by Rick Willeford, MBA, CPA/CFP
You've heard the statistics: fewer than 6 percent of dentists can retire in the lifestyle to which they have become accustomed. Although we "know" that, apparently it's not enough. Knowledge without action is useless.
Bubba was sitting on the front porch with his dog, Blue. Well, old Blue is just lying there whining and moaning.
A passerby asks Bubba, "Why is old Blue carrying on so?" Bubba replies, "The stupid dog is lying on a nail." "Why doesn't he move?" "I guess it just doesn't hurt enough!"
This situation is akin to trying to boil a frog. Most city slickers think you just throw him into a pot of boiling water (like their their fancy lobsters). But a frog jumps out! Any good country boy knows that you put the frog in a pot of cold water and then turn up the heat. The frog is comfortable and does not ever know he got boiled to death!
The aging baby boomers have been to enough seminars and read enough articles that they are beginning to feel less comfortable — at least they suspect that trouble may be looming. They just don't know what to do about it. Either the task looms too large, or they don't know where to start. So they revert to their comfort zones and do nothing! Or, they swing for the outfield fences with their meager retirement savings to try to make up for the past 20 years by putting money into bogus tax scams and checking out the latest get-rich-quick gurus.
In this series, we will break down your financial system into its various components and tune them up in a balanced manner. "Balance" does not necessarily equate with "immediate comfort," so you may have to do some stretching.
In April, we'll begin with the end in mind: "How much will I need, will it really last, and who will inherit it?" The ultimate financial question is: "How much needs to be in my net worth pot?" You'll notice that the pot has a crack in it called inflation. That will affect the "how much?" question since it is linked to the "when will I need the funds?" question. We'll see where you should be already, so you'll know if you are comfortably on track.
Notice that everything starts with income from the practice: your financial engine. We'll want to tune it up to its full potential. In June, we'll look at where you are now vs. the potential of your current practice and see if there is room for improvement. Depending on your deficiencies and comfort zone, needed changes may include management or clinical consulting.
You may have noticed a serious problem: a lot seems to be coming out of the pump, but not much is making it into your net worth pot. The system leaks! In August, we'll look at various tax tips, traps, and techniques to plug the tax leak. You have enough problems without the IRS as a silent partner.
In October, we'll look at the "third rail" of financial planning: personal spending. Folks don't mind financial planning as long as it's not too inconvenient or cuts into their current lifestyle! Since all of the system's components are interrelated, you may well be able to support the lifestyle you desire by tweaking the other areas.
What if you're going to run out of money before you run out of time? In December, we'll look at battening down the hatches and setting the practice on a course for the long haul. Where do associates fit in? How does the value of your practice figure in to your net worth goals? And just when is the best time to sell your practice — perhaps never?
So we should have an interesting journey as we poke and prod your financial system. The good news is that there is always room for (relatively) painless improvement. The exciting news is that life-changing solutions may not be as difficult as you fear, and you may not be in as deep a hole as you thought. Whining old Blue? The complacent frog? It's up to you!
Raymond "Rick" Willeford MBA, CPA/CFP, is president of Willeford & Associates, CPA, PC, a fee-only firm specializing in financial, tax, and practice-transition strategies for dentists since 1975. Mr. Willeford is president of the Academy of Dental CPAs, a member of the national Practice Valuation Study Group, and numerous dental study clubs. Contact him by phone at (770) 552-8500 or by email at [email protected].
