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Home/ Milestone 4 of 8/ Financial Planning

Financial Planning

Secure funding, create budgets, manage cash flow, and build the financial foundation for a sustainable practice.

How long will this take?
~2 hours
Active Work
Build projections + apply for financing
2–4 weeks
Waiting Period
Loan approval
Physicians get the best loan terms of almost any profession. Banks compete for your business!

Cash Runway Calculator

How fast you ramp changes everything. Drag the sliders to see why.

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$5K$35K
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3 mo18 mo

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Detailed Guide

Startup Cost Analysis & Capital Requirements

Solo primary care: $100K–250K total startup. Sounds like a lot, but physicians get better loan terms than almost anyone. Banks love lending to doctors — default rates are under 2%.

Startup costs for a medical practice fall into five categories, and underestimating any one of them is the most common reason practices run into cash crises in the first year. (1) Facility costs: security deposit (typically 2-3 months rent), tenant improvements/buildout ($30-100+ per square foot depending on specialty needs), furniture, and signage -budget $50,000-200,000+. (2) Equipment and technology: clinical equipment, IT infrastructure, EHR/PM software setup fees, phone systems -$30,000-500,000+ depending on specialty. (3) Pre-revenue operating expenses: you will pay rent, utilities, insurance premiums, staff salaries, and software subscriptions for 2-4 months before seeing meaningful revenue (credentialing delays are the usual cause) -budget 6 months of operating expenses as a reserve. (4) Professional services: healthcare attorney ($5,000-15,000 for entity formation, contracts, and compliance review), accountant/CPA ($2,000-5,000 for setup), practice management consultant if needed. (5) Licensing, credentialing, and insurance: state medical license fees, DEA registration ($888 for 3 years), NPI registration (free), malpractice insurance first premium, business insurance policies, and state business registration fees. Total realistic range: $100,000-250,000 for a solo primary care practice; $250,000-750,000+ for procedural specialties.

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Funding Sources: Loans, Lines of Credit & Alternatives

SBA loans, physician-specific lenders, and equipment financing are all very accessible. Default rates on physician practices are under 2% — lenders compete to fund you.

Physicians have access to favorable financing that most small business owners do not, primarily because lenders view MD/DO income potential as strong collateral. SBA 7(a) loans offer up to $5 million with 10-25 year terms, competitive rates, and lower down payments (10-20%) -ideal for large buildouts or equipment packages. SBA 504 loans target real estate and major equipment purchases with even longer terms. Conventional bank loans from healthcare-focused lenders (Live Oak Bank, Bankers Healthcare Group, and others) often offer physician-specific programs with no-collateral options up to $500,000 based on your degree and income trajectory. Equipment financing lets you spread equipment costs over 3-7 years with the equipment itself as collateral. A business line of credit ($50,000-250,000) provides flexible working capital for uneven cash flow in the early months -apply before you need it, as approval is easier when your practice is new versus when you are in a cash crunch. Some physicians self-fund from savings or borrow against retirement accounts (ROBS -Rollover for Business Startups), though the tax implications require CPA guidance. Avoid high-interest merchant cash advances; the effective APR can exceed 50%.

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Revenue Cycle Management: From Encounter to Payment

Two golden rules: verify insurance before every visit, and capture charges at the time of service. This simple discipline prevents 80% of revenue problems.

Revenue cycle management (RCM) is the financial engine of an insurance-based practice. Map the complete workflow before launch: (1) Scheduling and pre-registration -collect insurance information at booking. (2) Eligibility verification -check benefits, copay, deductible status, and prior authorization requirements before the visit, not after. (3) Patient financial estimate -inform patients of expected out-of-pocket costs upfront. (4) Charge capture -document services with correct CPT codes at the time of encounter; missed charges are lost revenue. (5) Claim creation -your EHR/PM system generates claims with proper ICD-10 diagnosis codes linked to CPT procedure codes. (6) Claim scrubbing -your clearinghouse checks for errors before submission. (7) Claim submission -electronic claims via your clearinghouse to payers. (8) ERA posting -Electronic Remittance Advice returns showing what was paid, adjusted, or denied. (9) Denial management -work denials within payer timely filing limits. (10) Patient balance billing -statements for copays, deductibles, and patient responsibility amounts. Decide early: in-house billing gives you more control but requires trained staff; outsourced billing (typically 5-9% of collections) saves time but requires tight SLAs and regular reporting. Either way, track days in A/R, clean claim rate, and denial rate weekly.

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Cash Flow Management & Monthly Budgeting

Months 1–3 will be tight while credentialing processes. Keep 6 months of expenses in reserve and you'll coast through the gap. Cash flow gets predictable fast after that!

Cash flow -not profit -kills new practices. Insurance claims take 14-45 days to pay after submission, and credentialing delays mean you may be seeing patients for weeks before any claims can even be submitted. Build a monthly cash flow projection spreadsheet with realistic timing: Month 1-2 revenue will be near zero if you are waiting on credentialing; months 3-6 ramp gradually; months 6-12 approach steady state. Fixed monthly expenses to budget: rent/CAM ($2,000-8,000), staff payroll and benefits (your largest cost -typically 25-35% of revenue at maturity), malpractice premium (monthly portion), health insurance premiums, EHR/PM subscription ($300-800), clearinghouse fees, phone/internet, medical supplies, office supplies, professional fees (accountant, attorney retainer), loan payments, and business insurance. Set up a separate business savings account and transfer 25-30% of every deposit for taxes (self-employment tax alone is 15.3% on top of income tax). Track key financial metrics monthly: total collections, collections per visit, overhead ratio (target under 60% of collections for primary care, under 50% for surgical specialties), and days in accounts receivable (target under 35 days).

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Tax Planning & Entity-Based Strategies

S-Corp election can save $15K–25K/year in taxes. Solo 401(k) shelters $66K+/year. A good CPA pays for themselves many times over — hire one early!

Your entity choice has direct, significant tax consequences that compound annually. Sole proprietorships and single-member LLCs are "pass-through" -income flows to your personal return, and you pay self-employment tax (15.3%) on all net income plus income tax. An S-Corporation election can save substantially: you pay yourself a "reasonable salary" (subject to payroll taxes) and take additional profits as distributions (not subject to self-employment tax). For a practice netting $300,000, this can save $15,000-25,000 annually in self-employment tax -but requires payroll processing, reasonable compensation documentation, and additional tax filings. C-Corporations are rarely advantageous for medical practices due to double taxation, except in specific scenarios involving retained earnings or outside investment. Regardless of entity, implement these from day one: a retirement plan (SEP-IRA allows up to 25% of compensation, Solo 401(k) allows up to $23,000 employee contribution plus 25% employer contribution), a Health Savings Account if on a high-deductible plan, and meticulous expense tracking for deductions (home office if applicable, CME, licensing fees, professional dues, mileage, and equipment depreciation via Section 179). Work with a CPA experienced in medical practice taxation -the right structure saves more than their fee every year.

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