Communication between physicians and their financial advisors is critical. Often, physicians are reluctant to discuss financial matters, but in today’s environment, communication is important. Practice management, revenue generation, and personal taxes are areas that require year-long interaction between the parties. Practice management is an area where the CPA can assist with suggestions of best practices. Revenue generation is maximized by a physician who knows and understands his or her office. Personal taxes are important, not only on April 15! How can a physician work with a CPA in terms they both understand? A few guidelines will enable a smooth communication process.
Sound medical practice management includes close teamwork with a financial professional. Often, physicians are reluctant to face the realities of managing a practice and working with a CPA. Those very same physicians find that year-end tax preparation is a frustrating experience. In addition, they may experience monthly cash flow issues or management problems. Developing a close relationship with their CPA can alleviate those problems and possibly generate a better management system for their practice.
There are a myriad of reasons why physicians and CPAs fail to work together easily. Physicians can be very accomplished in their field of study, but lack the detailed skills to manage their practices. They may have turned the daily management over to an office manager. However, it is always prudent, no matter how competent the office manager, for the physician to come to the table prepared to talk about the practice’s finances. Finally, the physician may experience time constraints, or even a reluctance to discuss money with a CPA. These reasons can all lead to problems that need immediate resolution.
With the advent of the Affordable Care Act, practice management has become confusing for many physicians. They must not only know how the laws are changing, but must adapt their particular work habits to comply with the laws. This also leads to frustration and problems that need resolution.
Where does a physician start? It is vital for a physician to engage a competent CPA at the inception of his or her practice. The CPA will be able to help the physician establish an adequate chart of accounts and a system of checks and balances to deter fraud. The CPA can assist in banking relationships and suggest a good attorney. Most importantly, the CPA and physician will begin to form a relationship that can grow fully as the years pass and the practice grows.
A general framework of critical financial issues which the physician and CPA should work on together includes:
Physicians and CPAs should work together to review the management of the practice, offer suggestions, and share ideas. Ideally, the groundwork should be prepared before the actual meeting. Financials are produced and reviewed, notes made, and changes initiated if necessary. This involves close work between the office manager or supervisor of the medical practice and the CPA. By the time the CPA and physician meet, many problems are ironed out, leaving more time for high-level discussions. For example, one of my clients has an office manager who calls me weekly with updates. These may take the form of “just an FYI” or “I have a problem.” When
the physician and I meet, we are able to concentrate on immediate problems. There is no constraint on the content or length of the meeting. Short, effective meetings are just fine! The constant exchange of information is critical, but how can the physician make this interaction simple and effective?
Revenue generation and expense review are important points of discussion for any physician. A good office manager will spot problems during the normal course of business and handle those problems immediately. A good physician will understand the big picture of appointments, invoicing, and revenue collection, especially with the new coding and billing constraints. The more the doctor understands and participates, the easier it is for collection and profit generation. The CPA can review all aspects of the office functions and make suggestions to improve efficiency and help prevent fraud. The CPA can use industry metrics to examine physician productivity and spot any variations from the norm.
Many CPA practices have created a niche working with physicians. They ensure that their staffs are well trained and updated on best practices and how to implement them. Just as important, the physician should strive to employ a knowledgeable, hard-working staff. All staff members should maintain the certifications necessary to perform their duties. On-the-job training is fine, but certain skills are non-negotiable.
Working together, the processes of practice management, income generation, and tax reporting become a worthwhile joint effort. This interaction between physician and CPA can span many years as the physician’s practice becomes established. Providing regular updates and touching base with each other will alleviate physician worries such as, “Am I maximizing my bottom line, are my tax obligations correctly managed, and can I retire when I plan to?”
Not every problem needs to be solved overnight and patience will be required to solve stubborn issues. Both parties should remember to be prompt with information and patient while waiting for a response!
Personal tax planning is critical to the long-term well being of the physician. No one wants a surprise in April with a large tax bill. Quarterly review of estimates will help to eliminate both overpayment and underpayment of taxes. To facilitate this review, the physician needs to be:
A good CPA will ask the right questions regarding the physician’s personal finances and will be knowledgeable about the big picture of the physician’s situation. The CPA may ask many questions, and some of them may seem intrusive, but the goal is to make sure all deductions are captured and valid. Any changes in income need to be communicated to the CPA so that estimates are accurate.
Other items that fall under the heading of personal taxes include estate planning and valuations. A CPA can help a physician plan for the future, an area of expertise to be valued in these volatile times. The physician should expect the CPA to value their time and money and to make suggestions to reduce tax liability.
Miscellaneous issues can also be resolved with the help of a CPA, including: human resources questions, liability issues, insurance coverage, divorce settlements, and succession planning. Our firm has a human resources manager on staff to handle labor law issues. We often sit in on client performance reviews and assist in creating job descriptions and bonus pay plans. Liability issues are critical for every physician. CPAs can help coordinate interactions with attorneys to ensure that any adverse situation is rectified and unlikely to occur again. Insurance coverage is paramount to the success of any practice. Often, we make suggestions to clients regarding their health care coverage issues and can work with their insurance agent to answer questions. Divorce settlements take time and money to resolve; tax planning is definitely important during those negotiations. Finally, succession planning is something that needs addressed long before the physician desires to retire. This involves negotiations and critical planning to ensure the physician is able to retire on time with his or her proper compensation, while knowing that his or her former practice is in good hands.
To summarize, there are multiple challenges facing physicians today, but with the aid of a CPA, physicians can accept the responsibility of running a successful practice. Interactions with a CPA should be:
Following the above suggestions can help you and your practice succeed. This success will affect other areas of your life, such as college planning and retirement funding. The best time to start thinking about all these things is early in your career. If you have not yet addressed these items, start looking for a CPA to help you succeed. Expect that your CPA is going to ask you hard questions early on in your relationship, and you ask the CPA hard questions in return to help secure your future. A good CPA is always thinking ahead! Remember, CPAs are valuable to your business, and learning how to interact with them is essential.
*This article was published in the Jan/Feb 2014 Journal of Medical Practice Management (Volume 29, No. 4).