What Your Medical Practice Revenue Says About The Health of Your Business


By: Adam Lusthaus 

In the world of healthcare businesses, revenue often gets the spotlight. But focusing solely on revenue can be misleading and even detrimental to long-term success of any business, be it a medical practice, wellness clinic or even a pharmacy. Ultimately, though it does offer insights to your business’ health, revenue should never be the only benchmark for success. 

If you’re a physician or a medical practice owner, you’ve likely been told that revenue growth is the ultimate sign of a thriving practice. However, while revenue is important, it alone doesn’t paint the full picture of your practice’s health. A deeper analysis reveals that other elements—like corporate structure, tax elections, proper agreements, and risk mitigation—are equally vital. 

Having a proper corporate structure with the right choice of entities is fundamental for any business, including medical practices. A sound structure ensures that responsibilities and roles are clearly defined, which in turn enhances operational efficiency. There are several types of corporate structures to consider, including sole proprietorships, limited liability companies, partnerships, and corporations. Each has its own set of advantages and challenges that can impact your practice’s long-term success. Neglecting corporate structure can lead to operational chaos and legal issues. An appropriate structure supports strategic growth and offers protections that a revenue figure alone can’t guarantee.

Tax elections are choices made by a business regarding how it will be taxed by the IRS. For example, some practices may opt for S-corp status to benefit from pass-through taxation and save on self-employment taxes. While certain elections can significantly impact your take-home pay, they may create unintended issues should the business wish to sell in the future.  Both tax elections and corporate structuring are important considerations that have short and long-term repercussions.

The existence and state of fundamental business documents is another important indicator. Operating and partnership agreements outline the rules and expectations for the operation of the business. These documents are essential for avoiding disputes and ensuring smooth operations. Effective agreements should clearly define roles, responsibilities, profit-sharing, and conflict resolution mechanisms. Without these, the misunderstandings and conflicts that are inevitable in life and business may lead to costly and time consuming litigation in the future.

Every medical practice faces several liabilities, from malpractice claims to operational risks. Insurance, compliance programs, and regular audits are some of the safeguards that can protect your practice from unforeseen liabilities. Furthermore, having the right contracts and other agreements in place can help mitigate potential exposure and ultimate culpability. Proactively managing liability and exposure helps in safeguarding your practice’s reputation and financial health, far beyond just maintaining high revenue.

While revenue is an important indicator of financial performance, it’s not a comprehensive measure of success for medical practices. Corporate structure, tax elections, proper documentation, and risk mitigation play equally crucial roles. By broadening the focus to encompass all of these factors, providers can build a more resilient and successful business.