When starting your own practice, be savvy about successful business structure basics

If you are a therapist starting your own practice, you're probably excited about all the possibilities but a bit intimidated by the risk and potential liability. As when preparing for any business endeavor, the most important thing you can do is your homework.

Before you sharpen that pencil and write a business plan, you must research the varying business structures permissible in your state. Regulations vary, and it's important to gather as much information as possible before you get started.

"How do we define ownership of a physical therapy practice or any health care practice?" says Ken Mailly, PT, of Mailly and Inglett Consulting, LLC, in Wayne, NJ. "It's a hot issue around the country."

Two indispensable resources are a knowledgeable attorney and an excellent accountant, according to Angie Phillips, PT, president and chief executive officer of Images and Associates, a health care consulting company in Amarillo, TX.

"This is worth spending your money on, to get you started in your business," says Phillips. "Our expertise is in therapy, so we need to use professionals in other areas to help us proactively earn and protect our income."

Peter Kovacek, MSA, PT, president of In Home Rehab, LLC, in Harper Woods, MI, echoes this advice and encourages entrepreneurial therapists to find advisors and consultants who can give them practical guidance.

"You need people who can give you answers rather than opinions," he says. "You can rely on experts to give you advice as long as they give you references and citations of the evidence."

State laws regarding licensing and regulations vary greatly, according to Mailly. As a clinician, you must not only ensure that you follow therapy guidelines, but also business regulations in your state.

"Physical therapists often get confused and look only at the physical therapy statutes and regulations to find out [whether] a structure is regulated in their state," he says, "but you can't stop there."

For example, if you try to determine whether you need a fire extinguisher in your office, you probably won't find the answer in any physical therapy regulations, says Mailly. But this doesn't mean you don't need one.

If gathering all of this information sounds overwhelming and you hesitate to spending the time doing the legwork on your own, you still have a few options. Consider leaning on the state branch of your professional organization for support. It may have already gathered much of the information you need and be willing to share it with members. Additionally, hiring a consultant with expertise in both the health care and the business sides of starting a therapy practice may save you money in the long run.

If you plan to work with an attorney to help you do some of the research, Mailly suggests hiring one with a specialization in administrative law and not just health care.

"Any profession that is regulated by the state is subject to administrative law," he says. For example, some state statutes will not allow a nonlicensed professional to own a business that requires licensed professionals to be employees.

Unfortunately, there is no magic number to call for the information you need. To get an idea of what permissible structures your state allows, Mailly suggests starting with the state attorney general's office or the state department of insurance.

The different structures you can use have varying implications for your new business. One of the most important factors to consider when deciding on the structure that best suits you the several kinds of liability:

 Financial. Determines who is responsible for any debts incurred by your business

 Civil. Determines who has the potential to be held liable in the event of a lawsuit

 Tax. Determines whether you file your business gains and expenses on your personal tax returns or on a corporate return

When weighing the pros and cons of each structure with regard to these factors, remember that you will never totally eliminate your risk.

"All [health care professionals] can do is manage their risk," says Mailly. "There's a misconception out there that you can avoid being sued. You can't, but you can learn to defend yourself."

Medicare Part B reimbursement varies based on your business license, not your business structure. Since all outpatient therapy practices are paid under a fee schedule, reimbursement will not affect your decision.

Business industry experts broadly define the major types this as the following:

 Sole proprietor. In this scenario, one individual directly owns the business and its debt and assumes all the risk associated with the business. The business and the owner are inseparable and the owner reports business gains and losses on a personal tax return.

 Partnership. In a partnership, two or more people own a business. The partnership's owners pay taxes on their shares of the business income on their personal tax returns. Each are personally liable for the entire amount of any business.

 Corporation. In this context, a corporation is an independent legal and tax entity, separate from the people who own, control, and manage it. Because of this separate status, the corporation itself pays any taxes on corporate profits. This structure limits the owners' personal liability for business debts and court judgments against the business.

Corporations can be further divided into "C" corporations and "S" corporations, according to Kovacek. Simply put, C corporations are separate legal entities that allow for multiple investors and various forms of stock. S corporations are more attractive to a small business owner because unlike a C corporation, which must pay taxes once as an entity and again on its proceeds, S corporations only pay taxes once.

 Limited liability company (LLC). Like corporations, LLCs provide limited personal liability for business debts and claims. However, LLCs are closer to partnerships when it comes to taxation-the owners of an LLC pay taxes on their shares of the business income on their personal tax returns. LLC rules are different in every state, cautions Kovacek. "If you've seen one state's LLC rules, you've seen one state's LLC rules," he says.

 Professional corporation or professional association. Each of these structures is comprised of a group of similar therapists who want to maintain a strong degree of control over their practice, but who also want to spread out the financial burden. These two ownership terms can be used interchangeably, although therapists should consider the way potential patients will interpret the words "corporation" and "association," Mailly says.

Kovacek suggests that, for both tax and liability reasons, either an S corporation or an LLC is likely the best way for any entrepreneurial therapist to launch his or her new practice.

Even if you choose a business structure that allows you to contract out tasks like billing, you still have to learn the ins and outs of reimbursement. Most clinicians want to treat patients and may not be excited about the additional business-related tasks that come with starting an independent therapy practice, Mailly says. But these are still issues of which you should have a working knowledge.

First, as the business owner, you will be ultimately responsible for all business transactions that occur at your facility, so "you need to understand these [tasks] even if you pay someone else to do them," he says.

If you plan on hiring experts, Kovacek suggests you consider the following roles to fill:

 Accountant

 Attorney

 Real estate advisor

 Legal and regulatory advisor

 Reimbursement expert

"[Therapists] may be able to play some of these roles themselves," says Kovacek. But he cautions against filling too many of the roles at the expense of some necessary perspective. "I don't advise people to be their own consultants," Kovacek says. "Everyone thinks their baby is the cutest in the world."

Secondly, you may want to periodically audit your facility to ensure that things are running smoothly. This will be hard for first time owners because they may not have a good idea of how things should run in the first place.

Finally, create a vision for your business. Phillips says to ask yourself the following questions:

 How big do you want to grow?

 Do you want to have a skill mix?

 How much supervision do you want to have on-site?

 What do you want your business to look like initially and five years from now?

"Do your homework and know what's going to happen legally and financially," Phillips says. "Find the combination that fits both your goals and objectives."