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Your medical practice , like all businesses, needs to make
a profit to survive. All the idealism and medical skills in
the world are of no use if you cannot make both ends meet.
You cannot afford to be ignorant or careless with figures
, since you are self-employed. No one can run a business without
financial control and private practice is no different from
any other business. Many doctors are uncomfortable with financial
figures, but you need to attain basic financial literacy if
you need to run your own practice and grow it successfully.
A profit and loss account
This account sets out the income earned ( patient fees) and
the expenditure of the practice, the difference being your
profit.
Budgeting
Budgeting is the process of estimating your income as it is
earned and expenditure as it is incurred. It helps you to
plan for the future; and to compare what you achieve with
what you had expected to achieve. Every business experiences
ups and downs in expenses and income, so careful forecasting
is essential, and it is advisable to always allow a margin
for inflation in the forthcoming year.
Cash flow
The cash flow statement sets out what is happening in cash
terms. It tabulates the money going out of the practice to
pay for expenses, and the money coming in . If the outgoing
is more than in the incoming, you have a cash flow problem.
The balance sheet
The final accounting item is the balance sheet.
This shows what the practice is worth and is usually
set out at the end of the practices' financial year,
showing what the practice owns and what it owes.
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When you are starting practice, or when you want
to offer a new service , buy new equipment or expand,
you will need to raise money. The most convenient
source is your bank. Many banks do have special
schemes for doctors, in order to help them buy new
equipment or expand their practice. Doctors are
usually excellent credit risks, and most bank managers
will be happy to lend you money. Go well prepared
with the information your manager requires , and
anticipate a series of questions.
The main questions will be as follows:
1. Why do you want the money?
2. How much do you want?
3. How will the money be repaid?
4. What securities are being offered against any loan or overdraft?
5. What are the risks?
Make sure your documentation is complete and uptodate. If
your paperwork is in order, your chances of raising money
are much brighter ! You will need to include details such
as :
1. A short history and description of yourself, stating your
age, education, professional qualifications, skills and specialisations.
A prepared curriculum vitae is always helpful.
2. A list of personal means, for example, property, equipment,
stocks and shares and any other asset that may be held for
collateral against a loan.
3. A detailed cash flow forecast and projected profit and
loss account.
4. The maximum amount of money you need to borrow. The loan
must be negotiated precisely with fixed repayment details
5. References of your character. These should be from people
who have known you for a long time, who are not family or
friends.
Other approaches include borrowing money from a
financial company; or finding a cash-rich partner.
A sleeping partner is one puts up money in return
for an eventual share in the profits, but does not
take any part in running the practice. Luck and
contacts can help you find a person who is willing
to risk money by backing your skills and talents.
Having a rich father-in-law can be very helpful
when starting practice !
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KEEPING ACCOUNTS
You must keep a careful record of all the financial transactions
concerned with the practice. This is important, not only to
check whether you are making a profit or loss, but also for
the legal requirements involved in paying income tax. Accounts
constitute the financial memory of the practice, and it cannot
be stressed enough that you have to keep them in order. It
is largely a matter of self-discipline - do it regularly .
As your practice grows, you may need to employ a full-time
accountant to take care of your paperwork. Today, many computer
programs are available, which make keeping accounts much easier
and manageable. These will allow you to prepare a trial balance
and submit your income tax returns efficiently, and are well-worth
investing in.
Preventing cheating
Since doctors earn a considerable amount of cash
income on a daily basis, there is considerable opportunity
for your office staff to cheat you – and unfortunately,
many do ! Doctors are often too busy taking care
of patients, which is why they don’t bother
about “petty” details. However, they
often end up losing their hard-earned money –
something they can ill afford to do. Some experts
estimate that three out of four physicians will
suffer a significant loss due to employee dishonesty
at least once during their careers because they
lack sufficient checks and balances. The best way
to prevent this is by being strict about implementing
cash controls in your clinic. Unfortunately, the
embezzler often turns out to be a long-term, reliable
employee, because without proper controls, the most
trusted staffer often faces the greatest temptation.
It usually starts small, and then keeps on ballooning,
so that a trusted employee (but perhaps one who
is resentful at what seems like a low salary) ,
begins to siphon off small amounts of cash until
it becomes second nature.
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Simple safeguards can help prevent fraud.
- Require documentation support (invoices or statements)
for all check requests.
- Mark each invoice "paid" and the date paid
at the time you write/sign the check.
- Schedule a specific time to sign all checks each week.
Your practice size will dictate how complex you can make your
cash control policies. Have your accountant audit and revise
your internal controls . You should be involved in large financial
transactions , and should implement random spot checks to ensure
honesty.
Try to minimise the opportunities and temptations you offer
to staffers to steal by having strict control systems in place.
Often thefts come to light when the employee who is cheating
takes a vacation, so make sure all your staff members get an
annual vacation.
- Make deposits daily , so that there is not too much cash
on hand in the office.
- Reconcile bank statements monthly.
- Occasionally track a random sample of cash receipts through
your whole system, from the appointment register all the
way to the computer ledger to confirm no payments are missing.
- Never allow financial records or insurance claims to be
taken home.
Demonstrate your awareness of what’s going on in your
office. That doesn’t mean you need to hover
over employees day in and day out. Rather, set up
and use good controls, and make a point to talk
to your staffers about what they’re doing.
Be visible and ask questions when you verify cash
balances or review reports. If your staff realizes
you are careful with your money, they will treat
it with the respect it deserves !
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