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 may 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. Your
contractor may need to see an approval letter from a
vendor prior to estimating and signing a contract with
you. Your equipment vendor may 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,
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 you
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.
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.
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. Your
lender will be able to help you with this.
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 Services 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.
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.
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.
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!