Starting a Medical Practice: Learning Small Business
I was discussing this with a general surgeon yesterday. We both agreed that the biggest deficit physicians have is not ‘how to run a medical practice’ but ‘how to run a small business’. I believe the residency programs and medical schools should incorporate basic business training to all would be physicians.
Why should you learn these fundamentals? Because you will be employing staff. And it is your responsibility to provide them with a stable and flourishing employer (aka job safety). So it is not selfish – it is altruistic.
Before we go around looking for bankers to finance the medical practice there are lot of things to understand. You should be able to talk finance before getting financed. Here are few of the terms and concepts you need to understand before opening the business.
1) BUSINESS PLAN: It is a written document which describes the business (in this case a medical practice), its operations, allocation of funds, staffing etc.. Not only you need a the business plan for the banks, but you may need to use it to refer to during the course of the business. It is the map to success.
2) CASH FLOW: Cash is the lifeline of business. It is like the blood in your body. When the cash runs out–the business dies. Even if there was a good chance of success few weeks later, a cash strapped business cannot survive. Just recently I was shocked to see the doors shut down on an upscale restaurant in my neighborhood after just one year of opening. There were lot of customers (Including me!) but I guess they let expenses run high.
3) REVOLVING LINE OF CREDIT: It is a loan offered to the medical practice for its operational and daily expenses. You can withdraw it all at one time or slowly, leaving some for the rainy days. As you pay it back, it increases back to its original value.
4) CASH FLOW STATEMENT: It is a projected expenses and earnings on an excel sheet on a monthly basis for atleast an year.
5) BREAK EVEN POINT: The time or earning at which the medical practice becomes profitable. On your cash flow statement you can estimate after how much time your medical practice will break even. Also you should be able to tell how much cash the medical practice needs to earn to become profitable.
6) OVERHEAD: The total expenses of running a medical practice. You need to earn more than the overhead to be able to make a profit (i.e. your salary)
I wil introduce more terms as we go deeper into the topic in the later posts.
Authors Recommendation: If you plan to open a medical practice or any other business you need to attend the classes offerred by the organization SCORE. These are retired executive volunteers who offer free advice to young entreprenuers regarding business. I got my first lesson on cash flow (the most important one!) at one of the classes of SCORE. And don’t take the advice lightly as some of these volunteers have run mega million dollar industries before. I think I should do what I always wanted to do that is write it here ‘THANK YOU SCORE ‘