Jovan Johnson, MBA, CFP®, CPA/PFS

You have worked hard to start and build your medical practice, so it is crucial to protect it. Unexpected financial emergencies can strike at any time, whether due to an economic downturn or a public health crisis. While you can’t predict the future or fully prevent these events from impacting your practice, you can take proactive steps to prepare for them.

With careful planning and a thoughtful approach, you can minimize the negative impacts and help ensure your business remains operational during challenging times.

In this article, we will explore practical tips for developing a recession-proof medical practice.  

Tips for Developing a Recession-Proof Medical Practice

1.) Anticipate Your Potential Risks

To prepare your practice for a financial emergency, it is important to first anticipate the potential risks you may face. Depending on the nature of your practice, these risks could include:

  • Equipment failure
  • Inflation 
  • Labor shortages
  • Limited access to capital 
  • Natural disasters 
  • Economic downturns
  • Pandemics

Start by creating a list of the specific risks your practice is exposed to, then develop a contingency plan for each.

Consider using tools like risk matrices, financial ratios, and scenario analysis to effectively measure and prioritize risks. These tools can help you assess the likelihood and impact of each risk, guiding your implementation of risk mitigation measures.

2.) Establish an Emergency Fund

Facing challenging times in your practice is inevitable; therefore, having an emergency fund is necessary. It is essential to intentionally set aside a sufficient cash reserve to cover critical expenses during emergencies.

Ensure this reserve is kept in an easily accessible, low-risk account, such as a business high-yield savings account. The amount you save will depend on your practice’s size, overhead costs, and typical revenue. A good starting goal is to save enough to cover at least 3 to 6 months of essential expenses, including labor costs.

3.) Review and Update Insurance Coverage

Regularly reviewing and updating your insurance coverage is always a good practice to ensure it remains adequate for your needs. Comprehensive coverage is crucial for safeguarding your practice, and should include some of the following:

  • Business interruption insurance
  • Medical malpractice insurance
  • Commercial property insurance
  • Workers’ compensation insurance
  • Disability insurance
  • General liability insurance
  • Cyber liability insurance

Evaluate your practice’s unique aspects, such as its size, number of staff, specific risks, and revenue. This will help you determine the appropriate types and amounts of coverage to ensure your practice is fully protected.

4.) Diversify Revenue Streams

For private practices, diversifying revenue streams is crucial for financial stability. Diversification provides a buffer during challenging times; if one revenue source experiences a downturn, others can help sustain your practice.

Here are some ways to diversify your revenue:

  • Add new products or service lines
  • Offer telemedicine services
  • Partner with other practices
  • Diversify your clientele (e.g., different industries)
  • Expand into new areas of care
  • Offer online courses or consulting services (monetize your expertise)

By diversifying your revenue streams, you create a risk buffer that can help your practice thrive and remain sustainable, even when faced with economic challenges.

5.) Secure Lines of Credit

Having access to a line of credit can be a valuable resource during a financial crisis. If your emergency fund is unavailable or depleted, additional funds from a line of credit can provide critical support.

To secure the best terms, it is important to maintain strong business credit and keep your financial documents up-to-date and accurate. The more financial tools you have available during an emergency, the better your chances of staying resilient and maintaining your practice’s stability.

6.) Plan for Staffing Flexibility

Cross-training your employees is a smart strategy for maintaining staffing flexibility. In the worst-case scenario where layoffs become necessary, having employees who can step into roles beyond their usual duties is invaluable.

Offering paid cross-training opportunities at least once a year ensures that your practice can continue delivering services during a financial emergency. Managing staff levels during crises is crucial, as labor costs are often one of the largest expenses for a practice.

7.) Establish Backup Supply Chains

To keep your practice running smoothly, having access to critical materials and equipment, such as masks, gloves, and other essential supplies, is crucial. Consider establishing relationships with multiple alternative suppliers for these products.

By having backup suppliers in place, you can mitigate the risk of supply chain disruptions and ensure that your practice continues to operate efficiently, even during unexpected challenges.

8.) Work with a Financial Advisor or CPA

As demonstrated, planning for financial emergencies in advance is essential. There are many factors to consider when preparing your plan and working with a financial advisor or CPA who understands the unique needs of your practice can be invaluable.

A professional advisor can help you develop and refine your financial emergency plan, ensuring that no critical aspects are overlooked and that your practice is well-prepared for any unforeseen challenges.

Regularly Review and Test the Plan

One of the most critical aspects of your financial emergency plan is to regularly review and update it. As your practice evolves—with new employees, services, or locations—it is essential to ensure your emergency plan keeps pace.

Work with a professional to continually monitor your plan and make necessary adjustments. Regular testing and updates will ensure your practice is always prepared for potential emergencies.

Final Thoughts

Financial emergencies are an inevitable part of running a practice, but with the right planning, you can safeguard your business from significant disruption. Working with a financial advisor or CPA will provide you with the expert guidance needed to create a comprehensive plan tailored to the unique needs of your practice. 

Taking these steps now can help ensure that you build a recession-proof medical practice even in the face of unexpected events. Remember, the best time to prepare for a crisis is before it happens. Start building your financial emergency plan today to protect your practice’s future.

Would you like to learn more about ways to create a recession-proof medical practice? If so, please feel free to book a free consultation with us.

Disclosures

None of the information provided is intended as investment, tax, accounting, or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. The content is provided ‘as is’ and without warranties, either expressed or implied. Piece of Wealth Planning LLC does not promise or guarantee any income or particular result from your use of the information contained herein.