Over the past few years the US economy has been at its worst. Each day the media reports on financial disaster and bankruptcy. The medical community is not immune. We spoke with leading bankruptcy attorney, Michael N. Nicastro, Esq., of Nicastro Piscopo, a Professional Law Corporation, Costa Mesa, CA about this state of affairs.
When examining patients and patient data, physicians routinely look for health related “red flags” to help patients avoid, or mitigate, prospective medical problems. This focus on early detection can save lives and reduce future medical costs. Practicing early detection is also critical in the realm of financial health. A financial problem that is anticipated or identified in the early stages can frequently be resolved through modest fiscal or operational adjustments. In contrast, once the problem has grown into a financial crisis, a “painful” procedure, such as bankruptcy, may be the only solution. Accordingly, just as it is appropriate for a healthy patient to have regular medical check-ups, wise management will subject the corporate body to regular financial examination.
This past recession, which has been particularly devastating for professionals, confirms the merits of “early detection”. Many professionals who have historically had lucrative practices and believe they’ve done “all the right things” from a business perspective, are now finding that bankruptcy is the only cure available for their financial woes. Our physician clients are shocked to “discover” that their condition is sufficiently dire to justify this sometimes bitter medicine.
It has been my experience that medical professionals are particularly vulnerable to financial problems during an economic downturn due to the nature of their profession and training, and due to the payment structures imposed upon them by outside forces. Medical professionals are trained to take care of their patients, not to take care of business, and yet financial survival in this field, with its plethora of insurance arrangements, is increasingly a task. Many medical professionals simply wait too long before reaching out to a trusted financial professional. This is a mistake. Take the time to examine your businesses’ financial health. Here are few financial “red flags” to look out for:
- Failure to make maximum allowed contributions to your retirement plan. You are your most important creditor. Let me repeat this….YOU are your most important creditor. Each month you should pay yourself first and then begin to pay other creditors. If you are not able to put away money toward retirement, you are not moving in the right direction and have lost valuable time.
- Inability to pay off your credit card balances each month. Carrying credit card debt is one of the worst financial situations in which to find yourself. Usually, credit card balances build slowly over a period of time so that you get “used to” carrying debt and making minimum payments. However, you are paying credit card companies anywhere from 15% to 29% on their debt when the current prime lending rate is around 3.25%.
- Lending personal funds to your medical practice. Simply put, the flow of money should be FROM your business and not TO your business.
- Borrowing money from your retirement plan. Qualified retirement plans are safe from creditors’ claims (except the IRS) and represent funds put away for your future, not trying to solve past financial issues. There is one exception for using retirement funds – life or death issues. If you have no other option to pay for that lifesaving surgery (which would prevent you from benefiting from your retirement plan otherwise), go ahead and use those funds.
- Late payments on your home, car or credit cards. If you do not have funds on hand to meet your current obligations, this is an early sign that you may be insolvent.
- Accessing funds in savings to pay for living expenses or installment purchases. Savings should be used for a “rainy day” and not for normal anticipated ongoing expenses.
If you have one or more of these attributes, or are engaging in any of these courses of conduct, stop and get a financial check-up. Better yet, take the time to get a periodic financial check-up even when these red flags are not flying.