financial situation, business goals, and risk tolerance. You may also consider a combination of funding sources to meet your capital requirements while minimizing risks.
A financial advisor or business consultant can provide valuable insights and help you make an informed decision about your options.
Traditional bank loans
Traditional funding sources, such as banks or credit unions, will lend you a lump sum of capital upfront. This approach to healthcare practice loans will allow you to cover your initial expenses and invest in the equipment and facilities you need to launch your new medical practice.
These loans are often funded quickly and usually have lower interest rates compared to other financing options. Work with multiple financial institutions to compare terms, interest rates, and repayment options. Then select the offer that best fits your needs.
Depending on your business structure, obtaining a bank loan may require a solid credit history and collateral. Many banks and lending institutions will require a personal financial guarantee from the physician owners of the practice. Additionally, repaying the loan can be a financial burden, especially during the early stages when revenue may be limited. Remember that the financial burden may fall on you personally if the practice cannot pay the load.
Small Business Administration (SBA) 7(a) loans for medical practices
SBA loans are government-backed loans designed to support small businesses, including medical practices. These loans, which are disbursed through partnering banks and guaranteed up to 85% by the SBA, offer favorable terms and longer repayment periods to help maximize the chances of success. The SBA 7(a) loan is one of the most popular products and offers small business owners great terms and a longer repayment period.
Competition for SBA 7(a) loans can be stiff. Applicants must have a great credit history, provide extensive documentation, and meet specific criteria, including an established business history. Because of this, these loans don’t always make the most sense for borrowers who are just getting started.
Healthcare practice loans
Specialized medical practice loans, available from traditional lenders, are tailored to the specific needs of healthcare professionals. These loans consider the unique needs of doctors and often make allowances for personal debt taken on for medical training.
Medical practice loans can provide you with working capital to secure facilities, purchase equipment, and meet payroll. They usually offer flexible repayment terms and are often funded quickly.
As with standard business loans, the interest rates and terms vary from one lender to the next. Compare offers carefully. Some healthcare practice loans may also require collateral or have higher interest rates compared to traditional bank loans.
Government and private grants and private investments
Government and private grants are another, albeit less reliable, source of funding to consider when opening a new medical practice. Agencies at the local, state, or federal level typically provide grants, and aim to support the establishment and expansion of healthcare services in underserved communities or specific priority areas.
At the federal level, healthcare grants are often available from Health Resources and Services Administration (HRSA), the National Institutes of Health (NIH), and the Centers for Medicare and Medicaid Services (CMS). These may focus on specific areas such as primary care, rural healthcare, community health centers, or research and innovation. If grants are not currently available to support your type of medical practice, consider applying for any personal grants for which you might qualify, such as for medical education loan repayment.
State and local governments also offer grants to support healthcare services. Like federal grants, these grants often aim to improve access to care in underserved areas, promote public health initiatives, or address specific healthcare challenges within the region. Each state and local government may have its own grant programs and eligibility criteria. So research and reach out to the relevant authorities for more information.
Non-profit organizations, including foundations and charitable trusts, can also provide grants for healthcare-related projects. These organizations may have a specific focus, such as supporting community health clinics, advancing medical research, or improving healthcare outcomes for certain populations. Researching non-profit organizations that align with your medical practice’s mission and goals can help identify potential grant opportunities.
Grants can be highly competitive and the application process may be time-consuming. Seek guidance from grant-writing experts, engage with local healthcare networks or professional associations, and leverage resources provided by government agencies to enhance your chances of securing a grant.
Stay focused on your goal
Securing funding to open a new medical practice requires a proactive and well-executed approach. It also requires focus. If your first choice for healthcare practice loans or funding does not pan out, request feedback, adapt your strategy, and persevere. Communities need access to high-quality healthcare from compassionate healthcare professionals.