Why financial planning should be part of your practice
As a leadership coach and advocate for paid dentistry, I strive to help dentists become independent of PPOs. There are countless reasons for dentists to ditch PPOs, but the most justifiable is the detrimental impact they have on your bottom line.
As much as dentistry has its intrinsic rewards, the bottom line is the just reward. In my experience helping dentists transform their practices, I’ve learned that most of them are focused on the short game, i.e. retirement. Unfortunately, many dentists are ill-prepared for retirement due solely to a lack of planning.
Here are the caveats I want every dentist to include in their preparations for the future.
Build a team of savvy business people.
This team should include at least a financial planner, an accountant, and a lawyer. While some dental schools have incorporated commercial training, most dentists have little knowledge of how to run a practice after graduation. This knowledge is mostly acquired through mentoring or trial and error. Experienced professionals can accelerate your learning process and avoid the pitfalls that can result from a lack of knowledge. Business transactions such as the purchase of a practice, hiring staff, forming partnerships and practice transitions are just a few of the significant business deals dentists can face and if not managed competently, can have serious financial consequences. Retirement planning should be part of your 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 guarantee they will achieve their financial goals. Financial planners/wealth managers are knowledgeable professionals who work with accountants and/or pension advisors to tailor financial plans to your goals. Developing the plan is only one part of the equation, executing it is the other. Many dentists achieve their financial goals not because of poor planning, but because they don’t follow their financial planner’s strategy.
It’s not what you do; it is what you keep
There are countless practice management seminars that focus on increasing productivity, but increased productivity doesn’t necessarily mean an increase in profits. It’s the bottom line that counts. Dentists should not only focus on maximizing profits in their practices, but also in their retirement plans, especially when there are tax advantages.
Review and revise your retirement strategy regularly
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 point in time can later become unfavorable. Regularly reviewing one’s portfolio is essential to maximizing growth and protecting against losses. The personal situation of a dentist must also be assessed periodically and included in financial planning.
Plan your practice change
A dental practice only has value if a buyer is willing to buy it. New graduates faced with overwhelming educational debt are less likely to take on an additional financial burden. Also, the fact that more dentists are retiring than entering the job market makes the market less favorable to sell. Dentists who anticipate that selling their practice will be a large part of their retirement plans may have to settle for less than they hoped, especially if the sale is short-term due to illness or other unexpected circumstances. Developing a practice transition strategy should be an integral part of retirement planning. One strategy is to hire an employee who grows with practice and possibly buy them. Another option is to merge with other practices into a group practice that includes provisions for takeover. There are many possible strategies, but the most important thing is to plan ahead.
It’s never too late to start
The earlier you plan your retirement, the better. However, dentists often put off saving for retirement because of other financial commitments, the most notable being educational debt. Unfortunately, dentistry doesn’t offer the opportunity for a windfall, that is, the one deal that can be financially life-changing. Saving for retirement takes discipline and persistence, and the key is developing a plan and sticking to it.
Plan for the worst and hope for the best
Dentistry is a very demanding profession, both physically and mentally. Some dentists can work into old age and enjoy good health and wealth. But things don’t always go as planned and there can be circumstances that cut short a career. However, sound financial planning should include a strategy that handles the unexpected, such as: B. a business interruption and disability insurance. It’s always better to be proactive than reactive.
Every dental practice should have a business plan and it should 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 appeared in the May 2022 print edition dental economics Magazine. Dentists in North America are eligible for a free print subscription. Login here.