The Value of Your Practice Depends on How You Define Your Role - ECONOLOGICS FINANCIAL ADVISORS

Your practice is a valuable investment asset. The roles you choose to play in the business have everything to do with building value and understanding how to harness the profit to benefit your household. Focusing on building the monetary value of your practice is vital to your personal financial survival in regards to the cash flow it provides the household plus the proceeds of the sale when you transfer ownership to a buyer.

I’ve had over 20,000 conversations with Practice Owners about their personal and business finances, and the most common theme with those who were financially struggling is trying to fulfill every role in the practice and not properly compensating themselves. Let’s examine the roles you play and value each provide to the business and household.

I’m sure you can remember the exact day and exact reason you decided to own your own clinic. It was the glorious moment when you realized you didn’t want to work for someone else — you wanted to practice medicine your way — and you intended for the financial rewards to eventually be greater than you could achieve as an employee. What you may not have realized when you made that grand decision is that while you would continue to be a Practitioner, you would now have two other main roles that to fulfill, as well, that would be just as, if not more important, than being a doctor.

The 3 roles you play are the Practitioner, the Executive, and the Owner. The good news each role is compensated, but the bad news is that you must be competent at all three (or hire competent people) to be successful.

The 3 roles of a Practice Owner

Practitioner Role. This is the most natural role you play. You are a skilled caregiver, delivering the services you spent 7 years or more to learn. It is your first responsibility to be a top-notch doctor and to make sure your associates are competent at delivering a high-quality service.

Compensation: Most practice owners pay themselves a W-2 Salary for the Practitioner role to cover their lifestyle expenses.

Executive Role. An Executive typically has the responsibility to manage others, ensuring staff perform to expectations, and produce the company’s product or service. This is not always the favorite role an Owner likes to play. Why, you might ask? Most Practitioners have had little to no training on how to perform the duties under this role, therefore creating a deficiency in the practice that is typically the make/break on whether your practice will expand or contract. Having or being a competent Executive has a large effect on practice value.

Compensation: Most practice owners will take a % of company profits as a distribution for the Executive role to pay for lifestyle expenses.

Owner Role. The owner role is the visionary. When you originally dreamed of how you would build your practice culture, stemming from your mission and purpose, you were playing the Owner role. Then you opened your doors, and the Practitioner and Executive roles began to eat up all of your time and attention, causing you to neglect the Owner role. Although this is the most important role you play in your practice, it can also feel like a trap if you do not understand the responsibilities and duties.

As an Owner you should be focusing most of your time on expansion activities, making sure the business compliance and regulatory activities are up to date and secure, and ensuring the business is providing the proper value to the household. You (and your family) took all the risk for creating the business and responsibility to keep it alive. You must be compensated for this role, but 99% of the time I see that the Owner is not getting paid.

MISSING Compensation: An additional % of company profits as Owner Compensation and the enterprise value of the business when transferred to a successor-owner.

You Must Pick 2

While it’s important to understand the responsibilities of each of these roles, trying to play all three long-term will make your head spin. If you want to grow and expand your income, you must pick 2!  Which one are you — Owner-Executive or Owner-Practitioner? I’ve seen it work either way. Whichever role you give up, make sure you hire a competent replacement. Keep in mind your time is valuable and be sure to choose the role that meets all of your goals, including financial and personal.

Your Primary Responsibility is to Your Household

As a Practice Owner, your financial responsibility is actually to your Household first and foremost. It is your duty to learn how to maximize the practice value for the benefit of your family. Unfortunately, in all your academic career you were likely never offered a course on financial planning as a business owner, nor guidance on how to achieve your financial goals. The more you know, the more you can control, and if you are not in an optimum financial condition then you need more training and a plan that will help you change the trajectory of your financial life.

Econologics Financial Advisors, LLC (‘EFA’) is registered with the Securities and Exchange Commission as an investment advisor. (Such registration does not imply a certain level of skill or training.) This communication is not an offer to sell or effect any transaction in securities. Neither EFA nor its affiliates provide legal, tax nor accounting advice. Please consult a qualified attorney or accountant.