Think you Need a CFO? Think Again

Practitioners need help with finances, but are they paying too much for it?

Bill Kekevian, Associate Editor

For ophthalmologists looking to either expand their practices or just delegate responsibilities for business-related tasks such as payroll, human resources and even billing and coding, the idea of having a chief financial officer in the practice may be attractive. For doctors wanting to focus on patient care, hiring a well-versed individual to manage the books and handle other tasks may seem like a no-brainer.

However, before taking this step, well-established physicians or even those just starting out should ask themselves: Is the expense worth it? This article looks at the cost of hiring a CFO and more affordable options for managing practice finances.

What is a CFO?

The function of a CFO is not necessarily set in stone, but certain responsibilities come with the title, according to T.J. Van Vorhees, co-founder of Pacific Crest Management Group and a former CFO with Marin Ophthalmic Consultants. Financial advisers come in different levels, he says: The lowest would be a data-entry person, the next an advanced accountant responsible for payroll and taxes, and the third a controller who manages assets and operates as a manager.

In truth, a plethora of financial management positions exist. The titles can include business office supervisor, accounting manager and financial director, says Jeff Milburn of the Medical Group Management Association (MGMA). The top level belongs to the CFO, says Mr. Milburn, a former CFO with an ophthalmic practice himself who now specializes in medical practice finance.

A CFO must be able to wear many hats. She or he is the company’s financial gatekeeper, but also functions as a strategic financial adviser to the CEO. The CFO’s duties, although broad and flexible, have three general components:

► Controller. This involves responsibility for financial reporting and quality of accounting.

► Treasurer. Related duties entail daily cash flow and funding management.

► Economic strategist. This role encompasses responsibility for creating a sustainable commercial strategy.

What Can a CFO Do?

If you’re trying to determine whether to add a CFO, Mr. Milburn advises you ask yourself, “What do I want this person to do?” Identifying what duties need tending, based on the practice size, will help in narrowing what level of financial manager the practice needs. “Look at the job description,” he says. “If you want someone to negotiate big contracts, you’re going to need a CFO.”

“Doctors have a lot more expenses than they realize,” says Aram Chavez, a lecturer in finances and entrepreneurship at Arizona State University. “In the beginning it’s a little cumbersome, but once you get through that beginning period, you can spend just a little time every month on bookkeeping.”

You may need a CFO “if you’re planning to take over a big share of the market, like all of Missouri,” Mr. Van Vorhees says. “If any medical practice came to me and said they wanted to hire a full-time CFO, I’d ask what they’re planning to achieve. If they had $10 million and five locations, maybe then; but they should ask if they can accomplish their goals some cheaper way.”

CFOs in Name Only

The CFO title does not necessarily indicate an individual is performing the duties or commanding the salary of a CFO. “Often people from the controller side will cross over and be called a CFO, but they really just perform the tasks of a controller,” Mr. Van Vorhees says. “I’ve seen people hired as bookkeepers be called a CFO just for spending 12 years with a practice, but they really aren’t a CFO.”

Adds Mr. Chavez, “A lot of time, you’ll see a small business give an accountant a CFO title. A real CFO will look at the capital structure, debt and equity, and make judgments about buying equipment and so on. Being a CFO in these smaller practices — it’s kind of just in name.”

Once a practice has four or five doctors, it will need a fulltime employee to oversee the treasury function of the business, Mr. Chavez says. However, he advises that solo ophthalmologists should do their own books, maybe with the help of a front-office manager or an external accountant.

Many practices, according to sources interviewed, hire CFOs and assign them duties that an office manager, advanced accountant or even a bookkeeper could perform. For example, payroll is not typically a function of a CFO, but office managers elevated to CFO status often perform tasks beneath a CFO’s level, Mr. Van Vorhees says.

That may not be such a bad thing as long as the practice is not overpaying the individual. “If you’re paying someone internally $40,000 a year, they can keep that title,” Mr. Chavez says. “That’s what you’d end up paying a manager anyway.”

Where to Turn Instead

“An internal bookkeeper can help the ophthalmologist really keep track of monthly variable expenses and supplies,” Mr. Chavez says. “A CFO isn’t needed to do that.” There are several outlets a physician can turn to for financial advice that won’t cost an arm and a leg.

For instance, a CPA is trained in all branches of finance, including tax preparation, and could manage an ophthalmic practice’s strategic needs. Mr. Chavez suggests turning to an accountant who specializes in medical practices and is familiar with third-party payers, an insight that could be even more valuable to a young physician.

Third-party payers “will purposely pay a newer doctor less than a doctor with experience,” Mr. Chavez says. “An accountant in the medical field will annually petition the insurance companies to increase the amount you’re going to get for a procedure. If you’re not doing that every year, you’re leaving money on the table. They’ll be happy to pay you what you got four years ago.”

A Temporary Option

Mr. Van Vorhees, who advises practices on financial matters, offers a different solution. “By no means am I saying they shouldn’t have a CFO, just not a full-time CFO,” he says. “Medical practices typically employ people they don’t need and they’re costing practices a lot. People don’t need to be in those roles and we can improve the bottom line by about $100,000.”

Mr. Milburn agrees that paying an annual salary may be too costly to justify the return on investment. “Why hire when you can rent?” he says. “One thing you might consider is hiring an office director or manager with a strong financial background and have them act in the CFO function too.”

When advising practices, Mr. Milburn prefers to train personnel to handle basic finances. “If I can teach a practice to do that, it’s more cost effective,” he says.

Meanwhile, the rapid growth of new technologies has created even more opportunities for physicians to control their own businesses. “Years ago, there was no iPhone or iPad,” Mr. Van Vorhees says. “The advances in accounting technology are following the same trend as the rest of our technology. What’s happening is people aren’t utilizing it. They’re using inefficient, ancient systems.” OM