Given the ubiquitous nature of debt from schooling through professional practice, many doctors have come to accept debt as a necessary part of their long-term reality – “I’ve chosen this career path, therefore I accept debt will be lingering part of my professional (and perhaps personal) life”.
If you can relate to this statement on any level, please read on…
It’s time for you to challenge your own beliefs about debt.
Debt doesn’t define you and it doesn’t need to remain part of your practice over the long-haul. In fact, with proper planning and discipline, most practices can be 100% debt free within a few years.
Take a minute to consider how life-changing it would be to have ZERO debt! What would that mean to your future profits and distributions? What would that mean in terms of investing for practice growth, and the ultimate valuation of your practice? What would that mean to you and your family?
It’s a game-changer for sure, but how do you get started? Let’s take a look at three specific things you can do right now to set the proper course for your practice.
SPECIFICALLY Identify the Number
Just as you’d do with any patient, the initial step of thoughtful observation and diagnosis is also the first step in defining your debt reduction plan. Whether through lack of attention or intentional avoidance, we often find practice owners are not fully aware of the debt load they are carrying.
While it may not be pleasant, it’s critical you take stock and specifically identify your debt number. Don’t worry – we know from experience that whether your number is $100,000 or several million dollars, a plan can be put in place to eliminate it.
Create (Or Dust Off) That Budget
To efficiently chisel away at that debt, you will need to have good handle on how your dollars are being spent (and we mean EVERY dollar). Too often, physician-owners are reactive to incoming bills rather than strategically approving expenses in advance and then allocating approved dollars as expenses occur.
Budgeting sessions are also the ideal time to cut costs that are just “nice-to-haves” or that are not required to maintain and grow your operations. If you take a hard look, we’ll guess there’s some waste that, once eliminated, flows right to profits.
As you begin to better define your monthly and annual expenses and pair those with expected revenue, your cash flow and profit picture begins to take shape.
Define Your Debt Reduction Approach/Rules
This is where things get exciting. As you’ve now clarified the size of your hole (debt) and clarified the size of your shovel (your practice’s profits), we can begin to establish a realistic and sustainable plan.
This is also the point at which it gets a little personal. There is a high correlation between the amount of sacrifice you are willing to make (reduced salary, distributions, forgoing those nice-to-haves) and how fast you can accelerate your debt reduction. Makes sense right? – The more “spartan” your approach, the faster you will become debt free. This may work for your personality and lifestyle, it may not. The important thing is to be honest with yourself and find the balance that will work for you and your family over the long term. For most of our clients, this is more of a marathon (or at least half marathon 😊) rather than a sprint.
One common strategy employed by practice owners is to commit to dedicating X percent of profits toward extra debt payments. (NOTE: to make sure we are clear, standard loan repayment amounts have been accounted for in the budgeting phase, these debt payments are in addition and provide the rocket fuel to accelerate your progress).
What percentage of profit is appropriate? That’s a question only you can answer based on your personal motivations. We often work with clients to create “what if” scenarios to put a timeline on their debt-free journey. For example, if your goal is to be 100% debt free in 7 years, it’s fairly easy to run the numbers and determine the appropriate debt repayment level that will help you reach that goal.
A few related points…
In addition to these core activities, it’s smart to evaluate the specifics of your current loans. Often there is opportunity to restructure things to help you pay down your debt faster and at a lower cost.
Lastly, remember that every dollar allocated toward expenses is one less dollar going toward debt repayment – additional expenses extend your debt-free timeline. Any solid debt reduction plan must include an evaluation of current expenses, as well as concrete guidelines for when and what types of expenses you consider adding in the future.
Reducing and ultimately eliminating debt is truly freeing for your practice, yourself, and your family. It’s also an area where professional help accelerate your progress and saves you significant dollars in the long run. If you like the idea of being debt free, we can help you get (and STAY) on track. It’s some of the most rewarding work we do! To learn a bit more, just schedule an initial 15-minute conversation with STAC Bizness CEO, Shawna Aho.
Looking for the FASTEST path to realizing a 100% debt-free practice? You’re in Luck!
Download and follow-our detailed, step-by-step debt reduction checklist today.
(It’s completely free, there’s no obligation, and we’ll NEVER share your information)