When your private medical practice starts to grow and you find the need to expand into more square footage, it’s a sign that you’ve made it. Well, almost. While it’s a very exciting time in a physician’s career, it still comes with certain financial challenges that must be taken into consideration. Navigating these pitfalls requires careful planning and shouldn’t be taken lightly. To minimize any risks associated with running a medical practice, we’ve assembled some of the stumbling blocks that might limit your expansion from being sustainable or successful.
- Payment Slowdowns: Medical practices often encounter delays in receiving payments from insurance companies and Medicare, which can disrupt their financial stability and cash flow. These delays can hinder a practice’s ability to cover operational costs, such as payroll, supplies, and rent. Funding, by way of a flexible line of credit, is designed to support medical practices during these challenging times. This line of credit can be adjusted throughout the year, expanding or contracting based on the practice’s current financial needs and the timing of incoming payments. With this support, medical practices can maintain smooth operations and focus on providing quality care to their patients.
- Landlord Dependency: It is always recommended that medical clients on the benefits of owning their own real estate. Since your business needs a physical location, it’s crucial to start saving the necessary capital for a purchase. Owning your property ensures you’re not dependent on a landlord’s decisions, which could force you to relocate and potentially lose customers.For instance, if a landlord raises rent or sells the property, you might have to move, disrupting your practice. Relocating can lead to losing up to 30% of your customer base. Additionally, real estate often appreciates, providing valuable equity. According to the National Association of Realtors, commercial real estate values have increased by 3-5% annually over the past decade, enhancing your financial stability.
- Inadequate Financing: Starting a private practice is a huge undertaking that involves a lot of funding. A lot of doctors venture into private practice without the necessary amount of capital they need to be successful. Establishing a small private practice, on average, can cost between $70,000 and $100,000 but for more comprehensive, involved setups, the max can potentially even hit $525,000. When planning out your budget, be sure to add in some wiggle room for unexpected costs as well as the essentials like equipment, medical supplies, renovations to the office space, and office necessities. To help mitigate some of the challenges of needing more capital without access to it, consider an SBA loan a medical business line of credit, or equipment financing.
- Ignoring Regulatory Compliance Costs: Ignoring regulatory compliance costs can be a significant financial pitfall when expanding your medical practice. Expanding your practice may require new or additional licenses and permits, which can be costly and time-consuming to obtain. Compliance with healthcare regulations, such as HIPAA in the United States, often involves investing in secure systems and training staff, which can be expensive. If you’re expanding your physical space, you must ensure that the new premises meet all local building codes and pass necessary inspections, which can incur additional costs. Expanding your practice might necessitate higher levels of malpractice insurance and other types of coverage, increasing your overall expenses. Additionally, failure to comply with regulatory requirements can result in hefty fines and penalties, which can severely impact your financial health. By planning for these costs and ensuring compliance, you can avoid unexpected expenses and keep your expansion on track.
As mentioned, opening a second practice or expanding your current practice is a very exciting time. It can be even more exciting if you are adequately prepared and aware of the different challenges that doctors previously have run into along the way. At minimum, being aware of these pitfalls and planning accordingly will be a safe bet to ensure everything runs smoothly.