Financial Pitfalls in a Medical Practice Start-up and 5 Ways to Avoid Them

Financial Pitfalls in a Medical Practice Start-up and 5 Ways to Avoid Them
Oct 13, 2019

The basic reality of starting a medical practice is like any other startup: it takes a lot of time and money. However, if done correctly and in a calculated manner, the upside of running an independent practice can be lucrative and fulfilling. In the section below I will spell out the basic financial pitfalls starting a practice and how we can best avoid them.

1. Time:

The initial steps in starting a practice can take a tremendous amount of time. This is only worsened by the simple fact that no one ever educated us on how to start a practice and how to do it efficiently and in a cost-effective manner. It takes time to decide on location and office size. It takes time to sign a lease and to purchase furniture and medical supplies. It takes time to contract with each individual service provider (IT, telephone, answering service, etc.), as well as to search for and hire staff. This is in addition to setting up payer contracts, office liability contracts, malpractice contracts, and all other steps needed in any medical practice opening. How time is utilized (used and saved) has a direct impact on your bottom line. The time wasted on the administrative side of starting your medical practice could be used spent on marketing your practice, seeing patients, and working on other business growth strategies.

Consider This: A medical coworking model will spare its members with the overwhelming amount of time needed to accomplish all the goals stated above. Many medical coworking spaces, including DC-based Cowork Medical, offer modernly designed and technologically augmented offices that provide a setting in which patients are comfortably and confidently seen. Facilities such as Cowork Medical offer amenities and services that individual physicians would not have easily been able to afford.

2. The Burden of Real Estate:

Medical office lease and medical office rental agreements and the negotiations. This aspect of medical practice startup is the most time-consuming and costly of all initial steps. The business standard for leasing an independent medical practice space is a five-year lease, or in some cases a 10-year lease. The terms of which are entirely dictated by the landlord. Even though negotiations can be done to improve the terms, the fact remains that the physician is beholden to a long-term contract with costly penalties for early termination with a personal guarantee. Additionally, during the first two years of practice when the patient care revenue is most limited, the physician is hamstrung by a large build out cost as well as monthly medical office lease payments, while generating negative revenue to pay him/herself. Additional costs here are the ongoing need to pay the monthly lease when physicians go on vacation, take time off, etc.

Consider This: The Cowork Medical model, and those like it, will remove all stresses of long-term binding contracts from its members. There is no build out or construction fees for the medical office space. Furthermore, our “medical incubator” model allows its physician members to use as many or as few offices for as long a time-block they need, which allows the member to comfortably scale their practices up or down. The Cowork Medical model allows physicians to retain a large portion of their generated revenue as salaries for themselves. Additional icing on the cake here is that there will be no office costs to physicians when they take time off: a few days, a few weeks or few months. They will simply put their room bookings on hold while they are gone and restart upon their return from their time off.

3. Medical Supplies and Equipment:

As individuals trying to purchase the long list of needed materials, physicians are in poor standing to negotiate any seriously better term for their supplies. This indeed goes double for any supplies or vendor services they need. The mind-boggling aspect of this is that they will surely pay the most at a time when their access to funds are the most challenged.

Consider This: In Cowork Medical model, the bulk of the medical supplies and basic equipment are already supplied with the exam rooms our members sign up for. If there are any special equipment needed that our offices do not carry, then we can help the member purchase that at a discount due to our group purchasing organization agreement. This discount is an added benefit to our members and one that they will likely not be able to get on their own.

4. Medical Office Staff:

This matter is a multi-pronged concern for physicians and the source of many stressful days and nights as we physicians were never trained to be HR specialists, to handle staffing issues, and to properly hire and fire staff. The financial cost of hiring a staff is another subject that most physicians do not have a good grasp of and do not have familiarity with salary, tax and benefit calculations. The hired staff are usually full time and will need to be compensated regardless of the patient volume. They will also need to be paid during vacation, office closures and other reasons the physician many are not in the office. The absurdity of this state is further evidenced by the reality that in the first 12-18 months of practice, the revenue is either non-existent or small and the physicians will indeed have to take out loans to pay the staff. This is all in the face of not generating any revenue for themselves.

Consider This: In the Cowork Medical Model, depending on the need, staff can be included as part of the package. The initial complementary advisory services allow physicians to decide if they need part-time or full-time help, virtual assistant, or support in the form RN/PA/NP or simply a medical assistant will suffice. Due to the nature of our model, our members will have the chance to share the cost of hiring a full-time staff, and thus be able to spare themselves from shouldering the large cost of a staff. Our model further allows physicians to avoid the cost of staffing when they are away for vacation or other business/personal reasons. Again, like the solution offered in the office space solution, a larger portion of the revenue generated will go back to the physicians, allowing them to lessen the burden of the slower pace of the initial stages of the practice growth.

5. Financial Funding:

In order for the physician to finance their new startup business (private practice), they will need access to funding. This funding, for most of us will need to come from banks. The financial institutions are quite hesitant to provide funding/loans to a new business that does not have an established business plan, or more importantly, revenue history. Even if a bank takes a chance funds the business, the terms are usually quite unfavorable to new business owners. Again, this puts the doctor in a precarious negotiating situation where they need the funds but must face the bank terms that they normally will walk away from. To make matters even more unsettling, the existence of their large educational loans is still very much weighing heavy on their minds.

Consider This: The physician coworking model, as a benefit that is central to the very concept of most models, will provide its members with a low risk medical practice start to allow them to build their business, build a financial track and to establish their practice as a viable model to later be able to qualify for a bank loan, for whatever reason they wish it for. The avoidance of taking on another large debt will free physicians from added stress and help them better concentrate on all the other active issues that need their attention in starting their practices.


In Summary, all the expenses that have traditionally been thought of as necessary or mandatory for physicians to start a practice, and indeed equate to very large sums, can be largely minimized and made manageable in a Cowork Medical type of model. The aim for this model is to support and nurture early medical practices and to provide a more stable way for those that either want to start or grow their practices. The solutions offered here hope to provide other support structures which allow physicians to maintain their autonomy, lower their financial and administrative burden, and to provide them with the ability to enjoy their profession more and establish a work-life balance that is agreeable with their lifestyle.

Cowork Medical is the easiest way to start a practice or expand to a new location.

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