Like any well-run business, a medical practice needs to step back periodically and try to get a bird’s-eye view of where it has been and where it is going. A good time to perform such a review is at the end of the calendar year. Go into the meeting with a plan, prepared to focus on three critical areas: corporate, financial and operational planning.
It is helpful to have a trusted adviser, such as your accountant, facilitate the meeting. An adviser who knows your practice can keep the agenda focused on the business issues, diffuse tense emotions and provide insight based on experience with other medical offices.
Many medical practices are organized as professional corporations and in most states that means they are required to hold annual meetings. Moreover, each state may have certain other filing requirements.
But even if you operate as a limited liability company or a partnership, holding annual meetings provides an opportunity to review current agreements and plan for the upcoming year.
When preparing for the annual meeting, review your Operating Agreement, Partnership Agreement, and your bank loan requirements to make sure you are not in violation of agreed-upon covenants.
If your practice operates as a corporation, take a close look at:
The shareholders’ agreement, which specifies the restrictions associated with the sale of stock as well as the formulas for the valuation of the shares. Update the agreement if it doesn’t reflect the current value of your practice.
The bylaws, which should reflect your business structure and outline the process for holding corporate meetings, voting on corporate issues, electing directors and appointing officers. The bylaws should be adaptable to the day-to-day needs of your practice.
Employment agreements. Review provisions that involve buying out a co-owner, including the buyout provisions, deferred compensation, and length of termination notices. Also, review and update restrictive or non-solicitation covenants. Consider whether both the practice and employees are in violation of the agreements. If necessary, make changes. When it comes to the actual meeting, you can be flexible about the agenda. However, consider adding to the agenda the election of corporate officers (even if you are the sole shareholder of your corporation), approval of actions taken since the last meeting and approval of bonus distributions, including retirement plan contributions. Retain signed-and-approved minutes of the meeting.
Caution: If you don’t adhere to state-required formalities, you could face a legal challenge on the validity of your corporation during a legal dispute. A successful challenge potentially increases your financial exposure.
The year-end is also a good opportunity to review finances and determine if additional tax planning opportunities are available. Here are some basic steps:
Compare the balance sheet and statement of income from the current year to the previous year. A side-by-side financial analysis can give you a clear picture of financial changes. Look at and compare every category to highlight significant changes. If material, determine why those changes occurred and lay out a plan to repeat positive financial performance and avoid negative actions. Consult with your accountants to provide this service.
Compare year-to-year accounts receivables, paying particular attention to the difference between total charges and total collections, the average number of days for collections and your mix of payers. While you’re at it, estimate how much cash your practice is likely to receive in January. If it looks like cash will be tight, you may want to consider setting up a line of credit in advance to navigate the rough spots.
Look to improve the realization of your receivables. Should you upgrade or enhance your billing system? If you outsource billing, are you satisfied with the results? Take this opportunity to evaluate third-party payer plans to determine whether it is in the best interest of your practice to continue doing business with them.
Time Well Spent…
According to the old saying, if you fail to plan, you plan to fail. For busy physicians, a time-consuming meeting might feel like a waste of time. But effective year-end planning can provide insight into how well your practice is performing, help avoid problems before they occur and give you the information needed for a financially successful new year.
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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