New Medical Practice Checklist – How to get started in Business
There are lots of things to work through when setting up a new practice and using our new medical practice checklist will help prevent you missing anything.
We have put together a comprehensive checklist that will help make sure you’re prepared in all areas of your practice, not just the accounting side of things.
Let’s start with a summary and if you’d like more detail on any of the items below, just scroll down for further information, or get in touch.
New Medical Practice Checklist – Summary
If you’d like our help to go through your options, feel free to get in touch.
New Medical Practice Checklist – Further Information
Decide on your vision for your new medical practice
Before you dive into details of how to setup your practice, decide what type of business do you want?
- A solo operator with no staff?
- A small, boutique team focused on high value services?
- A growth business with a large team supplying a range of services?
Your decision will be influenced by whether you are motivated to grow and manage a business or to just practice your profession.
You will also be affected by how specialised your services are and how hard they are to delegate.
Write a one-page strategic profile
Three fundamental questions will direct all your other business decisions. Your three answers will summarise your business at the highest level and make up what I call your strategic profile.
You can compile a comprehensive business plan for your new medical practice and doing so will force you to think through the details of how you will operate.
If you are going to raise finance, the lender may require one.
This checklist covers most of the information that will make up your business plan. However, start with answering the following four questions.
1. What does your business do?
What core purpose does your medical practice serve?
What fundamental problem does your medical practice solve for your clients? E.g., an ENT practice’s purpose could be “empower hearing impaired people to communicate fully in life and business”.
This is not about the actual services and products you utilise to deliver your purpose. These may change over time as technology evolves while a meaningful purpose will endure over decades.
Defining your business by a particular service you specialise in can make it hard to change direction. Defining your business by a purpose makes it easier to adapt to better ways of achieving the purpose.
2. Who are your target patients?
Businesses that try to be everything to everyone struggle to help anyone effectively.
The more concisely you define your target market, the better you get to understand them and their needs. This will also make your marketing more targeted and effective.
Your target audience can be defined by demographics or people facing a certain challenge.
3. Why should your target patients choose you?
This is your differentiation. When a potential customer is searching for a provider, they usually want one good reason to choose you. This is your Unique Selling Proposition (USP).
There are many ways you can differentiate yourself and sometimes it is a combination of factors. Choose one to focus on.
A good differentiator is something that is important to your patients. Your differentiator could be your specialised skillset, understanding of a target patient group, experience solving a certain problem, or the way you work with patients.
Without a meaningful differentiator, your patients may decide on cost alone.
Consider doing some market research
Do you know whether there is enough demand for your service(s) to make a viable private medical practice?
Depending how specialised you want to be, you may need to do some research.
Make a marketing Plan
How are you going to get clients?
You need to know who your target audience is and how you are going to get your message to them. Your target audience may be the patient or referrers such as GPs.
Steps to develop a marketing plan include:
- Define your target audience (you did this in your strategic profile)
- Create your marketing messaging that explains what you do, who you do it for and why they should choose you.
- Find out where your target audience hangs out, so you can put your message there. Professional magazines, linkedin groups?
- Make a plan to deliver the message. This could include writing blogs, presenting at seminars or directly contacting potential referrers.
Write an organisation chart
This may seem like overkill for a small practice but even a one-person-band will benefit greatly from this.
An organisation chart is a list of ongoing tasks and the roles that take responsibility for each task. This will include marketing, delivering your services and administration roles.
If you are a solo operator, you may be responsible for most of the tasks. You can also allocate your outside help. A hired bookkeeper may be allocated to the bookkeeping tasks.
Make a financial plan
This is your financial projections for the first one to three years of business.
A financial plan will highlight whether your medical practice is financially feasible, as well as identifying any financing needs. It will also give you confidence to make necessary investments such as buying equipment and hiring staff, because it will show you where the money will come from.
This is one area you really should get help with to put it together.
Steps include:
- Revenue. Your projected revenue is calculated by multiplying your expected number of patients by the fee per patient. Volume will usually start low and grow over the first few years.
- Direct Costs. Based on your revenue projections, what are the direct costs of delivering those services. This can include medical supplies and direct contractors if you are not doing all the work yourself.
- Indirect Costs. What are the indirect costs and overheads of running the business. This can include rent, administration staff wages and professional memberships.
- Fixed Assets. What medical equipment and office equipment do you need to manage your practice?
- Owners’ Remuneration. Factor in the money you will take out of the business for living expenses. This maybe paid out as drawings or wages with tax deducted. Discuss this with your accountant.
- Tax. Income tax is a major cost of business. Make sure you understand your commitments how you will pay them. GST also significantly affects cashflow and needs to be factored in.
- Financing requirements. Starting and growing a business uses money, even if it is a one-person service business. You will almost certainly need to inject money from your own funds or a third party. Your finance plan will reveal how much you need. You can then choose the best source of funds.
A financial plan also gives you a benchmark. Periodically comparing your results against the plan will immediately highlight where things are working and where they are not. This way, you can work out what needs to be changed.
Without a plan, you can waste a lot of time and energy worrying about cash flow shortfalls without knowing how to fix it.
Make a tax plan
Your tax plan is included in your financial plan but deserves separate attention.
A new business does not have to pay any income tax for up to two years after starting. Many people go out of business at that two-year mark when they suddenly face two years’ tax to pay.
A tax plan will tell you what percentage of your takings to set aside for income tax and GST so that funds are always available when the due dates arrive.
Structure your ACC levies
If you employ staff, you will be billed for ACC employer levies as a percentage of their wages. Add this to your wages costs in your financial plan.
You will also be billed ACC levies on your personal income from the business.
You may want to manage this by taking out ACC Cover Plus Extra which allows you to choose a level of cover and pay fixed premiums. The alternative is the default method of being billed in arrears based on your actual earnings filed in your tax returns.
Some business owners take out ACC Cover Plus Extra at a low level of cover, minimising their ACC levies, then use the savings to purchase private insurance to cover themselves for sickness etc as well as injury.
If you have a PAYE deducted salary from elsewhere, such as from your DHB, then you may be already paying ACC levies on the maximum earnings and will have to advise ACC to avoid being overcharged.
Raise finance if needed
Your financial plan will reveal how much money you need to inject into your business. You now need to decide whether you can cover it yourself or you need to raise funds from elsewhere.
There are basically two sources of finance: equity and debt.
Equity is owners’ funds.
Your first option is investing your own funds into the business. This includes using your savings and injecting “sweat equity” where you invest your time without taking a market salary. Your salary forgone is effectively a capital injection.
You could also consider another equity investor who will invest money in exchange for a share in the business. The advantage of raising equity over debt is that the investor is only paid out of profits, so the company theoretically only has to pay them if it makes the money to do so.
The investor shares in the business risks. The disadvantages are that you become accountable to someone else and you have to share future profits. If you’re business is successful, this can be a lot more expensive than repaying a loan.
Debt means taking a loan from a third party. You do not give up any ownership, but you are legally committed to repaying the loan plus the agreed interest.
Debt is riskier than equity as you are committed to repaying it even if you do not have the funds to do so. You also may have to provide a security over your business assets so put those assets at risk. You also will almost certainly have to provide a personal guarantee if borrowing from the bank, therefore becoming personally liable rather than just the business taking on the risk.
In summary, equity finance is less risky, but the cost is potentially higher. Debt finance increases risk, but the cost is limited.
Choose a business structure
Being in business involves risk. The risk that things could go wrong is the price you pay for the potential rewards – profits and other gains. Your business structure is your first tool to contain that risk.
Potential liabilities can be to disgruntled patients, employees, business partners, lenders, suppliers or IRD.
You can be liable for your own or an employee’s oversight, an unforeseen commercial problem, or just a failing business.
Your business structure can help contain those liabilities without them becoming your personal problem.
Limited liability companies
A limited liability company is the entity of choice to run a business as it limits the owners’ personal risk.
If the company has a problem, the assets that the company owns are at risk.
The owner (or shareholder) may lose their funds invested in the company, but their personal assets should not be at risk.
The company is a separate legal person and carries that risk.
This limitation on your personal liability can be compromised in various ways such as providing personal guarantees for business loans and leases, and being negligent of your director’s duties. However, it is still your first line of defense.
Trusts
Even with your business in a company, you could face personal liabilities either business related or otherwise.
A trust is probably the best protection for personal assets against such risks.
If your home and investments are in a trust, they are not owned by you personally, and generally out of reach of creditors.
Tax
The right structure can also make you more tax efficient.
To get the full protection of your legal structure, it must be setup and managed correctly. A creditor will get their money from the individual behind the company if they can, and have a trust overturned as a sham if it has not been manged professionally.
Your accountant and/or lawyer can help you to maintain your structure for maximum protection.
Tax Registrations
Tax registration can usually be done at the same time as forming the company or other business entity.
Your business must register for Income Tax. It also must register for GST unless your turnover is under the $60,000 threshold in which case registration is optional.
If you employ staff, you must register for employer taxes to pay PAYE, Kiwisaver contributions etc, and may also need to register for Fringe Benefit Tax.
There are options with registering such as the accounting basis you use to calculate GST. Your accountant can help with this.
Find Premises
Considerations when looking for premises include:
- Rent cost
- Size for staff and equipment
- Size for potential business growth
- Parking for patients and your team
- Location for signage, profile, and convenience for patients
- Lease terms – how long do you want to commit to versus having the security of the premises long term
Secure your trade name
Whether you will just trade under your own name, or choose an appropriate trade name, you will have to decide what you want your business to be known as.
Once you decide on a name, you need to ensure it is available for use and then secure it for yourself. This will include searching to make sure the name has not already been claimed. A google search and the NZ government ONECheck tool are good places to start.
You will want to consider securing the:
- Company name
- Trademark
- Domain name – for a possible website and email addresses
- Phone numbers – you may want an 0800 word number
Open business bank accounts
The first rule in business bookkeeping is separating your business and personal banking. Once your business entity is formed, you can open the appropriate bank accounts which may include a:
- Current account for day-to-day banking including receiving patient payments and paying bills
- Savings account to put aside money for tax and other significant bills
- Credit card for online and in-store business purchases
Hire people
I do not believe you can run an efficient business on your own. I know I can’t. But you have options as to how you hire people.
The important thing is to decide what you are going to do yourself, and what you are going to delegate to others. Your organisational chart at point 4 will help you decide.
Employees:
You can take on fulltime, part time or casual (as required) employees.
Things to consider when employing are:
- Creating a clear job description of exactly what responsibilities the employee has
- Checking references – the wrong employee can be a disaster for your business and sanity
- Employment agreement – legally required to have a written agreement. Free templates are available or your professional body may have more appropriate ones for your medical practice
- Performance reviews – make these at least annually so everyone gets a chance to re-evaluate what is and isn’t working for each of you
- Employment law is complex and having an employment lawyer available may help prevent costly and stressful issues
Contractors:
Taking on a contractor involves less commitment and compliance. It is easier to stop the relationship if it isn’t working. They will also usually take care of their own tax requirements.
However, you cannot just choose to call someone a contractor instead of an employee. If the relationship is deemed to be that of employer-employee, then they are an employee. Review the list of requirements before deciding you are taking on a contractor.
A service agreement with a contractor may not be a legal requirement but is still very important. It will help prevent misunderstandings of expectations and also help verify that you do in fact have a contract arrangement.
Professional advisors:
Having a good relationship with some advisors, who know your business, means you can ask questions as you go and save a lot of time and stress.
Always keep your advisor in the know before making major decisions. There may be opportunities or risks that you won’t think of until it is too late.
Consider finding an appropriate:
- Accountant
- Lawyer
- Professional body contact – they constantly deal with businesses just like yours
Mentor:
When you are ultimately responsible for everything that happens in your practice, having an experienced person on your side can be a Godsend.
It maybe someone in the same professional or not, but they must understand what you want to achieve from your medical practice and understand the pressures and challenges of being in business.
Setup information systems
Knowledge based businesses like a medical practice rely on efficient management of information. There are now many options so decide what information you need to manage and get a system that will do it efficiently and securely.
Cloud based system simply mean that the data is held and managed on someone else’s server, rather than having to provide and manage the hardware, software and security yourself. For the sole practitioner, this has greatly reduced the cost of business.
Advantages of cloud based systems include:
- You, your team and advisors can all access the same data where and when necessary
- Backups and upgrades are taken care of by a professional
- Security is taken care of by a professional
- You can work from anywhere
- Addon applications can often be purchased as required and sync with other systems
Types of systems to consider:
An accounting system to take the pain and time out of managing your bookkeeping.
Cloud accounting systems can automatically import your bank transactions, handle your accounts receivable and accounts payable invoicing and produce returns for tax filing purposes. We use Xero which is fully cloud based and links with a host of other applications for specific needs.
A client database. You need quick access to client details. This could be a simple database or part of an industry specific database including patient medical records.
Booking software to manage patient bookings.
Billing software. This can be managed from your accounting system or a specific medical system incorporating your bookings and billings.
Document storage. Knowing that your data is secure but easily accessible to you is of utmost importance.
Cloud storage systems with appropriate security help. Make sure you use good practice such as secure passwords and managing other team members’ access appropriately.
Emails. So much business is done by email.
Decide whether you want to keep your business emails separate on a dedicated machine or integrated between your laptop and phone etc so you can deal with emails at suitable times.
Choose insurance
Although your business structure is your first defence, you may be required to have, or want to have, insurance to hopefully cover you should things go wrong.
Be proactive in making sure you choose what you want to cover and what you don’t need to cover. Consider insurance for:
- Business equipment
- Professional indemnity
- Business interruption
- Income protection
- Tax audit insurance – ask your accountant
ACC provider registration
If your services will be covered by ACC, you need to register as a health provider.
Terms of trade and other contracts
As well as agreements with employees and contractors, you need to decide how you want to operate with patients.
You may require cash up front for all business or may be happy to allow sales on credit and manage a debtors list.
Also, do you accept credit card payments and do you charge a fee to cover the merchant costs you will be charged by your credit card company.
Disaster Plan
Finally, in a disaster, do you have a plan so you can access your data, equipment and premises to carry on operating?
Next Steps
We are expert accountants for professional service providers such as medical professionals and consultants. We understand your industry and the careful attention it requires.
Contact us today to discuss setting up your business and learn how we can help ensure you are set up to succeed from the outset.
Did you find this New Medical Practice Checklist useful?
Please share this content using the social icons below and Sign Up to our mailing list to receive regular newsletters and information on relevant topics.