Practice Financials are a Delicate Balance

In medical parlance, I's and O's is an abbreviation used to denote fluid balance (in's and out's) for a patient. In much the same way, it is important to carefully observe the finances coming in verses going out of your practice. If you don't, your practice can suffer just like a patient can.

I was talking recently with a friend from medical school. She is a family practitioner in a practice of four doctors and two mid-level providers in a suburban location. They currently have two offices and are planning to open a third location later this year. We were chatting about finances and she mentioned that at a recent review, it was noted that revenue is significantly down from the same time period last year (several hundred thousand dollars' worth).

They are a very profitable practice overall so they are still in the black. However, I about had a panic attack on her behalf! I asked her how her partners reacted and she said they didn't seem very worried. They are banking on the new location to bring them back up to their previous revenue levels. BUT, they are not hiring any new providers.

It amazes me that her practice isn't more freaked out at this point. She understood my worries, but calmly said that they are in a great suburban location of a growing larger city in the Midwest. She and her partners think that when the new location gets off the ground everything will be just fine.

This scenario is a recipe for disaster. The new office is going to severely spread thin the current providers. Add to that, they will have increased overhead without added flexibility to increase revenue. It's true that hiring a new provider (physician or mid-level) will be costly, but at least that overhead cost is balanced by the capacity for increased income generation.

To put it in medical terms: this patient is going to be losing fluids at an increased rate without fluid replacement going back in. The patient is going to get really dehydrated with subsequent adverse consequences.

I also worry that my friend's practice is going to possibly have to borrow money to make payroll and cover bills. I've always been very averse to "paying for money" with loans or lines of credit. I would rather keep the extra amount needed to cover the interest than pay it to a lender.

I'm going to keep in touch with my friend regularly to see how things are going. I will also keep my fingers crossed that things go well for her practice.