By Smitha Gopal

Decades ago, most doctors graduated medical school and opened their own practices. These days, however, it’s more common for young physicians to take jobs working for large health systems or hospitals. The number of physicians in solo practice was just over 17 percent in 2014, down from more than 40 percent in 1983. Hardly any doctors start their own practices anymore, in part because the business side of it is daunting, notes family physician P.J. Parmar. And yet, there seems to be a movement driven by younger generations towards a small business, “shop local,” more personal approach to commerce—and medicine. Are small, physician-owned practices making a comeback? Here’s what’s involved in starting your own practice.

Becoming business-minded

Most doctors go into the profession to practice medicine, not to run a business. But opening a solo or small group practice requires being an entrepreneur. That means developing a business plan and basic business skills related to finance, operations, hiring, and marketing, among other things.

The good news is, you don’t have to go it alone. In fact, you shouldn’t. A good accountant, lawyer, practice manager, and/or health care consultant can save you time, money, and headaches. You don’t necessarily need to hire all of these people, or all at once, but it’s worth hiring a health care attorney for starters to advise you on choosing a legal business structure. This will determine how you pay taxes and to what extent you’re personally liable for lawsuits, debt, and losses. Most practitioners form S corporations, where they only pay taxes on their personal income from the business.

An attorney can also help review all the contracts you will be entering into as a business owner, from leases to employee agreements.

Securing funding

Very few people can start a business without help from a lender. This is especially true for doctors, who may be saddled with medical school loans. Undercapitalization is the number one reason for business failure.

However, young doctors with school loan debt and no assets might not have much luck getting a loan from a local bank, as one doctor found. She tried a commercial bank next but was also declined. An ad in a medical journal led her to a lending company, which approved her for a loan and gave her a check to cover her startup costs.

Even with her student debt, Dana Cohen, M.D., got a loan backed by the U.S. Small Business Administration. To determine how much you’ll need to borrow, consider your anticipated expenses, including real estate, consultant fees (attorney, accountant, etc.), and equipment (computers, medical records software, office furniture, and medical supplies).

Many recommend taking out a line of credit for more than you’ll need — for example, get a $200,000 loan (double what’s needed for most startups) — so you will have the confidence to make good business decisions without worrying too much about short-term cash flow. Most practices can pay off their loan in less than five years with earnings above what they would have earned in similar employment.

Location, location, location

Finding a good location for your medical practice can be one of the toughest parts, say doctors who have gone out on their own. Real estate can be expensive, especially in desirable, highly visible areas, which is key to the success of new practices. “Rent, don’t buy, until you are sure you’re staying,” advises Linda Girgis, M.D.

Cohen’s first practice failed because she wasn’t bringing in enough patients to pay her expensive New York City rent. She opened her next practice in a commercial space she shares with another physician, and she also cut costs by having a massage therapist rent out the office on weekends and evenings.

Outfitting your office with equipment, furniture, supplies, etc. can also be costly. Girgis finds better deals on Amazon.com than from medical supply stores. And if possible, look for an opportunity where you don’t have to start from scratch, such as buying into a practice that’s expanding or taking over for a retiring doctor.

The ins and outs of insurance

If you plan to accept health insurance, you’ll need to go through the credentialing process. This can take several months. First, determine what the major insurers are in your area—Blue Cross Blue Shield, Aetna, and UnitedHealth are among the largest private insurers in the U.S. Depending on your specialty and geographic location, you may want to consider participating in Medicare and Medicaid as well. Insurers will typically consider your medical education, licensing, and liability coverage, among other factors. Not all states require it, but purchasing malpractice insurance is smart and not something to skimp on, recommends Girgis. Contact your state medical association for more information.

This is just the tip of the iceberg when it comes to starting your own medical practice. Ultimately, the decision to become an employee or an owner is up to each individual, but doctors who’ve taken the plunge, like P.J. Parmar, say, “It is much more fulfilling, financially rewarding, and flexible to run your own business.”

Once you’ve secured funding, found a good location, and gotten credentialed with insurance companies, the next step is staffing your practice. Some doctors do choose to go solo, but they are in the minority.

While Pamela Wible, M.D., sings the praises of being a part-time solo practitioner with no staff, most small practices opt to hire support. “Patients will ‘choose you or lose you’ just based on who you hire,” warns Linda Girgis, M.D. “We started with just one employee to answer the phone and added more as we got busier.”

Day-to-day challenges

For some small practices, the day-to-day challenges of staffing and running a business are grim. Doctors may find themselves wearing many hats in addition to the one of physician—such as being the finance person, the IT person, and the human resources person. After learning the hard way, many doctors have adopted the “hire slow, fire fast” mentality. As a business owner, you simply can’t afford to keep unproductive employees on the payroll.

Work-life balance can easily fall by the wayside for solo or small-group practitioners. Almost half of doctors in the U.S. (46 percent) reported feeling worn down or burned out. This is especially true for self-employed doctors who may work longer hours or be responsible for more bureaucratic tasks than doctors who are employees. Paying for IT support or an EMR that automates appointment-scheduling, prescription refills, etc., may be a worthwhile investment if it saves you time and stress in the long run. See our post on doctor burnout for ideas to spot it and fix it.

Some perks

Despite the challenges, however, many doctors who have started their own practices find that the benefits outweigh the cost. In some cases, that literally means the financial costs. Wible writes, “Because I’m no longer supporting a bloated bureaucracy that does not support me or my patients, I have extremely low overhead. As a result, I’m taking home three times as much income from each patient visit than I had taken home per visit in my high-overhead employed positions.” And she does this without charging patients any extra fees.

Other doctors, such as Davis Liu, M.D., say the driving factor of starting their own practice was not the money or the lifestyle, but the patients, and providing them the best care possible without being forced to compromise their principles or bill unnecessary tests to boost someone else’s bottom line.

Patients and partnerships

When she decided to open a private practice, Wible gathered feedback from patients in person in a series of town hall meetings about what their ideal medical clinic would look like. She writes, “Now my job description is written by patients, not administrators. I’m finally the doctor my patients had always imagined.”

Wible’s approach is actually a smart marketing strategy for a small practice. According to Girgis, “The best marketing is actually meeting people face to face. We went out and introduced ourselves to people in the community: pharmacists, the police department, the township. We gave talks at senior centers and the public library.” Not only is this more effective than traditional marketing approaches like ads in the Yellow Pages or newspaper, all it costs is your time.

If you can reach out to other doctors, even better. Knowing the doctors you are referring to and vice versa helps you build trust in the medical community, writes Girgis. And doctors are more likely to refer to colleagues they know and trust.

Using patient education wisely

If you’re smart about it, you can use patient education as a marketing tool, as well. Hosting patient education seminars can be a good way to invite the public in to check out the new practice in town. Sharing high-quality patient education videos on your practice’s social media accounts and website sends the message to prospective patients that you embrace technology and are up to speed with current advances in your field.

Digital patient education materials that patients can watch from home or in your waiting room can also be a huge time- and cost-saving measure for solo or small practice owners who don’t have the staff to answer patients’ questions over and over and walk them through their treatment plans. For more ideas, check out our post on how to streamline your practice and boost revenue at the same time.

Even doctors who find that running a small practice is much harder than they expected say they enjoy being business owners. There’s just something about being in control of your own time, your patients, and your future. One doctor who went out on her own feels “more fulfilled than ever.” And Liu’s colleague reported that starting her own practice “was the best decision she made in her medical career so far.”