To become a physician takes exceptional dedication and focus. Doctors acquire a vast quantity of medical knowledge but too little in the business management area. In today’s environment, business issues can dominate the running of a medical practice. It is important for you to be aware of common mistakes that are made in operating a practice, and even more importantly, to address the possibility that you are making some of these mistakes.
The mistakes below were gathered from years of experience in assisting physicians in their practices.
#1 Putting the Wrong People in Place
A medical practice deals with many different insurers with their own codes and rules. Billing and coding errors can quickly be the downfall of a practice. With the government stepping up fraud abuse audits, hiring an expert billing assistant can be crucial. Your spouse, cousin, best friend, etc., may seem like a good way to avoid theft and give you an assurance in dealing with someone you are comfortable with, but does this person know health information technology or accounting so that you get timely and accurate information on how your practice is doing? Placing too much responsibility and reliance on one person can also be a problem. Embezzlement occurs too often in medical practices. Establish internal controls to safeguard cash in and out. You invest much time and cost into your staff. Hire well.
#2 Trying to Keep It Simple
Doctors don’t want more complexity to an ever-challenging career. However, complexity can provide great benefits. Separating different locations and services can give asset protection and isolate loss centers. Owning your building in a separate partnership provides many advantages. Moving your unprotected investments into a family limited partnership creates asset protection and allows for future tax planning. The right federal taxable entity for your practice can help avoid payroll taxes. Tracking provider performance and clearly establishing compensation goals can create motivation and reward. With the low interest rates, financing your life insurance premiums and using the arbitrage makes sense. Don’t operate on a handshake; Document all agreements with fellow partners and employees.
#3 Not Paying Attention to the Numbers
Accountants prepare financial statements all day long that doctors do not look at or understand. These financial statements, if timely prepared with comparison to similar prior periods, can identify excessive expenses, declining collections, etc. The data can also help the doctors anticipate future income tax payments that are looming and therefore budget for them. Doctors do not have time to learn how to interpret financial data, and they tend to not ask for help. Get your accountant to sit with you and explain what the financial statements mean and how you should use that information. If you have financial budgets, review them with the actual results. If you don’t have budgets, establish some. If you have to ask your accountant for help, you may need a new accountant.
#4 Mixing Business With Pleasure
Doctors can forget that their practice is a separate entity. They distribute collections out of the practice for personal matters, pay personal expenses through the practice bank account and invest personally with practice funds. It is important from a tax planning and asset protection perspective that all personal financial activity be kept out of the practice. Doctors have a reputation, right or wrong, for being easy marks and spending too much. A medical practice can be a very successful business that is destroyed by the personal spending habits of the doctor. Determine what your personal spending habits are and how they affect the operations of your practice. Many doctors complain of working harder and having less to show for it. This may be perception only or it could be a sign of the practice and/or the physician not controlling costs or protecting revenues.
Jim Rice, CPA
#5 Not Planning for the Future
I don’t just mean for retirement. We have heard many times over how none of us are adequately putting money away for our retirement. This is more true for doctors who after years of school start their retirement funding later than most. There are also things doctors should be addressing before retirement. Is there an adequate buy sell agreement for your practice? Do you have a succession plan to protect your practice? Are you insuring your most valuable asset — yourself? Disability insurance may seem expensive until you need it. Apart from retirement funding, do you have readily available reserves in case of a rainy day?
Not included in this discussion is a major personal problem for many physicians — burnout and depression. Today’s environment for physicians who own their own practice has become more difficult to successfully deal with. Addressing the above five financial mistakes will help deal with burnout and depression.
Jim Rice, CPA, is a shareholder at Sol Schwartz & Associates, PC. He has 39 years of experience in public accounting. In addition to providing business consultation, financial planning and various other accounting services, Rice specializes in income tax planning and consultation. He works with a high concentration of physician practices and high net worth individuals. Contact Rice at 210-384-8000, ext. 112, or email firstname.lastname@example.org.