We know doctors don’t get finance or accounting training during the time they spend in medical school. As a result, they tend to rely heavily on practice managers, accountants and other financial experts with managing their money.
But as medical practice owners (aka small business owners), the buck stops with the doctor. Thus, it is wise not to rely blindly on the “experts” and from time to time take a look at areas of the business for yourself.
Below are five areas I’m going to suggest for you to explore. Get acquainted with these suggestions. You never know. Overlooking them may be affecting your practice’s bottom line.
1 – PAYING HIGH-INTEREST RATE LOANS
Loans can be great financial tools to help practices remain liquid (aka have cash in hand) when cash flow is low or if an unexpected expense arise.
But practices that mismanage these loans can end up paying fees and interest that eat up what are already thin margins.
It is important to be aware that not all bank loans are created equal. Equally important is understanding terms – interest rates vary depending on the type of loan – and knowing concepts like the difference between a secured loan vs. a non-secured loan.
Overusing loans, not reevaluating them periodically and failing to adjust to current circumstances or failing to stay informed on interest rates are all things that can erode business’ income.
2 – OVERLOOKING HOW YOUR CREDIT CARD MAY BE CHARGING YOU INTEREST
Doctors love to credit cards to pay for practice expense. Why? For the credit card points, of course. A single doc can potentially accumulate six figures in points by paying for vaccines alone. Free airfare anyone?
Even though you may pay the balance in full every month, I suggest to look carefully at the card’s fine print first to understand how the credit card charges interest. Because some cards charge a daily interest based on the daily balance.
Let’s say you have a credit card that charges 10% monthly interest. But you’re not concern about the interest because no matter how much you charge the card in a month, you pay it off – in full – at the end of the month.
Banks are well aware of this. So to make money off people that pay their balance in full, they divide the monthly interest by 28 (cycle days). So a 10% monthly interest, the credit card will charge you .0357% daily on your balance.
3 – MAXING OUT CREDIT CARDS
Thirty percent of your credit score is based on how much of your available credit you are using. If the card is in your name, and you have cards maxed out, your credit score drops.
Low credit scores can be an issue, of course, when applying for a loan of any kind; high credit card balances often lead to denied applications.
Are you paying a higher interest rate on some of your credit cards because you carry high balances on others? It’s worth checkin.
4 – NOT PLANNING FOR A RAINY DAY
Most practices are tremendously unprepared financially for unforeseen circumstances. Partly because most, if not all, the money that comes into the practice is spent or distributed in full to each partner at the end of the year.
You don’t need to be around long to know the unexpected comes by often. Hence, the practice should always have a reasonable amount of money set aside because sooner or later you’re going to need it.
Not only is it crucial for your business to set money aside for financial emergencies, but it also is good business practice.
Not to mention that with cash reserves, instead of drawing from those high-interest loans or maxing out your credit card, you’ll have what I like to call a cushion fund for times when we need money to get us through a rainy day.
5 – NOT DRAFTING A PARTNERSHIP AGREEMENT
I’ve seen this happen before. A few docs decide to quit their employment to start their medical practice.
The group aligns with the vision of serving patients better, the lure of sticking it to the man and the prospect of increasing their income.
The excitement of opening up your practice with friends or like-minded coworkers and everybody coming together towards a common cause often puts the task of drafting a partnership agreement on the back burner.
Don’t delay a partnership agreement. In fact, do it as soon as possible. Here is why:
a) It’s the wise thing to do.
b) It is better to work out details when everybody tends to be happy excited and looking forward to the future than to work out the details during a nasty, vicious divorce.
Drafting a partnership agreement when you are angry, resentful, feel duped or taken advantage of is… well, I don’t have to tell you it’s bad.
It is also important to review and update your agreement every few years with your attorney to ensure it reflects current circumstances.