The Bureau of Labor Statistic reports that, of the nearly 700,000 physicians currently in practice, one half are in private practice, meaning they’re in business for themselves. But, if you were to ask these sole practitioners how well they run their businesses, the vast majority would concede that they’re not quite sure what running the practice as a business actually entails. And, when told what it does entail and the specific skills and knowledge it requires, most would also tell you that they have neither the time, nor the inclination to acquire them because they have a practice to run. And therein lies one of the physicians’ obstacles to building wealth.
Most physicians see themselves as clinically skilled practitioners following their passion, not as entrepreneurs or business owners set on building a profitable enterprise. Although medical residents are “schooled” on the business aspects of being a sole practitioner, it’s a faint blur amidst the more critical priority of completing their medical school requirements. And, physicians who initially work for an employer on their way pursing their own practice aren’t exposed to the business side of things. The pressure on all new physicians is to perform and generate cash flow, not to sharpen the business acumen. Even established practitioners avoid getting “bogged down” by the requirements of running the practice as a business because it would make the practice of dentistry less enjoyable.
The Importance of Running a Practice like a Business
The field of medicine has changed markedly over the last two decades. The demands of higher capital requirements for starting a practice, technology advances, and increased competition, coupled with the decline in employer-sponsored insurance plans have raised the hurdles for practitioners; not only for starting a practice, but also for sustaining the growth of the practice.
Although most solo practices will never create equity as a business asset, practitioners must be able to grow their principle asset which is their future earnings. The growth of future earnings is vital if a practitioner hopes to be able to maintain a desired life style and fund their retirement all the while paying down debt, financing new equipment, and expanding their practice. Practices that are mired in stagnation due to poor debt management, lack of technological upgrades, slow client growth, and inefficient operations will have a difficult time in growing future earnings which not only threatens their retirement prospects, it can also impact their current life style needs.
- With an increasing amount of medical costs paid out-of-pocket, patients do a lot more shopping around. Physicians must be able to compete by price, but they also must engage in more marketing to increase their visibility.
- Patients are much more inclined to choose a physician with more advanced technology. Physicians must be able to upgrade their technology in order to retain and attract patients.
- Physicians must be able to finance new equipment and practice expansion, and they need to be able to show a strong balance sheet and cash flow projections for their business in order to secure the lowest cost financing.
- In competitive fields, businesses must be able to grow in order to create efficiencies that will enable it to compete and to sustain cash flow growth for future earnings.
The most important reason for running a practice like a business is to be able to overcome the inherent financial challenges in the early stages before they overwhelm the practice in the very critical later stages. It is especially important for physicians in their prime earning years to be able to maximize their financial opportunities in order to secure their retirement with a standard of living they desire. Solo practitioners that develop and execute well-conceived business plans drastically increase the probability of success while lowering the financial stress that often interferes with their enjoyment.