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Five Major Financial Mistakes Made by Doctors
It takes exceptional dedication and focus to become a physician. Doctors acquire a vast quantity of medical knowledge, but too little education in the business management area.
In today’s environment, business issues can dominate the operations of a medical practice. It is important for you to be aware of common mistakes that are made in managing 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
A medical practice deals with many different insurers with their own codes and rules. Billing and coding errors can quickly cause the downfall of a practice. With the government stepping up fraud abuse audits, hiring an expert billing assistant can be crucial. Employing your spouse, cousin, best friend, etc. may seem like a good way to avoid theft and give you 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 about your practice? 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
Often, physicians don’t want more complexity in an already ever-challenging career. However, complexity can provide great benefits. Separating different locations and services can provide 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
All day long, accountants prepare financial statements that physicians do not read or understand. These financial statements, if timely and prepared with comparisons to similar prior periods, can identify excessive expenses, declining collections, etc. The data can also help doctors anticipate and budget for future income tax payments that are looming. Many 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
Some physicians can forget their practices are separate entities. 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 is kept out of the practice. Doctors have a reputation, whether 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 physician not controlling costs or protecting revenues.
5. Not Planning for the Future
I don’t just mean for retirement. We have heard many times about how none of us is adequately putting money away for our retirement. This is truer for physicians who, after years of school, start their retirement funding later than most other professionals. 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?
Physicians have worked hard to get to where they are. Making the most of their efforts is the goal.
Jim Rice, CPA, is a shareholder at Sol Schwartz & Associates, P.C. He has 32 years of experience in public accounting. In addition to providing business consultation, financial planning and various other accounting services, Jim specializes in income tax planning and consultation. He works with a high concentration of physician practices and high net worth individuals. Contact him at (210) 384-8000, ext. 112 or firstname.lastname@example.org.
MD News October 2011, San Antonio