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Five Common Mistakes in Medical Practice Financial Management

As a physician, I thought I knew everything there was to know about running a medical practice when I opened my first practice in 2006. I was partially right. I understood how to be a great doctor. I knew how to train a team to deliver amazing customer service. I had built a beautiful facility that offered amenities unheard of before in our town for same-day-walk-in care. Our business was doing well. But it was not until I attended a four-day course on business financials a few years later that I realized just how little I knew about managing my business.

 

Can You Read the Scoreboard of Your Business?

Business simply boils down to knowing how to play the game of finance. Like any game, there are scorecards you should be reading on a regular basis to know if you are winning or losing. If you can’t read those scoreboards, then you don’t know the score. Most medical practice owners don’t speak the language of accounting well enough to know how to read the scoreboards that let them know if they are truly winning or losing in their business. There are three main scoreboards you need to master: Income Statement, Balance Sheet, and Statement of Cash Flows. Learning how to read these reports and combining them with other metrics you should be looking at on a regular basis will help you know when you need to change the direction your business is headed.

 

Financial Reports Help You Avoid Loss

If your medical practice is anything like mine, it is probably best described as a carousel. Some months you have great ups, and other months you experience downs. The key to being successful is being able to keep money when the carousel is going down. Unfortunately, a lot of medical practice owners don’t know how to read the statements that help them avoid making devastating financial mistakes at the wrong time. Ask yourself this question, How much money would I have right now if I hadn’t made any mistakes? One of my favorite mantras when it comes to serving as the managing partner for our medical practice is, “Not all progress is made by ground gained but by losses avoided.” This mantra is what has allowed me to become so passionate about being an expert in managing my finances.  

 

Five Common Mistakes in Medical Practice Financial Management

You may think you are an expert in financials, too. Let me share with you the top five most common mistakes I see when working with medical practice owners:

 1. Looking at financials once a year

 2. Relying on tax returns for financial information

 3. Mistaking profits for cash

4. Paying distributions before considering tax consequences

5. Not understanding that cash flow is king

 

How to Avoid These Mistakes

In medical practices, accounting is the lifeblood of your business, and you must understand this underlying operating practice. I truly believe it’s imperative that you know how revenue, expenses, and all the other “fun” accounting terms translate into money in your bank. More importantly, you must understand the different types of cash and the one type of cash that will make you rich. Did you know that your cash flow should be flowing evenly? You may think it’s a good idea to hold onto a large amount of cash, but there are exceptions to this.

On the other hand, having too much cash flow leaving your business in one area is the equivalent of having someone come in with a laceration and watching the blood pour out from the wound. You know how to fix the laceration. Do you know how to fix your cash flow? It’s possible for you to adequately diagnose and predict your revenue, cash flow, and other critical business measures.

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Texas

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Top Financial Mistakes That Will Crash Your Business. We know running a medical practice can be difficult. Most medical practice owners are physicians who graduated from medical school, not business school. Often, their teams are friends and family members with a medical background. Our goal is to educate medical practice owners, and their teams, to develop their business management and leadership skills.