Editor's Note: As mentioned in a previous article, "The Path to Refining Your Practice Begins with Streamlining Your Services," we discussed the importance of specializing in an industry as well as in the services you offer. One of our goals in the practice development training at the "Scaling New Heights® 2017" conference is to equip you to explore various industry niches and specialized services for those industries. Here, Carol King will enlighten you on the special requirements and opportunities in serving the medical industry.
Doctors (and dentists) are different from other businesses owners. They have years of education, but most have never had a business class. They purchase a practice or start their own, although they often have had no exposure to practice management.They may be right out of school, or they have worked (usually as a contractor) for another practitioner, where they come in, see patients and leave.
As a new business owner, they'll probably start with a lot of debt, borrowing funds to purchase an existing practice or to buy new equipment, build out their office space and have some working capital to provide cash flow in the early months.
If you can show them a few benchmarks they can use to measure the progress of their business, you will help them get beyond the balance in their bank account and learn more about what’s going on in their practice.
Unlike many small businesses, they can’t start out working from home to minimize expenses. They need an office, a staff, billing software, malpractice insurance, medical supplies and marketing.
This can result in cash flow problems as they have to balance co-payments from their patients and sporadic insurance payments with funds to cover salaries, expenses and monthly business loan payments, as well as supporting themselves and usually, large student loan payments. They really need a trusted advisor to help them navigate that balancing act.
About six years ago, I had two young dentists who were married and just moving back to the area. He was starting a pediatric dentistry practice, along with driving 90 minutes each way several days a week to work for another dentist while building his practice. They had two small children, and she couldn’t find another office that would allow her to work the schedule she needed to care for their children, so she decided to purchase a small practice of her own.
You may wonder, as I did, why she didn’t just work in his practice. She said, “All those kids? No thanks.” Pediatric dentistry can be very lucrative, but it does require a certain temperament. As another of our pediatric dentists memorably told me, “Some days we have stuff coming out of every orifice.”
In the first few years, there were always cash transfers going back and forth from their personal accounts, and between offices.
At one meeting, when we were trying to sort through the deposits to determine which ones were actually income, I asked (with some frustration), “Why do you do it this way? Can’t you just pay yourselves once a week?”
As it turned out, they couldn’t, because they couldn’t wait for a week to accumulate enough funds to pay all their business and personal bills. Their struggles lasted for a few years, and they were exacerbated by tax burdens. We had used Section 179 depreciation for their early equipment purchases, which helped them out in the beginning, when they really had no income, but that also increased their taxable income in the following years.
His practice grew at a good rate, and he was able to gradually reduce the number of days he made that long drive to the other dental office. We all celebrated when he was able to cut that out completely. I’m happy to tell you that last year they were able to buy a big fabulous house (which will be a big help with their tax burden), her equipment and practice loans will be paid off this year and his gross receipts will hit $1 million for the first time.
Doctors (and dentists) are different from other businesses owners. They have years of education, but most have never had a business class.
This year, we're starting to use benchmarks and analytics with each of their practices. Up until now, they really weren’t interested and wouldn’t make the effort to collect the information, but now they’re very excited about it (well, he’s excited enough for both of them).
Most of your doctors and dentists probably are never going to understand an Income Statement or Balance Sheet or even want to (which is OK with me; I don’t want my neurosurgeon wondering about his supply expenses when he’s working on someone’s brain).
However, if you can show them a few benchmarks they can use to measure the progress of their business, you will help them get beyond the balance in their bank account and learn more about what’s going on in their practice.
Another important issue for any accounting professional: While you’re working with any medical or dental professional, you need to be aware of HIPAA. The Health Insurance Portability and Accountability Act of 1996 was created to protect patients’ medical information and includes strict guidelines on electronic storage and handling of Protected Health Information.
QuickBooks is not HIPAA compliant, so be sure not to enter any patient identifier (such as their name on a refund check) in either QBDT or QBO.
We’ll discuss these and other helpful topics in "Practicing in the Medical Industry," Monday at 4:10 p.m. I hope you can join us.
You can find more details about each of the sessions in a downloadable document located here: Download Course Descriptions.
Reminder: As your ever-faithful Sherpas, we stand ready to guide and encourage you along your chosen path. If you would like to consult with us about your path, please email me at coliver@woodard.com or Liz at ecolley@woodard.com.
Be sure to tell us your goals and what you hope to learn so we can recommend appropriate paths.
Carol King
Carol King is a practicing CPA in Southern California. She started using QuickBooks in 1997 and QuickBooks Online in 2005, and is a Certified ProAdvisor in QuickBooks Desktop, Online and Enterprise. She has a Bachelor’s Degree in Accounting and an MBA from CSU San Bernardino (Calif.) and her enthusiasm for sharing her knowledge led to a position as an Adjunct Professor at Chaffey College, teaching QuickBooks and Payroll Accounting. In January 2017, Carol formed the “Payroll for Preparers” Facebook group, to give Payroll Professionals a forum to discuss issues unique to that specialty.