Why financial planning should be part of your practice
As a leadership coach and supporter of fee-for-service dentistry, I strive to help dentists become independent from PPOs. There are countless reasons why dentists abandon PPOs, but the most justifiable is the detrimental impact they have on your bottom line.
As much as dentistry has its intrinsic rewards, it is the bottom line that is the just reward. In my experiences helping dentists transform their practice, I’ve learned that most of them focus on the short game, the day-to-day running of their business, and give little consideration. importance to the end game, namely the transition from practice to retirement. Unfortunately, many dentists find themselves unprepared for retirement, and that’s entirely due to a lack of planning.
Here are the caveats I ask every dentist to incorporate into their preparations for the future.
Build a team of knowledgeable professionals.
At the bare minimum, this team should include a financial planner, an accountant and a lawyer. While some dental schools have incorporated a business degree, most dentists graduate with little knowledge of how to run a practice. This knowledge is most often acquired through mentorship or through trial and error. Experienced professionals can speed up your learning process and avoid the pitfalls that can result from a lack of knowledge. Business transactions such as buying a practice, hiring associates, forming partnerships, and practice transitions are just a few of the important business transactions dentists may encounter, and if not not managed competently, they can have serious financial consequences. Retirement planning should be part of your practice’s business plan.
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Have a financial plan and stick to it
Although most dentists have a good understanding of basic financial management and investment strategies, many fail to develop a plan that will ensure they meet their financial goals. Financial planners/wealth managers are skilled professionals who work with accountants and/or retirement advisors to tailor financial plans to your goals. Developing the plan is only one part of the equation, and executing it is another. Many dentists fail to achieve their financial goals not because of poor planning, but because of their inability to adhere to their financial planner’s strategy.
That’s not what you do; it’s what you keep
There are countless practice management seminars that focus on increasing productivity, but increased productivity doesn’t necessarily mean increased profits. It’s the bottom line that counts. In addition to focusing on maximizing profits in their practice, dentists should do the same with their retirement plans, especially where there are tax advantages.
Periodically review and revise your retirement strategy
The financial world is dynamic. Market fluctuations and changes in tax laws are examples of what can have an impact. Investments that are favorable at one time may become unfavorable later. Periodic review of your portfolio is key to maximizing growth and protecting losses. A dentist’s personal situation should also be assessed periodically and factored into financial planning.
Plan your practice transition
A dental practice is only valuable if a buyer is willing to buy it. Recent graduates facing crippling student debt are less likely to take on additional financial burden. In addition, the fact that more dentists are retiring than entering the workforce makes the market less favorable for sales. Dentists who assume that the sale of their practice will be a major part of their retirement nest egg may have to settle for less than they had hoped, especially if the sale takes place on short notice due to a illness or other unforeseen circumstances. Developing a practice transition strategy should be an integral part of retirement planning. One strategy is to hire an associate who will grow with the practice and eventually buy it out. Another might involve merging with other practices to form a group practice that has provisions for buyout. There are many possible strategies, but the important thing is to plan ahead.
It’s never too late to start
The earlier you plan for your retirement, the better. However, dentists often defer saving for retirement due to other financial obligations, the most notable being student debt. Unfortunately, dentistry does not offer the possibility of a windfall, that is, the only business that can change lives financially. Saving for retirement takes discipline and perseverance, and the key is to make a plan and stick to it.
Plan for the worst and hope for the best
Dentistry is a very demanding profession, both physically and mentally. Some dentists are able to work well into their senior years and enjoy good health and prosperity. But things don’t always go as planned and there can be circumstances that cut short a career. That said, good financial planning should incorporate a strategy to deal with the unexpected, such as business interruption and disability insurance. It is always better to be proactive than reactive.
Every dental office should have a business plan and include a financial plan with short and long term goals. Sound financial planning with the help of a knowledgeable and experienced professional can help dentists achieve financial success.
Editor’s note: This article originally appeared in the May 2022 print edition of Dental economy magazine. Dentists in North America can take advantage of a free print subscription. Register here.