Is a Medical Practice Business Profitable?
Becoming a doctor or other healthcare professional can take years of education and endless hours of residency and internship to start your career. When you finally begin your dream job, you might start yearning for a higher ambition of starting or buying your own medical practice. Doing so can allow you to enjoy your chosen field of work independently and hopefully make a lot of money. Is a medical practice a profitable business opportunity worth pursuing? This equation has many variables, but the answer is yes, with appropriate planning and when the right factors have fallen into place.
How Much Profit Can a Medical Clinic Generate?
According to IRS data, approximately 182,000 sole proprietorships across the country are listed as medical offices. The average annual revenue for these medical offices was just over $150,000, but the average yearly expenses for businesses in this category across the country were just under $83,000. Some quick math indicates that expenses consumed 55% of all generated revenue, which leaves an average net profit of 45% for medical offices owned by one person.
Medical Practice Business Expenses
Per IRS data, there are several categories of expenses that account for the most money medical practice businesses spend on their operations. Knowing what they are and why they matter helps you manage them in ways that keep them low enough for a profit margin to form.
Wages and Salaries
In many healthcare businesses, labor costs make up 13% of overall expenses. Take steps to avoid hiring too many professionals, and cross-train your employees so that they can handle many tasks. Your compensation packages should still be competitive enough to attract and retain the right talent. Having competent, compassionate, and loyal employees will attract and retain patients. Outsource any functions that aren’t core responsibilities to your business, such as IT, transcription, and billing.
Contract Labor
Contract labor accounts for 2% of spending in medical practice businesses. These professionals are non-employees, and companies hire these independent contractors for specific services, projects, or periods. They might be involved in short-term projects where special expertise is necessary that a medical practice business might not have available in most circumstances. Specific examples include SEO, graphic design, and writing. Sometimes, they might be healthcare professionals who help cover a surge in patient cases and appointments or fill in for someone on an extended absence.
Rent
Rent prices in the medical office market have gone up dramatically in recent years as have property costs in both the commercial and residential sectors. Many medical practice businesses spend approximately 4% of their revenue on rent for their locations. As of the second quarter of 2018, prices were $22.90 per square foot; while the global pandemic following that had hurt demand for commercial and retail spaces in many markets, the market was still tight for medical practice businesses given the strong growth and demand for unique and high-caliber spaces near patient populations.
Material Costs
Material costs might also be called COGS, or the cost of goods sold. This amount covers the expenses involved with labor and materials directly used in providing goods or services, including sales force expenses and distribution costs. Material costs account for 4% of spending in the average medical business practice, and they exclude indirect costs, such as overhead.
Supplies
Most medical practice locations need both general business supplies but also medical goods and equipment, and this category of spending accounts for 3% of the budget of most establishments in this category. Medical office supplies are necessities that might be consumable, perishable, or worn down and depleted over time.
Front office supplies include receptionist chairs and desks, trash cans, file cabinets, shelving, writing utensils, and paper. Your reception area will also have seating, lighting, decor, hand sanitizer, magazines, and possibly toys if your office sees children. Consultation and exam rooms need exam tables, exam table paper, wastebaskets, cloth gowns, syringes and needles, bandages, tongue blades, thermometers, cotton applicators, and more, depending on your specific branch of medicine.
Business Insurance
Business insurance isn’t the same as malpractice insurance, but you’ll need both. Business insurance is also called commercial insurance, and your medical practice business should plan on spending 2% of its budget on it. This coverage protects your establishment from a variety of unexpected losses and expenses. Property coverage handles vandalism, theft, damage, and destruction of property and buildings. Liability coverage reimburses expenses related to judgments, lawsuits, slander, libel, and bodily injury.
Business insurance also provides coverage for employees who are hurt on the job. Malpractice and business insurance can sometimes overlap in their coverage, but one might cover specific individuals while the other covers the business itself. Consult your insurance agent to ensure any gaps are filled so that everyone is protected.
Taxes
Small businesses and the self-employed have to pay taxes, and your form of business structure dictates how you pay them. Depending on your corporate format, you may have to deal with income taxes, estimated taxes, employment taxes, and an excise tax. This accounts for 2% of spending across all medical practice businesses listed in the aforementioned IRS data. All business structures except partnerships file annual income taxes, but partnerships file a document known as an information return. Estimated taxes are routine payments often done quarterly.
Depreciation
If your medical practice business has any depreciating assets, they might account for 1% of your overall spending. The process of depreciation is how you can deduct the overall cost of an expensive item for your business, but you write off portions of it over several years instead of in a single tax year. This lets you plan how much money you want to be written off per tax year to manage your business finances better. The years that you can depreciate something are based on its expected usefulness and life cycle. For instance, your business might buy a laptop that you expect to be usable for five years and spread the depreciation out over that period.
Legal and Professional Services
Your medical practice business might spend approximately 1% of its budget on legal and professional services. These are amounts you pay for business-related services that don’t go to employees or contractors, and specific examples include branding services, consultants, and tax advisors. Professional services such as these exist to help businesses accomplish specific objectives using skills and talent not available in the company itself. Using legal and professional services allows your medical practice business to fill particular needs with the right specialists without hiring them. This is a cost-effective means of addressing problems without paying for the onboarding and benefits of a professional you need.
How Can You Boost Revenue in Your Medical Practice?
Driving up revenue in your medical practice can grow your profits if you already have them. Executing the right medical revenue strategies might prove necessary if your expenses outweigh your revenue and you’re trying to reach your breakeven point and get past it. Constant innovation is needed across a multifaceted approach in an ever-changing industry with morphing patient preferences, regulatory complexities, and insurance hurdles.
Build Your Online Brand
Local SEO is crucial to the online presence of any medical practice business. A YouTube channel can be a place where you offer medical content that helps your patients and community, but it might even be monetized as an income stream. Make sure that your website is mobile-friendly and gives patients a satisfactory user experience. High-caliber content on social media platforms keeps your practice in the minds of the community and helps your practice rank well in search engine results.
Expand Your Available Services
Adding new business services can open up new lines of revenue among your current patient base. Be mindful of new demographics in your community so that you can cater to population and preference changes. For example, an internal medicine practice that notices many pregnant patients or adults with young kids might hire a dedicated pediatrician to help growing families. Other practices might start selling orthotics or skin care products especially if patient insurance covers some of the bills. Depending on your specific practice, you might add ancillary services such as behavioral health integration, transitional care, chronic care management, and remote patient monitoring.
Get More Patients
You need to balance keeping your current patients while attracting new ones, and convenience is how you do both simultaneously. As a general rule of thumb, you want to attract several new patients per working day. Offer all your new patients the ability to do a lot of their paperwork online, including secure messages, digital check-in, sharing health documents, viewing lab results, and paying bills online. Providing excellent treatment with competitive pricing makes patients happy with your medical office. They’ll spread the word around your local market that others should check you out, too.
Boost Staff Efficiency
Seize any opportunity to boost employee efficiency whether it’s a general idea any business can pursue or something specific to the medical and healthcare fields. Technology is where many healthcare establishments are improving the experience for patients and service providers alike, be it electronic prescribing or harnessing the power of AI to improve cash flow.
In a broader sense, you can boost employee efficiency by matching skills to tasks, communicating clear goals to your team, increasing training while reducing distractions, providing incentives, and offering hybrid or remote work for positions that don’t need to be physically in your medical practice at all times.
Minimize Expenses
Anytime you get the chance to cut business costs in your medical practice, you should take it. If you don’t have any ideas immediately in front of you, find them or create them. Can you shop around for better deals than you’re getting from your current vendors, or could you renegotiate better pricing with the ones that you have? If things are getting crowded in your medical practice’s office areas, look into moving someone to remote work. Many medical practices have difficulty with revenue cycle management; outsourcing it can reduce your administrative burdens.
Get the Help You Need
At American Business Credit, we’re the leader in startup business loans that you can use to start your medical practice business. The process is as easy as submitting your application, browsing the available loan options, and collecting the funds you need to start or grow your medical practice. We’ve already helped over 10,000 small businesses with over a quarter billion dollars in loans; also, we’re certified A+ by the Better Business Bureau. Whether you need to fund your expansion or cover daily expenses, we have the capital to answer your needs. Apply now free of charge or obligation without impacting your credit score.
