Recession preparation for physicians

Given the current turbulent political and economic state of both the United States and many other key world powers, a variety of financial experts are predicting something ranging from a significant economic slowdown to another full-blown recession. While times may be good now, physicians should examine the lessons many doctors learned the hard way and act now, while they still have the time and resources to prepare. Worst case scenario, those predicting rough seas are wrong, and you’ve merely made your continued success more predictable and better defended. 

Know your numbers 

“Work as hard as you can” is not a business plan. You must understand key issues at your practice like your fixed expenses, cash flow, projected earnings, and the options available to manage them. Many practices and their owners lack the liquidity to sustain their current high levels of fixed business and lifestyle overhead with existing cash. Think about what an earning or cashflow change would do to your business. Is the core personal and business planning you have in place complete? Would it adequately protect your business and family in a crisis? What are your essential overhead items and what would you cut or change first, both personally and in your practice, to reduce overhead so it could be reallocated? Be sure you know your “survival number” and plan to be able to sustain it.

Protect assets, manage risks 

Implement strategies that will guard the assets you have and protect the gaps in your planning that expose them, while you have both the resources and legal right to do so. Don’t self-insure against predictable risks that can be transferred away for a fixed cost. Work with an experienced broker to implement personal and professional liability insurance and make sure you have all the right kinds of insurance at the right amounts. Many doctors were put in harm’s way when faced with unexpected exposures they may have survived in regular conditions but were unable to in tougher times. 

As a minimum, have in the place the following:

• Disability insurance (all three kinds) 

• Personal liability insurance, including a seven-figure umbrella  

• All the required specialty business liability insurance in addition to malpractice coverage 

• Required personal and business life insurance 

Spend less, save more 

Consider temporarily holding on any significant purchases or capital outlay that won’t produce income or significant long-term savings. If such purchases are necessary, think about how and if any such investment is protected. Having cash reserves available to help sustain key fixed expenses was key to the survival of many physicians during the recession. Know how long you would be able to meet your current business and personal overhead if your cash flow was suddenly stopped or significantly decreased. 

Keep more of each dollar earned 

When earnings are restricted by market conditions, it’s more important than ever to keep more of every dollar you earn. Identify areas of loss or leakage in your practice, such as those due to billing and coding, collections, and reducible expenses, and act on them. Reconsider the scope of your accounting and business and personal tax planning and ask your advisors to identify any opportunities you are not taking advantage of. These could include health savings accounts and retirement plans, or even more active measures like energy efficiency and cost segregation studies. By the same token, avoid overly aggressive, questionable planning that can actually create additional expenses and liability, such as an IRS audit (which I recently covered here). 

Market and manage your (medical) business

Your business is in a competitive space, and your market position and growth need to be protected like that of any other business. Make it easy for patients and other providers to find you and work with you. Your medical practice is a service business that needs to compete on the best service, value, and care. Review the balance of high and low profit services your practice provides and look at new revenue opportunities and potential practice areas. Finally, get good help on these issues by delegating internally and consulting outside experts. Most doctors don’t ask for referrals to practice management consultants, CPAs, and lawyers until they are at the helm of a sinking ship-they should actually use them to ensure smooth sailing.  

Attorney Ike Devji has practiced in the areas of asset protection, risk management, and wealth preservation law exclusively for the last 15 years. He helps protect a national client base with over $5 billion in personal assets that includes several thousand physicians and is a contributing author to multiple books for physicians and a frequent medical conference speaker and CME presenter.