Setting up a new dermatology practice can be quite the challenge, no matter where you are in your career. You might be straight out of residency or have several years of experience in a practice. The goal of this article is to offer you some tips to help you better understand the various activities involved and the most critical steps in the process as well the costs.

Setting up your own practice involves many steps and decisions, but it’s best to group them into several broad categories:

  1. Organization
  2. Finances
  3. Staff and resources
  4. Quality of care and outcome
  5. Compliance.

One of the biggest setbacks that comes with starting your own dermatologic practice is the start-up costs. The actual costs tend to vary greatly, even if you are planning to start up shop in a place close to home. Some differences relate to local economic factors including leasing office space and wage rates that vary by location. There are some other factors that can also influence the “style” or type of practice you want to lead. For example, a medical dermatology practice will have less start-up costs than a cosmetic, procedural or surgically based derm practice. This is simply because it requires less equipment and tools than a medical dermatology practice. Community competition, income goals, work hours and marketing expenses can also affect your costs.

Often overlooked expenses include the cost of capital or how the practice is going to be paid for. Another large issue is the lack of initial revenue. This is a stark contrast to joining an existing practice where the existing practice patients and the insurance contracts in place will provide you with an immediate stream of revenue. By starting a new practice this means that you will be to prepare to develop an ongoing patient flow and preparing for delayed reimbursement issues from third-party payers. Although these issues can become a significant obstacle to initial success, they are not typically long term and you will overcome them eventually.

While these factors can produce a drain in your finances, which may lead to needing to borrow some money from a bank in order to meet ongoing overhead expenses such as office rent, employee salaries and benefits, and medical supplies. The reality of starting a new practice is that nothing is for certain, particularly when it comes to cash flow. What complicates the issue even more in comparison to other new businesses, is the existence and fluctuation of third-party payers, particularly issues such as a delay or denial in payment combined with varying discount rates, which can significantly lower the amount you expect to get paid. Paying salaries and overhead costs can quickly deplete your cash reserve, which might turn into a negative balance and nothing to cover expenses with.

Predicting cash flow when starting out a practice is often times just an estimated guess, but it can help you budget your financial goals. You will be able to make adjustments if you’re not meeting your financial goals.

In summary, building a new practice takes some time and consideration especially when it comes to the finances and expenses involved. While undergoing a new business venture such as starting a new practice, stressors are high, this is a practice that has been done many times and is usually an endeavor that’s done best alone. While you may think incorporating several partners in the start up, it is probably an unrealistic goal to expect enough revenue to support both you and several partners.

However, if you are someone who prefers to work within a group practice, it may be better to join an existing practice – this can also alleviate several of the above concerns regarding cash flow that is needed. The biggest benefit of joining an existing practice is the steady patient flow and guaranteed salary. There is also decreased financial risk.

Regardless of what path you choose after residency, make sure it is the right one for you and not a rash decision based on the need to pay off large medical school debt, meet financial obligations, or for a security blanket. When thinking of the “right path,” consider not only financial factors, but also other valuable aspects of life such as personal time, family and location. Also, consider the environment and ambiance of the practice as well as the mentality and mindset of the other doctors, particularly if you are considering a buy-in option. Determine the strengths and weaknesses of the practice, learn its history and gauge if you share similar priorities with the other physicians in the group.

Practice Advisors 360 is the nation’s leading dermatology advisory company. Contact us today at (844) 360-8360 or visit us online at