Owning a practice gives you control over how you care for patients, who you work with and how you spend your days. It can also pay more than employment over a career. But a practice is a small business first, and its finances work differently from a paycheck. Before you sign a lease or a buy-in agreement, get comfortable with these five numbers.
1. Startup or buy-in cost
Starting from scratch means build-out, equipment, technology, initial supplies, licensing and credentialing, marketing and — most importantly — working capital to cover the months before collections catch up. Insurance payments often lag 30 to 90 days behind visits.
Buying in to an existing practice means paying for a share of its assets and goodwill. Ask how the price was calculated and what you get: equity, a share of profits, a vote.
Either way, plan for a slower start than you hope for, and keep a cash reserve or line of credit.
2. Collections per visit
Charges don't pay the bills; collections do. Divide actual money collected over several months by the number of visits. This number is shaped by your payer mix, contracts, coding and how well your billing works. Improving it is often the fastest way to improve profit.
3. Breakeven volume
Your contribution margin is collections per visit minus variable costs per visit. Divide your fixed monthly costs by it, and you get the visits you need to break even. Add your target pay to fixed costs, and you get the visits you need to pay yourself.
The practice breakeven calculator does this and shows what share of your schedule your target requires. If you'd need to be at 95% capacity every day, the plan is fragile.
4. Overhead ratio
Overhead — staff, rent, supplies, billing, insurance and other costs — divided by collections. Many primary care and dental practices run 55% to 65%; many specialties lower. Track it quarterly with the overhead ratio calculator. A rising ratio is an early warning.
5. Owner pay — and taxes
What's left after overhead is what supports the owners. But as an owner, you'll also:
- pay both halves of payroll tax on your earnings (or run payroll through an S-corp),
- make quarterly estimated tax payments,
- fund your own retirement plan, health insurance and disability coverage.
Compare owner pay with an employed offer on a fair, after-tax basis. The W-2 vs 1099 calculator shows the general idea, and the quarterly estimated tax calculator helps you plan payments.
A worked example
A family physician with $45,000 in monthly fixed costs, $145 collected per visit and $22 in variable costs per visit breaks even at about 18 visits a day over 20 clinic days. To pay herself $250,000, she needs about 27 visits a day — nearly all of her 28-visit capacity. Raising collections by just $10 per visit would lower that target by about two visits a day.
If you're: Employed
Before leaving employment, talk with several owners in your specialty and region. Ask what they collect per visit, how long they took to break even, and what they'd do differently. Many will share more than you expect.
If you're: Practice owner
Review these five numbers every quarter with your accountant. Small changes — a payer contract, a staffing adjustment, a billing fix — compound over time.
Questions to ask before you commit
- How many months of operating costs can I cover before the practice pays me?
- What happens to my plan if collections per visit come in 10% lower?
- Which payer contracts can I realistically negotiate?
- What would I earn as an employee instead, after taxes and benefits?
The non-financial side
Ownership means managing people, compliance, technology and cash flow on top of clinical care. Many owners love it; some find it exhausting. Be honest about which describes you, and build a team — accountant, attorney, billing partner — so you're not doing it alone.