Opening a practice can signal the start of a satisfying and lucrative career, but there are a number of issues to consider. Before you open your practice, here are some decisions you will need to make:
- Community. Draw up a list of communities you are considering so you can investigate them. There are a number of factors to consider, from professional opportunities, to schooling for your children, to meeting the personal needs of you and your family.
- Size of practice. Do you want to work by yourself, in a small group, in a large group or in a practice with multiple specialties? If you prefer a group practice, make sure that your practice style is compatible with the other members and that you share similar goals for the practice.
- Office location. Do you want to lease or buy property? Are you willing to build office space or undertake substantial renovations, or do you want existing office space? Is the location you have chosen convenient so that you can attract new patients?
There are numerous other steps involved in opening an office — including hiring office staff, obtaining all the necessary licences and renting or buying the necessary equipment and furniture. You can use this handy checklist to help you through the process.
There are a number of financing options available that can be tailored to your needs. These include:
- Term loans. Term loans are ideal for funding the purchase of long-term assets or equipment necessary to your practice. You can also use them to finance business acquisitions or expansions, or to refinance existing debt. They are available with both fixed and variable interest rates.
- Operating line of credit. An operating line of credit gives you easy access to cash for your daily cash-flow needs. To reduce interest charges, you can arrange to have your operating line automatically paid down with any surplus from your deposit account balances on a daily basis. If your professional practice is unincorporated, you may be able to take advantage of “cash damming.” This tax-planning strategy converts the interest on your personal debts – such as student loans, mortgages and other personal loans – into tax-deductible business expenses. To implement this strategy, the gross revenue generated by your professional practice is used to pay off your personal debts. Then, to cover your ongoing business operating expenses, you use a line of credit or other loan facility. In effect, your personal debt is replaced by business debt, which makes the interest costs tax-deductible. Since there may be other aspects involved, it is recommended to consult a professional tax and financial advisor before proceeding with such a plan.
- Business overdraft protection. Overdraft protection gives you the peace of mind of knowing that your cheques will be honoured if you’re overdrawn, so that you don’t have to worry about your day-to-day cash flow.
Before you approach a bank for financing, you should develop a business plan. A business plan is a document that provides a financial analysis of your practice and helps the bank evaluate your financial needs.
Your business plan will describe your services, analyze your potential source of patients, describe your marketing plans and project your income and expenses from the practice.
If you’re unfamiliar with business plans, and don’t have a friend or family member with business planning experience to act as a resource, you may want to hire a consultant to help you prepare your plan. Once your plan is prepared, it is a valuable tool for making sure you are on track to reach your practice goals, and it should be updated annually.
Traditionally, doctors have operated their medical practices as sole proprietorships and were prevented from enjoying the benefits of incorporation available to other business owners.
But with changes in the laws governing incorporation over the past several years, all provinces now permit doctors to incorporate. And while incorporation isn’t the right answer for every doctor, it can have significant benefits.
If you incorporate, the first $500,000 of taxable income (meaning income after expenses like salary and rent) that you retain in your company are taxed at a rate of about 18%. (The exact rate will depend on your province of residence.)
These retained earnings can eventually be paid out as dividends to you or another shareholder, generally benefitting from a dividend tax credit in order to minimize any double taxation. In the meantime, they are taxed at a fairly low rate and can remain in the corporation and be invested. And by paying out dividends in a year when you or the other recipients have little income from other sources, they may be taxed at a lower rate. You might even structure your corporation using different classes of shares, with one class of shares for you and another class for another family member and arrange dividend payments to attract the least amount of tax.
While incorporation can be a great benefit to many doctors, it may not be appropriate for you. In general, incorporation is not beneficial if you are salaried, have a relatively low income, or need all of your ongoing income to pay salaries and expenses.
And unlike other business corporations, a professional corporation for a doctor does not protect you personally against professional liability claims, so you must still ensure you have malpractice and other liability coverage you need in place. Be sure to consult with a tax professional, and your provincial College of Physicians and Surgeons, before making the move to incorporate.
In the past, professionals graduated from school and worked steadily until retirement. Today, career paths are more circuitous, and it is increasingly common for professionals to step off the path, or change direction entirely. Some professionals take leaves to raise a family, and others decide to explore other opportunities.
Raising children usually involves one or both parents taking time off work — a difficult task for busy medical professionals who are building a practice, need the income and are often self-employed. Planning in advance for an income reduction can reduce financial stress during a maternity or paternity leave.
If you start a family during your residency or while you are employed as a physician, you will be eligible for maternity or parental leave benefits under the federal government’s Employment Insurance plan. Birth mothers are entitled to 15 weeks of maternity leave, and biological and adoptive parents (mother or father) are entitled to 35 weeks of parental leave benefits. The benefit amount is 55% of your average earnings up to a yearly maximum insurable amount of $41,000 (in 2009). This means you can receive a maximum payment of $435 per week.
If you are self-employed, you are not eligible for government maternity or parental leave benefits. However, your provincial medical association may provide both pregnancy leave benefits and parental leave benefits to physicians who have practised medicine or completed a residency program.
If you want to take an extended leave while you raise a family, the best way to realize that goal is to begin planning well in advance so that you can start a savings fund and reduce your debt.
Take care to not overextend your financial obligations. Ask yourself whether your family could carry your current debt load for one year on one salary. Try living on one salary to see if it is feasible. Consider any cost savings you may achieve by staying home — for example, you may be able to save on childcare costs, or you may need only one car.
If you know that there will still be a gap between your family income and your expenses, consider whether part-time work might be a solution. Many people find that working part-time allows them to enjoy the benefits of having a career while maximizing their time with their families.
While a career in medicine can be both rewarding and challenging, many professionals make strategic use of leaves or transition periods to undertake further study in their professions. Some use the time to provide medical services abroad, and others choose to travel for pleasure. Whatever the reason, a sabbatical leave can be an excellent opportunity to recharge your batteries and explore new opportunities.
Some employers offer sabbatical programs that allow you to self-fund a leave on a tax-advantaged basis. For example, you can draw three years’ salary over four years and take the fourth year off. This allows you to reduce the taxes you pay in each year, and provides you with an income during your year off — and it does not involve any extra expense for your employer.
An unfunded leave requires a separate savings and investment strategy. To avoid further debt obligations, you’ll need to save now for a future leave to avoid increasing your current debt load. Again, advance planning is the key to realizing this goal. Calculating the costs involved well before your actual leave starts lets you set money aside to pay for your sabbatical.
How much does it take to provide financial security? A hundred thousand dollars? A million? There is no single answer. The amount of money needed to achieve financial security will vary by individual.
At its most basic level, financial security simply means having the resources you need to make life decisions and live your desired lifestyle without worry. Financial security can provide you with a number of career and life options, including early retirement, career flexibility and the freedom to pursue other interests. The earlier you realize financial security, the earlier those options are available to you.
One of the biggest obstacles that may stand in the way of your financial security is the difficulty you may have living within your means. At this stage of your career, when you have been managing for a long time as a low-income student, it is hard to imagine that you may have trouble living on a doctor’s salary.
The problem many professionals face is that they borrow extensively to finance their lifestyles. Because of their high salaries, it is easy to arrange financing — and easy to become overextended.
For example, if you take on a $750,000 mortgage, you’ll be paying more than $4,300 a month in mortgage payments — or more than $52,000 a year — based on an interest rate of 5% for 25 years.
You’ll also be paying more than $558,000 in interest charges over that time period, in addition to paying back the principal amount. That means payments of $1.3 million in total. If you add car payments, a vacation home and private school for your children, it can be difficult to keep up, never mind building wealth for the future.
One of the dangers of over-leveraging yourself is that you are required to keep working simply to pay for all the debt. That limits the options available to you — including the option of retiring early.
This doesn’t mean that you shouldn’t buy an expensive home or a vacation property, but before you do, examine your financial situation closely to see whether you can really afford it, or whether the cost to your financial security is too high.