Starting a medical professional business or joining a medical partnership can be as daunting as starting any other type of business.
As a medical professional, you know how important it is to look after your patients and provide them with good quality treatment. But are you prepared for what it takes to run a business?
The initial steps you take in setting up a business could be the difference between success and failure. Start with a business plan and identify all key areas of the business that need to be organised including market analysis, services to be provided, equipment to be purchased and accreditation required to name a few. There are many things to consider when establishing a practice, but the following 6 steps have the potential to save you the most $$$.
1. Save $‘000’s with the right structure
You may think running a business through a company structure is one of the most tax-effective ways to run a business as a company pays tax at a flat rate (currently 28.5% for small businesses). But the ATO has strict guidelines on running medical businesses through a company structure, especially for sole practitioners. Even for medical practices with multi practitioners the ATO provides guidelines and benchmarks for the appropriate personal taxable income levels.
Also, a company structure incorrectly implemented could cost the medical professional $’000’s in unnecessary worker’s compensation insurance and payroll tax.
The ideal structure for your business will depend on the nature of your practice, how many medical professionals are involved, your personal circumstances and potential risks and liabilities. One option often used by doctors, pharmacies and dentists is to set up a services entity.
However, the opportunity to use service entities is diminished for specialists like Anaesthetists, due to lower operational costs and stricter ATO guidelines. To ensure you are adequately protected and have a manageable tax effective structure, it is important to seek advice from an accountant who is specialised in medical practices.
2. GST – a cash bonus
The vast majority of medical services and some medical supplies are GST free. This means that in most cases you do not have to charge GST on most medical services and supplies provided to your patients. In addition, many expenses incurred by you will attract GST. This means that GST can be claimed on these expenses resulting in a refund on the GST paid. You will most likely benefit from registering for GST the moment you go into business.
We strongly recommend you use an accountant to prepare your BAS and ensure your accountant understands the GST implications of medical practice income and expenses.
3. Employing Staff – ATO charges hefty fines for missed PAYGW and Super
For many new owners, this will perhaps be one of the most challenging tasks. Consult your accountant before using contractors rather than employees as the ATO comes down hard on sham contracts. Most medical employees are covered by an award, e.g. Health Professionals and Support Services Award 2010. If your accountant offers business services, then they should be able to assist you with determining your obligations. These obligations will include superannuation, PAYGW and workers’ compensation insurance, to name a few. Invest in quality cloud based accounting/payroll software to streamline the processes.
4. Acquiring expensive equipment – save cash flow
The initial acquisition of assets may seem tedious and costly. So what are the options when you first begin your practice and cannot afford to purchase the assets outright? The two options available are leasing equipment or borrowing to purchase equipment.
Leasing is a good idea if the piece of equipment will become obsolete in the near future and need to be replaced on a regular basis. The lease payments are fully tax deductible as they are incurred. But the asset is not owned by you. Financing is good when the item will last for a long period of time, not become obsolete or is not perishable. Only the interest component of the loan repayments is deductible, however the cost of the asset can be claimed over its effective life through the form of depreciation, as you will own the underlying asset.
5. Sleep at night – Manage the Risk
With each of the above 4 key steps there is potential financial risk. Your greatest risk may be posed by your patients which can be covered by professional indemnity insurance but every aspect of running a business carries a risk. For example, the wrong structure can expose you to increased personal liability, and failing to pay superannuation for employees on time can expose you to ATO audit risk. Adequate workers’ compensation insurance and public liability insurance should be maintained for other risks associated with employees and premises.
In the first years, cash flow will be tight so ask your accountant to prepare a cash flow forecast.
You will most likely borrow to set up your business and this financial risk can be minimised by income protection insurances. Many risks will be addressed and mitigated by seeking advice from qualified accountants and financial advisers.
6. Find a Good Accountant
Find an accounting practice that will not only provide tax advice, but also set up your accounting system, provide guidance on systems and processes, manage bookkeeping and payroll, administer self-managed superfunds and have substantial experience with medical practices. Ensure the practice employs accountants who are CA/CPA qualified and registered tax agents. Ideally look for a multi-disciplinary practice that offers financial planning and wealth management, as you will require assistance with investments, insurances and borrowings.
By Amanda Rogers FCPA, CA Director and Charley Tarchichi, CA