Michael Zhuang, an investment advisor with a focus on physicians, offered an interesting point of view in a recent post on Physicians Practice. He observed that doctors often fail to accumulate significant wealth in large part because they place too much emphasis on living a “doctor-appropriate” (i.e., fancy) lifestyle, they’re so busy they don’t have much time to focus on finances, and they tend to believe they can “do it all themselves.” His recommendations include living within (or below) your means, dedicating time to financial planning, hiring a qualified financial advisor (he promises to provide some tips for doing so in his follow-up post) and focusing on what you do best (i.e., delegating non-revenue activities).
We have a few things to add to his list, based on our work with small- and medium-sized practices:
- Fund your retirement first. Employee physicians usually have 401(k) plans so they can start the habit of “paying yourself first” for retirement. Practice owners are often challenged to develop these habits, first because their early years of investing in their practices may not permit much savings, and then because any retirement plan would require a bit of effort on their part to research and establish. Once you’re earning income from your practice, don’t let inertia prevent you from setting up an SEP (or other qualified plan), and funding it on a regular basis — think of it as a regular bill that must be paid.
- Save your savings. Implemented a process improvement that increased profitability? (Say, for example, something you learned by engaging consultants for a practice review, or CPAs for a financial audit.) Much like salaried employees are advised to put their raises into savings automatically (so they don’t adjust to the higher take-home pay by spending more), doctors can turn gains from improving their practices into investments for the future. (If your practice needs the funds reinvested for growth — say, into marketing or an EHR — then those needs might come first. The point is just to avoid the pitfall of spending at a higher level if your income moves up a stable notch.
- Don’t just delegate practice management — invest in it. Zhuang has a point about delegating non-revenue tasks — but, it’s easy to take that thinking too far and mistakenly think of practice management as “overhead” and an expense to be minimized. Your practice manager has the power to control your expenses, ensure you get paid everything you’re entitled to, market your practice to maximize utilization — provided he or she has the tools to do so. Don’t skimp on training (and ongoing education). And when in doubt, pay a bit more to get the best practice manager you can afford.
- Watch for leaks. Money that leaks out of your practice is money that could be invested for your future. Sadly, too many practices are victims of embezzlement — and, the majority of practices lack the management controls to prevent embezzlement from occurring. (A recent presenter at MGMA estimated that 75 percent of practices may be vulnerable!) Some basic controls include separating check-writing control from account reconciliation responsibilities, require that checks be hand-signed, limit access to petty cash, and engage auditing from time to time.