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Spa MD: Protecting Your Business Assets
By Camille Hoheb
Posted: July 19, 2007, from the August 2007 issue of Skin Inc. magazine.
Asset protection involves a plan that will best position and protect the medical spa business, its owner, employees and clients from unforeseeable occurrences. Natural disasters, accidents, work injuries and crime unfortunately do occur, and these occurrences are not only costly, but they come with significant legal ramifications. Any medical spa owner is wise to plan for the safety and protection of their business.
There are several matters to think about when contemplating asset protection, but this article focuses on three of the most common and impacting areas, each to be carefully considered:
- Selection of a legal formation
- Identifying insurance needs and appropriate coverage
- Theft prevention and planning adequate security measures
The formation of the legal entity of a medical spa is the starting point in developing a strategy to safeguard both owner and business. Sole proprietorship, an S or C corporation, a limited liability corporation (LLC) and a limited (LLP) or general partnership are some well-known business formats. Each has implications on levels of personal protection and various tax benefits. Legal formation is important because it directs the way in which a person owns and operates a business, as well as the extent to which they can be held financially responsible for debts and liability.
For example, if you run a business as a sole proprietorship, you will be personally liable for any debts or judgments associated with your business. The amount that you can be required to pay may extend beyond the income you make from the medical spa, which, in turn, may impact personal finances and assets such as your home, car and other personal items.
On the other hand, if a corporation or limited liability entity is selected as the legal framework for your business, typically your liability for business debts would be limited to the amount of your investment in the medical spa. The result here being that you might lose your business, but you wouldn’t lose personal assets.
It is highly recommended that any medical spa owner consult with an attorney and accountant before selecting a business format, as they can aid in the decision about which format is best suited for a particular business.
A new owner, focused on monthly expenses such as rent, payroll and marketing, may feel that insurance can take a backburner to the costs of day-to-day operations. This kind of thinking is a mistake, as well-thought out insurance coverage not only eases your mind, but also can save your neck. In the event of a large, uninsured loss, the medical spa’s ability to stay afloat would likely be threatened. Why risk it all? A good way to get started in heading off this problem is to contact an insurance professional early on.
“Make sure you have professional liability insurance, a policy that covers your medical director, any treating physicians you have on your staff, and others who provide patient care,” suggests Bob Tucker, president of Valcourt Insurance, an insurance agency specializing in coverage for medical spas. According to Tucker, the most frequently asked question regarding professional liability is: “My physician has medical malpractice insurance, so that is all we need, right?” Wrong.
Most physicians’ specialties will not extend medical malpractice coverage to cover their professional activities at a medical spa. Usually only plastic surgeons’ and dermatologists’ coverage will follow them to that type of facility. The trend for major medical malpractice companies is to limit coverage to the individual physician’s specialty. Therefore, an obstetrician-gynecologist’s medical malpractice coverage would not provide coverage for esthetic procedures done in a medical spa.
In addition, most physicians’ medical malpractice coverage will not cover the physician while acting in the capacity of a medical director. A medical director is the physician that comes in to set policy and procedures, as well as check charts to make sure the medical personnel performing the esthetic treatments are following medical protocols to the prescribed manner. Again, the major medical malpractice companies do not want this exposure and will not extend coverage under the physician’s medical malpractice policy.
And still there are many individuals who think that nothing will ever happen to them or their medical spa. Claims happen. Consider the example of a $25,000 claim after a clinician burned a patient during a laser hair removal treatment.
So what is the answer? Write a policy that will cover the corporation or entity, the medical director for activities such as checking charts and setting policy, registered nurses and estheticians for treating patients, and even coverage for a physician if they want to treat patients. All professionals and the corporation itself covered under one policy, sharing the limits of said policy, is likely the best solution.
Tucker advises that property insurance, which covers all of your property and business property, such as the laser machines and equipment needed to run your medical spa, and general liability insurance, which provides coverage for bodily injury, typically for slip and fall cases and property damage you are responsible for, usually takes form through a business owner’s policy.
Tucker also encourages medical spa owners to have business interruption insurance coverage, which provides monetary relief if you couldn’t run your business or had a major loss and had to shut down. This would cover, for example, the downtime during repairs from a fire.
Make sure that you also have worker’s compensation insurance. This is the coverage that pays the medical care and disability payments for an employee who is injured on the job. This coverage is mandatory by state law.
Another type of coverage that can be added to a business owner’s policy, at an additional cost, is product liability insurance. If your medical spa sells cosmeceuticals and other skin care products, you may be sued if someone is injured using the product. Of course, anyone can sue you for any reason, and this holds true even if your medical spa simply carries the product and has nothing to do with its design or manufacture.
Weighing the cost of insuring against the economic impact of an uninsured loss is one way to sort out priorities. For example, to avoid further expense, you may decide to forgo terrorist insurance. Insurance premiums can make a substantial dent in any business’s budget, but carrying too little insurance leaves you vulnerable and may even violate state or federal laws.
Employee theft, even in a medical spa, is unfortunately more likely a question of when, not if. Think it can’t happen in your medical spa? Consider the unfortunate but true occurrence of a clinical staffer walking away with $10,000–20,000 worth of Botox*, or another giving away services for free by erasing the scheduled appointment on the business’s computer system.
The first step to combat internal theft is to remove the temptation. The best way to do that? Think about easy targets and where there is an opportunity for dishonest behavior, and then put a discouraging mechanism in place. For example, consider inventory control on items such as skin care products, injectables and other retail products, as well as controls on discounts, gift cards and ticket sales.
Industry experts usually recommend engaging a public accountant to audit your cash flow and accounts annually, and to take product inventory on a monthly basis. You may opt to conduct these audits more frequently, as there is no foolproof system that will prevent employee theft. However, having a consistent and frequently monitored internal control system in place may discourage this type of activity. As part of your security program, include policies in your medical spa’s employee handbook. You may choose to address topics such as:
- Areas of limited access
- Restrictions on visitors
- Statements regarding the removal of company property
- Security systems and procedures
- The handling of customer and company data
- The supervision and verification of medical spa purchases and deliveries