By Adam Cmejla, CFP®
May 16, 2018
You need to spend a certain amount of money to serve patients as best as you can, but some expenses are just a profit drain. Here are three places where you can cut costs in your practice.
Property and Casualty Insurance: Review Your Plan
Review the costs associated with your personal and commercial liability insurance. Commonly called P&C coverage (property and casualty), this is the insurance intended to replace, and “make you whole,” if you lose property due to weather, theft, fire or other natural and man-made catastrophes.
The rates of P&C coverage can change as an insurer’s risk pool changes. In addition, if you’ve recently purchased additional equipment, or added to your inventory, you want to make sure that you are insured for the proper amount, and with the proper type of insurance.
If you don’t have an agent that you work with for your professional coverage, you should seek one that is independent, and has the ability to shop multiple carriers to find you the best coverage at the best rate. A commercial lines agent can ensure that you’re properly covered with the right amount, and with the right coverage. Going through a claims process is not the time that you want to find out that there was an exclusion or exception to your policy.
You also should check with your state’s optometric organization, as there are insurance carriers that have been known to be a sponsor of the AOA at the state-level, and may offer discounts on coverage for members in good standing.
Payroll Provider: Do You Need to Replace Yours? I strongly believe that every practice owner should delegate and outsource their payroll services. This is not an area to be “penny wise and pound foolish.” The additional time that it takes to run payroll, file your quarterly taxes, make sure you are meeting state unemployment funding requirements, and complete year-end W-2’s is (a), is not a revenue driver for your practice and (b) not your area of expertise. This task most certainly falls into the “delegate, don’t do” category of practice management tasks.
But not all payroll providers are created equal, and there are certain providers that are more suited to serve larger organizations than small practices. Evaluate the benefits that you are receiving from your provider, and what it is costing you per employee to have access to those benefits, and whether it is worth the cost.
Ideally, you want to align yourself with a provider that is a one-stop shop and solution: a company that not only handles your payroll, but also handles your quarterly tax filings, state filing requirements, worker’s compensation insurance and year-end W-2 generation. We currently use Gusto in our firm and have had success with other clients using Gusto as well. They are low-cost, efficient set up, very tech-friendly, and full service. (Note: we have no financial or other relationship with Gusto; this is just a suggestion and referral.)
If you are contemplating switching payroll providers, it will most likely benefit all involved to do it at the end of a quarterly tax reporting period. Your new provider should have a well-thought-out process for helping you make that transition.
On a related note, consider the frequency in which you pay your team. If you are on a bi-weekly, or weekly pay frequency, consider adjusting your pay frequency to bi-monthly. Even if you were on a bi-weekly schedule, switching to bi-monthly (a) reduces your payroll expense by two pay periods (24 pay periods vs 26 pay periods), and also makes your pay dates consistent (15th and last day of the month).
Retirement Plans: Examine Your Fees
This area is going to be more applicable if you have a 401(k) in your practice, as opposed to a SIMPLE or SEP IRA.
There are many providers that are assisting you with your 401(k). You’ll have someone called a TPA (Third Party Administrator), a plan administrator, and possibly an investment advisor. This does not include the funds that are being selected and used within the 401(k), which also have additional fees associated with them.
As with payroll providers, not all 401(k) platforms are created equal and provide a level of service that is conducive to what an optometric practice is looking for in a provider. The costs associated with sponsoring a retirement plan can be paid by either the employer or employee.
To understand all of the costs associated with sponsoring your retirement plan, ask your current provider to provide you with your full 408(b)2 disclosure. By law, plan administrators must provide you with a 408(b)2 Notice on an annual basis. As a fiduciary, and someone who has a personal liability to ensure that the plan is working in the best interest of your employees, it’s your responsibility to review the 408(b)2 Notice on an annual basis, and make sure everything is fair and reasonable for your employees.
It’s important to understand that the way in which various providers are compensated will dictate where those fees are disclosed. If fees are removed directly from the participant’s account as an investment management fee (the most transparent way), it makes it easier to measure the service value.
If, however, fees are paid through “revenue sharing agreements” between the various investment funds and service providers, those fees are not disclosed on participants’ investment statements, leading some participants and plan sponsors (that’s you!) to think that their 401(k) plan is free. Nothing could be further from the truth! It’s not uncommon to find high-fee products buried inside of a 401(k) plan, but because of the opacity and confusion on how to interpret a 408(b)2 disclosure, the plan sponsor and participants “don’t know what they don’t know.”
If your provider, or your advisor, hasn’t taken the time to sit down with you to explain your 408(b)2 disclosure, then ask them to do so to ensure that you’re fully aware of all fees and expenses affiliated with your plan. If they dodge the question, and aren’t willing to cooperate, it may be time to find yourself a new plan provider and team.
Small Changes Make a Big Difference
Cost savings do not have to be drastic changes that require you to significantly alter the structure of your practice. Sometimes just evaluating the little things, and keeping a constant tab on the providers that you’ve partnered with, can have a tangible impact on your bottom line.
Adam Cmejla, CFP® is a Certified Financial Planner Practitioner and Founder of Integrated Planning & Wealth Management, LLC, a financial planning & investment management firm. The company is focused on working with optometrists to help them achieve their true financial potential, build financial confidence and clarity, and deliver kindness and compassion to every relationship they’re privileged to serve. To contact: (317) 706-4748, firstname.lastname@example.org, or visit www.integratedpwm.com.