The Complete Physician Guide To Starting Your Micro Business PC
I love my micro business and believe that most doctors would too.
As employment has become the dominant job model for our tribe, most of you falsely believe that a micro-professional corporation can’t fit into your world. You are oh so wrong!
I just met with a physician yesterday for his annual business coaching session about his micro-business. We had his accountant, lawyer, myself, himself, and his spouse on the zoom call. This past year he converted from working as a traditional employee to a micro-PC with an employment lite agreement. After reviewing his P/L statement, we had a happy discussion about what to do with the after-expenses, $200,000 that had accumulated in his micro-PC this year. He was shocked at how his lifestyle and household expenditures had not changed with the conversion, yet his retained income had skyrocketed through the power of a well-built small business architecture. One that:
1. Helped pay for his kid’s private school and college as a business expense through a section 127 plan
2. This included employing his wife and kids in the micro-business
3. Incorporated the tax-friendly use of his primary home and vacation home.
4. Grew his retirement fund dramatically, because in the end those $200,000 were primarily funneled towards tax-friendly retirement accounts for his household.
5. Cut the mortgage on his vacation home in half
6. Increased his net worth sufficiently that now, for the first time in his life, he could clearly envision financial independence and retirement in his late 50’s to early 60s.
7. This meeting didn’t include his personal taxes, which are on target to have an effective tax rate well below 20%.
This paralleled my experience when I made the same conversion nearly 10 years ago. I formed a professional corporation as a micro business and used it to contract out my professional services to the same employer that had traditionally employed me for the prior 15 years. This business-to-business contract is called an employment lite agreement. It is a game-changer for doctors who are tired of being micro-managed by corporate employers, but who don’t want the hassles and risks of trying to operate a private practice. It allows you to still work out of a large employer’s safe harbor, and avoid the responsibilities of managing the practice clinic. At the same time, your professional services are contracted out to your former employer. In this move, you will transition from a W-2 employee to a 1099-contractor.
The Bridge
Large employers have used this professional service agreement model for years as a tool for herding former private practice (PC owners) doctors into their employment lair. I call it “the bridge” because it provides a pathway for the simultaneous existence of an individually owned PC outside of a large employer’s safe harbor, while also allowing for its use within their harbor.
This same model that was created for the assimilation of private practices into corporately controlled medicine, can also be used as a pathway for traditional physician employees to transition to micro-PC-employment lite structures under the same basic contractual agreement.
Even if your employer is unwilling to transition you to a PC-employment lite agreement, it is still beneficial to have a micro-business PC for routing your side jobs through.
Your micro-business PC can also be used as the entity for employment and/or ownership in a private practice, group, or partnership.
Regardless of your job structure or location, a micro-business PC is kind of like a virtual layer over your individual professional life, allowing you to function both as a small business and as an individual. This has historically been the case for doctors and it’s only in recent times that large corporations have usurped our business powers as our tribe has voluntarily become employees.
What Is a Micro Business?
The term “micro-business” was first coined in the 1980s to describe the growing number of small businesses that were being created by people who wanted to avoid the bureaucratic red tape of larger corporations.
In the last few decades, many corporations have been downsizing and outsourcing their work to smaller companies. This has led to a rise in the number of micro-businesses as new opportunities have met the demand for contracted labor. In medicine, we have seen this flourish for nurses and doctors due to labor shortages, and has resulted in the growth of “travel nurses” and locum tenens for doctors.
A micro-business is a small business that has less than five employees. It is also a business that does not have any physical location or storefront so to speak. The owner of a medical micro business may work from home or from any location that can benefit from your professional services.
A micro-business is usually run by a single person or a couple. They are typically self-employed and work professional schedules based on the business model that you are using to perform your professional services.
Locums have long been the domain of the micro business structure for the medical profession but new opportunities are now arising through novel job options like contracted telehealth services, direct medical care/direct primary care practices, and the aforementioned employment lite structure. Each of these options provides you with the many benefits of a micro-business including the preservation of your professional autonomy while also benefiting your financial well-being.
A Micro Business Is Different Than Private Practice
A micro-business is a professional corporation that is owned by a physician, has minimal overhead, and is essentially virtual. The primary focus of the small business is your professional services, knowledge, and expertise. These are all valuable in host health-related environments that extend far beyond the walls of a traditional clinic or hospital.
A private practice is owned by a physician(s) and has multiple employees, significant overhead, a physical location, and must compete with large corporations for patients.
A micro business can be more flexible and less bureaucratic than a private practice, or a large healthcare corporation. Due to fewer employees and fewer overhead costs, they are cheaper to run and easier to manage. Like many micro-businesses, beyond the owner, most employees are family members because of the numerous financial and tax benefits that are baked into this model. This household net benefit is not possible within private practice, or as a traditionally employed doctor.
The Deal
Traditionally when you completed your residency and fellowship training, you were faced with choosing to go into private practice or become employed. Those who chose employment basically believed they were trading in their small business powers for the security of a predictable paycheck. Nearly 90% of new attending physicians are choosing this “deal” as I call it. The general structure of this deal with large corporate employers looks like this. You won’t find this written in any contractual terms, it’s just understood as being part of the “deal” to being employed.
Using Your Micro PC For Any Job
However, what is hidden from most young doctors is the value and importance of creating their own micro-business PC right at the beginning of their career because it can be used in every job structure they might choose. These can vary, but include:
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Employment: via a PC-employment lite structure
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Private Practice-Partnership: As your business contracting entity that replaces you as an individual
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Direct Patient Care/Direct Primary Care
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All Independent Contracting structures such as locums or telehealth
For instance, if you still choose employment right after residency, the architecture of your deal through your micro-PC would look like this within a PC-employment lite structure:
A Professional Corporation As A Micro Business
A Professional Corporation is a type of business entity that is created by a physician to provide professional services and to use your medical knowledge and expertise in a host of business environments. Only licensed professionals can be shareholders and they elect a board of directors to manage the company. In the typical micro business architecture, you would be the sole shareholder in your micro-PC.
You can employ your family members or others in your micro-business, but they cannot be shareholders if they are not medical professionals.
The professional corporation has many benefits for physicians, including limited liability protection, tax savings, and increased flexibility with benefits packages and retirement plans.
In this micro business PC structure, the owner of the company has sole ownership and control over the company. This should not be overlooked because of the powerful way this helps preserve your hard-earned professional autonomy—this latter part provides a critical solution to the physician burnout crisis.
What are the Benefits of Incorporating as a Professional Corporation?
Professional corporations are often used by many types of professionals such as doctors, lawyers, engineers, dentists, and accountants They are incorporated for the purpose of limiting their liability in the event of a lawsuit.
There are a number of benefits to incorporating as a professional corporation including:
–Limiting liability: Professional corporations limit their liability in the event of lawsuits by separating personal assets from business assets. It should be noted that you are still required to carry professional malpractice insurance in addition to this business structure. However, this business structure does provide an additional layer of asset protection for your household. Protecting your growing net worth is an important concept that every physician should understand.
–Taxation: Corporations have many tax advantages that individuals do not have. Through the right business structuring within a PC, you can retain 10-15% of your earnings in comparison to traditionally employed doctors.
–Protection from personal creditors: Corporations can protect themselves from individual creditors by separating their personal and business finances.
How to Form a Professional Corporation in 7 Steps
Forming a professional corporation properly can be a complicated process. It is not something that you should do on your own. You need to have an attorney who specializes in this area of law and also has experience with forming corporations for physicians. SimpliMD is an agency I created for this very purpose and their team of business, legal, and accounting professionals would be happy to help set up your own micro-professional corporation.
The process of forming a professional corporation does have some predictable steps within it. In fact, it can be done in 7 steps.
1) Determine the type of corporation you want to form.
2) Determine the number of shareholders and directors you want to have.
3) Determine the name of your corporation and file a DBA if necessary.
4) Draft articles of incorporation and bylaws for your corporation.
5) Obtain an EIN from the IRS
6) Determine the tax entity status for your corporation-most commonly this will be an S Corp.
7) File articles of incorporation with your state’s Secretary of State office or other designated agency
You Should Incorporate Your Professional Services Today
The world of medicine has changed drastically in the last few decades. With the rise of technology and the internet, it is now possible to provide medical care both in traditional and non-traditional settings. This trend will only continue to grow as more and more people can access healthcare without having to go through a clinic or hospital.
This means that there are many opportunities for physicians who want to work remotely. There are also many opportunities for micro corporations and small businesses who want to offer their medical services, knowledge, or expertise both virtually and non-virtually.
The growing diversity of how you can monetize your professional skills is why I believe every resident should consider starting their own micro-business during residency.
Regardless of the job structure you choose, you can use a micro-PC or it. That is why every doctor should consider taking this important step of starting a micro PC to preserve their professional autonomy, strengthen their financial well-being, and help combat their risks for burnout.
