The number one financial mistake newly qualified medicos make, and how to avoid it

Posted by Sean O'Kane on 5 October 2016
The number one financial mistake newly qualified medicos make, and how to avoid it

Upon finishing their years of training, many medical specialists make hasty financial decisions that they live to regret (and that get in the way of their long-term financial success).

In our white paper, "Are you planning your journey to financial independence?" we identified key financial challenges faced by medical specialists. Chief among these is that practitioners are either complacent that they're now earning good money so don't need to plan financially, or they're eager to finally enjoy the rewards of all their hard work and want to spend money now!

I have a good friend who is very successful in his career and has come up with the phrase 'toy fever' to describe the urgent desire to make lifestyle purchases. While it can apply to the nice-to-have things in life, I believe it can equally be applied to the purchase of houses and cars so I've recoined the term 'purchasing fever'.

One of the doctors we interviewed for our white paper commented: "It's very tempting when you are surrounded by people on good incomes, driving around in new sports cars and living in multi-million dollar properties. I find I am trying to keep it real within my own capabilities and trying not to get caught up in what others are doing." 

Keep in mind that as a doctor you're in training for almost half your working life more than most other professions and this puts you well behind many others on your journey towards building wealth and gaining financial independence.

Committing to new cars and an expensive house too soon after finishing your training can often add pressure while, at the same time, you are trying to establish yourself as a specialist or GP. Increasingly, we are seeing doctors completing their training and going into private practice due to the lack of public appointments, which in the medium term can be very financially rewarding, but in the short term can mean some uncertainty around cash flow.

In this blog I address the reasons why it can be beneficial to wait a while upon finishing training and delay important financial decisions and investments, especially if you're going into private practice.

Let's start by looking at a couple of real stories:

  • I had a client commit to a property that needed extensive renovation that would require increasing their income to repay. They subsequently decided private practice was not for them, and decided to sell and buy somewhere less expensive that was already finished.
  • On other side, another client purchased a property while building up private practice only to find after 12 to18 months their income had risen to the point where they wanted to move to a more expensive property expensive to sell and rebuy, not to mention the stress of moving.

These two stories are opposite sides of the coin, but the end result is the same a costly exercise to change the situation.

Issues can also arise as the result of a car purchase:

  • I met a new client who was referred to us they'd not long started as specialist and wanted to purchase a property. They had limited savings, so needed to look at a high loan-to-value-ratio loan. But the issue was they had bought two very expensive cars that seriously reduced their servicing capacity for the home loan they wanted.

Our advice

If you're not careful, you can easily go from a situation where you're tight for money because you're in training to a situation where you're tight for money because of the financial decisions you've made.

However, if you delay these important financial decisions to understand your pattern of income especially if you're setting up in private practice then you will be in a position to make those decisions with more confidence, removing the stress caused by over-commitment and strengthening your ability to achieve financial independence. Waiting could also put you in a stronger position so that you build up your equity, making it easier to find a loan arrangement with better rates.

Setting up in practice as a specialist or GP can take time and an upfront financial investment. In addition to any upfront payments, it will take time to build referral sources. Any delayed payments can affect cash flow keep in mind that health funds can take up to three months to process payments. What we see is that it usually takes a year or so to build a good idea of how things look financially and what you can reasonably expect your income to look like.

With this in mind, in order to help you enhance your financial future for the long term, our team of financial planners advise you to:

  1. Delay making any big financial decisions until you have established yourself as a specialist/in private practice.
  2. Understand what your goals are and what they will cost.
  3. Model different financial scenarios with realistic returns to see the bigger picture and assist with decision-making.
  4. Develop a financial strategy to get you where you want to be over time.

For specialist financial planning, accounting and tax advice for medical professionals, please get in touch with our team.

Posted in: Wealth Creation Planning Financial independence   0 Comments

The risks facing your practice and how to avoid them (Part 1)

Posted by Matt Connor on 13 September 2016
The risks facing your practice and how to avoid them (Part 1)

Part one: staff and revenue

Medical practices face many different risks and some of these can cause severe profit loss. Understanding these risks and adopting good corporate governance is an important aspect of running a successful medical practice. It's about having proper supervision and processes in place to mitigate risks and, ultimately, ensure a well-run business.

While this is not a complete list, there are some key risk management steps practice owners should take. In the first of two articles on this topic, I'd like to address issues relating to staff and revenue.

Staff risk management

Most medical practices we know have a few reliable, long-term administrative staff members but struggle to maintain high-performing, casual or part-time staff members. Some steps you can take to reduce any risk to your practice from staff are below.

1) Document staff performance criteria and ensure regular reviews.
It's important to outline your employees' expected performance standards with written and agreed staff performance criteria. Regular (annual or bi-annual) reviews are important to let employees know how they are doing and to keep them motivated and engaged. Through a developed process, you can gain and provide feedback on what further development or training team members may need to improve.

2) Ensure employment contracts are drafted and signed off.
Employment contracts are an important aspect of protecting your business and managing employer-employee relationships. Employment contracts need to clearly set out staff roles and responsibilities, working hours, leave entitlements and overtime policies. A well-drafted, written contract of employment is an important tool to regulate and protect your business.

3) Don't let problems fester if issues arise with staff members, ensure they are dealt with in a timely manner.
If a staff member is making mistakes, it may create a legal liability risk for the business. And if action is not taken, your practice could be exposed. Make sure any problems are dealt with promptly in order to minimise disruption and protect yourself.

4) Make sure you are taking the appropriate steps to embed staff policies and procedures. And don't let your standards slip.
If you have a policy and it's not being adhered to, it's not really a policy at all. Be sure to implement policies and hold people accountable. I recall one situation when a practice staff member was turning up late and going home early and regularly not doing their allotted hours. This was neither reported to the bookkeeper nor processed as leave taken through the business's payroll system. As a result, the employer had no way to recover that lost money. Make sure if staff are sick they report it and there is a process to track it.

Revenue risk management

Without a reliable revenue stream and effective financial planning, your practice wouldn't be able to operate. We've outlined some key areas when it comes to managing revenue below.

1) Make sure you invest in managing and monitoring billing systems and processes.
Medical practices rely on generating income from consultations. And billing software is integral to managing this. Make sure you monitor and understand the quirks of your software. Invest in staff training and don't assume the software's always right. For example, we've found with one well-known software tool, if adjustments are made to patient billings in one period, this can affect income reported in a prior period.

Also, keep in mind, billing administration can significantly impact on service activity and this should be considered in the service fees charged by the medical practice. From experience, we know that usually more than 50% of administrative time is spent processing and following up medical billings with Medicare, health funds, etc.

2) Maintain strong invoicing policies by enforcing payment at the time services are provided.
Regularly monitor outstanding debtor levels, and allow administrative staff time to follow up, as this is essential work.

3) Talk to your accounting and tax advice professionals for more information on financial planning and management.  
A key part of our financial services offering is helping medical professionals plan ahead and budget for expenses so even when the unexpected happens, your medical practice has the resources it needs to operate.


Of course, this list is by no means comprehensive, and every medical practice owner faces their own unique challenges when running a surgery. But by using these two articles as a guide, you should be able to avoid some of the most common issues we see facing many medical professionals resulting in a productive, profitable and well-functioning business.

If you'd like to find out more about our specialist advisory services and how we assist medical professionals and practice owners achieve the best business and tax outcomes, please contact our Brisbane-based team on (07) 3363 5800.

Posted in: Profitable practice Staffing Risk management Revenue   0 Comments

Volatile finances: unpacking investment misconceptions

Posted by Neal Durling on 9 August 2016
Volatile finances: unpacking investment misconceptions

In this piece, I'd like to unpack a couple of common financial misconceptions.

Firstly, the difference between an investor return and volatility is commonly misunderstood.

In finance, average returns and volatility are different things and affect investors differently. However, measures of volatility steal the limelight, often as the main focus of financial reporting.

To quote Investopedia, a return is "the gain or loss of a security in a particular period. The return consists of the income and the capital gains relative on an investment." A return is what you can realistically expect from a set of given assets over a period of time.

Volatility is how that return is likely to oscillate over short time periods. Investopedia states that "volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility is measured by using the standard deviation or variance between returns from that same security or market index."

Volatility means a security or market index can swing up or down on an hourly or daily basis, whereas a return is what you can reasonably expect over a given period.

Financial markets have been more volatile over the past year and this is likely to continue. But how it affects investors is perhaps not how you might expect.

This leads me to the second misconception I'd like to address: that a volatile financial market is bad for investors.

Every day, we hear news reports of stock market swings. I see firsthand how these swings affect many people's perception of financial market investment opportunities. They view these investments as risky. The constant, daily news commentary on the share market is about its volatility.

At the same time, the property industry is vocal about profitable returns, but I view a lot of this commentary as misleading. More often than not, these commentators are quoting gross returns not net returns and frequently neglect to provide a credible index or detail of what's included in the cost base, such as capital gains tax or costs associated with acquiring, holding and disposing of the property.

The key takeaway here is that financial market volatility should not worry you if you are looking to build medium - to long-term growth. The stock market is like a constant live auction, with assets marketable (at the push of a button) at any given time.

It's more important to keep in mind that volatility's effect on someone who is trying to maintain an established investment base is fundamentally different to its effect on a high-income earner without established capital.

The current financial market climate tilts the balance in favour of high-income earners who don't yet have a large capital base, rather than those who have already built their investment base.

  • If you have a lot of capital and not much income, then protecting your capital base is important and more challenging under these conditions.
  • If, on the other hand, you have a high income and not a lot in assets, it's a wonderful opportunity to build wealth.

When it comes to financial planning, I recommend the following to clients who wish to capitalise on their situation and build wealth:

  • Now is a good time to sensibly and methodically consider available investment opportunities.
  • Develop an investment plan informed by accurate and unbiased analysis, with a clear understanding of investments' likely returns (versus volatility) over an extended period of time.
  • Be selective when seeking advice; consider the credibility and integrity of the information source and take care not to confuse expertise with share of voice.

If you are interested in reading more on this topic, why not download our 'Planning your journey to financial independence' white paper, written for medical specialists on making good decisions in order to build wealth.

Or for specialist financial planning, accounting and tax advice for medical professionals, please get in touch with our team.
Posted in: Wealth Creation Planning Investment Stock market Volatility Return   0 Comments

Is your medical practice at risk of subsidising its associates?

Posted by Matt Connor on 12 July 2016
Is your medical practice at risk of subsidising its associates?

Owning and operating a medical surgery is a financial balancing act.

Practice owners must juggle overhead costs, ensure the practice runs efficiently and provide a viable offer in order to attract and retain skilled associates (other medical professionals working in the practice).

A key component of managing a profitable practice involves striking a fair deal with associates who pay service fees and ensuring a win-win situation for both the business owner and its associates. It's important that associates benefit financially while also paying the market rate so the practice is able to operate efficiently with the practice owner deriving an ongoing return on their investment.

As a financial services organisation that specialises in providing accounting and tax advice to medical professionals, we do come across situations where this is an issue and, as a consequence, profits in a medical or dental practice slide downwards. If not managed, this can lead to a reduced return for the business owner at year-end. In some instances, the net effect is a situation where the practice is effectively subsidising its associate medical professionals.

In this post I'd like to touch on strategies to manage this potential issue. Indeed, there are two main options for medical practice owners to increase practice income. But keep in mind these are not without their drawbacks.

1) Increasing medical billing rates

Firstly practice owners may look to increase their medical billing rates.

As a business owner, it's important to look at your competition and understand what they're charging and decide if you have scope to charge more.

That said, this is a tricky area and one open to increasing scrutiny. My colleague Neal spoke in a recent post about the push by the health insurance industry to reduce claims and manage profits as health system costs increase.

As you can see from this link, Bupa is planning to publish price information to put pressure on surgeons charging above-average fees.

The Australian Medical Association (AMA) price lists provide a reliable source to help gauge appropriate pricing.

2) Charging associates more in service fees

Increasing surgery administration fees is an option, but attracting new medical professionals and retaining good practitioners is key to a successful practice. So pricing yourself out of the market by charging too high a fee could be an issue. If an associate is made to pay too much in service fees, independent of the succession plan, they will take their business elsewhere.

Keep in mind also that when a newly qualified medical professional commences in a private practice, it is fairly standard for a practice to provide concessional treatment (discounted service fees), in addition to mentoring by more senior associates. It's important to have a clear understanding about when the service fees will be increased commensurate with the billings of the junior associate. In our experience, these negotiations vary from practice to practice depending on circumstance.

In addition to increasing income generation, practice owners may also look at ways to more effectively manage cash flow.

In a medical practice, administrative staff are responsible for scheduling, meeting patients, collecting payments, etc. A large part of their time should also be spent on administering billings. Most of the practice income comes from third party government agencies or health funds. Time is required to prepare a bill claim correctly, then submit it and chase up third parties when things aren't paid. Problems arise with requests for payment not being submitted or processed properly.

While this can be very time consuming, if the administrative staff are not managing this well, outstanding billings can accumulate, which affects cash flow. It's important to factor this as a vital component of managing a profitable and successful practice. The level of outstanding debt is a red flag. We sometimes see medical practices that are not working efficiently and failing to successfully recover monies owed.

In conclusion

Strong practice management to anticipate and address financial problems as they arise and good external advice are vital to keep practice owners in the loop and on top of their game. Your external accountant should be aware of potential red flags and raise these. They should act as a Chief Financial Officer, review profit and costs closely, and be a sounding board for key business decisions, in addition to providing general accounting and tax advice.

If you'd like to find out more information about ways to enable your medical practice grow, our team of Brisbane-based financial services professionals is here to offer expert advice.

Posted in: Owning a medical surgery Profitable practice Practice income   0 Comments

Post card from Europe....Brexit

Posted by Neal Durling on 24 June 2016
Post card from Europe....Brexit

What a day to be holidaying in the UK with a planned trip to Spain, France and Italy over the next 10 days!

This morning Europe awakes to the unexpected news that the UK has voted to leave the EU with the reaction in currency and stock markets being both predictable and logical.

The value of Stirling in currency markets has reduced quite significantly and as global funds flow back to the traditional safe haven of the US dollar, other currencies like the Australian Dollar will also experience some movement.

Local and Global Stock markets have also moved sharply lower as the market reprices a decision it "called wrong" and digests what this might mean and a lengthy period of uncertainty in Europe.

Naturally the usual colourful media commentary will add spice to the occasion and in turn heighten fear and volatility but what can we expect in Australia and why as a client of Medical Financial should you not be overly concerned?

The Australian Dollar will likely weaken which should be good for exports and the Reserve bank may bring forward an interest rate cut if it feels it necessary to stimulate confidence. Stock markets will be volatile and will likely undershoot fair value over the next few days as some investors who are over leveraged are forced to reconsider their positions and others who are poorly informed panic.

At Medical Financial we are conservative by nature when considering investment strategy and portfolio construction so our clients should not fall into either of these camps and those following a disciplined regular investment strategy will benefit from the pricing movements.

As things become a little clearer and we start to look more objectively at how things might look going forward common sense will return but it may take a few days or weeks to occur.

In other news the Maroons have taken out origin, again, England are runners up to Wales in the group stages of Europe and the weather in England is still colder than a Queensland winter.

It will be nice to head south tomorrow.

Posted in: News   0 Comments

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The information on this site is of a general nature. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.

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