Chapter 7: Financial planning and management – boosting your bottomline
|"Money is a terrible master but an excellent servant. "
- P.T. Barnum.
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 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.
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.
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 !
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.
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.
Simple safeguards can help prevent fraud.
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.
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 !