HEALTH CARE: Ten biggest financial management mistakes
Over many years of working with physicians and dentists I have seen all kinds of “interesting” financial decisions. While all the physicians and dentists I have known are honest, hard-working individuals, they have not been immune from bad decisions and poor judgement. In this article, we will explore five of the biggest financial management mistakes. Next month, we will discuss the other five.
Failing to live within your means
It’s amazing, but many healthcare professionals–regardless of age, background, or even income–cannot manage to live within their means. They work all the time, constantly trying to catch up. Often they never do, meaning they can never afford to retire. Today, it’s imperative that everyone live within a budget, which should take into consideration all current and future needs.
Years ago, overspending was less of a problem; it was easier to generate more income by just working harder. The overspending, of course, is usually on the personal side, not in business expenses. The professional or their spouse sometimes fritters away the profits–their take-home pay–which creates pressure that can be a serious problem for their practice.
Not planning your work or working your plan
Whenever we engage new clients, one of the top things on our agenda–whether on their agenda or not–is to help them embark on a long-term plan to reach financial independence. It they cannot define that, we do it for them. Basically it is this: There should be no problem positioning a physician or dentist in his or her early 30s to retire by age 55 with a couple million dollars in savings, debt-free, and having funded some of the children’s education along the way.
There is no great secret to this; you merely need to plan your professional life, personal life and financial life. First, start a retirement plan as soon as possible, setting aside as much as you can. Second, systematically and as rapidly as possible, get free of personal debt. Third, create a personal portfolio and invest for long-term objectives, such as financing your children’s education. If you do these three things over a period of 20 years, you’ll have financial independence and a choice of whether to continue working or pursue other interests.
Failing to use outside advisors
A common error among owners of health care practices is not making appropriate use of accounting, tax, legal and business counselors. Perhaps it stems from America’s do-it-yourself culture of rugged individualism. Whatever the reason, it ignores the fact that outside advisors can be wonderful investments. They can help health care professionals establish financial plans, set up business systems, monitor progress and measure performance against goals.
Business consultants, in my obviously biased opinion, should not be viewed as cost centers or expenses, but as investments that pay dividends in the long-term.
False economies in practice expenses
Over the past six or eight years, revenue growth among health-care practices has pretty much flattened out. Practitioners are trying to do more with the same amount of income or, in some cases, less income. That has caused many to take a critical look at their expenses in hopes of finding ways to cut costs and maintain profitability.
In most health care practices, the biggest expense item is personnel. In order to make a significant impact on the bottom line, practitioners are tempted to reduce staffing. Often that is a mistake. The false economy lies in the fact that, in many instances, more should be spent on personnel because the additional help would increase efficiency and profitability.
Likewise, the impulse to scale down the size of the office is another common mistake. In a busy practice, the addition of more exam rooms may allow for the addition of a mid-level provider that could increase the practice’s net profit.
Building inefficiency into your routine
The number of patients a practitioner sees per hour is largely a function of the efficiency of the doctor and support staff, as well as the number of rooms and kinds of equipment available. However, inefficiency in these areas is easy for doctors to overlook. They cannot see the forest for the trees because they have their heads down, working very hard.
In evaluating a practice’s operations there are three things a doctor should never do:
• The doctor should never have to wait. The staff should always have the patient ready to be seen.
• A doctor should never go to things; things go to the doctor. The physician should not have to come out of the exam room looking for an Ace bandage or any other supply or instrument. It should be brought to her, or be where she can find it right away.
• A physician should not do anything that can be delegated. As a practical matter in most practices these days, the patient work-up is handled in advance by support staffs who take a brief history and the vital signs. Yet, there are countless ways to improve in this area if you give it some thought.
As a result of these types of practices, a practitioner may be able to see three or four more patients a day resulting in an additional $200 or $300 in income per day.
Rex Rudolph is the leader of Rehmann Robson’s health care consulting practice in Traverse City. The CPA firm is one of the state’s largest, with offices in Grand Rapids, Muskegon, Kalamazoo, Saginaw, Jackson, Cheboygan and Farmington Hills. BIZNEWS