doctor greeting patient

Gastroenterologist Dr. Naveen Arya keeps a busy schedule: He's a father of three, runs an endoscopy clinic, works at a hospital and heads a national endoscopic ultrasound research group. He's also an assistant professor at McMaster University and a regular volunteer carrying out humanitarian work.

Arya says he was lucky when he and his two partners started their endoscopy practice. Securing a bank loan was not an issue and the shortage of gastroenterologists and year-long hospital wait times for patients meant referrals came easily and quickly. Today, their clinic has 50 employees, including 11 doctors.

Yet, navigating the ins and outs of starting a practice or a clinic can be daunting and, in hindsight, there are things Arya would do differently.

“I should've talked to a financial advisor much earlier," says Arya, who now says he wishes he'd started proactively saving and investing when he was in medical school or a resident. “I would tell (young doctors) to talk to someone they trust … and don't be scared of debt."

As he approached his 40s, Arya started thinking about saving for retirement. Both he and his wife, a lawyer, graduated with $250,000 in student loans. “We came out with a heavy burden," he says, and the debt continued to pile up as they started a family, bought a car and a home, and launched a medical practice.

The Association of Faculties of Medicine of Canada says roughly 2,700 medical doctors graduate each year. Many graduate school with hefty student loans and dreams of having their own office one day, drawn by the idea of having direct control over their earnings, hours and whom they hire.

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How young doctors can navigate opening a new practice

“Generally, we probably see more people working for a few years to pay down some of that medical school debt before they think about borrowing more money to start their own practice," says Allison Marshall, vice president, High Net Worth Planning Services and Financial Advisory Support at RBC Wealth Management in Toronto.

A financial advisor can help doctors work through the pros and cons of setting up a practice and put together a financial plan, while a lawyer and a good accountant can help navigate regulatory and legal issues, as well as bookkeeping.

“Financial projections for a couple of years going forward would generally be what you'd be required to show and that requires some skills," says Marshall, whose team works with health care practitioners through the various stages of their business and life cycles — from graduation to retirement. “Not everybody is able to put together projections and have it accurately reflect what's going to really happen for the cash flows of the business."

Getting a bank loan may not be difficult for physicians, but access to a large sum of “easy money" can also be risky, Arya cautions.

Given the amount of debt many young doctors carry, Seun Ogunsola, regional vice president, Private Banking at RBC Wealth Management, recommends having CAD$1.25 in income or cash, for every dollar of debt.

The costs also vary dramatically depending on the kind of practice you plan to run. If you're a neurologist, the cost of your MRI machine will be significantly higher than if you're a family physician who might need some examination tables and a stethoscope.

For most physicians, a price tag under $500K should be more than sufficient to launch a practice, according to Ogunsola. That price tag can easily double to $1M, however, for a basic dental practice, he says, due to expensive equipment, x-ray machines, and structural requirements such as plumbing.

Whether the property is leased or bought outright — and where — also impacts the cost. Ogunsola, who works with doctors to figure out how much they need to earn in order to make their private practice viable, estimates a cost per square foot range between $120 and $150 per square foot.

When to consider buying a practice

In some cases, buying a practice could be a viable option, though this typically applies more to a dental office and certain types of medical specialists, and less commonly to a family practice.

While buying an established office from a retiring physician can be more expensive, it comes with staff, an accounting system and revenue streams already in place. Even with the latter route, however, due diligence is important.

The timeframe of when a new practice is established will depend in large part on whether it's located in an area with a shortage of doctors or not, but Ogunsola estimates it typically takes about one to two years on average.

He also recommends new doctors launching their own practice to continue working elsewhere, such as a hospital, in order to maintain the necessary cash flow to cover the fixed costs of a new clinic. While specialists rely on a strong network to draw referrals, growing a patient list as a family doctor can often mean relying on walk-ins, he says.

Doctors also tend to underestimate how much time it takes to do the administrative office work. Marshall notes whether a computer server goes down or a toilet gets clogged, at the end of the day, you're still the boss.

“A lot of the health care practitioners we work with, they're just time-starved and that's the nature of their business," she says. “But you have to think about how you want to balance that with your personal life and objectives as well. Because many of these individuals have families and personal pursuits that they might want to achieve."