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Key Considerations for Starting a Medical Practice

Key Considerations for Starting a Medical Practice 1

Starting your own medical practice from scratch is an exciting yet challenging endeavour that requires careful planning and research. Key considerations that are crucial for your practice success include the following:

1. Choosing the Optimal Business Structure

One of the fundamental decisions you need to make when starting a medical practice is determining your business structure.  Your choice of business structure will have legal, financial, and tax implications for your practice.

There is no one-size-fits-all solution when it comes to structuring medical practices, as each practice is inherently unique in its characteristics and requirements. When selecting the most suitable business structure for your practice, it’s important to consider various factors, such as the practice size, specialty, ownership structure, growth plans, succession and exit strategy, as well as personal circumstances of the owners. The chosen structure should align with your overall business strategy and future plans while offering essential benefits, such as adequate asset protection, effective profit allocation, business succession, and optimal tax outcomes.

Common basic structures include:

  •  Sole trader
  •  Partnership
  •  Company
  •  Unit Trust
  •  Discretionary Trust

It is not uncommon for medical practices to comprise a combination of entities utilising one or more of the above types of business structures. Combining multiple entity types often helps achieve greater asset protection, segregate distinct business functions, insulate business owners from legal risks and provide optimal tax outcomes. For example, a strategic approach might involve holding intellectual property (IP) and capital assets in a separate entity while conducting day-to-day business operations through another entity.

Other effective strategies include the utilisation of a service entity within the structure that provides support services to the medical practice entity for a service fee, and the use of bucket companies for the purpose of profit retention.

2. Choosing the Practice Premises


When choosing a location for your medical practice, consideration should be given to factors such as demographic profile of the area (which can be obtained through the Australian Bureau of Statistics website, supply and demand for medical services, accessibility, visibility, foot traffic and convenience of the location for your target patient population. Consider the presence of other healthcare professionals or specialists in the vicinity, proximity to referral sources, and complementary healthcare providers, such as allied health, pathology, pharmacies, or hospitals. Prioritise locations easily accessible by public transport.

Size and Layout

Your practice premises must be able to accommodate your practice’s current and future needs. Consider the number of consultation rooms, waiting areas, treatment rooms, administrative spaces, and storage requirements. Ensure the layout promotes efficient patient flow and meets the specific requirements of your practice medical specialisation. Consider your practice’s growth plans and evaluate if the premises can accommodate future expansion. Assess the feasibility of adding more consultation rooms or incorporating complimentary healthcare services.

Compliance and Regulatory Considerations

Ensure the premises will comply with all relevant law and regulations, including zoning and local council restrictions, healthcare regulations, building codes and licensing standards. Pay attention to accessibility for patients with disabilities, adherence to fire safety protocols, infection control measures, and privacy standards. Ensure your chosen premises aligns with all necessary legal and regulatory frameworks.

3. Lease or Buy

One of the major decisions you must make is whether to lease or buy your practice premises. The decision should be based on various factors, including your financial situation, growth plans, property market conditions, flexibility requirements and personal circumstances.

Leasing offers flexibility, allowing you to relocate easily if the needs of your practice change. However, as a commercial tenant, you will have limited control over the space as any major modifications to the premises will require approval of your landlord. Additionally, consider fit-out costs as typically, in commercial leases, tenants own and cover these costs, unless you negotiate a fit-out lease.

Purchasing offers stability and potential long-term equity and capital growth but requires significant upfront commitments and carries more risk in case of a property market downturn. If you opt for purchasing your practice premises, you need to consider what entity should hold the title to the property. Buying business premises in the name of the main medical practice entity may not provide the optimal asset protection and tax outcome.

Better results can often be achieved if the premises are owned by a low risk individual, or held in an investment trust or your SMSF, and leased back to the practice entity. Seek advice from your Accountant as ownership structure can significantly affect your ability to access capital gains concessions and exemptions in case of a practice restructure or disposal of your practice premises.

4. Practice Fitout

Designing a fitout for a medical practice requires careful planning to ensure the space is functional, welcoming, and compliant with healthcare regulations. The requirements for fitout and equipment can vary greatly depending on the medical specialisation of your practice, additional services you intend to have on site (e.g. imaging, pathology lab), and the existing state of the chosen premises.

You are likely to incur additional costs if you have to convert your premises from retail to medical use. You need to ensure that your medical practice meets all local, state, and federal regulations for healthcare facilities, including zoning, building codes, infection control and other healthcare-specific requirements. This may require substantial modifications to the practice premises.

If you lease the premises, the term of the lease will likely dictate how much you are prepared to invest in your practice fitout. It is common for commercial property lease contracts to involve “make-good” clauses, requiring the tenant to strip down the space and return it in the original condition when they move out. It your lease is only for a short term, it is hard to justify making substantial investment in major modifications, unless you negotiate more favourable terms with the landlord.

5. Financing Options

Before embarking on your journey as a private practice owner, it is important to set realistic expectation about your practice expenses, especially during the start-up phase, and to remember that it may take some time for your practice to establish a consistent and reliable revenue. Creating a comprehensive budget and cash flow forecast is crucial when starting a medical practice from the ground up to ensures appropriate resource allocation.

Setting up a private medical practice usually involves substantial initial outlays associated with the fitout, equipment and possibly purchase of practice premises. You will also require working capital to cover payroll, professional costs, marketing, insurance, supplies, and other start-up costs and day-to-day expenses.

Fortunately, you do not have to pay all your practice initial outgoings out of your savings. There are lots of financing options offered by specialist healthcare lenders and banks to those establishing a medical practice, ranging from commercial property loans to fitout and equipment finance options, to lines of credit to assist with running expenses.

With literally hundreds of different finance products offered by multitude of lenders, it can be hard for aspiring practice owners to choose the best loan for their needs when starting a medical practice. The cheapest option may not always be the best option, and other features, such as flexibility of repayments, availability of interest-only option, and security requirements need to be considered. Additionally, timing can be critical, as delays in obtaining finance will inevitably lead to increased costs and missed opportunities. It is important to get things moving quickly to secure your finance as fast as possible.

Using the expertise of an experienced finance broker specialising in healthcare, can be invaluable! Brokers will compare various products from multiple lenders to find the most suitable option for you and, once you agree on the product, will manage the application process on your behalf. Collaborating with your specialist medical accountant, your finance broker will ensure to structure your loan to optimise tax efficiency and support your practice’s cash flow needs during the start-up phase and beyond.

6. Technology and IT Infrastructure

In the contemporary landscape of healthcare, technology plays an integral role in enhancing efficiency, patient care, and practice management within medical facilities.

The IT infrastructure for medical practices consists of systems, software a tools, performing various functions, such as medical billing, payment processing, patient records management, policies and procedures, legal compliance, accounting and bookkeeping, appointment setting, telehealth, transcription, practice insights and analytics, and human resources allocation.

Tailoring your IT infrastructure to fit the specific needs of your medical practice is crucial for streamlining the workflows and maximising its efficiency. Your systems must offer security, privacy protection, minimise manual input and being capable of scaling up.

Practice Management Software (PMS)

Practice Management Software is the backbone of a medical practice operation. Your practice management software requirements will largely be determined by the medical specialisation of your practice, the size and the workflow requirements. A solution that fits a solo practitioner may not be appropriate for a large multidisciplinary practice group.

 When selecting your practice management software, you should take into account factors like ease of use, scalability, customisation options, vendor support, and reporting capabilities. Invest in a reliable practice management software that minimises manual inputs and offer automation of mundane tasks to allow staff to focus more on patient care rather than spending excessive time on paperwork or manual data entry.

One of the most critical considerations is the ability of your practice management software to integrate with other aspects of practice operation, such as online appointment scheduling, advanced business analytics, bookkeeping and financial reporting. For example, major efficiencies can be achieved if billings, collections and doctors’ payments are automatically processed and allocated in the accounts correctly.

Accounting Software

Cloud accounting solutions, offer a lot of advantages over traditional desktop software. Xero is a great choice of accounting software for many medical practices. It offers the ability seamlessly integrate with many practice management solutions, billing systems and other third-party apps specifically built for healthcare businesses allowing you to automate reporting, streamline reconciliation processes and minimise manual input. 

To get the most out of Xero for your medical practice, it is important to ensure that the software is configured accurately, customised to the practice’s needs and correctly integrated with other systems. Accountants specialising in healthcare can customise Xero’s chart of accounts, reporting structures, and settings to suit the unique requirements of your medical practice. This tailoring ensures accurate recording, tracking, and reporting of financial data. Accountants can also provide training and ongoing support to ensure that everyone involved understands how to use Xero’s functionality.

7. Human Resources

Administration and clinical support staff

When starting a medical practice from the ground up, it is crucial to carefully assess your practice needs for both administrative and clinical support personnel, including practice managers, administrators and nurses. Make sure you understand what each role entails and identify qualification, experience and skills requirements. Document job descriptions for each role, specifying job tasks, responsibilities and expectations.

Consider the workload requirements for each position to determine if the employment needs to be on a full-time, part-time, or casual basis. Determine if the employee should work regularly, for a limited period, or as required.

Ensure your employment practices comply with relevant healthcare industry Awards and employment laws to guarantee fair wages, work hours, leave entitlements, and other conditions for your staff. If employing registrars, make sure you familiarise yourself the NTCER requirements. This includes understanding the specific terms and conditions for registrars’ employment, such as training provisions, work hours, supervision, and remuneration in accordance with NTCER guidelines.

Professional Practitioners

Bringing in other medical practitioners into your practice can assist with covering expenses and broadening the scope of services offered.

Doctors can be engaged as employees, as contractors, or as independent providers under a service agreement. Each mode of engagement has its advantages and disadvantages. Which option is right for your practice should be determined based on several factors, including:

  • Whether you need to recruit someone long-term or short-term
  • The level of control you intend to exercise over the practitioners
  • The degree of risk you are prepared to take
  • The business model of your practice

Hiring doctors under Employment Agreement is the simplest arrangement that provides you the highest degree of control. Employers can dictate when, where and how the job is to be performed but they must assume higher degree of risk and responsibility. Employers must comply with Fair Work legislation, minimum wages requirements under Awards, super guarantee, payroll tax obligations, and workers’ compensation requirements. Additionally, employers are obliged to withhold appropriate amount of income tax from their employees’ pay and remit the amounts to the ATO.

Doctors working as independent contractors are running their own business. Like employees, they are also contracted to provide services to the practice but they have more control over performance of their work and assume higher degree of financial and legal risk. Typically, independent contractors have a power to delegate their work to other appropriately qualified practitioners. They may enter into a contract personally under their sole trader ABN, or under their company name. Contractors are responsible for meeting their own tax, GST and superannuation obligations, and are normally not covered by Fair Work entitlements. However, some contractors may be deemed to be employees under superannuation legislation and be entitled to super guarantee payments.

Doctors engaged under a Service Agreement, are not providing services to the practice, they are providing services to their own patients (and other third parties) as independent providers. Instead, the practice is providing services and facilities to these doctors for a service fee, which is usually calculated with reference to gross patient fees. Under this model, practitioners are running their own independent practice having complete control over their working hours, their billing model and the fee structure. They typically can be expected to retain ownership of their own patient base and to develop their own goodwill. This model is arguably the least risky from tax and legal perspective, but the loss of control is the biggest trade off.

Additional Considerations

Further considerations crucial when starting your medical practice include:

  • Compliance with healthcare regulations and registration requirements;
  • Policies and procedures;
  • Professional indemnity and personal insurance needs of healthcare practitioners;
  • Marketing and branding strategies to promote your practice and attract patients;
  • Establishing efficient billing and revenue cycle management processes;
  • Ongoing professional development and staying abreast of industry trends;
  • Managing purchasing of supplies;
  • Waste management;
  • Private vs bulk-billing;
  • Data security and privacy.

Addressing these aspects is integral to laying a strong foundation for your medical practice, ensuring compliance, efficiency, and quality patient care while navigating the complexities of the healthcare landscape.

Assembling a Team of Experts

Building a network of professionals is crucial when setting up a private medical practice. Engage trusted advisors such as accountants, lawyers, finance brokers, insurance consultants, fitout specialists and practice management consultants who specialise in supporting medical professionals. Their expertise and tailored guidance can significantly contribute to the successful setup and management of your practice.

Disclaimer: All the information provided on this website is of general nature and does not constitute tax, legal or financial advice. It does not take into account your personal circumstances and is not intended to replace consultation with a qualified professional.

Posted in Medical Accounting