Yes, I know I talk about reducing expenses a lot.

You see most medical professionals, talk about fee income. But fee income is only one part of the equation. The other part is expenses. That then leads to profit.

The idea is to generate as much fee income as possible. That is the reason most medical professionals are one of the hardest working professionals in the country.

But for the equation to work expenses need to be less. Much less.

Then taxes come into play and most medical professionals pay a crapload of it, which means most accountants tell their clients to increase expenses to keep the tax bills low. I on the other hand will tell you to keep expenses low even if it may mean higher taxes.

Now you may think I have become deranged or that I have had one drink too many but there is some intelligence to my madness.

Because less expenses maximises profit. Remember it’s not what you earn that matters. It’s what you keep.

Remember when you started your business? Remember when you got your first job?

Was the objective to make as much money as possible or was it to reduce taxes? You see over time advisors and friends keep talking about taxes, so we become obsessed with them.

The problem?

Everything we do revolves around paying less taxes, not keeping more money in your pocket. And cash in your pocket means more investments, ice cream or a large teddy bear for the kids. What you focus on you get.

Focus on more profit then that is what you get. Focus on reducing taxes, then that is what you will get. But reduced taxes mean reduced income which means less money in your pocket.

When you spend money, it becomes income for someone else. When you pay taxes, yes it goes to the Government, but you keep more for yourself.

I know it sounds crazy. Insane even. Maybe a bit loony too but it is true.

Here is an example of two medical professionals who pay the same percentage of taxes:

We all hate paying taxes.

So if you have expenses to run your business, make them. Anything else if not necessary to run your business, don’t make them. This maximises income and the amount you have in your pocket.

You see it is not unusual for me to hear that expenses are being made to reduce taxes. That is not what you want to do. Cars are one example where expenses are justified on the basis that they would be purchased privately anyway so better have them in a business and claim expenses.

If cars are genuinely used in business, then maybe. But in most cases the cars are used privately. A log book is not kept which means the only other way to claim expenses is via statutory method and in most cases that does not result in a favourable outcome because most medical professional vehicles are expensive which actually means more taxes, not less.

If you want your expenses to remain minimal ask yourself this for all expenses:

1. Will this expenditure generate more income?

If yes, then spend it. Eg You only take on an extra nurse if you know you will undertake more procedures to justify the cost.

If you answer no, then ask yourself:

2. Will this expenditure keep the business running?

Rent, electricity, insurance, and medical equipment keep the business operating.

Things like a Mercedes car is not counted as this can also be done in a Nissan Micra.

Many expenses in a business are not necessary. They are there because the owner feels they are necessary.

Some will spend because it looks good. Some will spend to get tax breaks. We all do it, including me.

But our objective should be to maximise profit and pay the least amount in taxes.

Everything else is just noise.