Private Practice Ownership While You’re Still in Debt: What Physicians Should Know

Owning a medical practice is one of the largest financial moves you can make as a physician. From securing the business loan you’ll need tocoveringoperating costs, and from learning to manage employees to ensuring a strong patient experience, there’s no shortage of responsibilities connected to this decision. And when you’re already carrying student loan debt – whether from Federal student loans or private lenders – the stakes can feel even higher. 

Because of all this, before you make that purchase, there are some essential things to know.

What to take into consideration

Before you even get into the details of buying a practice, you need to ask yourself one very important question – Do I want to be a business owner and wear all the hats?

“Being a business owner sounds great, but it is extremely difficult, time-consuming, and sometimes very lonely,” Elie Engler, Co-Founder and Owner at Physician Financial Group said.

Once you’re certain it’s a path you’d like to take, there are a few additionalelements to consider.

“One of the biggest factors that goes into buying a medical practice is going to be liquidity,” Engler said. “Do you have enough cash to cash flow the business if it has a slower than expected start?”

Other keypointsto evaluate before deciding you’re ready to own your own practice include:

Buying an existing practice allows you to evaluate some of these metrics and get a better picture of what ownership will look like. Starting a practice from scratch is something entirely different. Although the same factors should be looked at, it’s harder to predict profitability over time, especially when you’re balancing the realities of small business ownership with personal finance obligations.

Student loan debt vs business debt

While they’re both considered debt, student loans and business loans work in two different ways.

At the highest level, student loans help you pay to prepare for your career. There’s no revenue generated by having a student loan, although they do usually have fixed interest rates, which can help stabilize payments and keep things predictable. Although they can impact your cash flow and your lifestyle, according to Engler, depending on your loan balance,they most likely won’timpact your ability to purchase a medical practice.

“If you can keep your lifestyle costs low, even if you have student loans, you may have the ability to buy a practice,” Engler said.

This may mean putting off large personal purchases for a while, including a new car or home.

Business loans, on the other hand, exist to help you generate liquidity. They could help give you a way to grow immediately, generating profit quicker, rather than having to save up for years to afford an expense.

“The idea of taking on business debt is that, over time, it could allow you to grow exponentially.” Engler said. “It can be good debt that you can leverage into the future.”

Owning a practice, even if you need a loan to acquire it, can ultimately alsohelp with your ability to pay down debt since it will serve as an income source. Even though, in the long run, you may be able to pay your student loan debt faster as a small business owner, at the start, it might slow things down as you put more money into getting the practice up and running.

Getting a business loan can be different for physicians

When it comes to getting a loan, doctors often find themselves in a unique situation that can make it easier for them to secure funds.

“Banks may loan doctors money with less collateral than almost any other occupation,” Engler said. “Banks know that doctors’ incomes are going to increase, especially after residency, so someare willing to lend at a higher debt-to-asset ratio.”

While this can make the loan process less daunting overall, it’s still important to look at all the contributing factors to running a medical practice. You should feelyou’re ready to take on the responsibility of private practice ownership and the ability to manage the new debt.

How to grow your personal wealth as a business owner

Although the initial financial investment can be large when purchasing or starting a medical practice, you don’t have to neglect building personal wealth. You may just have to adjust your strategy, at least temporarily.

“The advice I give here is to start simple. Build an emergency fund for your home, then build an emergency fund for your business, then make sure your business has sufficient assets to grow, and only then start diversifying and making tax efficient investments,” Engler said.

Having enough liquid assets allows you to begin building a portfoliothat’s diverse. Any asset you can access within 2-3 days is considered a liquid asset. This can include:

Building up your liquid assets in this way gives you a greater chance of getting the highest return on your investment. However, if you’re holding most of your assets in cash, Engler suggests putting it into a high-yield account.

When you do decide you’re ready to invest, it’sa best practice to have a plan.

“I generally recommend starting with a simple globally diversified stock and bond portfolio, so you own shares of companies all across the world,” Engler said.

Engler, who was recently interviewed in the Wall Street Journal, offers this advice to most medical professionals when they’re considering this big step.

The right tools to make the appropriate decision

There are so many variables that go into the decision to start a practice or buy an existing one. Even weighing each factor yourself may not make the choice clear for you.