When a doctor finishes his education and training he has to make a choice about being in practice or be in service. It is not easy about which choice to make. The poor kid’s education does not prepare him to take this very difficult decision. Say 30 years ago there were not too many jobs available so doctors went into practice. Today they can choose to work in a corporate hospital and earn a decent wage. Also the real estate cost is so high that for a doctor to really earn well AFTER paying off rent, and all other expenses he/she has no clue whether they made money or not!!

However, mismanaging money by doctors starts at the very beginning. Sounds very basic, but they do not keep accounts – neither personal expenses or practice earnings. So at any point in time they have no clue how much they have earned, spent, saved, invested..and that is a disaster warning. Many doctors who are say 43-44 years of age do not know how much they earn on a monthly basis. Their CA tells them “for a doctor…you must pay at least Rs. 4L as Income tax” so that gets paid. ….

You can prevent this from happening to you…

Create a financial model for your practice / hospital

Determine where your cash will come from and what expenses will you incur. Then estimate how much time the practice will need to create enough profit and free cash flow to be self-supporting. Once the practice generates enough cash to operate on its own, you can reduce your personal exposure. Whatever personal money you have put into the practice should come out now. Nothing emotional, but if your practice is not generating what a corporate hospital will pay you, at least you should consider taking up a job.

Once you’ve estimated how much money you’ll need, cut your income projections in half. Then cut them in one quarter again. This is necessary to balance out your natural optimism. Now see how much time you think it will take to get started and double it. Building a practice and building a nice free cash flow always takes longer than most DOCTORS expect. Remember if you do not have a ruthless fees collection machinery you will suffer bad debts too!!

These numbers may look difficult to accept and hard to digest…but they are the numbers more likely to be achieved. Being optimistic is fine, but it should not be foolish. Some more things need to be done.

Hire an accountant and a lawyer – OBVIOUSLY not on a full time basis, but on a weekly basis (accountant) and use the lawyers help to keep proper records of client dealing. Decide whether you want to keep a record of all patient conversation. (Many docs are going to lose money in the courts going forward).

Last few things:

Open a ‘practice’ bank account and deposit all the income into that account. Make sure that all business income and business expenses happen from that account. This will show you the MONTHLY deficit…and the ANNUAL DEFICIT. This amount you should transfer from your personal account to the business account. THIS IS NECESSARY FOR BEING DISCIPLINED. What you tell your wife, friends, classmates does not matter…YOU SHOULD KNOW THE TRUTH.

Determine how much you can risk:

Each doctor starting life has a different risk taking capacity. If it is you father’s practice, you will have to worry LESS about cash flow. However if you are from a lower middle class family supporting a brother/sister/ parents you will have less CAPACITY to fund the losses. You may not be able to fund even a Rs. 3L loss incurred due to the rent, salary to staff, etc. So it may put pressure on you to take up a job and shut down your practice. If your family is rich (but not doctors) they may be able to feed you for a few years and thus you maybe able to afford a car, vacations, life-style without worrying too much. ANYWAY you should know your capacity of taking cash flow risk.

If you can risk say Rs. 200,000, then take Rs. 2L from your personal account and put it into your business account. Clinic rent, equipment rent, salary to staff etc. SHOULD be strictly paid from this account. If you use a personal vehicle a part of the fuel expenses should be debited to this account.

Speak to your parents, spouse, etc. INVOLVE them. They too should know what you are risking and for how long.

Once you have all these things in place, go finding your first patient!! Make sure that you charge everybody. Your first few years is not when you can do free work. You need to get rich to do charity!!