Five Mistakes Doctors Make With Their Finances
Smart choices can help preserve the value of your private practice and make you more money.
Michael J. Sicuranza
Doctors’ expertise lies in treating their patients, but when it comes to running their own businesses, many are making rookie mistakes. Unfortunately, it’s these slipups that are driving many private-practice doctors to the brink.
Michael J. Sicuranza, a Certified Financial Planner® and a cofounder of Milestone Wealth Advisors, Inc., says that private-practice doctors are seeing shrinking revenue due to decreased reimbursement rates, higher overhead costs and in some cases the Affordable Care Act. “The cost of benefits and taxes are up, and the competition from hospitals offering the same services are squeezing the smaller practices,” says Sicuranza.
As a result, doctors have less financial security, and the value of their practices is decreasing. Below are five mistakes that doctors often make and the solutions to bring their practices success.
1. Ignoring corporate retirement plans.
Most practices have a 401(k), but once it’s set up, doctors tend to never look at it again. Sicuranza suggests that, as your assets grow, you should have a financial adviser do some due diligence on the plan to reduce the fees, have better investment options and better employee education services.
Sicuranza also says that practices with excess cash flow should look into other tax saving retirement plans that can be leveraged on top of the 401(k).
2. Not running a practice like a business.
The days of having a nonprofessional running the financial leg of a practice is becoming obsolete. Doctors need to hire a professional financial administrator so they can focus their attention on their patients and create leverage within their practice.
Doctors should also consider being process oriented and implementing technology correctly. Technology can reduce costs because more patients can be seen. The patient experience also improves—you are more efficient with your time, therefore, giving patients better care.
Sicuranza also suggests that doctors expand. “Doctors should merge with another practice or form a loose alliance with other doctors,” he says. In doing this, doctors can reduce their overhead negotiating with suppliers and shrink the staff needed to support the practice. But also, the more doctors in a practice, the more earnings leverage can be created.
3. Not planning for the future.
The process of phasing out of your practice—if done properly—could take three to five years. A successor should be brought in early so patients feel comfortable and so you can find a capable replacement. Patient retention leads to a higher sale price. Ownership agreements should be specific to the flexibility of practice sale or retirement.
4. Not having a cohesive team working for you.
Many doctors have a CPA, a financial adviser, a business attorney and an insurance agent working for them. However, they rarely speak with each other, which can be a detriment to a doctor’s financial health. Sicuranza recommends a “meeting of the minds” at least once a year, as well as constant communication and collaboration. “Doctors take a team approach to medicine—they should take the same approach to their financial well-being,” says Sicuranza.
5. Your investment strategy doesn’t match your goals.
Doctors tend to be collectors of assets and sometimes their investment allocations do not match their goals. They should have some income diversification in surgery centers or real estate, for example. “That way, they have income coming in to offset the overhead,” says Sicuranza.
Michael J. Sicuranza, a Certified Financial Planner®, is a cofounder of Milestone Wealth Advisors, Inc., a financial-planning and wealth-management company located in Greenville, Del. Sicuranza has been an independent adviser since 1995. He serves medical professionals, their practices and families.
Milestone Wealth Advisors, Inc.
3701 Kennett Pike, Suite 300, Greenville, DE
(302) 351-1988, www.milestonewealthadv.com