“I’m not a businessman; I’m a business, man.”  Jay-Z

     As a medical professional, you are a business, regardless of whether or not you have a legal entity, such as a PA, PLLC, or LLC.  You are a business if you work as an independent contractor (IC) or as an employee.  You are a business, even if you never intend to build your own practice.  You have already spent years building this business.  You created it through years of hard work, study, and sacrifice.  You endured sleepless nights and passed countless exams to gain a professional license, investing time, money, and effort.  You are the singular asset that your business now possesses: your brain, your hands, your skills, your potential.  These valuable attributes will allow you to generate a large amount of money throughout your career.  It’s time to learn to manage your new career/business properly.     

     Making this mental leap, you allow yourself the ability to work ON your business and not just IN your business.  One of the foundational books of small business, The E-Myth Revisited, is predicated upon this very point.  Working IN your business is simply doing your job’s technical tasks: charting, seeing patients, doing procedures, and more charting.  Working ON your business is taking the time to improve your processes, operations, and financials to be better and more efficient.  It’s thinking like an owner and not an employee.  

     There is a lot to learn from the world of business.  The best companies strive for a unified vision, financial controls, organization, diversification, and a defined corporate culture.  In this article, we will explore how these 5 principles apply to our own medical career.  

  1. Unified Vision

     All good businesses have a unified vision.  The job of the CEO is to develop this vision and ensure all stakeholders are aligned with it.  The entire company should focus on this long-term goal and then make every short-term goal with the bigger picture in mind.  When utilized correctly, the company’s vision will guide the decision-making process.  If a new opportunity doesn’t align with the company’s vision, it should be turned down.  A company is ready to thrive when its vision is clear, shared by all, and used as a barometer for decision-making.       

     This is precisely how you should operate: Develop a unified vision for your career.  I don’t mean to create a personal mission statement, but decide your long-term goals and ensure everything you do aligns with them.  Do you want to build an extensive practice and work until you are 70, or do you want to work part-time and travel?  Do you want to spend your life treating a disadvantaged population, or do you want to make as much money as possible?  There is no judgment; just develop a clear vision that you use as a filter for all other decisions.  Remember that a CEO is not a dictator.  You must establish these goals with other stakeholders in mind, including your family and friends.

  1. Organization

     Businesses have a defined organizational chart.  The CEO is the clear leader but receives input from the other C-suite executives at regularly scheduled Executive Meetings.  Additionally, the CEO ultimately answers to a board of directors and the company’s shareholders.  An organizational chart clearly demonstrates the company’s hierarchy and defines the roles and responsibilities of everyone involved.  This hierarchy facilitates the flow of information to the correct decision-makers.  

organization pyramid

     While you may not have an org chart on the wall in your home office, you should clearly define each role needed to run your career/business.  You will wear many hats during your career and need to educate yourself about each function.  Most medical professionals stick with being the COO, strictly dealing with the day-to-day operations of their careers.  Even this they do without intention, failing to look for ways to improve and systematize their processes.  As a business, you must also function as a CFO, establishing clear financial controls as outlined below.  Finally, you must be the CEO, synthesizing all the information into a cohesive plan.  You should have regular meetings to formally examine all aspects of your career/business, ensuring you stay on track toward your unified vision. 

    Just like any business, you will receive feedback from outside consultants.  While they aren’t on your executive team, your accountant, lawyer, and financial advisor will all provide valuable input to your career/business.  The most important part is not to abdicate your responsibility to these consultants.  You are the CEO and ultimately responsible for all decisions.  Finally, develop a group of mentors that can act as your de facto board of directors.  These can be more successful people in your field, business coaches, family, or trusted friends.  Just be sure they are qualified to advise you on such matters and have your best interests at heart.  Go to them for guidance when making strategic decisions about your career.  

  1. Financial Controls

     Many medical professionals behave like they’re running a charity.  This isn’t a jab at our healthcare system or at providing indigent care.  Instead, this critique is aimed squarely at physicians, dentists, chiropractors, and APPs and the haphazard way they typically approach their finances.  The only entity that can perpetually run a deficit is the government . . . but they can print money and have an army.  For everyone else, this doesn’t work.  The purpose of any business is to make a profit.  Period.  If a company fails at this, it goes bankrupt.  If profit isn’t the entity’s purpose, then it’s a charity; however, even charities can’t run at a deficit, or they too will go bankrupt.    

Profit = Revenue – Expenses.

     A successful business must generate more revenue than expenses, while a charity matches spending to revenue by design.  Too many people run their lives like a charity, spending everything they earn.  As a medical professional, you need to focus on increasing profit, which can be done by increasing revenue, decreasing expenses, or preferably both.

Increase Revenue

     Your revenue is all the money you generate.  This can be from salary, bonuses, business distributions, stipends, earned interest, realized investment gains, and dividends.  The money can come from your primary job, side business, or investments.  Throughout your career, you should always look to increase your revenue, including actively campaigning for pay raises if you’re an employee, taking on paid leadership positions, working extra hours, and developing new revenue streams.  At the beginning of your career, you may have to change jobs or move to a new location to maximize revenue.  While people have historically looked down on frequent job changes, leaving a job that does not pay you what you are worth is now commonplace, and commonsense.  You never want to burn bridges, but it is unlikely that a hospital system or contract management group will show loyalty to you, so you must measure what commitment you give in return. Be open to change, and keep your eyes peeled for new opportunities to increase your revenue.   For a discussion on working for a contract management group, read ‘A Physicians Guide to Working for the Devil’.  

revenue increase

Control Expenses

    While it is important to increase revenue, it is equally important to control expenses.  Expenses can be broken down into fixed and variable.  A fixed expense is a structural expense that doesn’t change with production output, while a variable expense changes based on the amount produced.  For a business, fixed costs include rent/mortgage, interest payments, and insurance premiums.  Variable costs can be labor, materials, and commissions.  When a business attempts to increase revenue, it must understand the variable costs associated with that increase.      

     It is just as important to control expenses in your personal life.  You have similar fixed expenses like housing, student loan repayment, and transportation.  Focus on keeping these structural costs low, which will increase your profitability and allow more growth opportunities.  If you have a monster mortgage and car payment, you may be reluctant to take a chance on an opportunity that could increase revenue.  The main variable cost for medical professionals is their time.  If you get paid by the hour, the more you work, the more revenue you generate.  However, this comes at the expense of your time.   Pay that cost early in your career because as you get older, the variable cost of time is one you’ll likely be unwilling to pay.

    Another significant expenditure to consider is your retirement savings.  Build this in as a fixed expense so that it is accounted for from the start.  Treat your retirement savings just like you would a house payment or a car payment.  This will ensure you save enough for the future while building a profit into your financial projections.  

Profit

     A company can do two things with its profit: distribute it to shareholders as dividends or retain the earnings for use in the business.  All businesses retain some earnings, as they all require updates and maintenance.  A company with attractive growth prospects tends to retain more profits.  This is used to reinvest in the business to develop new products, improve facilities, or increase staff.  When a company retains earnings, it is betting that it can invest in itself at a high rate of return.  If a company is not thinking long-term, it will use retained earnings unwisely, making updates that don’t add value or offering lavish perks to executives.  Many solidly profitable businesses will retain some earnings while distributing the rest.  When a company is mature and has no more attractive prospects for growth, it tends to distribute most of its profits as dividends. 

     As a medical professional, you can reinvest in yourself, especially early in your career, when growth opportunities exist.  For most specialties, this is through education.  Are there certification courses you can take to offer new products or services?  Is there a side business you can start that requires a new skill set?  Financial education will pay high rates of return as you learn to save/invest your money.  You want to avoid the unwise use of retained earnings, such as expensive perks like luxury cars.  Since medical professionals should be solidly profitable, you will likely have significant money to distribute to yourself.  Since you have already paid your expenses, including your retirement savings, you can save/invest this profit.  These profits should be used to buy appreciating, income-producing assets, such as stocks, bonds, or investment real estate. 

Utilize Debt Appropriately

     A profitable business can access capital in three ways: sell equity, assume debt, or retain earnings.  Owners of a thriving business are usually reluctant to give up equity, and we discussed retained earnings under Profits above.  A company can borrow directly from banks or sell bonds to raise capital.  These are both forms of debt and are thus a double-edged sword.  Ideally, debt will stimulate growth through acquisition, expansion, or improvements.  Incorrectly used debt can be a burden on any company and can lead to failure 

     As far as I know, there isn’t a way to sell equity in yourself at this point other than perhaps getting married, although some investment bank is probably working on it.   Until then, debt is the best way to raise outside capital for your career/business.  You have likely already done this in the form of a student loan.  You must devise a plan on how best to pay off that debt.  The best strategy will vary depending on your specific circumstances: how much you owe, the type of debt, the interest rates, and how much you earn.  When it comes to other forms of debt, it is imperative to understand it and utilize it sparingly and purposefully.  Debt to fund lifestyle essentials such as a personal mortgage or car loan should be minimized.  Debt used to fund lifestyle choices, such as credit cards and other consumer debt, should be avoided.  Debt is most appropriately used to buy appreciating assets that produce cash flow, such as rental real estate.  Beware of debt.  Those who don’t utilize it correctly will find themselves on the wrong side of compound interest calculations.           

Taxes Uncle Sam

Tax Management

     Companies strive to legally minimize the amount of taxes they pay.  Businesses can reduce taxes through accelerated depreciation, profit shifting to lower-tax countries, tax credits, funding retirement plans, or granting employee stock options.  The goal is to pay as little tax as legally possible, which decreases their expenses, thus increasing profits.  

     As the CFO of your career/business, you should work with your tax professional to minimize taxes.  Many of the same strategies are available to you.  While you may not be able to offshore profits, you can still utilize geographic arbitrage by moving to a state with no or low State income tax.  Depending on your State and income level, this could save you as much as 12-15%.  You may also accelerate depreciation if you invest in real estate.  Finally, contributing to your tax-advantaged retirement plan is one of the best ways to decrease your tax burden as a high-income earner.  For more general information on how taxes work, read ‘Taxes – Life’s Other Inevitability’.  

  1. Diversification

     A business selling only one product or service is at risk from market shifts, competition, or obsolescence.  Businesses typically battle this risk by diversifying their offerings, which can increase revenue, provide earnings stability, and decrease volatility.  However, a company only wants to take on projects that will meaningfully affect the bottom line (profitability) or provide a strategic advantage while aligning with its overall vision and remaining within its specific area of expertise. 

     Diversification works for the medical professional as well.  While you can’t necessarily offer a variety of products and services, you can diversify your revenue by having multiple sources of income.  You can invest in income-producing residential real estate, dividend-paying stocks, or other small businesses.  You can also start your own side hustle, medical or not.  Finally, you can reduce risk by not concentrating your investments in one asset type or geographic location.  

  1. Culture

     Companies work hard to develop and foster a strong culture within their organization, which keeps employees motivated and working toward a common goal.  Happier, more engaged employees benefit the company through higher productivity and less turnover.  

     While you may not have direct employees in your career/business, you should still strive for a strong culture.  The culture of your business is hard work, ethical behavior, fiscal responsibility, and long-term thinking.  Take pride in your medical acumen and patient care while ensuring a profitable bottom line.  Surround yourself with friends and colleagues who are positive and supportive of this culture.  Additionally, rely on other paid professionals, such as your accountant and lawyer, who share your culture.  If you are constantly around people who do not match your culture, find new people.  If that isn’t practical in your day-to-day life, find support groups of like-minded people online.  Plenty of medical professionals want to work hard, maximize profits, and still be decent human beings, just like you.  

Conclusion 

     Despite extensive formal education, medical professionals are not generally taught about business or finance.  Sadly, many of us have an aversion to any discussion combining money and business with medicine, erroneously believing that these combinations will negatively impact patient care.  This naively puts us at a disadvantage when dealing with the for-profit entities that surround us, such as hospitals, contract management groups, and insurance companies.  It also often leaves us with poor personal financial habits, leading to financial stress despite our high incomes.  I believe the opposite.  Educating ourselves on these topics will make us better stewards of resources: our own, our patients’, and the medical system’s.

     Thinking of yourself as a business allows you to be intentional with your career.  Have a unified vision of what you want in order to make better long-term decisions.  Gain financial control over your life and career, allowing you the financial flexibility to accelerate career earnings, maximize profits, and minimize taxes.  Organize yourself like a business with routine meetings to assess your progress and the overall health of your career.  Work to diversify your investments and income streams away from your primary job.  Define your personal business culture and surround yourself with those that share similar values and goals.  Following these 5 business principles will allow your financial life and career to flourish.  Now, get out there and start acting like a business, man.