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Understanding net-net income and what it means for your bottom line

What remains is your positive cash flow you can save and invest for long-term benefit, re-invest into your practice, or squander. Make smart decisions to maximize office, staff and provider efficiency to realize every available dollar from providing services and increase your final net-net income.

The love-hate relationship that has formed over the years between health care practitioners and insurance companies is getting worse.

As more of the population is covered by assorted insurance policies, the task of keeping track of benefits seems insurmountable. The need for additional staff to confirm insurance coverages, process and track reimbursements, and spend hours contacting companies when discrepancies arise are raising the cost of doing business.

A chaotic marketplace

Each company has its own reimbursement schedule, copay or deductible amount, billable levels of service and covered procedures per specialty.

Companies often have additional parameters, too. Furthermore, practitioners are responsible for keeping notes on patient objective findings, discussions including subjective symptoms, doctor-patient recommendations, and maintaining HIPPA compliance.

The process has become so maddening that some practitioners decline to participate with insurance companies, getting paid directly by the patient instead. The patient then sends their bill to the company for reimbursement.

Unfortunately, the Centers for Medicare and Medicaid Services (and possibly other health care agencies) do not allow chiropractors to opt out of the system. However, a DC may elect to become a non-participating provider for billing purposes, but must still bill Medicare on behalf of the patient.

Medical physicians can opt out of Medicare if they follow specific procedures. In either case, the decision to disassociate from insurance reimbursement is personal and must be vetted thoroughly to determine if it is the right course of action.

Gross vs. net income

The reality of a decreasing bottomline income is all too real. It is not what you gross, but what the net return is after expenses and taxes are paid. According to one finance writer, “Net income is a simple, yet very important component of your personal finances. Having a clear understanding of how much money is coming into your personal house- hold, and what differentiates it from your gross income, will give you a good grasp on your overall financial picture.”1

When first beginning in practice—and likely saddled with student debt—a new practitioner’s overhead is much greater than that of a DC with years in practice. While in survival mode, the goal is to build the practice and get positive cash flow to meet debt payments.

The ability to eliminate debt may prove daunting if you lack an understanding of the true costs of borrowing and fail to set goals for its elimination.2

As debt is reduced and cash becomes available, however, you have to make choices about adding more debt (e.g., mortgage, car payments, insurances) or save toward an emergency or retirement fund.

These decisions can create anxiety if you don’t know what to do or who to consult.

Debt-to-income ratio

Every stage of practice development has its own challenges. Proper money management is just as essential as acquiring and caring for patients. The sooner accounting and other financial processes are in place, the more likely your practice will be on sure footing.3

Going one step further, after paying housing, insurance, food, childcare, recreation, clothing and other expenses, what is the net-net number? According to Credit Karma,

“The standard rule of thumb is that [all] your DTI [debt to income] ratio should be less than 36 percent” of gross monthly income.4

Housing debt should be less than 30 percent of gross monthly income. Consumer debt should be less than 20 percent of net (after tax) monthly income. Whether expanding, purchasing or starting a practice, the expectation should be that the DTI ratio will be higher.

What remains is your positive cash flow you can save and invest for long-term benefit, re-invest into your practice, or squander. The choice is yours. Make smart decisions to maximize office, staff and provider efficiency to realize every available dollar from providing services and increase your final net-net dollar amount.

Bottom-line results

Unfortunately, we all squander financial opportunities to save and there is always room for personal improvement. Our desires and wants usually exceed our needs. For example, if your goal is weight loss, you’ll generally want to maintain an accurate record of consumption and caloric intake.

You can apply the same concept to anything that involves a desire to change. At the end of any week, if less money is available than before, you need to discover the answer and implement a solution.

Are too many meals and snacks purchased instead of prepared at home? Are recreational and workout activities an expense when there are ways to obtain the same benefits for free? Is a new car needed or will a quality used car suffice? What better use of time and resources can be instituted right now to increase your net-net?

Time can be your friend or nemesis; it depends on when you start your journey. A successful retirement requires time and effort early to have the wherewithal needed in the end result.

Unless you do your own taxes, you likely consult with a tax professional. But that person may lack the ability to help you adhere to a budget and set appropriate financial goals. Working with a certified financial planner (CFP) can be more prudent than going it alone.

Whether you have investments or not, a CFP can guide you through the tortuous maze of business development, steering you toward growth and profitability. Keep your eye on your net-net, because at the end of the year, it is not what you’ve grossed, but what you keep that counts.

H. William Wolfson, DC, MS, CFP, is an independent financial consultant and advisor. He retired after 27 years of practice and remains active volunteering his time to the continued education and success of colleagues. He can be contacted at 631-486-2792 or drhwwolfson@gmail.com.

References

1 Elmblad S. “What is Income?” The Balance. https://www.thebalance.com/what-is-in-come-1293714. Published June 2017. Accessed Oct. 2017.

2 Wolfson HW. “Till Debt Do Us Part.” Massage Today. http://www.massagetoday. com/mpacms/mt/article.php?id=14932. Published June 2014. Accessed Oct. 2017.

3 Stevens D, Wolfson HW. “The Success Formula: Simple Tools to Track Your Expenses.” DC Practice Insights. http://www. dcpracticeinsights.com/mpacms/dc/pi/article. php?id=57004&aoid=dcpinu_20140522. Published June 2014. Accessed Oct. 2017.

4 Credit Karma Staff. “Understanding your debt to income ratio.” Credit Karma. https://www. creditkarma.com/advice/i/debt-to-income- ratio. Published Mar. 2016. Accessed Oct. 2017.

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