Healthcare professionals who run their own practice all face unique challenges and opportunities when it comes to managing business finances. But there’s one thing you all have in common: they don’t teach you how to run a business at medical school.
Leveraging tax-effective business strategies can significantly enhance your financial well-being and business success, and this is where experienced advisors who understand the health and medical sector can make all the difference.
Here are some key insights from my experience as a chartered accountant and chartered tax advisor, with 20 years of experience supporting healthcare practitioners like you.
Practitioner vs. Business Owner: Wealth Creation Dynamics
When you operate solely as a practitioner or employee within a healthcare system, your earning potential is largely limited to the income derived from patient consultations. Owning a business allows for wealth creation through generating after-tax cash flows, which can be reinvested inside or outside the business, and building business goodwill, a valuable and saleable asset.
Structuring Business Ownership for Maximum Benefit
Selecting the right business structure is a critical decision for maximising tax benefits and securing your assets. You should look to understand the pros and cons of each option before proceeding.
- Operating as a sole trader offers simplicity and lower initial costs but comes with limitations, such as reduced asset protection and fewer capital gains tax benefits.
- Setting up a family trust provides robust asset protection and flexible profit distribution options, although it can be complex and costly to establish.
- Another viable option is forming a unit trust, which facilitates bringing in new partners and distributing profits annually, albeit with higher administrative costs.
- Lastly, a company structure offers significant advantages in terms of asset protection and ease of partnership integration, coupled with favourable tax rates. This approach also entails higher setup and administrative expenses.
Implementing Wealth Creation Strategies
Once your business is up and running, there are several effective wealth creation strategies you can explore with your financial advisor and accountant .
Creating a Service Entity
A service entity is a separate legal structure established by doctors in private practice. It provides asset protection by separating the running of the practice from the doctor. A service entity can manage your practice's employees and lease premises. By adhering to the Australian Taxation Office (ATO) guidelines for cost markups, this tactic can be exceedingly tax efficient.
Establishing a Self-Managed Super Fund
Owning your practice premises through a Self-Managed Superannuation Fund (SMSF) is another powerful strategy. This approach allows you to benefit from property value appreciation while enjoying tax advantages, merging business goodwill with property investment growth.
Leveraging Small Business Capital Gains Tax (CGT) Concessions
Small Business CGT Concessions can be a game-changer. Structuring your business transition, such as moving from a sole trader to a company and selling business assets in a tax-efficient manner can drastically reduce your capital gains tax obligations.
Exit Strategy and Preparing Your Health Business for Sale
Fast forward to retirement. You’ve built up a successful practice and the time has come to exit and reap the financial rewards through a business sale. Hopefully you’ve received good advice along the way and implemented several preparatory measures to enhance its value.
Being business-sale ready includes:
- streamlining business structures to facilitate easy transfer
- conducting regular financial audits
- obtaining business valuations
- maintaining robust connections with financial advisors
- investing in secure digital technologies
- having a well-developed succession plan
- having a strong reputation and trusted brand with good patient feedback records
- Implementing these preparatory strategies can potentially elevate your business’s sale value by 5-10%, providing a rewarding exit strategy when the time comes.
Seek Professional Advice Before Starting a Healthcare Practice
Just like a business and wealth advisor seeks medical advice from their doctor, healthcare professionals contemplating a transition from practitioner to business owner shouldn’t go it alone. At BlueRock, we’re dedicated to helping GPs and healthcare entrepreneurs navigate these complexities with confidence and clarity. By adopting these strategies, you can improve your financial outcomes and secure sustainable growth for your healthcare business.
For personalised advice and to explore these strategies in greater detail, I invite you to connect with the expert business advisors in BlueRock’s Health and Medical group via submitting the form below.
