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Setting Up a Dental or Medical Practice: 4 Things to Do

Insights & Ideas Team •  March 7, 2017 | Your Finances, Business and Careers

Many medical and dental graduates dream of starting their own practices. For Jennifer Dean, 32, a dentist from San Diego who recently opened her practice, it was important for her to branch out on her own because she wanted to have control over her patients’ experiences.

“I am very particular about the way I feel things should be executed—from customer service to patient care,” she said, “and so I wanted to build something from the ground up.”

According to John Reynolds, a financial advisor with Northwestern Mutual who works closely with medical professionals, building something of their own is one of the common reasons his clients start their own practice. 

But starting a practice is a difficult and expensive process, and Reynolds believes it’s critical to do it right. While you might already be doing important things like creating a business plan, Reynolds has a few suggestions for what to do beforehand that you might not have thought about but will help ensure that you’ll be successful.

1. Create an emergency fund. Since many new practices don’t make money in their first year because they’re just starting to build their client base and paying for up-front expenses, Reynolds believes it’s imperative that a new dentist or doctor have an emergency fund big enough to cover six months to a year of personal and business expenses.

“There are so many expenses in the first year, and a lot of times it takes a while for insurance companies to start reimbursing for treatment,” he said, “so there’s usually quite a bit of lag time before new practices start seeing revenue.”

Many doctors or dentists continue working part time as an associate at another practice in order to make money, but that sometimes isn’t enough. For that reason, Dean started building her emergency fund after she graduated from dental school.

“It took several years to establish my emergency fund,” she said, “so it certainly was a major focus and one I sacrificed for.”

She’s found that her emergency fund has been critical for covering unexpected business expenses. “No matter the amount of planning and preparation, it's impossible to predict every variable,” she said, “and there absolutely will be unforeseen complications and challenges along the way.”

2. Hire a financial professional. Reynolds believes that it’s critical to have a financial professional who can give you advice on what steps you should take to set yourself up for financial success, and he’s not saying that just because he is one. Those steps include things like helping you make a plan to pay down your student debt, save an emergency fund, plan your retirement savings and get your credit in shape before applying for a practice loan.

“When physicians or dentists are starting their own practice, they have so many other things going on,” he said. “Having somebody to manage their financial life allows them the comfort of knowing their practice and personal finances are in good hands.”

3. Get the proper insurance. Lenders who specialize in practice loans often require that medical professionals have life and disability income insurance in place before they will lend to them, but you’ll also need other types of insurance to protect yourself.

“Most lenders will want to see that you have life and medical disability income insurance,” Reynolds said. “By getting it ahead of time, it can make getting a loan easier.” But he also recommends that doctors and dentists get more than just the minimum their lenders require since insurance also protects their family and income should something happen. “If you are too injured or sick to work, your income stops immediately,” Reynolds said, “and if something happens and you die without insurance, then there are no benefits at all to your family.”

He recommends his clients get disability insurance that is designed specifically for medical professionals. You should look for a policy that offers you the flexibility to decide whether you keep working in the event you are partially disabled but are still able to perform some of your duties (such as administrative tasks) or are able to work in another occupation.

Reynolds suggests you also make sure you have other critical types of insurance in place, including good liability insurance, malpractice insurance, an umbrella policy and disability overhead expense insurance. Liability, umbrella and malpractice insurance are all critical in case someone sues you because of an injury on your property or if they claim malpractice. These policies will pay to fight the charges in court or settle the lawsuit. Disability overhead expense insurance will cover your business expenses if you’re unable to work.

4. Improve Your Credit. Since most professionals opening a practice require a loan to assist them, Reynolds recommends that they spend time improving their credit. “Good credit is essential to qualifying for a loan and getting a favorable loan rate,” Reynolds said.  

Dean knew this and spent her 20s working to improve her credit. “I established credit cards early in my adulthood while ensuring I kept my credit utilization low but regular, and I always made timely payments,” she said.

That also means making timely payments on your student loans. While most medical practitioners don’t wait until they pay off their loans to open their practices, you might need to pay some of your debt off in order to qualify for a practice loan, and doing so will improve your credit. Learning more about how credit scores are calculated and spending time improving yours can also make a huge difference when it comes time to start your practice.

A Great Head Start

If you do these four things, you will have a head start toward launching a successful practice, and you’ll be more likely to enjoy your business. “The doctors that I’ve helped set up their own practice have been very happy with their choice,” Reynolds said.

Dean is just now settling into her new practice, and she cautions others considering branching out on their own to properly prepare. “My advice for those starting a practice is to meticulously plan ahead, research and read everything you can, and plan your purchases wisely,” she said.  

Now that she’s starting to see the rewards of all her hard work, Dean is glad that she made the leap. “It's definitely a relief, and I feel it's a huge accomplishment, she said. “I focus every day on providing the most value and best possible care for my patients.”

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