Transitioning into Pri= vate Practice

By Dale Windsor, Coffm= an Capital Inc.

Making the transition into private practice is t= he most important business decision one may ever make. Whether you have been practicing for many years, or recently completed a residency, it is necessa= ry to effectively position yourself to have the best opportunity for success. = The most important aspect of opening a practice is the way it is financed. How = then do you effectively secure the financing that best fits your needs?

Step 1 – Credit History

Position yourself to qualify for financing. Obtain = a copy of your personal credit report by contacting the Credit Bureaus directly: Experian, at (800) 682-76= 54 and Equifax, at (800) 759= -5979. They will provide a free report once a year. It is important to make sure t= here are no errors on the report that will negatively effect a credit applicatio= n. If there are mistakes, contact the credit-reporting agency at once.

Step 2 ̵= 1; Financial Package

Prepare a personal financial package that can be submitted with the application. This should include: a current Personal Fin= ancial Statement, 3 years of Personal Tax Returns, Curriculum Vitae, and a Source = and Use of Funds breakdown detailing what will be financed. It is also helpful = to provide a summary of what you have been doing in the past, and what you int= end to do with the practice in the future.

Step 3 ̵= 1; Location Selection

Most doctors are looking to establish a practice that is convenient to home, but= one that will offer a strong demographic profile for patient base and referrals. The cost of the facility, whether it is rented or purchased, has to be established prior to calculating any cash flow analysis for the proposed practice.

Step 4 ̵= 1; Startup Vs. Existing

Cash flow is the single most important aspect of any business. Without sufficient cash flow, a business will not survive. It is just that simple.<= /span>

The startup practice will require considerable examination as to its feasibilit= y, compared with purchasing an existing practice.

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Therefore, I recommend that you should acquire an existing practice. This option offers one very important feature that the s= tart up practice won’t: the historical performance levels of the business. This includes most of the information you need to make an informed decision, including: Gross revenue; net profit, patient records, insurance reimbursem= ent data and accounts receivable performance data. The established practice also includes equipment and an established staff. In many instances a practice being= sold is a diamond in the rough. The seller may have cut back hours, or taken oth= er action to reduce his/her workload. This translates into immediate upside potential for the buyer of the practice.

From Day One there is positive cash flow coupled with walking in to a turnkey office. There are other benefits like hospital privileges, established relationships = with the insurance carriers, and an existing patient base.

A practice acquisition can be 100% financed, that is, with no initi= al cash investment. In= most cases the practice is the only collateral for the loan. Working capital sho= uld be included. This will eliminate the need to defer paym= ents., which causes negative amortization of the loan balance. This should always be avoided unle= ss it is absolutely necessary. In most cases, the cash flow can support full payo= ut from day one.

Step 5 ̵= 1; Selecting a Lender

There are a many healthcare lenders that can service your needs. You will find th= em all to be relatively similar on rates and terms. But pay close attention to what collateral is being attached to secure the financing. Always read the = fine print. The key will be to find the lender that will offer the financing pac= kage that best suits your needs. Often a lender will direct you into a program t= hat fits their product line as opposed to your specific needs. It is important = to identify a lender that is not looking to fit your l= oan request into the “box,” but can design the “box” to= fit your needs. You will also want to compare service. Whether it is decided to= do a start up or to purchase an existing practice, plan for success and positi= on yourself to be winner. &n= bsp;