Practice Startup Success

Can Two Practice as cheaply as One?

Q:  My fiance and I want to practice together?  How should we do our startup spreadsheets to show this?
A:  There are several places in the startup spreadsheets where you can show two people in the practice:

1.  In the "personal budget," most expenses will be the same if you're living together, but your student loans will be higher and car and some other expenses might be higher. 
2.  In the "sales projections" sheet, you can figure that two people can work harder and bring in more new patients than one person.  You could do an estimate of what one person will bring in each month and double it, but to be conservative you might want to lower that slightly.  For example, if you figure 10 new patients from one person in month one, use 15 patients for 2 people instead of 20.  It's completely up to you what you estimate.
3.  You might have a larger office with more exam and adjusting rooms for two people.  This would show up in the startup expenses.
4.  Finally, you will need credit reports for both of the individuals and you may be able to pool your resources for collateral. 

And, of course, be sure to protect yourselves (and your relationship!) with an LLC or Partnership and an agreement prepared by an attorney.

Chiropractic Education as an asset

Q:  I'm working on my business plan and loan documents.  Someone told me I can list the value of my education as an asset in my personal financial statement.  How do I do this?
A:  While your education certainly has value to you in your practice, this number can't be calculated.   

What’s the “value” of an education? Is it the equal of the student loan balance, or is it the lifetime earning power of the individual? It really can’t be quantified, and bankers/lenders need to be able to put numbers to everything in order to process a loan request.

Attempting to list your education as an "asset" signals your ignorance of basic business concepts and may cause your lender to look less favorably on your business acumen. 

For more information on financing your startup, read Planning for Practice Success (available on Amazon and on my website (www.dcpracticesuccess.com). 

Starting small - a success story

I received an email from a new DC whom I had been helping: 
She had looked at a space that was much bigger and for which the landlord wanted way too much money.  She decided to go small, and says, "I have never once regretted my decision to rent this space-it is already home to me and will only get better once I'm actually seeing patients."

I talked with another DC who was looking at 1400 square feet vs. 1800 square feet.  At $20 a square fot he would be spending over $800 more a month.  The question you need to ask in this situation:  "How will I make this extra space profitable?"  or, "How many more patients will I have to see to pay this additional rent?"

In most cases, you are better off taking the smaller space and moving in a few years.  In the case above, he was going into a condo and buying.  He decided to "bite the bullet" and get the larger space so he wouldn't have to sell later.

Stay small as long as you can.

For more leasing information, get my book "Leasing Your Office" or read the office leasing chapter in Planning for Practice Success.  Both at www.dcpracticesuccess.com

Complying with ADA public access

I talked today with a soon-to-be graduate who is looking at office space in a large city.  He found a great office but it has only a stairway as access.  He is also going to have to do some renovations to the office.  The question is:  What does he have to do in order to comply with the ADA requirements for public access?

The ADA (Americans with Disabilities Act) says that if you build a new building or undertake "alterations" to an existing building, you must comply with ADA public access requirements.  So does he have to put in an elevator?  Good question.  There is an "elevator exemption" for buildings with fewer than 3 stories or if the facility has less than 3,000 square feet per story, but, "the professional office of a health care provider" is an exception.  That is, if you can follow the double negative,  the elevator exemption doesn't apply to health care offices. 

There are also requirements on changes to facilities that alter the "path of travel."  For example, if you altered your office to create some barrier to wheelchairs, that would not be allowed. 

NOTE1:  There are tax incentives for expenditures for complying with the ADA requirements, so it would be good to check on those. 

NOTE2:  Your local (city) building department may also have its own requirements.

NOTE3:  There are also some different requirements for putting a business in a private residence.

I spent some time trying to figure all of this out and concluded that you should call the local building department and let them tell you what to do.  It's quite complicated and I don't want to lead you astray on this one.

One final note:  ADA is administered by the Dept. of Justice.  So if you don't comply and someone complains, the "Feds" will be at your door.  It's not nice to fool with the IRS or the DOJ.  Just figure out what you need to do and do it.

Cash "infusion" - sounds like a blood donor

Some advisors talk about a "cash infusion" like it is a blood donor thing.  Well, it is, kind of.  A cash infusion is the cash the owner of a business puts in from his/her personal funds to get the business started. If you have enough cash to "infuse," you wouldn't need a loan.  In most situations, though, the startup requires more money than the owner has. 

What if you have funds but you don't want to spend them?  Sometimes a bank will allow you to "pledge" or "assign" the funds (like a CD or stock, for example), and only sell them to pay the bank if something happens.  In other cases, the bank wants pure green cash.  You never know....

Same with a co-signer.  I have heard of co-signers pledging property, usually with a second mortgage, or farms, or mutual funds.  Sometimes the bank wants the co-signer to come up with cash.  Again, you never know....

The Key is Cash, not Profit

I had someone say to me the other day, "It looks like I'll be making a profit my first year in practice.  Isn't that great?!"  Well, yes and no.  Making a profit isn't all it's cracked up to be.  Making your cash flow work is more important.  You can be profitable on paper and still go out of business.

Let's look at an example.  Cash is a month-by-month operation where you look at what comes in and what goes out.  What comes in (income) must be greater than what goes out (expenses and your personal draw or salary).  If you do a cash flow analysis and a pro forma P&P (profit and loss) statement, the P&L might show that, at the end of the year, you had a profit of, say $100,000.  But if in months one through six you don't have enough money coming in, your company won't last until the end of the year.  If you are short $5000 cash at the end of month one and $4000 at the end of month two, and you don't have anything to cover this $9000, your creditors (like your landlord and the bank) are going to come after you demanding payment.  See what I mean? 

The bottom line:  Pay attention to cash.  Watch it closely.  Get a bank loan for enough "working capital" to keep at the ready in case you can't pay your bills each month. 

For more information on how to set up your financial systems for practice, read Planning for Practice Success. 

SIGNS

Before you commit to an office location, be sure you know about signs:
1.  Check the local code on sign placement and size.  Don't rely on someone else to tell you what they think; they may be wrong.
2.  Check the lease to see if the property owner has restrictions on signs.  Some property companies want you to go in with their sign listing in only one place. 
My latest horror story is of a doctor who spent over $5000 on a sign, only to be told that he couldn't put it where he wanted to, highly visible to traffic. 

If you are going into a home office, be even more cautious.  Many towns don't let you put a sign on a home. 
I was talking with a new DC who is going into a large city.  He is going into a second floor office (street level is too expensive).  He can only put a small sign in his window. 

If you don't have a sign, it's not the end of the world.  You will just have to work harder to bring in people and spend more time telling them where your office is located.

For more information on leasing issues, check on my book "Leasing Your Office." 

Startup insurance coverage - what is needed?

The question:  I have my business plan done and I have an office to lease.  What kind of insurance do I need for my practice startup?

The answer: 
1.  First, you will of course need malpractice inusrance.  I just did a post on buying malpractice insurance, so you can go there for more details.
2.  If you are leasing an office, your leasing company or property owner will require business property/casualty/liability insurance.  Sometimes they specify minimums.  This type of insurance will cover:
a.  The contents of your office, in case of damage or destruction (fire, tornado, vandalism, etc.)  Note that the property owner will have coverage on the building, but may require you to participate in paying for this coverage.
b.  "Business interruption" insurance, covering you in case you can't use your office for a period of time.  This insurance pays you based on your estimated expenses for the time you must be out of your office. 
c.  General liability insurance, in case someone gets injured or in some way suffers a loss while on your property.  This is the most expensive part of the insurance, but it's necessary.  You can obtain this insurance from any general insurance agent; you may be able to get it from the same insurance agent as your personal home and auto insurance, at a discount.  Shop around for rates, but focus on service; low rates don't mean much if you can't get good service in case of a claim.

3.  You should also obtain disability insurance as soon as possible, which covers you in case you can't work for a period of time.  If you have a family, disability insurance is essential.  I'm reviewing disability insurance provisions and will write about this later.  There are specific disability insurance providers who  cover health care professionals.

That's about it to start with.

Beware of CAM - a hidden leasing cost

I hear this all the time, most recently several people at a seminar last weekend:  Beware of CAM   (common area maintenance) costs in leases.  They can increase your lease cost considerably because they are calculated on your square footage.  A $5 a month CAM on a 1200 sq. ft. office costs $6000 a year in extra leasing costs!  Don't let it stop you from leasing the office, if everything else is ok, but you need to be aware of the extra cost and figure it into the cash flow section of your business plan. 

On a related note, one grad told me she was quoted over $100,000 for build-out in a new building (what's called "A" space).  YIKES!   Much of that was for the x-ray room.  Many chiropractic offices these days don't have x-rays, because digital x-rays are easier to use and send.  Find a willing clinic and send your patients to them.   You may have to work with the x-ray techs at the clinic to get the kind of x-rays you want, but it's certainly worth it to save on the cost of x-rays.  AND, you can create relationships with the people at the clinic for referrals and for them as patients.

I also got a call from a student who wanted to lock in a lease for a building that was "just perfect."  The only problem was that he would not be able to open his office until 2008.  Leasing companies won't wait that long, and you certainly don't want to spend money while you are a student.  One lesson I've learned is that if there is a fish on the hook, there is usually a bigger and better one still swimming around.  Don't hesitate to walk away from a deal. 

Check out my other blog for a great story about this:  Good luck? Bad luck? 

My book Leasing Your Office could be helpful to you in this process. 

What is a SEP IRA?

Q: I'm looking at different associate positions in my area, and noticed one ad stated stated salary, benefits, and SEP.  What does the SEP stand for?

A:  SEP stands for "Simplied Employee Pension" - it's usually called a SEP IRA, and it's an easy way for an employer to provide a "retirement" benefit for employees. Here's how it works:  The employer establishes the SEP IRA.  Each employee gets his or her own IRA into which the employer makes contributions.  The employee keeps the IRA and can make his or her own contributions each year.  The amount of the employer contributions is not limited, but the amount the employee can contribute is based on the limits for IRA's each year, and is also affected by the amount the employer puts in.  The employee must also adhere to the other rules for IRA's, including those limiting distribution and regulating what kind of investments can be made.

It's easy for the employer, and a good benefit for the employee, who can take the IRA when he/she leaves the company.  The employer can decide each year whether to contribute to the SEP IRA and how much to contribute.   The employer's contribution is tax-deductible as a business expense.

The employer can't just contribute for special employees, but must let "eligible" employees participate.  For more on eligibility requirements for employees, check with your financial advisor.

If you are an employee, this is a nice benefit.   If you are considering setting up a SEP IRA for your practice, do make sure you're doing it legally and get the advice of an attorney and a financial advisor.