What to budget for to build reserves and create expansion opportunities while implementing practices to pay off debt
Things can happen in a practice or in one’s life that can lead to debt. Certain situations can hit one hard in the financial arena — accidents, deaths, embezzlements — you name it. Sometimes a doctor can see their prosperous practice slump, leaving him or her with debts and financial problems that did not exist before.
How to pay off debt and build reserves that can protect you against such mishaps in life? It can be done, but it is necessary to follow specific rules and guidelines to pull out of a financial mess successfully.
Pay off debt: one cannot save themselves into solvency
Most doctors and individuals, when faced with how to pay off debt fast, will try to cut expenses and cope and just try to get by. They keep hoping things will get better by some happenstance of luck.
Cutting expenses is a very good idea, particularly when there is waste or services not needed for increased production. However, just cutting one’s bills alone will never get one out of debt, particularly at the speed that is usually needed.
There is a financial datum that states, “One cannot save themselves into solvency.” One cannot just cut and cut expenses and then be profitable. It takes making more money to solve financial problems. The solution to money problems is always to make more money.
How to pay off debt fast: promotion and marketing
The first vital action one should undergo when faced with a shortage of cash is to promote, promote, promote — get more new patients in the office, get existing clients back in the office, and sell them services or products they need.
Another common mistake is that marketing and promotion expenses are usually one of the first things a practice owner will cut. Marketing and promotion expenses should never, ever be cut. They are vital to anyone’s practice survival and livelihood. Marketing to get new patients should come first and foremost and be the top priority to spend any money or remaining credit on. Without new patients to sell to, and selling one’s current patients on other services they need, you could have trouble getting money in the door to handle past, current and future bills. Promote, promote and then promote some more.
Cash services and marketing momentum
Sign up patients for cash services, or get pre-payment for services, wherever possible. This puts immediate cash in the bank to help pay bills, without having to wait for insurance companies to pay, which can sometimes take weeks or more. Learning how to take more cash services or product payments is always a good idea to fall back on.
Don’t worry about the cost of advertising and marketing, as those costs can be paid off once the money starts to roll in. Additionally, there are many things to do to promote that do not cost much money — things like asking for referrals, sending a flyer or newsletter out to a database, speaking or lecturing to groups, handing out business cards, etc.
Once the money starts to come in, do not let up on the marketing efforts. One of the best ways to pay off debt is to take a percentage right off the top of the income and dedicate that to the past debts to catch them up to date while maintaining normal bill payments. Start with as much as 15% allocated to past debts. This is also the secret to future expansion and reserves. Once you’re taking 15% off the top for past debts and the bills are caught up, that money can now be put into reserves. It will not be missed if one is still keeping up with the practice’s bills and you were formerly dedicating the money elsewhere.
A reserve is like a bill
The only way to build a reserve is to take it off the top. In other words, it has to be the first thing that is paid, almost like a bill, and the most important one. This reserve account is the owner’s pay. It is the first check to write. If one waits until all the bills are paid, then there will be nothing left to put into reserves.
If the bills are current and being paid, put at least 5% into reserves weekly. Put this money into a separate account at a bank you do not use and that does not have debit cards. Don’t touch it. Not even during a rough financial month. Leave it there. It is like a stalactite in a cave. If you keep touching it, it will stop growing. Don’t touch this reserve. It is not a tax reserve account, either.
This account is to be used for two things only: investments and emergency funds. It can be used to pay for equipment or buildings and such, where it will save money or be an investment. If it’s used for things like equipment, make it a loan to the practice and pay it back with interest.
Your reserve is your emergency fund
The other use for a reserve is emergencies. What if the building burns down? Do you have time for the insurance company to give you a check to get reopened? What if there is an accident? This is what the reserve account is for. It can be used to open a new office. That’s an investment.
Set up the reserve and put money into it weekly and it will provide security for the future. Upon retirement that is the owner’s money, and it goes with them if they sell the practice. There is a way back from the financial brink, and when one handles the condition properly, a safer, more prosperous future can be built.
ED SHARP has been a business management consultant for more than 30 years, helping and giving advice to chiropractors and their staff on hiring, sales, finance and marketing. He is president of Sharp Management & Consulting, which manages clinics and delivers customized coaching and consulting. He has produced more than 40 videos on management tips that may be viewed on his YouTube channel at tiny.cc/edsharp333. He can be contacted at firstname.lastname@example.org or at thesharpmanagement.com.