Last week’s article focused on tax deductions, specifically taking every allowable deduction, as it reduces the amount of taxes you must pay.
Today, let’s tackle a related topic… practice expenses.
While most practice expenses are tax-deductible and help lower the amount of taxes you must pay, it’s best to keep expenses to a minimum.
Wait… didn’t you say that expenses help lower taxable income? Wouldn’t that mean they’re acceptable to have?
Yes…
However, it’s easy to forget that you must first incur or pay for an expense before you can deduct it.
So, why not take every single deduction you’re entitled to and lower your expenses? The net effect: you’ll pay less in taxes and keep more of your revenue.
Top Expense Categories
I don’t have to tell you that operating a practice is expensive.
There are many expenses, some of which can be cut back, while it’s tough to reduce others.
Here are the top three expense categories typically seen in a small practice:
- Employee expenses: payroll, benefits, taxes
- Rent & Utilities: office space & water, gas, electricity, internet
- Insurance: medical malpractice, general liability, property, workers’ compensation, and other types of coverage.
None of these expense categories can easily be cut back.
- Insurance is a non-negotiable. By law, you are required to carry malpractice, liability, workers’ compensation, and other relevant insurance policies.
- Rent & Utilities may be a possibility. However, finding suitable, less expensive medical space is not easy. Moving is expensive in itself and can be a time-consuming process.
- Reducing employee-related expenses, however, is a possibility.
Your Biggest Expense
Across most industries, employee-related expenses are at the top of the list.
Therefore, it makes sense to explore whether these expenses can be reduced without compromising the quality of the service or treating employees unfairly.
What if you don’t have employees? You may think this discussion doesn’t apply to you.
But hold on…
Although you may not have employees today, you may want to consider hiring in the future. And when you do, you’ll be ahead of the game knowing what’s involved in hiring employees for your practice.
Understanding Employee-Related Expenses
Healthcare is a competitive field, and managing costs is not just good practice, but may be essential for survival.
For Nurse Practitioners operating a practice, employee-related expenses often represent one of the largest categories of spending, including salaries, benefits, training costs, and payroll taxes.
Combined, these expenses can consume a significant portion of your practice revenue. By monitoring and optimizing these costs, you potentially improve the financial health and sustainability of your practice.
Strategies to Reduce Expenses
1. Streamlining Staff
Efficiency is key in managing staffing costs. Closely evaluate your current staffing needs to determine if it’s necessary to hire more staff or if your current staff can handle additional work once they receive proper training. All your employees should be cross-trained to handle multiple roles, providing greater flexibility and reducing the need for specialized positions. Additionally, you may consider employing part-time or temporary help during peak periods or for special projects to offset the overhead associated with full-time hires.
2. Monitoring/Reducing Overtime
Paying for overtime is a significant expense and may not be necessary with optimized workflows and scheduling practices. Periodically evaluate the workflows in your office and make the required adjustments. Include your staff in the process and ask for their input. Explore technology solutions to help with routine tasks, which will reduce the need for employees to work overtime.
3. More Training
While training may seem an unnecessary expense, it may result in long-term savings. Well-trained employees are more efficient, make fewer errors, and generally require less supervision. As an additional benefit, providing specialized training and development can improve employee satisfaction and retention, reducing turnover-related costs.
4. Reevaluating Benefits
While benefits are important for attracting and retaining quality staff, they need to be cost-effective. Don’t be afraid to review your current benefits package and look for alternatives. Consider options such as Health Savings Accounts (HSAs) or High-Deductible Health Plans (HDHPs), which may offer substantial savings. You could also offer flexible working conditions or the option to work from home (where feasible), which can be attractive non-monetary benefits that contribute to job satisfaction.
5. Utilizing Technology
With the right software, many administrative tasks may be partially automated. Practice management software can streamline tasks such as appointment scheduling, sending reminder calls, patient record management, and billing, resulting in lower workloads and fewer staff members required.
6. Outsourcing
Outsourcing can be a viable option for reducing employee-related expenses.
Consider outsourcing specialized functions, such as billing and payroll, to outside experts. You can reduce the need for in-house staff and lower associated costs due to increased efficiency and scale.
Note:
Whenever you make changes to your staffing or benefits, make sure you stay compliant with federal and state employment laws to avoid disputes and penalties in the future.
In Summary…
Most practices will need to hire employees once they reach a certain level of growth. While staff contribute significantly to your practice’s success, they are also your largest expense.
Carefully consider whether you need to hire staff or if other solutions could suffice. Be sure your practice revenue can support the employee for the foreseeable future.
Hiring employees is both a responsibility and an obligation and is not easily undone. So, hire slowly and ensure the hire is financially sound.
Managing employee-related expenses is a delicate balancing act between reducing costs without compromising the quality of care or employee satisfaction. However, it is essential to stay competitive so that you can continue providing healthcare services in your community.
Do you have employees? What do you do to keep employee-related expenses in check?
Share your experience with us and let us know… leave your message below.
By Johanna Hofmann, MBA, MAc., EAMP; regular contributor to the NPBusiness blog and author of “Smart Business Planning for Clinicians.”