Turn Your Practice Into a Financial and Wealth-Building Engine

Posted by & filed under Business Owners, Doctors, Education, Healthcare, Resource, Uncategorized.

Do you run your own practice or hope to run your own practice in the near future? If your answer is “yes,” then you will want to pay close attention to the information within this Lesson. The purpose of this section of the article is to help you get the most—financially speaking—out of your practice. You will have to do more than the typical cookie-cutter planning that many CPAs and attorneys will suggest. As you learned in Lesson #3, an advisor who doesn’t specialize in the unique issues that Doctors face is likely to miss a number of key elements in their planning.
If your goal is to efficiently get the most out of your practice, you may find this Lesson to be the most valuable in this book. While intelligent planning can improve all aspects of your life, it is the impact on your practice that can be the most significant. You need to begin thinking about your practice not only as a treatment facility for patients, but also as a financial Fortress and a wealth-building Engine for you.
The Fortress analogy is important because we want to make sure that the practice is fortified. As the vehicle through which you will make most of your earnings in your career, the practice needs to be protected against all financial and legal threats. As you learned in the previous sections of the larger article, these threats are not just medical malpractice lawsuits. They include healthcare issues, employment risks, and other financial threats that can impact your ability to work and make money.

The Engine analogy is crucial because we want your practice to be an engine for wealth accumulation. You will want to apply the important concepts explained earlier in this book (e.g., Leverage and Efficiency) to your practice structure and operations. By doing so, you will finally be able to derive as much financial benefit as possible out of your practice—both during your working years and through your retirement.
In this Lesson, we will discuss ways to structure and operate your practice so it will act both as a Fortress and as an Engine. Specific articles will cover other risks to the practice not yet discussed, including the premature death or disability of a partner. This Lesson will also explain how to turn the practice into a Fortress by protecting your accounts receivable, real estate, and equipment. You will also be introduced to tools that can be used to transform your practice into a smooth-running Engine—including the use of qualified and nonqualified plans, friendly lease-back arrangements, and captive insurance companies. Finally, we will explain the ultimate wealth-building Engine—the million-dollar retirement buy-out.

How NOT to Structure Your Practice

Every year, we meet many Doctors who are practicing within a structure that offers very little, if any, protection for the assets of the practice. Even worse, we encounter Doctors who have put absolutely no barrier between the potential risks of their practice and all of their personal assets. In some cases, this is due to ignorance on the part of the Doctor. Other times, this is the result of poor advice. Many accountants have suggested that Doctors might not see enough benefit from incorporation to warrant the added time and expense corporations require. Other advisors still recommend general partnerships, although this practice form is all but extinct. In this chapter, we will discuss the pitfalls to avoid when structuring your medical practice.
It may be difficult to believe, but most Doctors who call us have practices that are structured with two things in common:
· Maximum lawsuit exposure
· Minimum tax-saving potential
In this chapter, we will discuss the common medical practice structural and operational mistakes that can cause these two highly undesirable outcomes. After you learn how not to structure your practice, you can continue reading the rest of this Lesson and learn how you can structure your practice for maximum flexibility and efficiency, enabling you to create the Fortress and Engine you desire.

The Worst Way To Structure A Practice: As A General Partnership
Fortunately, it is far less common for Doctors and their advisors to structure new medical practices as general partnerships today. Though new practices are rarely configured as general partnerships, we still come across dozens of mature (and profitable) practices every year that continue to be operated as general partnerships. There are rarely absolutes in medicine, finance, or the law. However, here is one simple rule: You should never operate any medical practice or other business practice as a general partnership. Why do we say this? The general (pun intended) reason is because a general partnership is a creditor’s or plaintiff attorney’s dream and a partner’s liability nightmare. More specifically, let’s consider the three hidden dangers of a general partnership:
1. Partners Have Unlimited Liability for Partnership Debts
This tragic fact goes unrealized by many Doctors who are involved in general partnerships. Without signing personal guarantees on every debt, the Doctors who are involved in a general partnership are, by default, personally guaranteeing every partnership debt and personally assuming the risk for malpractice, accidents, and other liability sources of the entire partnership. These Doctors fail to consider that their liability as a partner is joint and several with all other partners. A plaintiff who successfully sues the partnership can collect the full judgment from any one partner. Let’s look at an example to see how dangerous this arrangement can be:
Case Study: Jane and Ted’s Real Estate Venture
Jane and Ted were physician colleagues who wanted to increase their income by buying “fixer upper” houses, renovating them and then selling them. Events went well for a while, but the real estate market went sour and they defaulted on a $650,000 loan to the bank. Jane was much wealthier than Ted, so the bank pursued Jane for the full amount, ignoring Ted, under the theory of joint and several liability. To collect Ted’s share of the liability, Jane had to file suit against him, More

Avoiding Employment Threats

Posted by & filed under Business Owners, Doctors, Healthcare, Resource.

Employment Lawsuits

Avoiding Employment Threats
After over a decade of educating Doctors on the importance of asset protection, we are seeing a noticeable increase in awareness. Unfortunately, the majority of Doctors who fail to employ asset protection planning give the same excuse: “Doctors never lose malpractice lawsuits with awards above coverage limits.” This is wrong for two reasons. First, half of jury awards against physicians are over $1,000,000. Second, malpractice suits are only a small percentage of the awards against Doctors. A less visible but arguably larger concern is that an employee will file a suit against the Doctor. In the larger version of this article, we will discuss the challenges of employment liability, which may result in very expensive defense costs—even in the event of fraudulent cases that you win. We will give some examples of cases that may be of interest, explain increased risks in the information age and offer some solutions.

The Risk Of Employment Lawsuitspost 13
Over the past 20 years, there have been monumental changes in the employment arena. There are a host of Federal Laws that have been put in place to protect employees’ rights and open the possibility for lawsuits against employers. Many argue that these laws are appropriate to protect the rights of workers while employers often argue that these laws place undue restrictions on their ability to manage their firms.
Regardless of which side of the issue you sit, the reality is that there are numerous “Laws of the Land” which employers must follow. Inclusive of these are the FLSA [Fair Labor Standards Act]; the ADA [Americans with Disabilities Act]; FMLA [Family Medical Leave Act]; Title VII of the Civil Rights Act of 1964; The Civil Rights Act of 1991; and many more. In addition to the federal law, California’s laws add another layer to these regulations. So what does it all mean? It means that you have to learn how to protect yourself against one of the fastest growing areas of liability.
What many employers—including Doctors—face today is the challenge of working in an ever increasingly complex world of employment regulations and guidelines. Most small business owners may have few resources with which to address human resources concerns and little or no training. This can result in the owner being held financially responsible for any mistakes they may make. It means that age-old established practices may plot a course for a company to end up in ruin. It means that business owners—including Doctors—must pay greater attention to how they hire employees; how they supervise them; and how they terminate them.
This environment has fueled the growth of Human Resources (“HR”) outsourcing. Many firms have established themselves as specialized providers of these functions for businesses, with the intent of alleviating the business owner’s HR headaches. While these firms do provide reliable HR services, they typically do not provide liability coverage for the companies they serve, especially in the realm of employee suits claiming sexual harassment, unlawful termination or discrimination. So, while business owners may benefit from outsourcing some HR tasks, they cannot outsource the risk and their companies are still responsible for their own actions. Insurance policies that address these risks are available to protect against catastrophic liability—one example is EPLI [Employment Practices Liability Insurance], also known as HIRE insurance (see www.hireins.com for more information). If the risk is real, and protective insurance is available, why are the vast majority of small business owners, including Doctors, operating without such coverage?
To small business owners, this type of coverage has historically been out of reach due to cost restrictions. Thankfully, this is now beginning the change. More affordable coverage solutions are making their way into the market. In fact, low deductible policies with coverage amounts as high as one million dollars can now be found. These more accessible policies, coupled with employment risk management services, provide a shield that can protect small business owners—including Doctors—from these potentially devastating claims.

Protecting Your Practice
There are two ways to protect your practice assets from risks. First, you can insure against the risk, effectively sharing the risk and passing it along to someone else. Second, you can assume the risk yourself and use asset protection and risk management strategies to protect assets from the threats. The second strategy is covered in Lesson 6. Here we will focus on passing off all of that risk to other people through insurance.
Fewer than 5% of small businesses (and, we imagine, even fewer medical practices) have any insurance coverage providing protection from employment-related lawsuit risks. This is despite government statistics clearly indicating that this threat is a growing problem. Additionally, recent federal court rulings have begun finding owners and management “personally liable.” This means that just incorporating a business will NOT, by itself, protect a business owner from being found personally and financially liable in employment-related suits. Thus, insurance coverage is key to protecting a business owner’s interests.
A solid EPLI policy coupled with a comprehensive risk management course can be obtained today for under $2,500 (sample for businesses of 10 employees or less). Retaining these services provides small business owners with the tools necessary to enforce the protections of the insurance coverage. By coordinating an insurance policy and consulting services, the small business owner/Doctor can expect to see a significant reduction in the threat posed by an employment lawsuit. Contact the authors at 877-656-4362 for more information.

Risks In The Information Age
Information is the currency of modern America. The role of the Internet—and its ability to locate and distribute information—has exploded in recent years. It has become the source of much of our information—our de facto provider of answers, so much so that the first thing a person will do when faced with a potentially life-changing issue is often to “Google it.”
What else, then, would you expect of an employee that feels they were treated unfairly? Most likely, they will explore the information available online and learn that they may have options available to them. In More