What does it cost to start a practice?

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Aug 01, 2003

To improve your chances for success, Denise Tumblin, CPA, co-owner and vice president of Wutchiett Tumblin and Associates, says you need to consider the cost and return you can expect in the first year of practice. She offers this example of the potential costs:

Dr. A plans to rent space and finance leasehold improvements for his new hospital over seven years at 6.25 percent interest (prime plus 2 percent). He will finance other start-up costs (equipment, furniture, inventory, and promotion) over five years at 6.25 percent. Personnel will include one full-time receptionist and one part-time technician earning $12 an hour with no additional benefits. The average charge per doctor transaction will be $100 and the hospital will be open 50 weeks a year, five days a week. With this scenario, Dr. A must average 10 transactions a day to generate the required revenue.

What will the start-up practice cost? His total first-year costs will be $249,500, and he'll need $76,000 in working capital reserve.

Start up guide
Use these six steps to plan and build a successful new practice:

1. Ask yourself why you want to own a practice. Do you have the dedication and entrepreneurial spirit?
2. Choose a good location. Look for a nearby site with good visibility and access.
3. Survey the area. Are there enough pet owners to support your practice?
4. Create a first-year budget. Expenses will vary by location.
5. Develop a marketing plan. Why should a client choose your practice?
6. Draft a business plan. Now that you know what you want, write it down.

Breaking down the numbers
Here's an example of the potential start-up costs for a new practice in 2003.

Start-up costs
A. Acquisition price
B. First-year payment

Leasehold improvements
A. $80,000
B. $14,100

Equipment and furniture
A. $80,000
B. $18,700

Drugs and hospital supplies
A. $8,000
B. $1,900

Office supplies
A. $3,000
B. $700

Promotion
A. $10,000
B. $2,300

Total start-up costs (1)
A. $181,000
B. $37,700


Operating expenses
Variable expenses: $52,000
Fixed expenses: $45,000
Staff compensation: $40,800
Rent (1,600 square feet at $15 per square foot): $24,000
Total operating expenses: $161,800

Owner compensation: $50,000

Total first-year costs: $249,500

Average charge per doctor transaction: $100
Days per year open: 250
Number of transactions needed per day: 10
Working capital reserve (2): $76,000

(1) Assumes all costs are financed or paid with client cash flow. Down payment is not considered.
(2) Assumes working capital reserve equals first-year payment ($37,700), first-year rent ($24,000), and two months of fixed expenses and support staff compensation ($14,300).


Buying instead?
We asked practitioners whether buying a practice is feasible today. Here's what they said:

Yes: "The ability to buy a practice is limited only by the imagination of the buyer and the seller."

No: "I would love to own my own practice, but I just don't see it happening, between school loans, my mortgage, and raising a family."

Source: The Veterinary Economics Financial Study, conducted in June 2003 by Veterinary Healthcare Communications