Private practice and wealth creation
Going into private practice may be one of the best wealth creation strategies around, although it is obviously not for everyone.
There are two main reasons why running your own private practice may be a wealth accelerator strategy:
– it may increase your income-earning capacity significantly;
– it may enable you to split income in a tax-effective way to your spouse or other dependants via a service entity.
In some cases, it may also make sense to buy your own rooms, which could prove to be another excellent wealth creation strategy.
Unfortunately, many medical professionals do not run their practice like a business, which means they are not maximising their returns, and leave their success to chance.
This is why we are big advocates of business planning, whether you are starting or growing your practice.
Why should doctors and dentists engage in business planning?
To establish your finance needs
Whether you are starting or growing your practice, funding will play a vital role in your success. The types of finance you may require include: fit-out and equipment loans/leasing, practice rooms purchase, etc. You should map out your funding needs for the next 3-5 years and establish how you will finance this.
To manage your profit margin and cash flow
If you are not careful, your practice expenses will easily get out of control and erode your net income. Staffing costs in particular can quickly escalate. You need to monitor your monthly profit and loss figures and cash flow against your Budget, which you would establish as part of your business plan. Pay particular attention to ratios such as staff wages as a percentage of total income.
To build fire-breaks rather than putting out fires
Without a business plan you may spend most of your time fighting fires, such as dealing with staff issues and IT problems. By implementing robust processes and procedures systems as part of your business plan, and delegating responsibilities, you can spend your own time in a more productive and rewarding way.
Please contact us if you would like to receive a template medical practice business plan.
How to monitor your practice results
If you are not benchmarking your medical practice financial results on a monthly basis, you are leaving the success of your practice to chance.
Unfortunately, the reality is that many doctors and dentists do not have systems and processes in place to capture and review their monthly data.
At a high level, you should be reviewing your income and expenses on a monthly basis, and benchmarking this against your budget. A budget is like an annual financial plan for your business, where you have set your desired income for the year and your anticipated expenses, such as wages, marketing, etc.
When you compare budgeted versus actual figures, you can make adjustments where required. For example, if the income is much lower than anticipated, you can investigate what the cause is: staff inefficiency in booking appointments, or perhaps you are not getting enough referrals? The same goes for your expenses. Any material variations from the budget should be further analysed.
You also need to keep a close eye on your debtors. This means that you cannot let your outstanding patient fees get out of control. What procedures do you have in place to ensure your patients pay their fees?
Other useful information is the number of new patients per month and why they made an appointment with your practice. For example, was it through your website, through an advertisement, or where they referred to the practice? Identifying the source of new patients will help you to determine which marketing channels are working, and where you are getting the best return on your marketing spend.
In addition, what services were provided to the patients? Did they have a consultation with a doctor or dentist, did they see a nurse, how many surgeries did you perform? Are their certain services in your practice that are producing better financial results than others?
Understanding your practice numbers will also help you to identify appropriate staffing levels (do you need more nurses?), and ensure your wage bill remains an appropriate percentage of your revenue.
Finally, by staying on top of your financial results on a monthly basis you can make adjustments throughout the year, and have a better chance of achieving your budgeted results.
To be able to accurately benchmark your practice, you will require the following: – a realistic budget of income and expenses (can be based on the previous year if still relevant); – systems to track and analyse the relevant data (ideally a patient management and accounting package that talk to each other); – accurate data capture or input; – the skills to interpret the data.
You may need to seek the assistance of your accountant to review your financial results on a monthly basis, or your practice manager may be qualified and skilled to assume this role and report to you.
We have guided many clients in starting and growing their private practice and have access to other growth specialists such as digital marketing experts. Please contact us if you would like to discuss your Private Practice Growth and Business Planning.