A professional’s guide to coping with high inflation

When the inflation rate in Canada jumps from the two or three percent range into the seven or eight percent range, there’s no way to avoid feeling the effects. The Bank of Canada predicts monthly inflation will remain in the seven percent range for the rest of 2022 and into 2023. Consumers and businesses alike must make sacrifices or alter their course, just to avoid losing financial ground.

As professional practitioners, your situation is no exception.

You can use several strategies to maintain as much stability as you can during this period of unusually high inflation; but the choices you’ll have to make are seldom easy.

Most professionals face different realities than your typical private business owners. And even within the same field, each professional practice is unique in how they cope with inflation. Your approach will depend on factors like location, how long you’ve been practicing, and how big your practice is.

But some factors remain constant — your strategy will need to revolve around reviewing costs, raising revenues, and creating efficiencies.

This article will focus on strategies that can be employed by three types of practices: dentists, physicians, and pharmacists.

Dentists

Due to the constraints of Canada’s provincial fee guides, you do not have nearly as much flexibility as a dentist to increase your prices as, for example, a retail business. While you can choose to raise your prices above provincial fee guides, looking at other options is prudent.

Consider whether the following options to increase your revenue are viable:

• Expansion of operating hours: Being open for more days in a week, or more hours within a day, opens up opportunities for more patients and more revenue.
• Expansion of services offered: Expanding into non-traditional dental services, such as Botox injections or dermal filler, can increase revenue and profits.

Your options to review costs in dentistry are limited, but some do exist. Consider if the following are possible for your situation:

• Debt restructuring: Most dentists, especially those in the early years of practice, will be carrying debt and therefore feel the effects of interest rate hikes. Are there opportunities to re-negotiate your debt payments or structure to reduce costs?
• Cost-sharing agreements: Some of your larger expenses, such as staffing or rent, could be split if you enter a cost-sharing agreement with another dentist.
• Staffing costs: Staffing is almost always a dentist’s biggest expense. Ask yourself if it makes sense to switch hygiene staff to be paid based on a percentage of production, rather than hourly.

Increasing revenue is preferable to cutting costs for a dentist during times of high inflation, but when financial strain hits, it’s wise to look at all your options.

Physicians

When compared to other types of professional practices, physicians are in their own boat. With a fee-for-service model or an Alternative Payment Plan (APP) that doesn’t move with inflation, your options to adjust course are limited.

Some physicians, such as those in family practice, can review their costs and their overhead and find ways to make cutbacks. These could include negotiations for lower rent payments at a clinic, lower payments for your PPE and supplies, or using what limited flexibility you have to reduce staff wages.

Many other physicians, however, do not have a lot of expenses, and those that do exist are quite fixed in nature. In this scenario, your best option for battling inflation is to focus on cash flow management. For example, ask yourself:

• How are you investing the cash you do have on hand?
• Can your personal spending habits be adjusted to reflect the new reality of inflation?
• Have you reviewed your tax situation to spot opportunities for lower taxation, or deferred taxes?
• Can you lock in lower interest on your debt to maintain cost certainty?

The financial realities of your practice can feel inseparable from the quality of patient care. This can add a layer of stress that other professional practitioners may not feel as strongly. The right financial decision may simply be the one that fosters the most wellness and peace of mind for you and your patients.

Pharmacists

Your pharmacy’s strategy for dealing with inflation will likely be more similar to a private business than other professional practices. But there is overlap with both.

Like other professionals, the major costs you need to manage include staffing and your occupancy costs. You have constraints on how much you can alter the prices of prescription drugs because of regulatory oversight.

But unlike other professional practices, your business model is more focused on selling physical product than services. And you have more choices to expand the products and services you offer.

Below are some of the most practical strategies for pharmacists to maintain stability and profitability despite inflation:

• Review of revenue sources: Many pharmacies offer auxiliary services on top of their core business of dispensing medications. These auxiliary services are generally good for business and create resiliency to regulatory changes. But assessing which are the most profitable and sustainable, and perhaps cutting the least effective ones, will focus your resources and help you combat inflation.
• Operational effectiveness: Take the time to review your processes and weed out inefficiencies and waste. Look closely at how you use staff, space, inventory, technology, etc. This may require an upfront investment of time and money, but if you can do more with what you have, you will emerge better over time.
• Financing: Review the terms and evaluate potential alternatives to structuring and servicing current debts.
• Pricing: With the help of financial forecasting and modeling, assess the impacts of various changes to revenue streams, overhead inputs, and debt servicing.

Knowledge is power

The most consistent trait we see in professionals, across all disciplines, who are resilient in dealing with inflation is this: Those who take the time to understand and regularly monitor the business side of their practice have the advantage.

Understandably, you probably didn’t become a doctor or dentist or pharmacist because you enjoy the accounting side of running your practice; you’re passionate about what you do and want to help people.

However, if you understand your margins, know your costs, look at the numbers, and invest in learning about what the numbers mean, then you are already one step ahead. Even if you’re not a financial expert, the visibility and awareness alone set you up for success.

MNP can help

If you want to learn how your practice can become more resilient to inflation and rising costs, invest in having the right advisor at your side. MNP’s Professionals group brings the knowledge and tools you need to thrive in uncertain times.