Chasing financial independence in a low-growth environment

Posted by Sean O'Kane on 24 May 2016
Chasing financial independence in a low-growth environment

Superannuation is a major focus of this year's budget, with the biggest changes announced to superannuation in a decade.

Changes affecting higher-income individuals, such as medical specialists, include:

  • Lowering of the concessional contributions cap to $25,000
  • Limiting of the non-concessional contributions through a lifetime cap for non-concessional contributions of $500,000
  • A reduction in the threshold from which an extra 15% tax applies on contribution to super, from $300,000 to $250,000.
  • $1.6 million superannuation transfer balance cap, limiting the amount that can be transferred to tax free retirement phase

So what does this mean for medical specialists? And how can effective financial planning help you make the most of your income?

These changes mean medical specialists will need to consider and seek out alternative investment strategies that generate effective returns as part of their financial planning.

What's more, they also need to consider how to do this and start preparing at an earlier point in their career.

There is also a broader issue at play here. All the major economies are struggling with lack of inflation and lower growth rates. And I, for one, don't think this is likely to change in the near future.

Lack of inflation is a real concern in Australia, as elsewhere in the world. Earlier this month the Reserve Bank of Australia dropped interest rates in an effort to stimulate growth.

So if the world economies are struggling with lack of inflation, why does this matter to individuals?

Simply put, in a low-growth environment, people have to invest more to get the same results or invest for a longer time period.

Let's consider three scenarios, where $100,000 is invested and achieves growth rates of 3%, 6% and 9%. If this money was invested for 20 years, the results would be $155,797, $239,656 and $364,248 respectively. I extrapolated the 3% growth figures to see when it would reach $364,248 to be equivalent to the 9% growth rate and it was year 44!

So what should you do?

Firstly, don't rush into any rash decisions. Often people think buying an investment property is the answer, particularly as negative gearing seems to be the sacred cow that won't be touched. However, even if there is meaningful capital growth in residential property, this can only form part of the solution.

The good news is medical specialists should have the incomes to be able to set more aside to invest in order to create financial independence. However, my experience in providing advice to doctors for many years is there's always a lot of competing interests for that income and they're often a lot more attractive than saving!

So it's important to have a plan, and to understand what your financial future looks like if you stick to it. And if you have a plan, now would be a good time to review it to make the necessary changes to ensure you are still on track to reach financial independence at the age that you want.

In our next blog post, we'll look at these competing interests for income and discuss strategies to manage them in order to achieve financial independence.

If you are interested in reading more on this topic, why not download our white paper for medical specialists on helping people to make 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.

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How much? Setting a consistent pricing policy to grow your practice.

Posted by Matt Connor on 27 April 2016
How much? Setting a consistent pricing policy to grow your practice.

In this blog post I'd like to talk about the importance of developing a clear and consistent pricing strategy for effective medical practice management and ongoing business growth.

There are two main aspects I'd like to cover.

1) Why consistency is vital setting a pricing policy and enforcing it across the practice.

Quite often we find in a GP surgery or other medical specialist practices there are a few different doctors and, as a consequence, disparity across the surgery with what the doctors are charging. It may be that one doctor has friends come in and they may not charge them, while other doctors may be sure to bill each and every patient their due amount.

However, consistency is important. In a practice there should be a clear policy so that patients that use the practice have certainty around what they're going to be paying. For instance, in a GP practice, a patient may have a favourite doctor but if he/she is not available, they may find they are being charged a different price, which can cause problems.

A pricing policy administered in the medical practice software, and a pricing list of key services should be available for all patients. This is not only beneficial to the patients, but also to the practice managers and owners when it comes to end-of-year tax and financial planning.

2) Why it's important to set your practice pricing to work for you.

Setting an effective pricing structure is one of the most important things you can do to contribute to the growth and success of your practice. We suggest you decide on your pricing policy by increasing your understanding of where the money is coming from.

Make sure you understand every Medicare item number billed, and what quantity is processed every month or quarter. It's important to have a good understanding of which Medicare item number generates the majority of revenue for the business.

This analysis will help you understand what your business does for people and where the most demand is. It helps with business planning and understanding the skills the surgery needs and provides to attract customers.

It's also important to be aware of where your practice sits in the marketplace compared to your competition regarding pricing. The Australian Medical Association (AMA) puts out price lists. Have a look at this to help inform your pricing mix within your service offering.

Once you understand where the bulk of your earnings are derived from (this may only be 3-5 items), then it's also worth investigating what your competitors are charging, and deciding where you have scope to charge more, or need to hold or reduce your pricing to meet the competition around you.

It's important your pricing is commensurate with what you're doing and the value you offer to your customers. Make sure that the amount you charge is in line with what the service is worth and what the marketplace is demanding.

Brisbane medical practice: A case study

I had a meeting with a group of specialist medical professionals who were partners in a Brisbane practice together. Quarter to quarter, they were running at a loss. This was due in part to recent growth and expansion. They were slowly building up non-owner specialists and had recently moved. So this loss was in part a function of expanding the business.

However, we then discussed pricing and opened up their practice software. They explained that they bill a fixed amount for particular items, but also give away free services occasionally to keep people happy and to bring them in. Medical Financial Group determined from looking at the prices that they were giving away 20% of total revenue. Scrutinising internal data helps to give practice owners a reality check and realise they've been way too generous.

Be informed. Be consistent.

A successful medical practice will be aware of what is earning them money and their position within their local marketplace. Although many medical professionals work independently, having a clear practice-wide policy that is consistently applied will provide certainty to both patients and doctors and contribute to your practice's sustainable growth and profitability.

In conclusion, the key things to remember when setting your medical practice's pricing list are:
1)      Research market prices make sure you're aware of what others are charging and how you fit into the marketplace.
2)      Understand your practice operating costs your price list should be informed by your own practice's operating costs to ensure you aren't running at a loss.
3)      Develop a pricing policy and stick to it.
4)      Communicate and share this with all staff and patients.

If you'd like to find out more information about how a consistent pricing policy can help your medical practice grow, our team of financial services professionals is here to offer expert advice.

Posted in: Pricing Planning   0 Comments

Finding financial certainty in an uncertain world

Posted by Neal Durling on 18 March 2016
Finding financial certainty in an uncertain world


Many of the private medical professionals we advise have commented that now, perhaps, is the best of times to be earning - that they can't rely on the same revenue forever as incomes in their speciality could drop over the next five years.

I can't say for sure if their predictions will be correct. But, as a financial planner, I'm interested in why they are thinking this. I believe their concerns do reflect changes taking place across the Australian health services sector. In this post I'd like to address some of these developments.


1. The Federal Government's Medicare Benefits Schedule (MBS) Review.

The review, which is led by a taskforce of independent clinicians, is considering how the more than 5,700 items on the MBS can be aligned with contemporary clinical evidence and practice and improve health outcomes for patients. Already, the MBS Review announcement in April 2015 has caused a downturn in diagnostic related procedures, and the associated talk is changing patient behaviour. Among other providers, diagnostic imaging group Capitol Health has reported a 52% drop in underlying net profit for the six months ending December 2015.

2. Australians are downgrading or cancelling their private health insurance cover at the same time as healthcare expenditure and claims have continued to outgrow GDP over 10 years.

With approximately 500,000 Australians downgrading or cancelling their private health insurance cover in 2015, it is likely this will directly impact on private practice revenues. This is no doubt due to premiums rising well above inflation for years at about 6.5 per cent a year. At the same time Australian healthcare expenditure and claims have outgrown GDP over 10 years.

3. With health system costs increasing, health insurers are increasingly looking for ways to reduce claims and manage profits by boosting competition and managing the costs associated with claims.

As well as increasing premiums, health insurers are lobbying for "increasing competition" and greater "information sharing", "standardising simple products and terminology" and "reducing information asymmetries" between consumers and providers. Recently privatised Medibank believes that boosting competition and standardising simple products and terminology would save up to $200 million and $330 million respectively.

NIB has also suggested that Health Minister Susan Ley improve "information sharing for consumers and insurers". It has launched Whitecoat, "the TripAdvisor for healthcare", to reduce information asymmetries between healthcare consumers and providers (including GPs, dentists and other types of medical professionals).

4. The rise of corporate health service providers.

Over the last few years, I've noticed the trend of a number of fairly large businesses or corporates increasing their market share and buying out private medical practices and, as a result, making the market more competitive. In these situations, doctors may be attracted by the prospect of partnership and security, or they may feel the threat of competition affecting their decision to join. However, arguably there is less opportunity for doctors to increase their earning potential when they form part of a corporate service offering.


The three key things I advise all my financial planning clients to do are:

i) Develop a sound protection strategy for the things you can't control. For example, put in place suitable insurance covers, income protection, estate planning and binding death benefit nominations. You never know what might be around the corner, but it is possible to prepare yourself financially for unexpected outcomes.

ii) Make consistently sound financial decisions by spending less than you earn. Invest wisely and become a bit wealthier each year. Be cautious about over committing based on potential future earnings, which cannot always be guaranteed. Or at the very least, wait until you have a plan B such as other investments. Take advice and grow your wealth steadily with a prudent, methodical and logical approach over the long term.

iii) Make the most of your opportunities when you have them. Recognise when times are good in order to invest for when life is not so good. Know that at some point in all of our lives, some kind of issue will likely arise to impact our finances. Make sure you prepare so that you are able to deal with it and recover as quickly as possible.

Like many things in life, this approach to organising your finances sounds simple but it's not always easy. If you're uncertain about how to make the most of your money over the long term, our specialist medical financial planning team is here to offer expert advice.

Posted in: Wealth Creation Financial planning Planning   0 Comments

Avoid a Christmas crisis at your practice

Posted by Matt Connor on 26 November 2015
Avoid a Christmas crisis at your practice

The build-up to Christmas can often be a busy time. Many GPs and other medical professionals will receive plenty of calls saying, 'Can I see you before Christmas?' Squeezing in everybody who needs to see you can make for a hectic period, and most medicos and their staff look forward to the chance to take a well-earned break.

But before you close your practice and take time to rest and rejuvenate, it's important to put plans in place to avoid any unnecessary disruption of patient services.A little planning will deliver a more restful break, efficient business and hiccup-free return to work.

Follow these steps to prepare for the holiday period.

1) Communicate your shutdown period
First, make sure your staff know when your shutdown is and communicate it to the outside world.
  • Put a notice on the front door
  • Post a message on your website
  • Change your staff's email signatures

Make sure your referral partners also know about your shutdown period. Send key contacts a box of chocolates and a short note with your closing and reopening dates on it. If it's the type of place where informed secretaries are a brilliant ally, make sure there's a treat in there for them and their own laminated note they can stick up on their computer.

2) Get ahead with your bills
Usually, one individual in the office is responsible for normal supplier bills, and when people are away and normal routines changed, some bills may be missed.

As painful as it is to some, it may be worth pre-paying key suppliers before you leave to avoid disruptions. Check your bank statements from the previous year. Who was paid? Pay particular attention to equipment hire and medical consumables. Make a note and get them paid. You don't want your January marred by important suppliers chasing you for payment.

3) Payment of staff wages and super
The due date for payment of staff super is no later than 28 days after the end of each quarter. Set up automatic payments on your internet banking so the payments are made.

4) Know your numbers and do some business planning
This is one for the smart operators. It may not be imperative, but it's a good time to 'take stock' and review your practice software. Let the figures speak! What has been generating income and what have you been spending time on that hasn't?

Knowing where your revenue has come from is the primary basis for the strategic planning for the coming year. Give yourself some time off, but take a little time to think about how will do things differently in the future, because being a business owner means you have more control of your own destiny.

Use your financial software to do some interrogation. Take a standard set of reports and drill down into the data to properly analyse it. For example, work out what services are making you the most money and what it costs in staff time to provide certain services (even though you may be generating revenue, some things are quick and easy to do and not an impost on admin to process, while others are time-consuming and take admin resources away from more lucrative activities). Think about what these figures mean and, if necessary, how you might plan differently for the coming year.

With a little effort, you can head into the Christmas break well prepared, on top of your financial planning, and able to really relax over your holidays.

Posted in: Planning   0 Comments

An older Australia - good news for medical professionals?

Posted by Sean O'Kane on 11 November 2015
An older Australia - good news for medical professionals?

Have you read the Australian Government's 2015 Intergenerational Report, released in March this year? I'd be surprised if you had, yet this document has profound implications for both your personal and professional lives.

The report measures the long-term drivers of Australia's economic growth. One of these is our changing population structure, with some startling shifts predicted. The report finds that:

  • A greater proportion of the population will be aged 65 and over. By 2054-55, the number of Australians in this age group is projected to more than double the number today.
  • Both the number and proportion of Australians aged 85 and over will also grow rapidly. In 1974-75, this age group represented less than 1 per cent of the population. In 2054-55, it is projected that 4.9% of the population, or nearly 2 million Australians, will be aged 85 and over.
  • Perhaps most strikingly, by 2054-55, there will be around 40,000 people aged over 100. This is a dramatic increase, well over three hundred times the 122 Australian centenarians in 1974-75.

So is this good news or bad news for medical professionals?

Well, Australia's changing demographics are likely to increase demand for health and aged care services which is, of course, good for medicos from a financial perspective.

But it's a little more complicated than that.

How long will you live?

Living longer and continuing to be active is great provided that you have the money to support yourself.

Medical professionals spend a lot of time thinking about their patients' health and life expectancy, but what about your own? You may have done your financial planning assuming that you will live as long as people average today but, in fact, the intergenerational report suggests that you are likely to live longer.

Check out this life expectancy calculator to get an understanding of your likely life expectancy.

How much money will you need in retirement?

Consider this for a moment. If you are 35, just 'hitting your straps' in terms of income, and plan to stop work at 60, you have 25 more years of work to set aside funds for your retirement. That sounds reasonable, doesn't it?

Possibly. But if you turn out to be one of the lucky ones to reach 100 years of age, you will need to have sufficient investments to support you for another 40 years of living after retirement. Sobering isn't it!

Probably the biggest challenge we face in helping our clients plan for financial independence is getting them to understand how much money they will need to ensure they don't outlive their capital. So what is a safe amount of income to be able to take without eating into the capital? The accepted figure is around 4%. So, if you would like to have $200,000 per annum during retirement, and your retirement will last 25 years, you need to set aside a lump sum of $5 million. If you live longer, you will need even more. Are you on track for this?

Do I really need to worry?

When we raise this issue with clients, medical professionals will sometimes tell us 'But I'll continue to work' or 'My expenses will go down when I no longer have the school fees and mortgage to pay'.

And what do our financial planners say? Well, we explain that you may wish to work past 60 years, but wouldn't it be better to do this from choice rather than necessity? What's more, the job of a medical professional is actually quite physical and stressful. Many medicos end up scaling back their practices as they age and start to feel the stress of long days with patients, carrying out surgery, being on call, and generally supporting others. It's not an easy job.

As for cutting back on your expenses, I'd ask you to reflect on your current spending when you aren't at work. Personally, when I'm on holiday, I actually spend more money! And how do you want to spend your senior years? Wouldn't you like choices about where you go and what you do? There's a massive difference between my 60-year-old clients who can choose to retire, and those who feel that they have to work. It's no fun to be ageing and still trying to pay down debt.

Medical Financial Group's key role is to help our clients understand how financial independence looks for them and then empower them to make smart financial decisions to get them there. Our Brisbane-based experts are happy to provide financial planning, accounting and tax advice to medicos right across Queensland.

The ageing of Australia could be very good news for you professionally and personally but, as we live longer, you need to make the right financial choices. Are you planning to enhance your financial future?

Posted in: News Wealth Creation Financial planning   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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