Medical professionals: Do you know what your financial future has in store?
Colin Dawson, CPA, CA and Manager with MRSB Chartered Accountants, reviews some key steps to ensuring your practice is optimized for future wealth
Doctors, you have a lot on your proverbial plate. Apart from back-to-back appointments, patients and your own family to tend to, you also have a professional practice to manage. It's understandable that your tax, accounting and bookkeeping demands often sit squarely on the back burner. After all, what's more important: what might happen 10 years from now, or what's happening today?
The truth is, while it might be low on your priority list, proper management of your finances needs to start now if you're to ensure a worry-free, prosperous future. There is unfortunately much evidence pointing to physicians and other medical professionals not having the tools required to properly prepare their practice for retirement, or even to ensure wealth in the here and now.
If you want to start taking the necessary steps toward a secure future, here are a few things to think about - and start working on - to make your ideal retirement a reality:
1. Structure your practice for tax purposes and income splitting
If your practice is incorporated, this offers multiple opportunities to reduce your annual tax burden. A few of the ways you can use corporate structure to reduce taxes are to split unincorporated income with your spouse, keep surplus income in the corporation to take advantage of corporate tax rates, and consider an Individual Pension Plan (IPP). The rules are more complex for incorporated practices, but the benefits usually outweigh the costs.
2. Draft an up-to-date Will
The importance of a current Will & Testament can't be overstated. This is the primary document that determines how your assets will be divided between your spouse, children and other family once you're gone. And if you're thinking, 'I drafted my Will years ago, I have nothing to worry about,' then be aware that recent changes to your marital status and other factors can change or even nullify your Will. Drafting your Will when you have full capacity to do so (not when you're sick or under duress), reviewing the document regularly and updating the terms of your Will in line with your estate plan are all crucial steps. You will also want to involve your lawyer and accountant to make sure your finances, assets and any possible tax issues are discussed.
3. Arrange adequate insurance coverage
There are many types of insurance and each professional has different needs, whether you are a dentist or a psychiatrist. Many providers offer customized insurance packages to meet the specific needs of doctors. Accidental death, disability, lawsuits, critical illness and loss or destruction of documents are all considerations to keep in mind as the owner of a professional practice. The chances of most of these events happening are thankfully quite low, but if the worst happens it will affect not just yourself but your entire business.
4. Keep your billings and financial statements up-to-date
While your Will protects you into the future, up-to-date monthly and yearly financial statements help things go smoothly now. They will allow you to monitor your cashflow and financing needs to ensure that you can not only meet your immediate operating expense requirements (e.g. rent, payroll, supplies) but also any significant future property and equipment acquisitions. Timely and accurate financial records allow you to determine what your true disposable income is and provide your staff with needed financial information, which will aid them in performing their everyday duties (e.g. filing appropriate remittances to CRA, ordering medical and office supplies, maintaning patient accounts). And if there is ever a question as to what was paid and when, the records are at your fingertips, or those of your accountant.
For most medical practitioners, the day to day business aspects of your practice will never be as important as seeing and caring for patients - and this is of course the right approach. But with a bit of attention and planning, you can set your practice up to provide the optimum amount of income and security. You will thank yourself when you finally look back at your years of successful practice and realize you helped not just your patients but yourself and your family along the way.