LLCs and Private Practice

March 10, 2015 in Managing Your Practice, Starting Your Practice

I’ve written about LLCs and PLCs before, but a reader wrote me with an interesting question recently that I think represents a confusion many people have about LLCs and PLCs. The therapist asked whether having her practice under either an LLC or PLC would protect her from being sued if she had unpaid debts.

Old law building

First- What are LLCs and PLCs?

LLCs, or Limited Liability Companies, are a type of business entity that is formed under state law. They offer some attractive protections and advantages for therapists in private practice. Some states also offer a PLC, (sometimes the acronym PLLC is used) which stands for Professional Limited Liability Company. This is another, similar entity, and most states require that a therapist show they are a member of a licensed profession in order to form a PLC. Every state has different rules about the formation of these companies as well as different fees and filing requirements.

These entities are a bit of a mish-mash of a corporation and a partnership. Don’t let the word partnership throw you off- you can be in a solo practice and still take advantage of the upsides they offer. If you are in a group practice or think you may expand your practice one day, this type of entity gives you a great deal of flexibility for organizing your ownership and membership in your company.

The biggest pluses to forming an LLC or PLC: in most circumstances, your personal assets; things like your home, savings account, car, etc. are protected from the liabilities of your practice. And, unlike a corporation, the earnings of the practice are passed through to you rather than being taxed at a higher corporate rate. So, you get the protections of a corporation without taking a big tax hit.

Back to the question- Can you be sued if your practice is an LLC?

Absolutely. Your practice entity will not affect anyone’s ability to bring a legal action against you or your practice. What will be different is their ability to go after your personal assets (with some exceptions). While nobody loves lawsuits, the idea behind forming an LLC is not to stop lawsuits, but to set things up so that if something bad happens that causes your practice to have debts, they won’t become your personal debts.

Courtroom GavelOne notable exception to the LLC protection- in some states, you may be personally liable for malpractice claims (meaning an LLC will not shield your personal funds from being available to pay a malpractice judgement.) However, the LLC may shield you from business debts related to a malpractice claim. There are other exceptions to the protection of your personal assets that should be discussed with a qualified attorney.

Bottom line, there is no magic bullet that can ever fully protect you from lawsuits or other bumps in the road, but, an LLC or PLC is an option you may want to consider to provide an extra layer of protection for your personal assets.

DISCLAIMER: This post is intended to give general information only and should not be construed as legal or tax advice. Please consult with an attorney and C.P.A. to learn more about the laws governing these entities in your state and the tax implications of such an entity for your practice.

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Profit & Loss – Do You Know How Much You’re Really Making?

October 21, 2014 in Managing Your Practice

P&L Statement for private practice

You see Mr. Jones for his weekly session and he swipes his credit card to pay your fee. Ms. Smith writes you a check when she comes in. XYZ Insurance company pays you through EFT directly into your bank account. You pay your rent, buy office supplies, pay your liability insurance and write a check to the phone company, and your internet provider auto-drafts your monthly payment. Money comes in and money goes out. But how is your practice really doing financially? It can be hard to keep track as you juggle patients and the responsibilities of running your practice, but it’s critical that you know where you stand.

Many therapists assume that if there is money left in the checking account at the end of the month and the bills are paid, they are on solid financial footing and will remain that way. The most successful therapists monitor the financial health of their practices on a regular basis. They know that market changes, economic pressures, and rising expenses can quietly chip away at the profitability of their practice while they go about the business of providing care to their patients.

The Power of the P & L

Other than balancing your checkbook and preparing your taxes, how do you stay on top of how your practice is faring? One of the best tools for determining how solid your practice finances actually are is a Profit and Loss Statement. A Profit and Loss Statement, or P & L, provides a quick snapshot of the money you are taking in and the expenses you are incurring.

It boils down to:
Revenue less Expenses = Net Income

“P & L” can sound a little daunting, but it’s not just a tool for CPAs and MBAs, and it’s really not that complicated. It’s a simple way to take the guesswork out of monitoring the health of your practice. Here are three key reasons a P & L is a great way to monitor how your practice is doing financially:

1. It gives you a clearer picture of your true earnings and expenditures
In the rush of a busy practice, taking payments and paying bills, it can be difficult to grasp the big picture. A Profit and Loss Statement clearly distills your finances into exactly what you are earning and spending.

2. It helps you spot financial trends in your practice
Things change over time. Reimbursement changes, patient headcounts change, and expenses often increase. All of these things cause subtle shifts in your bottom line that may not be easy to spot on a day-to-day basis. These changes will be reflected in the P & L.

3. It helps you make financial adjustments
Because it helps you spot patterns and trends, the P & L allows you to make adjustments as things change, allowing you to keep your practice nimble and viable.

The Nuts and Bolts of the P & L

There are slight variations in formatting, but a basic P & L for a private practice might look something like this:

profit and loss statement for private practice

As you can see, the P & L not only accounts for what money is coming into your practice, but where that money is being spent. The format of this particular report includes a column with percentages on the right- these indicate how much of a chunk particular areas of spending are eating up your profits.

One of the great things you can do with the P & L over time is watch for trends in revenue and spending. When your bills are auto-drafted from your bank account or you’re hastily writing checks, it’s easy not to notice subtle rate increases from your Internet service provider or cell phone carrier, for instance. As some of the expenses start to creep up on the P & L it will be more obvious to you.

This let’s you take action- switch cell carriers, renegotiate your rate plan with your Internet provider, reconsider membership in organizations that demand dues but don’t benefit your practice all that much, talk with a tax professional about lowering your tax burden, etc. As for revenue, evaluating your fees, insurance participation and other aspects of your practice may be in order if you start to see a decline in the revenue portion of the P & L report.

profit and loss statement for private practice

A Profit and Loss Statement for Your Practice

If you’re ready to stop guessing about where you stand financially, there are a number of easy ways to prepare a P & L for your private practice. If you use Microsoft Excel, you can track your income and expenses using an Excel spreadsheet (although this is the most labor-intensive method). Most small business accounting software packages provide built-in P & L reports for convenience (as you enter income and expenses over time, the report will reflect those numbers). If you work with an accountant, ask to see your P & L and discuss the report with your CPA.

However you build your report, monitor it at least quarterly. Knowing what’s really going on with your revenue and expenses can help you keep control of your practice and make smart financial moves that keep your practice going strong.

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Help With 02/12 HCFA Form

June 17, 2014 in Managing Your Practice

02/12 HCFA

A therapist recently wrote me: “I would like to know if there is a web-site where we can see the changes on the new claims form with revised requirements?” She is not alone in her search for information about the HCFA form. There has been a lot of confusion over the 02/12 HCFA form that was recently released by the NUCC, and I’m hearing from many other therapists struggling to navigate the new form.

Today I’d like to share a useful tool to help you work with the 02/12 HCFA form.

The National Uniform Claim Committee that created the new HCFA form has published an on-line instruction booklet to help users in successfully complete the new HCFA form. The booklet includes a sample of the new form, as well as line by line, box by box instructions for completing the form. (It’s also a handy reference tool for some on-line claims filing questions as well.)

1500 Health Insurance Claim Form Reference
Instruction Manual for Form Version 02/12

You can either bookmark the link to this PDF, or print the document for your reference.

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