5 Ways Family Physicians Can Maximize Profit for Their Practice
In today’s economic environment where competition is fierce and the costs of running a physician’s practice are high, it’s more important than ever to plan ahead so you and your family reap the financial rewards of the risk and effort you’ve put into your practice. That means keeping an eye on every option to maximize your profits, both in the short term and long term.
Not every practice will utilize the same solutions, but every practice should constantly be seeking ways to increase the bottom line. Here are five ways we’ve helped physicians keep and earn more of their well-deserved profits.
Maximize a Cash Balance Plan
A cash balance plan is a type of defined benefit retirement plan that is a popular option among small business owners, including family physician practices. This plan allows for higher contributions than a traditional 401(k) plan, making it an excellent choice for high-income earners who want to save more for retirement while at the same time lowering their tax bill.
One advantage of a cash balance plan is that it allows family physicians to contribute significantly more than the annual limit of a 401(k) plan, which is $22,500 in 2023, plus an additional $7,500 catch-up contribution for those over age 50. The contribution limits for cash balance plans, on the other hand, can be up to $265,000 per year, making it a powerful tool for tax planning and retirement savings.
Another option to consider is combining a cash balance plan with a 401(k) to get the benefits of each account type.
While a cash balance plan may not be suitable for every family physician practice, it is certainly worth considering if you are looking to maximize your retirement savings and reduce your taxable income.
Use Section 105 Plan for Medical Expenses
A Section 105 plan, also known as a Health Reimbursement Arrangement (HRA), is an employee benefit plan that allows family physicians to reimburse their employees for qualified medical expenses. It provides a way to offer additional benefits to employees without incurring the costs associated with traditional group health insurance, and it reduces taxable income for physicians. Section 105 plans are flexible in design and can be used in conjunction with other health insurance plans. However, it is important to comply with specific regulations and work with a knowledgeable benefits consultant or accountant.
Shop Around for Workers’ Comp, Auto Insurance, and Group Health Insurance
One expense that can really sneak up on you, especially if you haven’t shopped around recently, are your various types of insurance. It is essential to review your workers’ compensation, auto insurance, and group health insurance policies regularly to ensure the practice is getting the best coverage at the most affordable prices.
While these are vastly different types of insurance, the principle of shopping for the best rate is the same. According to NerdWallet, 74% of vehicle owners do not shop for the best auto insurance price every year—which leaves them susceptible to price increases and paying more than they need to for their current coverage.
Depending on the number of employees enrolled in your group health insurance plan, as well as your company’s history and claims with workers’ compensation, there could be a chance for you to get the same amount of coverage for a much lower price. But you won’t know unless you work with a qualified insurance expert, who can help you regularly find the best prices for the right type of coverage in your practice.
Time Year-End Spending for Tax Deductions
A key part of my work with physicians entails reducing their tax bill, both with business taxes as well as personal taxes. It’s especially important to review these possibilities toward the end of the year while you still have your options open.
While this article is geared toward maximizing profits, we all know that sometimes it’s key to spend money in order to make more in the future. Perhaps there is a new piece of equipment, a marketing campaign, or new technology that you want for your business. If you purchase it by the end of the year, and qualify for a Section 179 deduction, you can deduct the full purchase price in that year, and set your business up for more success in the future. If you don’t qualify, you can still depreciate the cost of the asset over multiple years.
In terms of non-business expenses, you can maximize your retirement savings to the full limit, as well as your charitable giving. If you can increase either (or both) of those options, that could help you save on your tax bill while fulfilling your charitable or retirement goals.
Increase Employee Retention With a Section 125 Cafeteria Plan
A Section 125 cafeteria plan is an employee benefit plan that allows family physician practices to offer their employees a range of pre-tax benefits, including health insurance, dependent care, and flexible spending accounts. By offering these benefits, family physician practices can increase employee satisfaction and retention, which can ultimately increase profits. With the number of employers increasingly looking for talented staff, it’s far easier to retain great employees than it is to find new ones. While there may be a modest cost to setting up this type of plan, the long-term financial benefits of having a great team can far outweigh that initial investment.
Are You Maximizing Your Profits?
Just like there are a number of factors to running a successful practice, there’s a number of ways that you can maximize your profits. If you’d like to review and improve your profit margin, we’d love to help. To schedule a complimentary consultation, call us at 215-393-0700 or email us at email@example.com to get started.
Derrick Handwerk is Family Chief Financial Officer at Handwerk Consulting. His firm offers a variety of financial planning services for physicians and senior medical professionals in the state of Pennsylvania. With 25 years of experience owning, managing, and consulting for privately held businesses and helping medical professionals successfully work toward financial security, Derrick prides himself on maintaining the highest level of client service and approaches his families with integrity. He loves providing clients confidence knowing he’s watching over their financial life like a hawk and is gratified knowing he’s helping change their lives for the better.
Derrick received his MBA from Lehigh University in Bethlehem, PA, and was nominated as a Martindale Business Scholar. He has also been certified as a Certified Wealth Strategist® and received his Wealth Preservation and Asset Protection certification from the Wealth Preservation Institute. He has written hundreds of articles, spoken at numerous conferences and has appeared on several TV shows. Outside of the office, Derrick enjoys spending time with his family at his vacation homes, playing golf, and dining out. To learn more about Derrick, connect with him on LinkedIn.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific situation with a qualified tax advisor.
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