As seen in Physician's Money Digest
Physicians with Practices
Need to Plan
By Donald T. Cohen, CPA
Newman + Cohen Financial Management
The financial landscape for physicians with their own practice can be confusing. These professionals face important decisions about insurance, estate planning, taxes, and retirement savings that have major financial implications for themselves as well as their businesses and employees.
It requires a lot of analysis and planning to manage the finances of their practice while coordinating their personal finances. The following are some areas that are often neglected
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Succession planning - You should think of this as estate planning for a business. When the owner of a medical practice dies, who will operate the business? Will it survive after estate taxation? If the practice is in debt, owners must plan for alternative means of payment. A detailed succession plan takes this into account to allow for a smooth transition. |
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Employee benefits-Along with helping doctors provide competitive and attractive employment opportunities, benefits packages enable them to reduce their tax liabilities. Furthermore, group life and disability insurance plans typically provide better coverage and rates for these business owners than they can obtain on their own. For this reason alone, it often makes sound financial sense to secure a strong life and disability insurance plan for the practice. Pensions and 401(k) plans are also financially beneficial for both the physicians and their employees. |
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Planning for the loss of key individuals-Practices that rely on the expertise and capabilities of several key individuals can be devastated by losing them to competitors, health issues, accidental death, etc. Key man life insurance policies are often used to mitigate the financial impact of the death of a vital employee. It is also critical for medical practice owners to create incentives for the continued long-term employment of these individuals. Nonqualified, deferred-compensation plans with various options for vesting schedules can be 1 way of achieving this. Another consideration is the use of contracts with non compete and confidentiality clauses to help guard against costly defections. |
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Protecting assets-There are many steps that physicians with practices can take to protect their assets from claims and creditors. The classification of the business as a corporation, LLP, LLC, etc, plays a minor role in this. But, regardless of the type of organization, owners must move assets in a systematic fashion that is planned with the help of an experienced professional using all of the established creditor-protection mechanisms available under the law. |
Physicians who own successful practices must gauge their financial strategies. By doing so and seeking the counsel of financial professionals, the rewards can be significant.
Donald T. Cohen, founder and I director of Newman and Cohen Financial Management, has I more than 20 years of experience in public accounting, advanced financial strategies, and business management for physicians and other high-net-worth individuals. For more information, visit www.newman-cohen.com
