Too many doctors have lived the phrase, "Well, we made it work in the end." Just as patient care would never follow this haphazard philosophy, your future should also not be the victim of poorly laid plans. Grab the initiative and never let go! While you may be ultimately responsible for the outcome, you are not alone. "Every step of the way" is more than a slogan; it is your call to freedom.
Transition alternatives
Let's look at three strategic transition alternatives: 1) sell your practice (or a partnership interest); 2) hold the ownership for a defined period, maximize your profit, and sell the practice (or the remainder interest in the case of a partnership); or 3) sell now, invest the (after-tax) gain and work post-sale, thus deferring living on the gain and allowing it to grow through an investment strategy.
To differentiate and contrast the financial (quantitative) results, parallel financial modeling will provide the comparative perspective, which defines the contrast. However, there is an equally important qualitative aspect to consider.
Suppose a doctor needs time away from the practice for personal or medical reasons. These decisions, while not quantitative, are usually the standpoint from which life-changing, strategic decisions are made. That is simply our unchanging human nature. In the end, this is the standpoint, or perspective, from which decisions should be made.
However, making life-changing decisions about your practice transition without comparative analysis from which to make qualitative choices sets you up for needless heartache. The cost of mistakes made from not knowing invariably outweighs the cost of being informed. Comparative forecasting is relatively inexpensive, more accurate than expected, and easily updated as circumstances and/or goals change.
What about your own personal financial position outside the practice? Ask yourself, "Where am I today? Where do I need to be tomorrow? How much do I own/owe? How far do my practice earnings advance me toward my goal?"
This may seem like a twisted tangle of questions, but it can be sorted out to make your path clear and reassuring. A quick snapshot of your current position can clarify the direction and overall dimensions of a plan to put you on the road to confidence and security.
Because your practice is the primary fuel for increased net worth and security, there is no area of planning that is more personal. Connecting this personal pathway planning with the financial modeling discussed above will give you the most powerful tools and guidelines available. Better yet, you will gain a sense of pure reassurance. For most doctors, this is the first time in many years they can take a well-deserved deep breath and relax.
Who else is involved?
On a related note, be sure you have an accountant who does more than just prepare your tax returns. No one should ever receive a call from their accountant on April 14 saying, "Your tax return is ready for your signature tomorrow, but you need to bring a check for ____." It is entirely possible, by working with a qualified firm that's invested in you, to look ahead, make the necessary adjustments, and avoid this needless pain.
You should work closely with your accountant so that a) your current taxes are minimized to the furthest possible extent, b) your interim financial statements are formatted so you and your personal financial planner can easily track your expenses, and c) you do not receive that dreadful phone call at tax time.
Last, but not least, make sure that your legal affairs are buttoned up tight. Failure to do this has cost countless doctors countless dollars. A sampling of the areas that will need your attention include:
- Make sure that estate documents are in order so that your family and heirs are provided for in the fashion that you would otherwise direct. Poorly drawn (or nonexistent) documents will rob your family of what you really intended.
- If you plan to transfer assets through a generation-skipping device by using a Family Limited Partnership, make certain that all of the appropriate discounting documentation is in place to allow you to transfer a maximum amount of income and equity to the next generation without a negative tax consequence. This can literally save tens (if not hundreds) of thousands of dollars.
- Make sure that you have all the critical presale authorization documentation in place and in force so that your practice can be sold in the event of a death or disability. This one item alone will save your family and spouse untold grief, worry, and heartache. If you do not have such an agreement, please e-mail us for a complimentary copy.
- If you have a partner, make absolutely certain that your documents provide for the acquisition (purchase) of your remainder interest in the event of death, disability, or retirement so that there are no questions about how everything is to be addressed.
In summary
This may all seem overwhelming, and to tell the truth, it can be. With that said, all of the four areas discussed above are important. A misstep in any of them can set you back. Consider carefully how you approach these in an organized, comprehensive, and integrated manner.
With your exact needs and circumstances in mind, and looking at the universe of available options, which array serves you best in terms of helping you preserve what you have accumulated, and ensuring a successful outcome? Choose wisely on this point by looking for two things: someone with a proven track record, and someone who will walk with you every step of the way - in short, someone who cares.
You have no doubt noticed the reference to someone (i.e., a person) rather than a firm, group, or company. This is because a firm, group, or company is no better than the individuals within it. You should feel that you can call and talk until your questions are answered and your concerns addressed. Isn't this the exact relationship you have with your patients? It should be no different for you.
For more information on these topics, please call (877) 306-9780, or e-mail [email protected].
Roger K. Hill, MSA, ASA, president of Roger K. Hill & Company, is a member of ADS, a member of The McGill & Hill Group, and specializes in dental practice transitions. With more than 30 years of experience, he serves clients by providing transition planning for practice sales, partnerships (buy-in/buy-out), associateships, and other activities.More DE Articles
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