About 15 years ago I worked with a highly successful medical oncology practice consisting of three physicians (the same scenario could also apply just as easily to a law practice). Ron, Paul and Harvey were working to full capacity, treating as many patients as possible every day and the practice was generating about $2,400,000, about $800,000 each, in total revenue each year. They’ve also spent years finding, hiring and training their excellent staff. Their total overhead was about $1,200,000 and they were each earning approximately $400,000 each.
Ron, ironically, was diagnosed with an aggressive form cancer and became totally disabled. Paul, Harvey and their staff began working extra hours to try and cover Ron’s patient load. Despite their extra-long hours, the practice’s total annual revenue dropped to $1,800,000 and their staff overtime costs increased their annual overhead to $1,300,000. Total net annual revenue dropped from $1,200,000 to $500,000. Paul & Harvey ended up splitting the $500,000, $250,000 each. They were working harder and making less money.
Actually, there was good news. Before Ron got sick, I had brought this matter to the attention of their office manager who insisted that they obtain the “business overhead expense” (BOE) disability insurance that I recommended on all three of them. We also implemented a group long term disability plan for them and their staff. Ron’s lost income was mostly covered by the Group LTD plan and some of his own personal disability insurance. Both Paul and Harvey would have lost substantial amounts of their incomes too even though they weren’t disabled. However, their BOE coverage made up the difference during Ron’s absence until they could find and hire a replacement. Ron was never able to return to work.
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