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Helpful
Information
Considerations for your new Business Venture
LCF Financial Services has
aided countless doctors to start-up a new office, or to buy an existing office.
We find there are far too many medical professionals who do not have enough
information about the process, cost, or even where to get started. At LCF
Financial, we have found the most important asset a new business owner in the
medical field must have when making the decision to take on a new business
venture, is what to expect throughout the entire funding BEFORE you get started.
Prior to making any decision regarding your future, you must be able to
anticipate the pros and cons. The goal of this section, then, is to familiarize
you, the new business owner, with the processes of starting-up a new office and
purchasing an existing office.
When
Starting-up an Office
First, you will need to secure financing. The most important aspect of your
entire project, is method of payment. Your landlord will need to see you are
going to be approved for financing before you can sign the lease. You could lose
the space to someone who already has financing secured, while you are applying.
You contractor will need to see an approval letter from a vendor prior to
estimating and signing a contract with you. Your equipment vendor will make a
similar request. Each level of the project could be delayed without your
financing secured. If you are intending to pay for some of your start-up office
out of your pocket, and finance remaining balances at a later date, always set
up financing first. Landlords, contractors, and equipment vendors want to know
they will be paid, and paid on time.
Landlord and
Space Lease Issues
In the second step of your
start-up process, you will need to find a location. Space leases are sometimes
difficult to find. When you do locate a potential spot for your office, though,
don't be too quick to sign anything. You need to ask the landlord about the
square footage and rent. Compare it with other offices in the area. Also, look
around to be sure your competition is far enough away from you. You do not want
to open a new office, with zero patient records, when an existing, established
office is on the same block. Be sure to check with the Landlord about your
plans. For example, a Veterinarian may have trouble. Your landlord needs to be
aware that you will be building-out a space for a Veterinary office and,
obviously, there will be animals, noise, etc. all day and all night. There may
be issues with other tenants (if part of a strip mall or similar structure) and
you will need to be sure they will not petition to "evict" you once the office
is open.
Construction
and Equipment Companies
Once you find a potential space, talk to a construction company for an estimate.
You may find there are some difficulties with the space lay-out that may cost
your more in construction than you should need. Be sure to speak with several
construction companies for estimates. Speak with friends for a referral. Once
you decide on a space, think about how many examining rooms/operatories to
build-out, and how many of those to equip. You may want to leave extra room for
future expansion. Once you decide how much equipment you will need, make a list
and begin contacting equipment vendors. You will need to speak with several in
order to be sure you are obtaining the best value. You probably have an idea of
which manufacturer to use, so be sure to estimate that particular brand with the
vendors, if you are not purchasing directly from that manufacturer.
Real Estate
When starting up a new office, it is not recommended to build your office
building, or buy an existing building, and then do further construction to make
it into a medical office. It is too costly and you are not guaranteed an
immediate patient base. If you are thinking of this path, ask the owner of the
existing building if you can rent for the first five to seven years (typical
term of a start-up loan) with the option to buy the building at the end of that
lease. You will find you have a practice loan along with a real-estate loan, you
will have a tight cash-flow and create more stress than you need.
Insurance
Once your project begins, you will need to be insured. Make sure your
contractor's insurance will cover any damages to your office during the course
of your construction. The contractor will need to name your finance company as
"additional insured", so make sure they are willing to do that. That should be
familiar to them and therefore not a problem. Once equipment is installed, you
will need to purchase "business contents insurance". While the office is under
construction, you should be contacting insurance companies and setting your
insurance into place. Once your equipment is installed, your lender requires
proof of insurance. In addition, you will need to authorize your insurance
company to list your finance company as "loss payee". Your finance company will
not issue payment for equipment prior to receiving the proof of insurance and
the “loss payee” endorsement. This could stall your project and prove to be
stressful for all parties involved, especially you. Be sure to work on contents
insurance as soon as you have the estimate from your equipment company. You
lender will be able to help you with this.
Opening
 You will be
amazed that you have a new office in a couple of months. Once the project is
finished, you will need to test all equipment and software to make sure it is in
proper working order and give your finance company permission to close your
account with them. You will sign closing documents and issue your advanced
payment. Depending on your payment structure, you could either begin payments
(after the advanced payment) the following month, or take advantage of the
three-month deferment and enjoy 90 days of no payments while you learn to run a
business.
When Buying
an Existing Office
If you are
dealing with a Practice Broker, he or she will make sure you are fully aware of
all advantages and disadvantages of purchasing accounts receivable. They will
also make sure you know the age of the equipment, square footage of the office,
number of active patient records, fee schedule, etc. However, if you are not
dealing with a broker, LCF Financial can help you obtain the information you
will need to be sure you are purchasing a successful office. As with starting-up
a new office, the first step is to be approved for the financing. With practice
acquisitions, though, the process is a little different. You will need to seek a
“pre-approval”. This basically states that you have good credit and should have
no trouble with being approved to purchase an office should that office
“cash-flow”. Once you have found an office to consider, you must send at least
two (preferably three) years of tax returns, an evaluation of the practice
profile, and the reason for the sale to your lender.
Office Staff
First, be
sure to know the reason the office is for sale. If the doctor is retiring, find
out if he or she is "staying on" for a few months or not. You will also need to
know if the office staff is aware of the sale. If they are not, that could prove
to be a huge obstacle during the practice transition. It is very important that
the staff "stay on" during the transition. Quite often, the office manager is
the spouse of the current doctor. It is important that she is willing to remain
working for as long as she is needed. If not, you could experience a small but
significant patient roll off. The receptionist is also crucial. Every patient
recognizes the receptionist and may not feel as comfortable with a new person
behind the desk. In essence, it is good to know that your new employees are
willing to stay at the office during the transition. In addition, technicians
provide valuable insight on certain patients that may not be written in their
profile. Each individual employee is very important during a transition of
ownership. Be sure there are no bitter feelings between the staff and the
selling doctor. Sentiments could carry over to a new owner as well. It is always
best for the seller to be available if he or she chooses not to stay-on after
selling the office. You may have difficulty with certain patients and the
seller's insight could be what you will need to keep those patients.
Insurance
As with a
practice start-up, you will need to provide your lender with evidence of
business contents insurance. When acquiring an office, be sure to evaluate the
replacement cost of all equipment inside the office. This is the amount of
insurance you will be required to obtain. Check with the current owner to see
how much contents insurance he or she currently has. It is recommended to use
the same insurance company as the seller for application expediency and
familiarity with the office. Should you decide to use a different company, you
will have little or no problems purchasing the contents insurance, just be sure
to allow enough time.
Closing
Practice
acquisitions close slightly differently than Start-up offices. Funds will be
wired to the seller's account on the day the sale closes. In addition, any
working capital you purchase during this time will need to be wired to your
account. It is recommended that you purchase enough capital to do marketing,
purchase supplies, and pay salaries while you are waiting for profit to begin
accumulating. Working capital will reduce the stress of trying to make ends meet
immediately. If this is your first office, we recommend you defer payments for
up to ninety days. By doing so, you will have time to learn to run a new
business, as well as plan your monthly expense report and budget. As you have
probably gathered from this short article, there are a lot of considerations
when starting-up an office, or purchasing an existing office. By learning more
initially, you may change plans prior to committing to any one source, as
opposed to making immediate decisions and regret them later. Healthcare lenders
should always be familiar with the process, and therefore be able to guide you
through the more difficult moments.
Best wishes in your next business venture!
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