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Anesthesiology
10+ Year Member
Jan 16, 2007
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Attending Physician
I recently made partner in my practice. As the practice grows, there will be a need for an investment to expand. This includes personal investment in a potential ASC. Any good tips or experiences with practice financing/ practice start-up? I'm still paying off student loans and am trying to figure out how much of a burden I could tolerate at the beginning of this expansion. I'm a novice and am looking on any advice on getting started in this regard. Thanks
 

MOHS_01

audemus jura nostra defendere
10+ Year Member
Oct 2, 2005
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the old rickhouse
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Attending Physician
I am by no means an expert (yet, but I am working toward that goal), but I will give you my experience. First off -- let me say that my recommendation would be to postpone any large expenditures or debt assumption until after we see what this November holds. A "comfortable" amount of debt for an annual income of >350K is quite different from 200K (despite what people may say or think).

I started a solo practice after my fellowship in 2006. Construction delays pushed us out 4 MONTHS, which was a pain. I had no sources of personal funding, so everything had to be accomplished through a line of credit. I started with a $200k revolving line of credit set up as a sweep account (any monies left over in the account at the end of the business day, after bills were paid, were applied toward the LOC loan, paying it down), with a lockbox for electronically filed insurance monies. Fees are a little higher, but the protection from embezzlement afforded by such a situation allows you to maintain focus without having to worry about it quite as much. This was simply for operating expenses and equipment leases (purchase the equipment and then sell it to a leasing company until cash flow is such that you can reassume it and take the depreciation or, if you are starting early enough in the year, just purchase it outright and hope that you pay it off within that tax year). The line of credit maxed out at around 170-180K prior to paying it down, and it took 11 months to pay the portion that was not covered by the major equipment lease. I paid myself very little during this time period (only enough to keep up with the bills as each dollar is essentially borrowed money at interest, much akin to living off of a low interest credit card).

I think that the key thing is to be realistic in your income expectations and not bite off more than you can chew. Do your homework and understand what you can realistically expect to collect on a month by month basis, and determine what your operating margin should be. Do not become a slave to your fixed overhead. As far as the ASC goes -- potentially risky maneuver. Consult an experience healthcare attorney regarding the latest Stark provisions as well as other potential conflicts with physician owned entities.
 

TonyProMed

Tony ProMed
10+ Year Member
Aug 2, 2006
9
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Tustin California
www.promed-financial.com
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Non-Student
If you are looking to do a startup the main thing you need to consider is your credit, personal obligations, secondary income stream (such as spouse or part time position) and having a “cash cushion”.

Most loans out there are structured with graduated payment and have a build out period with no payments. What they don’t tell you is that you are accumulating interest the whole way. When you perform a build out your loan is very similar to a credit card, where interest is high and you only pay for monies that you take out with a monthly interest rate figure (usually 1% per month) once you are done with your build out your “takeout loan” with graduated payments kick in. Your loan balance is actually increasing during the graduated payments. After a year of having the loan you are usually back at square one. Meaning your balance is about the same as when you took out the loan. This is the typical scenario Lenders like to sell no prepay after 1 year but the fact is that a typical practice cannot be refinanced until it gets 2-3 years and proves itself.

Few tips

Look for a fixed rate (ask how long that rate is good for during your buildout)
Ask to waive disability insurance
Take a 10 year term - this will maximize your cash flow
Get help with the projections
Accumulate some cash for working capital
 
Last edited:

The White Coat Investor

Practicing Doc and Blogger
Partner Organization
15+ Year Member
Nov 18, 2002
5,166
2,282
www.whitecoatinvestor.com
Status
Attending Physician
If anyone is interested in practice financing or startup I have done my fair share of them over the years.

If you are looking to do a startup the main thing you need to consider is your credit, personal obligations, secondary income stream (such as spouse or part time position) and having a “cash cushion”.

Most loans out there are structured with graduated payment and have a build out period with no payments. What they don’t tell you is that you are accumulating interest the whole way. When you perform a build out your loan is very similar to a credit card, where interest is high and you only pay for monies that you take out with a monthly interest rate figure (usually 1% per month) once you are done with your build out your “takeout loan” with graduated payments kick in. Your loan balance is actually increasing during the graduated payments. After a year of having the loan you are usually back at square one. Meaning your balance is about the same as when you took out the loan. This is the typical scenario Lenders like to sell no prepay after 1 year but the fact is that a typical practice cannot be refinanced until it gets 2-3 years and proves itself.

Few tips

Look for a fixed rate (ask how long that rate is good for during your buildout)
Ask to waive disability insurance
Take a 10 year term - this will maximize your cash flow
Get help with the projections
Accumulate some cash for working capital
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