Establishing your own medical practice is a daunting task. However, the jump to being ‘your own boss’ gives you the sense of ownership and gives you more freedom to determine your workflows. Also, the growth of private medical practice industry helps expand healthcare access to local areas that might currently be underserved.
As a medical practitioner, you treat and help your patients with regards to their health. But that’s not the only health you should be taking care of. As a business owner, you also have to take care of the financial health of your business. It’s like your business’ central nervous system— if your business financial health is poor, it may render your business paralyzed.
Here are common financial mistakes made by medical practitioners and tips on how to avoid them:
1. Blindly following the advice of accountants or financial advisors without truly understanding what they are doing
Being invested in the practice of medicine can take the most out of your time. The main problem with this, though, is if you are fully committed to it, but neglecting the business side of your practice and leaving the decision making to the financial advisors that you hire. This would not be healthy for your business because ultimately, you are the one who knows more about the industry.
You would not need to master the rules of finance, but a level of awareness of options and knowledge of business and financial fundamentals is crucial. This would allow you to ask the right questions. You would have to work together with your financial advisor on which paths to take given various options, but you will be the one to decide on which path you will take and having an informed perspective will certainly lead you to a way that will contribute to your business’ success.
2. Ignoring Risk Management
We all know that the practice of medicine, relatively, has risks associated with it. Failure to assess, manage and/or mitigate the risks in the practice leaves your business unguarded.
The thing you would like to do is establish a risk management plan with the help of a business advisor. You should be able to identify the potential risks associated in your practice, evaluate and address them with the help of your business advisor.
3. Inadequate Tax Planning
Medical practice is a lucrative practice. As your practice grows, your profits will greatly increase too, and that is when tax planning becomes increasingly important for your business. A lot of medical practitioners commit this mistake of having a little, or worse, no plan at all with regards to having their tax projected liability to prepare for at the end of the year.
Tax planning helps you to ensure that all available allowances, deductions, credits and exemptions are working together in the most efficient manner to correctly calculate the tax due for your business. Consulting with your tax preparer can greatly help with your tax planning and strategy.
4. Not Monitoring Cash Flow and Not Putting Disposable Income to Good Use
Medical practitioners might think that once their business is profitable, it is alright to go along the course of your business, continue operating and spend your income without a specific plan. This is entirely wrong. Poor cash flow management can bring you a truly damaging impact on your business such as not being able to provide for payroll or failure to pay a supplier on time, as well as not being able to collect your receivables. Without monitoring your cash flow, your once profitable business may go out of order, eventually leading to the closure of your business.
The best way to monitor cash flow is to work with your bookkeeper or part-time CFO. You should map out your monthly expenditures, plot it against your stream of income, and determine a theoretical surplus or disposable income which you may use to pay your debts or use it for wealth creation, such as investing or improving your services or adding valuable equipment that can give you rewarding returns.
You may want to check out our previous blog on cash flow management: Don't Do These 8 Things If You Want to Have a Healthy Cash Flow for Your Business
Avoiding these common financial mistakes will surely bring your business towards the right path—profitable and secured.
If you need help with bookkeeping, tax preparation, or avoiding these financial mistakes we listed above, contact us today at email@example.com or 832-437-0385.
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