February 28, 2013
Question:
Jennifer,
Over the years I have accumulated several large debts for my practice - the initial loan to start-up, the real estate purchase a few years later, a line of credit, and I also have a few equipment leases. With the decrease in my reimbursement, I am having trouble paying my staff and drawing a salary myself.
Any advice?
Thanks,
Dr. T
Answer:
Dr. T, first off, thank you for your question. Speaking up about financial difficulty is not easy; however, many of your colleagues are in the same position as you have described above. The first comment I have on the situation is, you likely cannot fix the situation you are in yourself. You will need assistance from outside sources. And, sometimes it takes a little money to make more money. I would recommend first taking a look at your ARs. A lot of practices are leaving a LOT of money on the table by only collecting 60-80% of what is owed to them. The difference in collection may solve many of the financial difficulties you have described. Looking at your ARs may require you involving your accountant, your biller (or if your biller is the problem, its time to start interviewing new billers!!!!!), potentially a consultant to come in and train your current staff how to be more efficient, discuss your situation with a bank for potential consolidation and lending, and finally, thankfully is not required often, you may want to speak with our firm about bankruptcy. I am not going to spend a lot of time on bankruptcy, but we do have an article on medical practice bankruptcy, available here, if anyone is curious.
Because much of the financial end is outside of my wheelhouse and financing is a major part of financial instability, I ran this topic by Tapan Patel, who focuses on medical lending at Bank of America, and he relayed tips -
Jen - this scenario is unfortunately growing more and more common. I've assisted doctors in this situation over the years and my advice is for Dr. T to look into refinancing any real estate into a separate loan and choose a long term fixed rate. Rates are pretty favorable right now so if Dr. T plans on staying in his/her space for the duration of his/her career then refinance into a 10, 15, 20, or 25 year fixed rate. With rates as low as they are right now Dr. T will benefit by taking the longest fixed rate he/she can find. The rate may be higher for a 20 year fixed rate but you reduce the risk of taking a shorter term fixed rate (a 5 year, for example) and paying a much higher rate when the rate changes or your balloon payment is due after year 5.
Also it is absolutely worth making a call to look into refinancing your practice loans and leases into one single monthly payment. This will make your monthly obligations much more manageable. Typically business owners will re-structure all of their debt into a 7, 10, or 15 year loan with a fixed rate. The only hiccup could be that your leases have large pre-payment penalties attached to them. If that’s the case then you may want to keep the leases separate and pay those payments as agreed. As with any purchase you make, you always need to check the fine print to ensure you are not being locked into a loan for its duration. Unfortunately, I do see many business owners with leases that can’t pay-off without paying penalties. Happy to field questions or review practice situations. I do not charge on a time basis; BOA only gets compensated if we assist in restructuring so of course there is no charge to review a practice structure.
Tapan Patel
Regional Finance Specialist - Medical
Bank of America Practice Solutions
tapan.patel@bankofamerica.com
(646) 825-0764
