Shape up to ‘ship out’ in retirement
By Tom Deters, DC

What’s your biggest personal financial asset? Your stock portfolio? Your house? Depending on your age and particulars, most financial planners would probably tell you that your biggest financial asset is, by far, your earning power.

That makes sense, considering that over a 20-year career, the average chiropractor makes millions of dollars. Even with this level of affluence, and oftentimes the lifestyle and spending that goes along with it, the percentage of doctors who actually have a written financial game plan is low — way too low!

Unfortunately the lack of detailed planning applies to both the business and personal sides of finance. Without having a clear destination in mind as well as benchmarks along the way, it’s hard to get where you want to go.

AT THE OFFICE

A financial plan for your practice is essential to drive your business decisions and operations. Issues and adjustments need to be addressed as they occur, not at the end of the year when your accountant tells you that there’s a problem.

The process of financial planning is based on forecasts and projections, which, in turn, are based on informed assumptions. These assumptions are initially developed through a written financial plan. Planning is not difficult to do once you understand how to do it, and it becomes easier, faster, and more enlightening over time.

The plan includes projections for both the revenue and cost sides of your business. A detailed profit and loss statement (P&L) tells within seconds how much revenue you generate from each type of patient (insurance, cash, personal injury, worker’s comp, etc.) so that you can also track average number of visits per week and average revenue per patient per category.

The more detailed the information you can collect, the better assumptions (educated guesses!) you can make, and the more accurate your forecast will be in predicting how your business will be performing three, five, and 10 years out.

Your planning also requires you to review and assess your operational capabilities. If your dream is for a million-dollar practice, but you are limited by space, staff, or parking, you will have to make adjustments— either to your operations or to your plan.

THE BIG PICTURE

Future projections and estimates are critical for assessing the big picture. Here’s where the really tough questions come into play. Ask yourself:

• At what age would you like to “retire” or at least stop practicing? The younger you stop earning, obviously the bigger the nest egg you will need.

• Where will you be living?

• What will your annual costs be? The kids will be out of the house, leaving you with more free time to “play.” That means greater costs.

Start this part of your planning by tracking your personal expenses with any of a variety of personal finance software programs and free Internet retirement cost calculators.

THINK IN REVERSE

Once you arrive at your targets (expenses versus the income you may have from investments, dividends or interest), you should be able to estimate the size of your nest egg at your preferred retirement age.

How far are you currently from that number? Divide that number by the number of years you have left to work. Can you save that amount each year or make up the difference from outside investments?

Factor in income from other sources, such as consulting or another business you may start later in life. Will you be selling your house, converting your equity to cash, and buying in a less expensive area? What other assets do you have that will help preserve your cash flow once you stop practicing?

CHOOSE YOUR EXIT STRATEGY

Your personal financial analysis and planning lead to another significant consideration: How much will your practice be worth and what will your exit strategy be when it’s time to bow out?

The sale of any business should be a choreographed event with a preparation period that may last for years to establish positive trends, address operational issues and get the required accounting statements (history and projections) in order.

While dealing with the numbers may not be your idea of a fun day at the office, remember that if you can’t prove what something is worth, you can’t collect it during a sale. The stronger case you can make with the numbers, the more your practice will be valued.

Some other questions you should consider:

• How would you like to plan your exit — via a total sale with a 30-day transition or a buy-out over a matter of years?

• Would you be willing to carry a note for the purchaser, and if so, for what amount? Even if you think that the sale of your practice is 10 or 15 years away, it is never too early to begin considering the criteria for your ideal buyer.

One other issue to address early (as in years before the anticipated sales event) is the tax implications. Get a handle on how the deal needs to be structured to deal with tax implications in the best way, especially if real estate is involved.

MONEY WELL SPENT

One of the best investments you can make is to assemble a team of pros. Spend the time and test-drive attorneys, accountants, real estate executives, and financial planners.

Don’t “settle” for professional counsel just because it’s “a pain” to switch. If you are not happy, talk to others in these fields, and let them show you options.

It’s also a good idea to arrange an annual meeting with all your consultants in one room so that your attorney, financial planner, and real estate exec all understand each other’s concerns and goals.

This will lead to the next critical step — estate planning, which helps prevent issues from “slipping through the cracks.”

Financial planning takes work, but when you consider what the implications are, it can be both exciting and rewarding. The fruit of your life’s work and the security of your family’s financial future deserve nothing less!

For further information on seminars, workshops and consulting by Dr. Deters, go to his Web site www.tomdeters.com or you can e-mail him at info@tomdeters.com.