I often decide on the Financial Friday blog topic as a result of a “real life” discussion during the week that illuminates a profitability or cash flow challenge. During a Q and A session after a presentation in California, the topic of how to keep a small practice operational if one of the owners, usually a rainmaker, is sick or injured for a significant period of time. This potential challenge is not limited to small practices.
A version of disability insurance, Professional Overhead Expense (POE) is designed to help cover the overhead expense of a practice if a partner becomes disabled and can’t work. Practice owners consider this type of insurance when they are concerned that without the revenue a partner regularly generates, the practice may not have monthly cash flow adequate to keep the doors open and the practice running. POE is different from the personal disability insurance that is available to protect you and your family by covering your personal living expenses.
The class of overhead expenses that are usually covered are rent, utilities, payments on outstanding debt, employee salaries and equipment maintenance. Having POE coverage in place gives practice owners some security, knowing that financial obligations necessary to protect the practice and your employees can be met. Ongoing overhead expenses never take a break, and can drain practice's cash reserves in a hurry.
POE policies allow partners in a practice to insure different monthly amounts of overhead dependent upon the average revenue each one generates. The dollar amount of overhead expense insured affects the monthly premium. Like any insurance decision, it is a good idea to shop several providers to compare coverage and price. POE is available to AVMA members through AVMA LIFE.
I usually ask practice owners what keeps them awake at night and the answer often contains the phrase "what will happen to my practice and employees if I can't work?" POE insurance may help check the box on that concern.
