Whether you’re thinking about leaving that big firm or graduation is looming, anybody looking to start their own professional practice should have a grasp of basic business fundamentals. While more colleges and universities are beginning to offer business courses to new doctors, lawyers, dentists, and other professionals, most still don’t. But the resources are out there, if you look for them. Some professional associations like the American Dental Association and the American Bar Association offer tips, information, training and seminars for managing the business side of a practice. Tap into your professional network and seek out advice from veterans in private practice. And don’t forget about the experts, particularly those that specialize in your industry. You can’t put a price on the right accountant or financial adviser.
“There are structural differences for professional practices,” notes Mitchell Weiss, author and adjunct professor at University of Hartford, Barney School of Business. And the legal structure of your practice goes beyond taxes. “How you finance the practice and degree of liability and risk go back to the structure of your practice,” explains Weiss. If forming a partnership, make sure you know everything about your potential partner(s), including how much personal debt they’re carrying. “A business partnership is not unlike a marriage,” he says. “If something goes wrong, you’re responsible as a professional and an individual.”
With practices that are capital intensive like dentistry, specialty health providers, and certain types of engineering or architectural firms, the equipment and/or software needed to run the practice will likely require some financing. “Speaking as a former lender, there’s only so much debt you can take on,” says Weiss. “Financing has to be done with some thought and deliberation to avoid rolling deficiencies from one loan to the next.” He cautions against the “snowball” effect of taking on too much debt, as equipment can become obsolete long before you’ve paid off the loan to finance it. “At some point, you’ll want to retire or sell the practice,” notes Weiss. “And if you owe more than you own, the value of your practice will diminish.”
A few years after Dr. Robert Sorin started his own Manhattan-based cosmetic and restorative dental practice, he attended a seminar in Chicago, where the audience was asked: “Are you entrepreneurs that happen to be dentists, or dentists that happen to be entrepreneurs?” The answer to that question marked the beginning of his entrepreneurial journey as a dentist. “Over the next few days, we were given benchmarks to set a baseline for success,” recalls Dr. Sorin. “While the goals have changed over time, I’m still using those same benchmarks, such as calculating production per day and month, total collections per month and a detailed breakdown of fixed and variable overhead expenses each month, to track my business 25 years later.”
One early misstep Dr. Sorin recalls was hiring too large of a staff. “Overhead costs can get quickly out of hand,” he cautions. “I’ve learned that you can have a smaller staff and get most, if not all, the same work accomplished.” Dr. Sorin also quickly learned the importance of forward budgeting. “By projecting costs one, two, and three years ahead, I’m forced to look at where expenses are going and where income strains may arise,” he explains. “It gives you metrics to ensure that your revenues at least equal or exceed expenses.”
“It’s important to have at least a rudimentary understanding of how your financial statements work (income statement, balance sheet, cash flow),” notes Weiss. Staying on top of your financials not only helps you track performance, but also better positions you to negotiate terms and structure your loan payments. “For example, if you know your company’s revenues are seasonal in nature (high summer months, low winter months), you may then want to negotiate a repayment plan taking that into account to avoid getting squeezed,” explains Weiss. He also recommends comparing your financials against those of other practices in the industry. “There are plenty of peer metrics out there to measure performance.”
When attorney Cynthia Johnson Rerko was thinking about leaving her former employer, she was advised by a mentor to wait until she made partner. “People in the legal business and those hiring lawyers want one that’s made partner,” explains Rerko. “It’s a benchmark in a lawyer’s career.” She not only was the first female partner at her old firm, but also made it a year earlier than planned. In 1998, when Rerko left, she made sure she had enough cash reserves and a client list to get her Gainesville, Texas-based practice, which specializes in complex financial restructuring, off the ground. “Once I was comfortable I’d have a core business where I could at least break even, I was ready,” she says.
Part of the motivation for starting her own practice was her desire to spend more time with her then 11-year old son. “The law is still very much about billable hours,” explains Rerko. “And when you work in a large firm, it means putting in face time.” Once she was the boss, she didn’t always need to be in the office to run her business. And she was able to rein in her caseload when needed. “I knew my business would be there when I got back,” she says. This also allowed her to tap into a qualified flexible work force of contract lawyers and law students with prior professional experience.
Because she enjoys the work, Rerko sometimes had difficulty keeping track of her hours. “It can be a distraction,” she explains. “But when you’re making or breaking it based on collectibles, it’s something you have to do.” To enable her to concentrate on the legal side of her business, Rerko has an accountant that tracks her monthly revenues and expenses and manages her tax obligations. “It’s not the focus of my business,” notes Rerko. “But it’s necessary to keep it running.”
Jan Moye also saw an opportunity when she launched her Irving, Texas-based specialty engineering firm Moye Consulting in 2002. Back then, she explains, the introduction of new technologies in security and other building systems created the need for low voltage systems engineering in facilities design. “Suddenly, there was much greater complexity to the data network that needed to be accommodated in new building designs,” notes Moye. Her former employer was very supportive of the move—in fact, they became her first client. “I started the business because I wanted to make money doing what I do well,” she says. “But over the years, I’ve encountered issues and challenges that they didn’t teach you in engineering school.”
While her business was profitable from the start, it wasn’t growing enough. “Even though we did a great job on the execution of the technical work, I had to push myself to focus on marketing and networking with potential clients in the beginning,” she recalls. Once the firm had achieved a certain level of growth, she was able to hire a project manager who also handled sales and a marketing coordinator. “As the business got bigger, I could allocate certain jobs to those better suited for them.”
But when an opportunity arose to improve her business skills, Moye took it. Through a friend, she learned of the SBA Emerging Leaders Initiative, a seven-month-long M.B.A. boot camp. Every year, the SBA accepts about 200 established small business owners into the program who meet certain criteria (e.g. have been in operation at least three years and have annual revenues of at least $300,000). She applied and was accepted in April 2012 and graduated in November.
Moye and her classmates were given a curriculum that included employment law, sales/marketing, branding, competitive analysis, and strategic planning, among others. “They’re topics that would be covered in business school,” she explains. “The difference is you get to apply what you’re studying to your own business.” Moye found the interaction and advice she got from other small business owners of different sizes and industries very helpful. “They saw the challenges and issues I was having from outside the box,” notes Moye. “Those fresh ideas helped me to take the blinders off.”
“There’s no right or wrong way [to running a practice],” notes Dr. Sorin. “But you have to decide what’s important to you, how you’re going to allocate your time personally and professionally, what your goals are and set up metrics to meet those goals.”