|
Focus on Private Practice: Should You Start a practice from Scratch
or Purchase One? In this, the first in a series on private
practice issues, various options for entering private practice are
examined. By Maura Connell Dramatic changes in today's
health care environment are offering new opportunities for practice
ownership for physical therapists (PTs). A key decision faced by any PT
wishing to enter private practice is whether to purchase an existing
practice or start one from scratch. According to Stephen
Anderson, PT, CEO of Therapeutic Associates, Inc, in Seattle and
President of APTA's Private Practice Section, start-ups greatly
outnumber purchases. "In most cases, the cost of a purchase is
prohibitive since the buyer must pay the seller what the business is
considered to be worth and still have enough money to run the practice.
This is often an amount beyond the resources of a sole practitioner,"
Anderson explains. Cost isn't the only factor that leads many PTs
to start from scratch. "The benefit of starting with a practice of one
is that you can build slowly and see all that's involved," says Mary
Cavicchi, PT, owner of MJCare, who started her company 26 years ago in
Milwaukee. A start-up nevertheless requires significant preparation to
assure success. "You must know your market, you need to get professional
liability insurance, you need to know your state's worker's compensation
laws, and you must know exactly what you can and cannot do under your
state's practice code," she says. To acquire this knowledge, Cavicchi
advises, one way a physical therapist can build up to a full-time
practice is first to become an independent contractor and bill by the
hour or by the assignment "while you pull all the pieces of your own
business together." That is how she began. Today, MJCare is one of the
largest women-owned businesses in the state of Wisconsin. Like
Cavicchi, Bridgett Wallace, PT, owner of Balance Therapy in Austin, TX,
emphasizes the need to prepare. Although she had more than 5 years of
professional experience under her belt, Wallace spent many months in the
planning and preparation stage prior to opening the doors of her own
practice. "Even though I feel that everything happened pretty quickly
for me, I did spend at least 6 months in the preparation process. I'd
had experience in business planning in a former position, but it took me
2 months to do my own plan. I began applying to insurance plans months
before opening my practice-and I'm just now getting into some plans,
11/2 years later! I dedicated a lot of time to researching and
developing my referrals in advance, and the process of marketing is
ongoing." In addition to developing relationships with patients
and referral sources, a physical therapist planning to start a practice
must establish several other key liaisons. Of primary importance are: a
banker, attorney, accountant, and equipment vendor. Continuing
education addressing not only physical therapy issues but also
business-related subjects is essential for those planning their own
practice, especially because business courses are not part of the PT
curriculum. "I attended continuing education classes all the time,"
Wallace says. Cavicchi took classes on how to negotiate, how to
problem-solve, and how to manage during her first 10 years in business.
Cavicchi and Wallace both highly commend the value of APTA membership
for helping PTs wend their way through the start-up process and the
ongoing management of their practices. They particularly noted the
business planning resources and courses, mentoring and fee-based
consulting services, and referrals to sources of insurance, credit card
acceptance, and legal/accounting services. "People will be mindboggled
at the wealth of resources and information that are available," Cavicchi
says. Purchasing a Practice Purchasing
a practice is more likely to be considered at a later point in one's
career. In some cases, PTs who are employees of a practice are able to
buy into the partnership over a number of years, purchasing the final
piece when an owner is ready to retire. Steve Anderson is a "huge
proponent" of PTs having ownership in the practice where they work as
employees. He believes it increases a practice's likelihood of success.
And for the seller, it's a great form of succession
planning. Another situation in which PTs often consider
purchasing occurs when a PT has built a thriving business in one area
and wishes to diversify by buying a firm in another geographic location
or field of specialization. The perceived benefit of purchasing an
ongoing business is the opportunity to obtain an established source of
patients and referrals, and an existing stream of
revenue. However, Anderson points out that it's essential to test
the strength of these assumptions through rigorous due diligence. "The
key to a successful purchase is to create a pro forma over 5 years and
make sure the numbers pan out for paying off the seller and getting an
acceptable return on investment. Two critical components in this
equation are the ability to maintain referral sources and the quality of
the accounts receivable," he says. When evaluating a business, it
is important to determine if the referral sources will continue to refer
patients once the ownership of the practice changes. Anderson advises
potential purchasers to talk to a few key referring physicians or,
better yet, have the seller introduce the practice's purchaser to the
referring physicians. An optimal scenario may be for the seller to stay
on for a period of time after the sale. "It helps a lot if the
seller will stay with the company for a transition period, to introduce
referring sources," suggests Anderson. "In fact, you can try to
formalize this by negotiating an 'earn-out' agreement." An earn-out
contract provides that the seller will receive the agreed price as long
as the load in the clinic stays the same for a given time period. If the
load drops more than, say, 10%, the purchase price will drop
commensurately. This arrangement calls for the seller to assume some of
the risk that the business will continue to perform. The status
of the accounts receivable is another important question. The key is to
determine whether they are good accounts--or bad debts that have not
been written off. According to Anderson, the receivables of an existing
business sometimes may have to be discounted by as much as
25-35%. A Hybrid Option For those who would like to
own their own practice but are not comfortable going solo, a hybrid
option has emerged in the marketplace, Cavicchi reports. "There are
companies today that offer to put PTs in their own practices-with the
corporation retaining a majority share of the practice. The corporation
assumes responsibility for insurance and issues a regular paycheck to
the physical therapist; the physical therapist also may be rewarded for
any growth in the practice. Disadvantages may include required
corporation approval of certain business decisions and an upside
financial potential limited to the proportion of the share of ownership.
Nevertheless, this option could be a good fit for a PT who prefers the
extra layer of security. In considering this arrangement, it would be
important for PTs to understand the available options for exiting the
business." For all the work that's required for
a successful practice and the risk that one takes on, those who do it
remain highly enthusiastic. Steve Anderson says more and more private
practices are opening up across the country. He considers the trend
positive. "Even though it's competitive, the more physical therapists
who go into private practice, the more the public will get to know the
benefits of physical therapy. Together we can reach a higher level than
as individuals."
____________________
Maura Connell is
a freelance writer.
PT Magazine - September 2003
| PTmagazine, PTmag, magazine |
|
Archives 