Practice Start Up
- Nika Dorofyeyeva
- May 1, 2023
- 4 min read
Updated: Aug 15
Your entrepreneurial drive to achieve financial freedom and exercise your own professional judgment are key reasons you may want to start your own practice. There are two main avenues to build a professional business for yourself: (1) working as an independent locum, or (2) owning a brick-and-mortar practice with equipment and staff.
Becoming an independent locum offers benefits such as the freedom to set your own hours, take extended vacations, work at the practices you prefer, and limit your management involvement. However, a key drawback is that your business’s value is tied solely to your own time and skills—meaning there is no asset to sell upon retirement. On the other hand, owning your own practice allows you to leverage both your own time and the skills of support staff, doctors, and specialists you employ. When done right, you can create a business that is less dependent on your direct involvement and can generate profit even in your absence.
Although equal numbers of men and women graduate from dental schools—and most veterinary graduates are now women—women remain underrepresented as practice owners. However, many women who pursue ownership build thriving practices, often leveraging strong interpersonal and organizational skills.
Starting your own practice might seem a daunting task, but focusing on the following key areas will help you hit the ground running quickly:
1. Finding the Right Location
Like the old saying goes, “location, location, location.” When selecting the right location, consider your competition, target demographic, and ideal premises size (appropriately scaled to your needs).
Remember: the price you can charge clients will depend largely on the perceived quality of your services, and only minimally on a trendy location or luxury décor. Approach high-rent, trendy locations with caution. As a rule of thumb, base rent should not exceed 7% of revenues by the end of the second year. For example, if base rent is $45,000/year (1,500 sq. ft. × $30/sq. ft.), target revenue should be around $650,000 by year two. Similarly, base rent of $67,500 should correspond to revenue exceeding $950,000 by year two.
Lease Negotiations
Although some owners buy their premises, it is far more common to lease—as buying requires significant capital that could otherwise fund practice setup. When negotiating, read the entire lease carefully and seek professional advice. Pay close attention to relocation, demolition, and exclusivity clauses.
Relocation clauses (common in large retail centers) allow the landlord to move you within the complex. This can cause disruption and significant re-fit costs. If unavoidable, negotiate substantial landlord incentives to offset relocation costs.
Demolition clauses allow the landlord to terminate your lease for redevelopment. These create financing challenges and can deter potential buyers of your practice. Avoid them if possible.
Exclusivity clauses protect tenants by preventing the landlord from leasing nearby units to direct competitors. They are most relevant in multi-unit complexes and should be included if absent from the standard lease.
Finally, assess the surrounding businesses and neighborhood atmosphere. A positive, family-friendly environment supports your fee structure, while certain establishments (e.g. questionable massage parlors) may deter clientele.
2. Setting a Realistic Business Plan.
a. Leasing/Purchasing Medical Equipment
One major consideration is acquiring necessary medical equipment. Start by creating a wish list of equipment and leasehold improvements and obtain multiple quotes to ensure competitive pricing.
Common leasehold improvements include plumbing, electrical work, cabinetry, and reception furniture. Don’t forget taxes, delivery, and installation, and include a contingency for unexpected costs.
Typically, it costs approximately $300,000–$400,000 to set up a veterinary or dental practice, and slightly less for physiotherapy or chiropractic businesses.
Some equipment can be leased rather than purchased outright. Leasing spreads upfront costs but may result in higher overall costs due to embedded interest. Occasionally, competitive deals may offer reduced lease costs or incentives.
b. Preparing Cash Flow Projections
Prepare a realistic cash flow projection for the first 2–3 years, accounting for:
- Revenue (including growth and seasonal fluctuations)
- Direct expenses: variable costs such as employee wages, consumables, drugs, and professional salaries
- General & administrative expenses: fixed costs such as rent, utilities, subscriptions, leases, and telecommunications
- Interest costs: based on borrowing for equipment and leasehold improvementsAccurate projections are crucial for financing and operational planning.
3. Obtaining Financing
Canadian banks offer designated programs for healthcare professionals, often through “small business” or “healthcare professional” lending teams. Financing may be available at low interest rates if key criteria are met, including:
- Proof of education
- Personal guarantee of the loan
- Postponement of claims
- Assignment of life insurance for the loan amount
- Acceptable lease agreement
- Business plan with 2–3 year cash flow projections
Banks may finance 100% of practice start-up costs, even if you have student loans or a mortgage.
Keep in mind that client growth takes time, which may require temporary reductions in owner wages (often $40,000–$50,000/year for the first two years). Plan personal finances accordingly.
We would be happy to assist you with your business start-up, from initial discussions and planning to preparing a professional business plan, securing financing, and providing ongoing advice.
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