A nest egg or practice re-investment?

A nest egg or practice re-investment?
By Mark E. Battersby

If you are (hopefully) making money and profits from your practice, you are faced with the question of what to do with the profits.

Do you plow them back into the practice or establish a separate nest egg?

Your practice, which generates the majority of your income, deserves your main attention and priority — both in time and necessary working capital. But, it might be time to think about investment planning.

Investment planning involves finding the best invest-ment for the income generated by your practice. The type of investment vehicle you choose will depend upon:

1. Identifying what you already have. The first step is a personal inventory of your wealth, income, and expenses, as well as any existing planning documents such as insurance policies, wills, and the like.

2. Deciding what you want. Next, you have to set your goals and quantify them in terms of dollar amounts and the time that you have left to achieve them. Admittedly, establishing a dollar figure for the amounts needed in order to maintain your present lifestyle a number of years down the road can be a complex process involving inflation and future value. Keep it simple by thinking in today’s dollar value.

3. Determining how to reach those goals. This is the heart of the financial plan. You must figure out what should be done to achieve your goals—or adjust them so that they become attainable.

The 55-year-old principal in a chiropractic practice establishing a financial plan to retire in 10 years cannot achieve financial security or any desired lifestyle by placing savings in today’s low-yield savings accounts.

Similarly, although risk is generally equated with return, few chiropractors would risk their investments with stock in startup or risky fast growth companies.

4. Implementing the plan. This may be the most important step. If you are uneasy about implementing your financial plan, a legion of professional advisors stand ready to help.

5. Maintaining your plan. Even the best financial plan can sour with age. You need to keep your plan up-to-date by making sure your investments perform as expected and by adjusting your financial plan for changed circumstances.

By having several kinds of investments, such as stocks, bonds (both general and corporate), real estate and, perhaps, precious metals, you greatly reduce the chance that a particular economic or legal change will devastate your investment fund.

One investment option you may not have thought about is your own practice. That’s right — your practice can become an investment vehicle. You can invest in your practice in a number of different ways, such as:

• Loans to the practice. Properly structured and treated as arm’s length transactions, loans can provide a higher rate of return than lending or depositing the money in the local bank.

• Building lease-back. Personally owning the building that houses the practice and leasing it back to the practice is another option. This strategy can generate rental income and tax deductions.

Over time, your financial planning process should enable you to rely less on earned income (that is, the income that you derive from your chiropractic practice) and more from unearned income (“outside” investments, such as stocks and bonds).

Mark E. Battersby is a tax and financial advisor, freelance writer, lecturer, and author with offices in suburban Philadelphia. He can be contacted at 610-789-2480.

Disclaimer: The author is not engaged in rendering tax, legal or accounting advice. Please consult your professional advisor about issues related to your practice.