Being on the Right Side of the Cash Flow Quadrant as a Physician
If you’re a medical business owner or you’re interested in becoming one, you have the opportunity to get on the high-reward side of the cash flow quadrant. If you don’t know what that means, you need to take a minute and consider your options for your future career, because this model will explain how you can make more money in your profession while helping more people.
The cash flow quadrants are simple concepts. Basically, they define four ways individuals have of generating income. Employment, self-employment, owning a business, and moving into being an investor. Most people spend their lives in the employment quadrant, with some activity as an investor through things like their retirement planning. They essentially trade time for money, with a little extra income coming to take care of big life events. Self-employed people do a little better, because they also reap the employer-side benefits of their productivity, but they are still limited by what they can produce.
When you’re a medical business owner, you begin to realize a return on your investment in an ongoing business by gaining a return on your employees’ productivity, which means you’re making more money without investing more time, after a point. This puts you on the passive income side of the cash flow chart, in a quadrant where you’re able to achieve more income with less effort expended. If you invest wisely, you can grow your business or even move more of your income into the passive income side of things, by investing your profits to increase your income even more.
When it comes to taxes, passive income is taxed at a lower rate than earned income, or active income. Since it typically comes from investments and asset ownership, it is taxed at the lower capital gains rate, making it even more valuable when compared to the effort and return received from employment income. If you haven’t been thinking about becoming a medical business owner, these revelations about your tax burden and income-to-labor ratio should have you thinking, because it doesn’t take much to put a physician on the right side of those cash flow quadrants, and that’s when you really start to realize a return on the investment that is your education and practice.
For more information about how to get more from your medical business, talk to financing companies about how you can use financial tools to better manage your cash flow. Improve the passive side of your income before you worry about increasing your own salary. It’s in your own best interests.