Welcome to the second in a series of 5 articles related to our very popular online Successful Start-up Summit.

Plan your practice: finances, legal compliances & insurance structuring for start-ups

With your feasibility study underway, you’ll now want to turn your attention to the important issue of your finances.

Stephen Guthrie, Director Business of Services and Taxation, Prosperity Advisors Group, says that it’s so important to think and plan before starting the journey of starting up and owning a medical practice. Like a marathon, some participants will drop off, and there will be hills and obstacles to navigate during the journey. Although some things can be fixed along the way, some foundational aspects need to be established at the outset.

“Think about the feasibility. Conduct a feasibility study and consider whether you have enough business sense and ability to run a practice. Are your finances set up and do you have some savings to tide you over the period when the practice is not yet making money? Have you worked out how much it will cost to run the practice and what the profitability will be? What does it mean from a tax perspective, and how will you deal with that in the structure?” he says.

Now, with feasibility and finances in order, you’ll be able to go to the next step - structuring the practice.

How to choose a structure

Although there is no flow chart to determine how to structure your healthcare practice, this will be determined from your answers to a series of questions. It’s not a one size fits all scenario. Take into account your future plans, assets involved, family, debt, staffing, projected profitability and capital gains tax (CGT) issues, the structure chosen should be flexible and fit for purpose and for future possible activities.  Consider:

• asset protection - personal and business
• income tax - a tax efficient structure
• CGT perspective - you may sell your practice one day. The structure which is set up needs to have CGT in mind and structured to be flexible, fit for purpose and for future possible activities
• in Australia, the structures most commonly used are: sole trader, discretionary/family trust, unit trust, private company, or combinations of these

Legal structure and compliance protection

The correct governance at the outset, through legal documentation, protects 3 areas: people, practice, and profit. Sarah Bartholomeusz, Founder and Principal, You Legal, says that it’s important to have foundational documents prepared in relation to structure; it’s an insurance for the future.

“Setting up your practice structure documents sets up insurance for the future. What happens if one of the practice owners gets sick, dies, retires, or moves overseas? You will have a shortfall in earnings; have you factored in this scenario to your feasibility and practice planning? Despite these conversations, sometimes being uncomfortable to have, it’s really important to talk about this early on,” she says.

These foundational legal documents protect:

• Owners - with shareholders agreements, personal wills and testamentary trusts
• Team - administration, nurses, doctors, and other staff, with documents that establish the role relationships. Be intentional about these. Included are contractor/nurse service agreements, employment agreements, confidentiality agreements, for example, with your cleaner and IT people. You’ll also need a privacy policy, data breach protocol and mandatory notification policy, consent forms for marketing images and other purposes. For general practice, you will find more information in the RACGP’s Standards for General Practice, 5^th Edition
• Patients - through consent & confidentiality documentation
• Practice - through shareholder and ownership agreements and buy/sell agreements. These are backed by a life insurance policy and leases; in cases of sub-letting within the practice, for example, having allied health, pathology, or pharmacy within the premises. To read the guidelines for advertising in a regulated health service, please refer to the AHPRA website
• Profit - these documents will help you be profitable. When you are a practice owner you take on risk; therefore, you will want appropriate compensation

In addition to the above, you’ll need to start a risk register. Have this in place before you arrange insurance, so you understand the risks.

Which insurances should I get for my new healthcare practice?

Meena Wahi, Digital Risk Insurance Broker, Cyber Data-Risk Managers Pty Ltd, says that insurances are a means to offset the risks inherent in running a practice and any incidents that may occur, meaning you can sleep at night.

“Sort out your insurance quotes early, as part of your feasibility, so you know your costs, as part of your cost estimate. There is a range of insurances available and certain standard insurances for medical practices. Structure your insurance from before the doors open and review it annually to reflect any changes,” she says.

First and third-party insurance coverage includes:

• Vicarious Medical Indemnity policy - a professional negligence policy. It covers you should a medical practitioner face a claim or be found guilty of negligence in discharging advice or their duty within the medical practice.
• Management Liability Insurance - this is a like Directors & Officers insurance policy. It covers the practice and its board for any wrongdoing in context of a breach of a legislation (law under which the practice operates).
• Cyber Liability Insurance - Health data/information of patients held by a medical practice is classified as sensitive information and covered by Privacy Act. Cyber insurance offsets any cyber incident related business interruption and loss of profit plus the notification costs and legal fees which may arise out of a cyber or hacking incident.
• Business Package Insurance - covers your practice for contents damage and replacement costs, electronic equipment damage and replacement costs, loss of money on premises and property damage from flood, fire, burglary, and related business interruption if you are not able to access your practice.
• This is general information – you must seek a broker for a full description of policy coverage based on your personal circumstances.

An investment in early professional advice is insurance, in itself.

In conclusion, it’s never too early to seek professional legal, financial and insurance advice around the set-up of your new practice. From starting a new practice, building up an established practice, maximising the value of your practice to helping you plan for succession and transition out of your practice, a professional advisor will help you make the right decisions for your own circumstances.

They will be able to ensure the feasibility of your plans, that your business model is robust, and you have the appropriate resources to support you as you embark on your healthcare practice journey.

Please contact any of the Successful Start-up Summit presenters below for specialised advice and assistance:

Steven Guthrie

Director & Office Principal

Prosperity Advisers

[email protected]

0418 654 420

To book a complimentary meeting with the Prosperity Health team click here

Sarah Bartholomeusz

Founder & Principal

You Legal

[email protected]

0412 077 795

Want to chat with Sarah? Book a call here.

Meena Wahi

Director & Insurance Specialist

Cyber Data-Risk Managers

[email protected]

0433 592 997

If you would like to schedule a meeting with Meena, please click here to make an appointment