Success is a journey. Having the proper accounting methods established early on in your career will make the journey more enjoyable, although never without challenges.
Beginning and operating a professional practice may be seem difficult as there are so many items requiring attention, i.e., marketing your practice, office and staff management, working on becoming profitable, among others. Often times, after graduation there is large student loan debt to be repaid. This does not include the cost of starting or purchasing a practice with the probability of obtaining new loans to finance these additional practice costs.
While essential to acquire and care for patients, equally important is proper money management. The sooner accounting and other financial processes are in place, the more likely your practice will have the ability to be on sure footing. To that end, doctors should endeavor to understand their office finances. The use of simple and practical tools can assist in understanding the financial aspects of the office.
The importance of a balance sheet and profit and loss statements
The implementation and understanding of a balance sheet (snapshot in time); assets, liabilities, and owner’s equity (net worth) in conjunction with a profit and loss statement can assist in comprehending the total amount of expenses within the practice. How much income is required to offset expenses and yield a profit? This is where most doctors slip up. Whether lacking the knowledge or the fortitude to implement this key business action step; too many unconsciously ignore expenses and only focus on revenue. Unfortunately, counting your money without consideration of expenses is the wrong accounting model. According to Investopedia, “The purpose of the balance sheet is to give users an idea of the company's financial position along with displaying what the company owns and owes”. Unless you clearly know for what and how much you must pay each month, you will be unclear about how many patients and related professional and ancillary services are needed to meet your costs. In a nutshell, it all begins with knowing your expenses. As the US Small Business Administration notes, “Understanding financial statements is essential to the success of a small business. They can be used as a roadmap to steer you in the right direction and help you avoid costly breakdowns.” The goal is to earn more than your expenses. It is about becoming and remaining profitable.
One of the best methods to institute is to develop and use a spreadsheet or a word processor to list every monthly expense. This includes, but is not limited to, lease payments, repaying loans (i.e., automobile, student and equipment), salaries, insurances (i.e., malpractice, office liability, and renters), utilities, supplies, etc. You are responsible to pay everything attributed to the business. The sooner you focus on the total sum of all your expenses the better will be your understanding and the ability to make decisions related to the number of patients needed and the number of visits per week to cover these costs.
Learning the basics allows you to know where you are going
Once you have completed your expense analysis it is now time to focus on your income. The number of prospective patients you believe you will see on a monthly basis is only the beginning. Additionally, you may want to add ancillary services, i.e., physical therapy, in-office diagnostic testing, acupuncture, massage, nutritional supplements, weight management programs, orthopedic appliances, orthotics, and more. The total of these services then becomes income. It is suggested you are well aware of your specific state law and your ability to offer any ancillary service. Understanding your true income becomes clear only after expenses are subtracted and all tax liabilities are paid. For example, you may sell $500 of nutritional supplements. This sounds fantastic with one exception; you paid to obtain these supplements. Consequently, if these supplements cost you $150 your net profit is $350. However, after paying income tax on your net profit, the net-net is what you get to keep. There are inexpensive office management and financial accounting products for purchase to help you track your personal and office income, expenses, and tax liabilities. This can also help you save time and money by aiding your accountant to monitor and quickly prepare necessary financial forms quarterly and annually.
"Know from whence you came. If you know whence you came, there are absolutely no limitations to where you can go." -James Arthur Baldwin
Every journey begins with the first step. Unless you plan and chart your path, in all likelihood you will take unnecessary extra steps and expend extra energy losing valuable time in the process. The healthcare arena is very competitive and every professional discipline is attempting to obtain their market share. Patients have access to unlimited amounts of information and are no longer content to be told what is best for them. Instead, patients are becoming more proactive with deciding how they want to be treated and being very discerning with who they will allow to care for them. It is the responsibility of the doctor to be prepared when entering practice, have a plan, and do everything possible to be successful. The adage no one plans to fail but many fail to plan appears to be a truism in any life endeavor.
Statistics don’t lie
Assume you have obtained computer programs to process patients, bill for services rendered, collect your fees and chart your financial progress. You have marketed your office and patients are being seen. You have developed a market niche and attract those patients you want to care for and their referrals. Your business acumen is continually improving with experience, consulting with appropriate professionals and attending continuing education programs.
So how do you measure success? Is it the number of patients you treat? Is it the amount you bill versus collect? Is it the amount of money in the bank or value of your investments? How do you know when enough is enough? Have you done everything you needed to do and left no stone unturned? The necessity to extrapolate your goals and develop the ability to translate it into your perceived needs will always remain a challenge. The reality is you may never know if you do not know what it is you want.
Becoming profitable should be your primary goal as this will allow you to have the opportunities necessary to continue on your life’s journeys. Have you established your goals and know the cost to achieve each of them? Is it a bigger office, new house or car, vacations, or funding a child’s college education? Have you established a savings method for personal or office emergency funds? What about retirement planning and long-term care, life, and disability insurances? There is a difference between wanting and having with an associated cost to each.
Success is a journey. Having the proper methods established early on will make the journey more enjoyable, although never without challenges. It is never too late to begin a journey. For some, going it alone may work whereas asking for help before beginning a journey may work for others. However, building a team of professionals (Certified Financial Planner fiduciary advisor, CPA, credentialed practice consultant and attorney) to help guide you through the process of success is a smart action step. Whether doing it alone or with help, never stop making goals and continually move forward. Remember, statistics should be a tool used to show you if you are remaining on course. The accuracy of this compass is dependent on inputting honest, correct, and trustworthy information. Fudging the information and not being truthful to yourself not only lulls you into a false sense of well-being but actually prevents you from fulfilling your goals. Where you currently are is a snapshot in time, just like a balance sheet. It can always be improved upon and it is your responsibility to meet adversity head-on, see it through and make it happen. Good luck on your journey and never fear asking for help!
About the Authors
H. William Wolfson, DC, FICC, MS, MPAS, is a financial consultant and advisor. After passing the rigorous Certified Financial Planner examination, Dr. Wolfson obtained a Master of Science in Personal Financial Planning from the College for Financial Planning. He was subsequently awarded by the College a Master Planner Advanced Studies. Dr. Wolfson is a member of the Financial Planning Association (FPA). Dr. Wolfson retired after 27 years of active practice and remains active volunteering his time to the continued education and success of colleagues in assorted professional organizations. Dr. Wolfson may be contacted for consultation at firstname.lastname@example.org.
Drew Stevens, PhD, is the author of eight books including the widely acclaimed "Practice Acceleration", as well as writing over 700 articles on healthcare practice strategy. He developed the Practice Management Certificate at Saint Louis University in Missouri. Dr. Drew helps professionals develop strategies that exponentially grow revenue and return personal time. He is a passionate, professional, and personable keynote speaker, and workshop facilitator; Dr. Drew conducts over 50 presentations per year in over 20 countries. He is quoted frequently in the media, with periodicals such as Personal Selling Power and Sales and Marketing Management, The New York Times, The New York Daily News, and Chicago Tribune. He can be reached through his website http://www.stevensconsultinggroup.com.
Reprinted with permission from the June 2014 issue of Dynamic Chiropractic Insights, www.dcpracticeinsights.com.