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April 27, 2017Small Business Tips for the Self-Employed in the Medical Field
June 8, 20179 Business Mistakes Doctors Make in Their Practice
One niche of small businesses that I often advise is an “entrepreneurial doctor”. Those are the doctors that work outside of a hospital and aren’t W2 employees. They own their practice and can be dentists, veterinarians, optometrist, etc. Before coming to us there are a variety of business mistakes doctors often make when it comes to the business side of their vocation. These guys are brilliant doctors with varying designations, however, most don’t earn MBA’s on top of that. Business is often not an easy model for these educated folks to understand. In my consulting with them I have seen many, but here are the top nine business mistakes doctors make in their business models.
1. Negotiate for Themselves
We have a tendency to think if we do it ourselves we will save a substantial amount of money and be better off. That’s just not really the case. A book I recently read, The Millionaire Mind by Thomas J. Stanley discusses this very topic. One of the top differences in those who obtain the title of a millionaire, are they hire professionals to do the job. They’re not DIY guys. They want professionals to help them get the best results. The millionaires themselves focus all their time and energy into doing what they know best.
Entrepreneurial doctors typically do one of three things when obtaining a practice. They purchase an established practice, go into an associateship then buy into the practice, or they start a practice from scratch. Anytime you go into business, if you don’t know the art of negotiation, then you’ll essentially end up with the raw end of the deal. People lose more money by doing it themselves instead of turning to a professional that could easily help them land a great deal. Without an advisor or advocate on their side, they’ll instantly pay market value.
We don’t do that in real estate. If you’re buying or selling a house, most people will turn to real estate professionals. Almost every transaction will have a buyer’s agent and a seller’s agent. So why would you want to make this mistake when purchasing or starting a business?
2. Buy Toys
Every doctor I’ve worked with has gone silly on me at some point and bought the typical toys—cars, boats, RVs, etc. However, I’m not talking about those. I’m talking about the latest, greatest tools for the practice.
So in the dental world, there’s a machine that sells for $100k plus. The salesperson comes in with a pitch, which typically includes these three things: the tax benefits, the additional efficiency, and the “you can finance this” strategy. Here’s the problem. The salesperson isn’t a CPA or a CFP®. They don’t even know the dentist’s tax situation or if they even need the additional tax break. Next, they play up how this will maximize efficiency and never discuss the buyers who regret the purchase because, in reality, it didn’t give them more efficiency than they had before. Lastly, if it’s financed, you’ve just upped the price of the gadget and put yourself in a whole lot of debt. They never discuss the opportunity cost in other areas these “toys” end up creating. Listen, I’m not saying don’t ever go out and buy new equipment. What I am saying is that you’ve got to quantify the purchase. Don’t just go with the “I want it, and I can finance it” strategy.
3. Forget Marketing
Oftentimes many of our entrepreneurial doctors get patients and then forget that new patients are just as important to keep progressing in their practice. Marketing isn’t just throwing water on the fire once, and hoping it’s suddenly going to go out; it’s a sequential approach that you have to pour money into continually. However, you don’t market without a plan. Many times, they’ll spend two to five percent on marketing and then just stop. However, some of my most profitable clients spend eight to ten percent of their income continually on marketing. It has to be a consistent part of your business plan. You can’t make progress by forgetting this key component.
4. Forget There Are Two Sides to the Balance Sheet
Assets are a huge part of any business, especially when it comes to entrepreneurial docs. However, way too often, I see them forget there’s also a liability side to the table too. Just this week, I worked with a client that had two loans on a 20-year amortization. He was paying out almost $12,000 a month to these liabilities. I negotiated with the banks to get the interest rate lowered by two percent for him and now instead of paying that amount for the next 20 years; he’ll get them paid off in 10. This also goes back to number one! Many can’t negotiate with a bank on their own!
5. Fees! Fees! And More Fees!
Because they tend to be extremely intelligent individuals, entrepreneurial docs many times are over-analytical when it comes to fees they are paying out. Here’s an example. Time and again, I see docs (or other business owners) come in complaining how a CPA is charging them X amount of money. Then they tell me how they could use simple software and get the same results. The truth is they are comparing apples to oranges. They’re not the same. The fees you’re paying out are likely worth it. Don’t over-analyze these fees. You want good, transparent people working for you and with you. Remember point number one? I agree we should examine the fees we are paying to credit card companies and banks and things of that nature, but don’t skimp on the professional fees. In doing so, you’ll lower the quality of your team. It will usually cost you more in the long run. Think of it like this. Your favorite professional or college football team isn’t trying to pay the lowest price for a coach. Nope, they’re paying top dollar to the leader that can deliver the top results and if they don’t get them, they look elsewhere.
6. What May Work for Others but Not You
This is microeconomics. Here’s an example. I had a dental client that decided they were going to move away from print marketing even though it was working fabulously for them. Another dentist at a national convention told them online marketing was where they should be pouring their money into. Despite the fact that the other dentist was in another state with entirely different demographics, my client chose to ignore the advice of their marketing firm and move toward a digital trend. Instantly, the client suffered a substantial decrease in patients. What he didn’t understand was this idea was macroeconomics vs microeconomics. He needed to focus on the microeconomics within his business.
7. Lack of Goals
Why are you doing what you’re doing? It doesn’t matter how you’re doing in comparison to someone else or some other business. What really matters is how you’re doing compared to what you actually want to achieve. That’s a major problem and not just with our entrepreneurial doctors. Most people don’t really know what they’re working toward, so they can’t measure where they are. It’s like losing weight. If you don’t identify a target weight, how do you know how well you did that week and how to improve? You don’t. So get a goal and work toward that. Don’t worry about what Dr. Jones is doing down the street.
8. Not Knowing the End Game
When our doctor clients get everything paid off as far a debt then they want to start looking at retirement and selling their practice. The problem is, that exit strategy should have been part of the overall plan from the beginning. It’s dangerous for doctors to wait a year or two before they sell to start getting prepared. When they do that, the brokers make a ton of money, and the doctors typically end up losing a ton of money. In actuality, planning to sell takes five to ten years to really maximize your profits. I have a chiropractor client that’s about five years away from selling his practice, and in his mind, he can wait until the very end to plan and then sell the practice in one day. He may be able to. However, he’s not going to get top dollar along with the most tax-efficient return on his investment unless he starts planning now.
9. Not Stopping When Enough is Enough
There’s more to life than work. Many times entrepreneurs get sucked into the growth of their business, and they’ll spend every waking hour in their mind on their business. While they’re doing that, they miss the biggest and most important things of life. They miss their children growing up. They miss out on true friendships because they’re too busy and end up with just acquaintances. Ultimately when they sell their business, their identity is so wrapped up in their business that retirement loses all of its joy and pleasure. I honestly see this all the time. So you’ve got to ask yourself, when is enough, enough? How much do I really need to meet my goals (remember number seven)? You’ve got to stop with the work, work, work mentality and think I’ll eventually get there. Otherwise, you’ll miss it all and never know when you actually get there.
So don’t let the mistakes define your small business. Take charge and learn from others who’ve gone before you. And if you have questions about any aspect of this article, we would be glad to discuss it in person.