Last year, we did a series on nurse practitioner entrepreneurs here on ThriveAP. These NP’s insights into business ownership and the stories of how they started their own practices were very enlightening. In talking with NP entrepreneurs, one common thread wove through many of their stories. Finances.
If you’re thinking about venturing into practice ownership (or any other entrepreneurial business endeavor), financial planning is key to your success. If you aren’t set up to ride out the slow process of building up your patient base (and it will be slow), you may run out of cash and see your practice fail. I’ve personally watched this happen to my own colleagues. Before you open the doors of your own clinic, NP entrepreneurs say you should anticipate these financial challenges. Decide if you can afford to open your own practice by determining if these are surmountable roadblocks given your personal situation.
1. Understand insurance carriers and reimbursement rates
If you plan to accept insurance, you’ve got a lot of research and legwork to do before you open your doors. Billing a patient $200 per office visit doesn’t mean that insurance companies will pay you that amount to provide services to their patients. If you plan to accept insurance, you must sign contracts with insurance carriers that outline how much you’ll be reimbursed. During this process, you’ll need to negotiate your reimbursement rate. The rate you negotiate will be dependent on your geographic location and the healthcare landscape in your area.
2. Prepare a financial forecast
Once you know how much you can expect insurance carriers to reimburse, then you’re ready to build your clinic’s financial model. Given that many of us as nurse practitioners and physician assistants have more clinical than business savvy, it might be wise to get some help. Essentially, you want to build a budget that projects how busy you’ll be, how much revenue you will therefore generate, and deducts projected expenses. Be as thorough as possible to create an accurate representation of the profit and loss you can expect in your first, second and third year of business.
3. Expect a slow start
While you obviously know that you’ll provide exceptional service in your new practice, getting the word out about your new business takes time. Whether your plan is to advertise or use word of mouth, in 99.99% of cases, businesses start slow. Even in a visible location, it takes patients a while to notice your practice. So, build this into your financial model. You may need to borrow money to help keep the practice afloat in the first couple years. This may mean that you aren’t personally taking a salary. Most nurse practitioner and physician assistant practice owners I talk with say it took them about 3 years before the practice was profitable and they were able to pay themselves at all or an amount that was meaningful.
4. You’ll need to be there
Perhaps you imagine that you’ll continue working elsewhere while you build your patient base. Think again. Patient volumes will never get off the ground if prospective customers come to your clinic and the doors are locked. Unless you can afford to staff your new practice with another provider, plan on being in your practice during business hours whether patients are present or not.
5. Personal planning
Given these prior two points, you can’t expect to match your nurse practitioner or physician assistant salary very quickly in an entrepreneurial endeavor. How will you get by? Perhaps your spouse can support your family for a couple of years while you get your business up to speed. Or, maybe you can get a loan? Whatever your plan, be sure you’ve thoughtfully considered the salary you need and where this money will come from. More than likely it will not be from first year profits in your new practice.
Do your homework before you take the leap into entrepreneurship. Starting out can be an uphill battle, but the financial benefits and freedom you’ll eventually gain can outweigh these initial sacrifices in the end.
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