A physician’s financial journey isn’t always linear, and the journey can’t always be predicted in a how-to book. While the hospital-employed physician normally gravitates toward a path filled with benefits and retirement plans, the equity owner physician, or physician practice owner—both terms used interchangeably—has a much different pathway. Let’s dive into the equity owner physician a bit further.

Why choose ownership?

Like the term “business owner,” equity ownership physician is a generic term. An equity ownership physician is a physician who owns their own practice. This ownership can take several forms, ranging from sole owner of a clinic to buy-in partner of an established practice; these are often described as private practice physicians. A physician business owner can also be a physician who owns shares in an ambulatory surgical center or a hospital system.

Most physicians seek out an employee contract at a hospital, which normally involves a steady income. Conversely, a physician practice owner does not usually participate in such steadiness, and there is inherent risk to owning your own practice. So why would a physician choose to pursue ownership in a practice? While the arguments for and against are numerous, some of the biggest reasons a physician would want ownership are these:

• You get to work for yourself and create your own office culture,
• Some people are wired as visionaries, and
• The financial reward can be worthwhile, though often rocky and nonlinear.

Creating your own standard

Developing your patient experience is fully within your control as an equity ownership physician. From the parking lot to the front door, to check-out procedures, the patient can leave at ease or exhausted; the experience is fine-tuned over time, but no one mandates an owner must have a clinic set up a certain way. If there is something you don’t like about how the clinic is set up, you can change it!

Having some control over your own culture and setting your own standards can be an impactful benefit to starting up or buying into a practice. If you’re the owner of a business, you make the final decisions, and no one tells you what to do (within reason!). Hospital systems seem to be fond of belittling tired physicians and requiring their physicians to “do more.” Productivity targets are always moving for the employed physician, and the compensation structure can be unnervingly complicated and ever-changing. The physician practice owner typically removes this layer of complication from their workplace and replaces it with another layer of complication: managing overhead.

The challenge of managing overhead

Unless you run a healthy cash-pay clinic, the financial reward of a physician practice owner is unpredictable at best. With health insurance companies holding onto reimbursement income for months at a time, accounts receivable lists can pile up. There can be months without any pay, and there can be earning months consisting of half your annual overhead. This variance can be frustrating, but running your practice with an understanding of the inconsistent income cadence can be smoothed by planning ahead.

Running a health care company can be expensive, and it takes a lot of highly skilled people working together. Managing employees, rent, inventory, PPE, marketing, and all the other overhead expenses is both an art and a science. Managing these expenses properly determines how much money a physician practice owner earns. This task is so important that it may even make sense to provide bonuses to key employees based on key metrics to align all priorities on both revenue generation and expense management. I’ve seen physician practice owners seem to just “keep up” in their practices, and I’ve seen some physician practice owners make more money than they ever thought possible. Much of the difference comes down to overhead management, including marketing and referral management, which also falls under the overhead management umbrella.

Another financial incentive for the physician practice owner is control over taxes. Without proper planning, owning a business can even result in paying more taxes; however, owning a business, structuring it properly, and careful planning can put a physician practice owner in the driver’s seat over their taxes. There is no magic button to reduce taxes, and if you happen to earn a lot of income without a lot of expenditures, you should expect to pay a good deal of tax; however, a physician practice owner can establish robust benefits for themselves and their team to provide for generous and well-deserved rewards for their hard work. Between choosing the proper legal structure, salary and profit distribution management, and maintaining appropriate tax-advantaged savings strategies, this is an area where strategic financial planning can really make a significant difference.

The visionary mindset

I believe it’s true that there is no perfect health care job, but there is something special about creating your own job. There are some people who naturally gravitate toward independence. For physicians who have the motivation, desire, and capacity to create and build businesses, being a physician practice owner is often a great fit. For those in this role, there are many books available detailing the visionary role with different ways to manage and scale a business. Rocket Fuel by Gino Wickman and Mark C. Winters and The E-Myth Revisited by Michael E. Gerber are great examples of such books. Rocket fuel details a visionary’s role in a business paired with an integrator employee to shape and accelerate business growth. The E-Myth Revisited shapes the viewpoint of how to appropriately scale a business.

Liquidity event – the payoff

While a regular salary and profit distribution are vital to everyday life, the real financial reward of an equity ownership physician is reserved for the end of the journey. The jargon term is a “liquidity event,” which is a fancy term for selling a business. Some clinics have more value than others, but if there’s a full patient panel, multiple referral streams, and a healthy dose of goodwill, then the clinic has value. The risk in the liquidity event is twofold:

1. The clinic needs to stay open and financially healthy until it can be acquired.
2. The acquisition market and regulatory environment are both unknown variables.

Naturally, many physician practice owners compare their current financial situation to other physicians, including employed physicians. When a physician practice owner is in a season of struggle, they often see their employed peers and wonder if having a steady paycheck would be best. A physician practice owner’s financial journey isn’t always linear, and they may earn less than the average physician of their specialty, but the liquidity event at the end of their career makes their life’s work worthwhile.

Support for the journey

The journey of a physician practice owner can be arduous, but for those who embrace the lifestyle of a visionary physician, the rewards and benefits outweigh the difficulties. For those entrenched in the physician practice owner pathway, having advisors as key professional relationships can provide some peace of mind as a sounding board and thinking partner. Knowing what options and benefits are at your disposal can provide some educational input for key decisions.

Paul Morton is a certified financial planner.