20 November 2020
Ultimate guide to private practice for GPs
As a GP, you may have decided the time is right to embark on the ambitious endeavour of setting up a medical practice.
While becoming your own boss gives you greater control and flexibility, starting a medical practice requires careful deliberation and planning. Here’s a few important considerations to help you get started.
Ways to enter private practice as a general practitioner
Private practice for GPs can come in many different forms. Having a clear understanding of what you want to achieve personally as well as your capabilities and resources is a vital first step.
Once you have a picture of what your ideal practice looks like, it’s important to investigate the best approach to achieve this. There’s no one size fits all approach to entering private practice as each option has advantages and unique obligations.
Working in an existing medical practice
Contracting yourself is probably the simplest way to enter private practice but there are considerations to be aware of, including:
- You’ll become a sole trader for tax purposes, with responsibilities such as registering for an ABN and GST.
- You’ll have less responsibility than an owner but you’ll be personally liable for all clinical services performed.
- Often, the practice will take a percentage of your gross billings as a service fee to cover your share of the practice’s running cost.
Buying into a medical practice
If you’re planning to join an existing practice, things to consider are:
- Working for them as a contractor first. This allows you to see if the practice is a good fit before buying in.
- Performing detailed due diligence, including an examination of how the practice is set up. A variety of structures are used, each with their own pros and cons.
- When proceeding with the buy-in, have a specialised medical lawyer review agreements.
Taking over an existing medical practice
Occasionally, an opportunity may arise to take over an existing practice, where the previous owners are selling or retiring. Things to consider in this scenario are:
- Understanding and limiting any historical liability associated with the business is critical. Usually, you won’t buy the underlying legal structure (i.e. units in a trust) instead you’ll purchase goodwill and assets of the business.
- Working within the practice before committing is a good idea as this allows you to understand how the business runs and how much goodwill is linked to the current owners.
Starting your own medical practice
Starting a medical practice from scratch is the most challenging option which requires many steps including:
- Find a viable location that best suits your needs;
- Secure finance for the premise and set up costs;
- Design and fit out your practice;
- Create onboarding processes to employ staff; and
- Build a new patient base.
Structuring your GP practice
After deciding on your approach to enter private practice, establishing the best business structure from the outset will ensure you can maximise return on investment, protect assets and provide flexibility for future growth or expansion.
Commonly, private practices are set up by separating medical and administrative aspects of the business. Medical services are performed by each owner acting as a sole practitioner conducting their independent medical practice, while administrative aspects are performed by a separate entity. This is often referred to as a service entity.
A range of agreements are required when setting up a medical practice with this structure which may include a:
- Service agreement,
- Equity holder agreement,
- Associate agreement, or
- Employment agreements/contracts.
Finding the right location
This is a crucial aspect of setting up a successful medical practice as it will affect patient demographics, competition and cost. Before joining an established practice or choosing a place for your own, ensure you consider the below location and building features:
- Sufficient car parking and accessibility by public transport;
- Low maintenance;
- A growing customer base;
- Low competition in that area;
- Presence of complementary health services or potential referrers;
- Capability of expansion;
- Adaptability of the buildings;
- A single-storey building for ease of access; and
- Good disabled access.
Protecting your medical practice
When entering private practice, there are new risks to be aware of as well as strategies that should be implemented to protect your investment.
It’s vital to review your current insurance cover(s) to ensure that the level of cover is still adequate to your changing circumstances. Personal insurances that are essential to protect yourself as an individual when setting up a private practice are:
- Income protection;
- Life insurance;
- Trauma insurance; and
- Total and permanent disability.
For the practice itself, consider business insurances such as:
- Business expense;
- Practice indemnity;
- Life – for business partnerships;
- Network security and privacy;
- Medical indemnity; and
- Management liability.
Map out your exit strategy before getting started
Thinking about exit strategies when entering private practice may feel odd, but it’s an essential part of the process. An exit strategy is meant to maximise the value of your interest in the practice and should be mapped out with your lawyer before signing any agreements. If you’re joining an existing practice, they should already have these in place so ensure you review thoroughly before buying in.
There are many steps involved in setting up a medical practice with just a few considerations covered above. To learn more about what’s involved in building a successful private practice, download DPM’s private practice ebook here.
Aaron Burton is a chartered accountant and tax partner at DPM. He advises clients ranging from individuals to large complex structures and businesses, and specialises in tax structures, compliance and wealth creation.