[Editor’s Note: Today's guest post is a follow-up on 7 Steps for a Successful Medical Practice Startup and COVID-19 Takeaways from a New Medical Practice submitted by Juli and Dr. William Albright, owners of Alamo Plastic Surgery in San Antonio. It continues to be interesting to walk alongside them to see their takeaways on running a new practice during an unexpected pandemic and seeing the light on the other side. We have no financial relationship.]
General Update: Surviving the COVID Shutdown
The business survived the initial COVID shutdown and continues to grow! We opened our doors on August 14, 2019, and the first few months were filled with anxiety as expenses outpaced revenue. By January 2020, however, our revenue was starting to meet and then exceed our business plan. In February, we were contemplating expanding our staff and product line. Then, BAM! In late March, all elective non-urgent procedures (100% of our practice) were canceled until further notice. We quickly made some tough decisions to help weather the initial shutdown and the likely ensuing economic recession. Then, after six weeks, the restrictions on elective procedures were suddenly lifted.
After our first year, we reviewed our business and thought it might be helpful to share some of our insights.
First Year in Review of our Start-Up Cosmetic Surgery Practice
#1 Learning How to Run a Business
Obviously, our practice is still in its infancy, and we are by no means experts on how to run a business. We are learning as we go and are getting better at running our business.
Committing ourselves to transition from relatively predictable paychecks in an employed model to our current situation was a bit of a leap. Even though we both had work experiences that would help, they did not entirely prepare us for the transition. We knew what we wanted to create (the first step), but it really does come down to the preparation and execution of those ideas. Realistic business plans and start-up finances were a great foundation.
To help bridge the knowledge gap, we read voraciously (a few particularly valuable reads listed):
- The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It – We realized failure was (still is, to be honest) a very real possibility. This book helps avoid some common pitfalls.
- Traction: Get a Grip on Your Business – This book has great worksheets to organize your business and goals. We highly recommend the worksheets for a mission statement, core values, SWOT Analysis, 1 year, 3 years, and 10-year plans. It also recommends setting quarterly goals.
- Guerilla Marketing – Great ideas for inexpensive marketing.
- 101 Tough Conversations to Have with Employees – This book helps set your employees and you up for success.
#2 Our Financial Overview
As new business owners, we quickly became obsessed with the Profit and Loss Report (P&L). It is the main form of accountability for a private practice (not RVUs). It took us about five months to cover expenses (office rent, payroll expenses, office expenses, etc.) and seven months to start paying ourselves a very modest salary. Then COVID-19 hit, and we had a long pause. Now we are able to be profitable every month while paying ourselves a modest salary. A few key areas are below:
- Revenue – This is obviously critical for a profitable business and one of the reasons we quickly increased our marketing budget. Expenses quickly add up without any income to cover them. The first year, revenue was actually double what was expected in the business plan. This we attribute to a fantastic surgeon, marketing for a quick ramp up, and a wonderful office staff who believed in our vision.
- Expenses – Our major expenses were payroll, marketing, and rent. The first-year marketing was ~200% more than budget, and labor was ~30% greater than budget. We recognized this early, and it was part of our business plan pivot from a 50/50 insurance and cosmetic practice to almost 100% cosmetic. For cosmetic patients, marketing is essential for an unknown practice. For reference, here is a pie chart of the breakdown of expenses. For marketing, we spent money experimenting to find what works. Next year we anticipate marketing to be ~10% of our expenses. Please note payroll does not include paying ourselves.
- Cash – Currently any profit from the business is allocated to a Vanguard money market account. We plan on accumulating the equivalent of 6 months of operating expenses (including pay for us). Hopefully, this will allow us to weather any more shutdowns or unforeseen events with a little less stress.
- Bank Loan – We have not used the bank line of credit yet. It still remains a great safety blanket.
- Hiring Your Kids – White Coat Investor has a wonderful article on this. Although our children are still young, we feature them in business social media accounts. Often these posts have the most engagement and likes. We pay them a nominal fee for this, and as they age we hope they can help more (scanning receipts, data entry, etc.).
- Health Insurance – This was a large expense. In 2019 we tried a “cheap” high deductible health insurance plan for $1000/month. We quickly found out very few doctors accepted this insurance. When my son needed ear tubes, there was not an ENT in the plan who also operated at a hospital in the plan. For 2020, we opted for a more expensive high deductible plan. Since we had a baby in July, our deductible is almost met for the year (~$30k forecasted for 2020 health care expenses). We definitely took employed health care plans for granted.
#3 Hiring and Training Employees
Since we opened our doors a year ago, we have hired five employees. Only two are currently employed with us. There were different reasons for the employees leaving, but hiring and training employees has been stressful and time-consuming. We have learned from speaking with other practice owners, this is a common issue. Although still evolving, we created processes and documentation for onboarding future employees more efficiently.
#4 Selecting a Retirement Plan
In the downtime from the COVID-19 shutdown, we delved into retirement planning. We had both been in employed positions previously so it was daunting to figure out a retirement plan for our small business. Based on the White Coat Investor blog articles (check out Comparing Retirement Accounts), we finally settled on a SIMPLE IRA with Vanguard. As we had employees, an Individual (Solo) 401(k) was not an option. This left us with three options:
- Simplified Employee Pension Plan (SEP-IRA) – Plan allows the employer to contribute up to 25% of compensation for employees up to $58,000 in 2021. However, it has to be the same contribution percentage for all employees. If we had planned ahead, we would have started paying my husband and myself a small W-2 income when the PLLC was formed over four years ago and opted for other employees to not be eligible for three years. We could have based SEP-IRA contributions on the business profitability for the first year as contributions are allowed until the tax deadline (normally April 15th).
- Formal 401(k) – With our current salaries and business profit, we had no need to contribute any more than the SIMPLE IRA. Also, my understanding is the 401(k) is meant to be a long-term plan. With the uncertainty of a new business, we did not feel comfortable offering this. In 3–5 years we anticipate moving in this direction.
- SIMPLE IRA – this was relatively easy to set up through Vanguard and Quickbooks made it easy for payroll deductions. Combined we are able to contribute $27,000 ($13,500 each) plus 3% of our compensation. This is a good starting place and our employees enjoy the benefit as well.
As a side note, this will be a low-income year for us. To take advantage of this, we are planning a Roth IRA Conversion. For many folks starting a practice, this is something to keep in mind.
#5 Plans for Next Year – Sustain
The last year has been both very rewarding and very stressful. But we have made it this far and weathered a pandemic and a new baby! In the coming year, our main focus will be to continue creating an amazing experience for our patients in order to reach our revenue goals and grow our practice. We hope that we have found some effective marketing methods so that we can decrease that portion of our budget as organic referrals grow.
Do you own a new medical practice? What lessons did you learn from the impacts of a pandemic on a new business? What advice would you offer others with new practices? Comment below!