The Hidden Lease Costs That Impact Your Practice’s Bottom Line

Christian Gile • September 25, 2025

One of the biggest mistakes physicians make is budgeting for rent the same way you would for a mortgage. They treat base rent like a fixed, predictable payment. What often gets overlooked is the complexity of costs that come with leasing a space. There are several layers of expenses beyond your monthly rent check that can catch you off guard. Escalations, CAM charges, and NNNs are hidden line items that can quickly change your financial picture.

Escalations

Leases often include a clause that allows for annual increases in base rent, called an escalation. These increases are usually tied to a percentage of the base rent or an inflation index like the Consumer Price Index (CPI). Landlords use them to offset rising ownership costs or to keep rents aligned with the market.

Escalations aren’t inherently good or bad, but they’re something you need to watch closely when budgeting. For practices in Arizona, an annual escalation of about 3% of base rent is typical. Even if yours is lower, failing to plan for rising rent can have a major impact on your practice’s profitability.

CAM Charges and NNNs

To offset their expenses, landlords often pass through the cost of items like landscaping, security, and janitorial services to tenants. These are known as CAM (Common Area Maintenance) charges.

If you have a Triple Net (NNN) Lease, you’ll also pay your proportional share of CAM, property taxes, and insurance. Tenants usually sign these leases in exchange for a lower base rent. Instead of one lump payment covering rent, CAM, taxes, and insurance, a NNN lease breaks these out and gives tenants more transparency into where their money goes. The tradeoff is losing the stability of a single fixed rent amount. These extra line items can fluctuate significantly from year to year, and if a practice owner isn’t prepared, it can create real challenges for their bottom line.

Reconciliation

Tenants are billed monthly for CAM/NNN charges based on the landlord’s cost estimates. The actual expenses, though, may differ from the estimates you’re quoted. Tenants have the right to request a reconciliation of these charges. This process allows you or your CPA to audit the landlord’s books and compare the estimated charges against the actual expenses. Doing so helps ensure you only pay what you truly owe. Keep in mind, though, that requesting a reconciliation may come with a small cost since the landlord has to take time to provide the documentation.

Conclusion

The cost of leasing your practice space is often more than just base rent. Variable expenses such as escalations, CAM charges, and NNN costs can have a major impact on your margins. The challenge is that these line items are often tucked into the lease and easy to miss. That’s why it’s smart to work with a commercial real estate broker who understands your industry and can help you avoid financial blind spots. When it comes to budgeting, knowledge is power. The more you understand potential expenses, the better prepared you’ll be to handle them and safeguard your practice’s financial health.

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When to Sell Your Practice: Understanding the Impact of Declining Revenues

By Christian Gile • April 30, 2026

One of the hardest conversations I have with physician clients is regarding selling their practice. Most of them think the ideal time to sell is when the business is humming: revenues are strong, patients are loyal, and all is well. They're right. What many don’t anticipate, however, is how significantly timing can impact outcomes. Declining revenues are more than just a warning sign—they can meaningfully affect the overall value of a practice. Why Declining Revenues Decrease Value in Your Practice When you sell your practice, buyers aren't buying your “past” success. They're buying cash flow in the future. The moment revenues start going down, you've really changed what you're selling. A revenue-declining practice sends a buyer one message: Risk. Buyers will discount substantially for that risk. Practice valuations are normally done on a multiple of EBITDA or gross revenues. If your revenues decline 15% and your margins contract, you're not only losing 15% of your practice value. You're losing that plus the multiplier effect, which can reduce your valuation by 30% or more. Hang on another year while revenues continue to fall, and you might find yourself with an unsellable practice at any price. The "Just One More Year" Trap I see this pattern all the time. A physician notices profits slacking but convinces themselves that it is only temporary. Maybe it's a seasonal dip, some key patients moved away, or insurance reimbursements were received late. They convince themselves they'll turn things around and sell next year when the numbers are better. The problem is next year rarely gets better. What started as a 5% reduction in revenue becomes 10%, then 15%. Margins shrink. Turnover increases. By the time the physician is ready to admit they need to sell, they're already negotiating in a position of weakness. The practice that could have sold for $1.2 million two years earlier might now fetch $600,000, if anyone will even look. Conclusion The best time to sell is when your practice is profitable, and the story you have for a buyer is one of growth and possibility. Deteriorating revenues are a red flag and must not be ignored. If you see a pattern of declining revenues taking shape, don't wait until it reverses itself. Have an independent assessment, talk to an advisor familiar with practice sales, and determine what options you have. The line between selling at the right time and waiting too long can be the difference between financial anxiety, and an easy retirement. Timing is not everything when it comes to selling your practice, but it is close.

Should I Buy an Established Practice or Scratch-Start?

By Christian Gile • April 23, 2026

One of the first major decisions physicians make when going into private practice is purchasing an existing practice, or starting one from scratch. Both can succeed, but they involve radically different risk, timelines, and expense. The Case for Buying an Established Practice Buying an established practice likely gives you immediate cash flow. You receive a patient base, trained personnel, existing payer contracts, and infrastructure. That is to say that you start making money immediately, instead of taking months or years to establish a patient base from zero. The finances are likely more stable. You can analyze prior revenue statements, learn about referral patterns, and establish profitability before investing. This is sometimes simpler to obtain financing for. The compromise is cost in the long run. You are, in essence, purchasing the seller's reputation and systems which may not always be the perfect fit. If the previous owner had poor relationships with referral sources or outdated processes, you will have those problems to resolve. The Case for a Scratch-Start Beginning from scratch gives you total control. You choose the location, design the space to your own specifications, hire your own staff, and build the culture that you want. No legacy baggage and no politics of inheriting another person's practice. The entry cost is sometimes intimidating. Sure, you'll still be paying for build-out and equipment, but you're also not paying top dollar for goodwill. The down side is time and risk. Building up a patient base requires time, and during that time, you'll have expenses while working on increasing your revenue. Conclusion If you need to start in a hurry, buying an existing practice is usually the better choice. If you are not bothered about a longer timeline and value autonomy, a scratch-start may be preferable. There isn't a one-size-fits-all, “right” solution. Talk to advisors who understand practice ownership, be conservative in assumptions, and choose the path that best suits your objectives and risk tolerance. The wrong choice will cost you money and time. The right one sets you up for long-term success.