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The Dental Financial Life-Cycle
Business & Personal Financial Planning Strategies for Dental Professionals
Presentation for
Utah Dental Association Annual Meeting - 2014
March 13/14 2014
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Cambridge Wealth Counsel
Counsel. Plan. Prosper.
Robert Hockett, CFProbert@cwcounsel.com
www.cambridgewealthcounsel.com
801-783-2241Offices in Atlanta and Salt Lake City
- Serving Clients Nationwide -
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Our Firm• Fee-Only® Fiduciary – Comprehensive Wealth
Management• Founded in 1996 • Clients in 15 states – over 50% are licensed
professionals• Advisors have ~16 years of experience
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
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Our Dental ClientsLicensed professionals who desire to work with trusted experts to accomplish their most important personal, family and business goals—without conflicts of interest.•Practice Types• General dentists• Specialists: Ortho, Endo, Pedo, Perio, Pros, Oral
Surgery•Financial Ranges• Income: $225K to $1.25MM• Total Net Worth: Generally $500K to $12MM
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
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Our Wealth Services• Goal setting• Life and career
coaching• Cash flow analysis• Insurance review• Tax planning• Estate planning• Charitable giving
• Investment management
• Retirement planning
• Financing negotiation
• Business real estate consulting
• Strategic practice planning
• Dental practice purchase
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Recognition“Best Advisors for Dentists in US”
Dental Products Report, 2011-2014
“Top 150 Advisors for Physicians in US” Medical Economics, 2006 – 2013
“Top Fee-Only Firms” Utah Business , 2011
“ Top 10 Fee-Only Firms” Atlanta Business Chronicle. 2004 - 2012
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
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Media Coverage
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
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Presentation Overview1. The Dental Financial Life-Cycle2. Client Case Studies3. Audience Questions
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Part 1.The Dental Financial Life-
Cycle
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The Dental Practitioner’s Scorecard
www.cwcounsel.com/UDA
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
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Basic Facts• Average income for dental professionals
(2012):• $202,000 General Practitioner• $337,000 Specialist
• 193,000 active dentists in the U.S.• 178,136 active private practitioners in the
U.S.
Source: American Dental Association
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Local Demographics• Utah Practitioners: 1,804• 97.3% male, 2.7% female• 1,562 patients per dentist
• Arizona Practitioners: 3,275• 84.5% male, 15.5% female• 1,979 patients per dentist
Source: American Dental Association
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Local Demographics• Idaho Practitioners: 904• 94.4% male, 5.6% female• 1,753 patients per dentist
• Nevada Practitioners: 1,320• 83.8% male, 16.2% female• 2,063 patients per dentist
Source: American Dental Association
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Regional Income Demographics
General Practitioners•Average income: $205-$225k•Average revenue: $775k
Specialist Practitioners •Average income: $335-$347k•Average revenue: $945k
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Dental Trends• Retirement Age Extends (61/68/75)• Debt Profile 250/400/800K in Debt• Solo vs. Group Practice (30% Group Now)• Technology War –Expensive –Narrows Gap GP/SP• Perceptions of Retirement Spending to Low 50%• Govt Regs – 2013 HIPPA Omnibus Final Rule
• Must Have Compliant Agreements w/Vendors• Mandatory Disclosure for Cybersecurity breach(lost
iPad)• Fines levied 250-500K up to Maximum of $1,500,000.• Be Very Careful and become compliant(1/24/2013)
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Where do you fit in?
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==
Financial Life-Cycle: Stages
Professional Adolescence
Professional Maturity
Full Financial Freedom
Target Ages 28-40 35-60 55-90Milestones Build financial
foundationsWealth accumulation and advanced planning
Wealth harvest and preservation
Timeline
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
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==
Financial Life-Cycle
Professional Adolescence
Professional Maturity
Full Financial Freedom
Associate Income
$136K – $300K $150K – $350K $150K - $350K
GP Owner Income
$250K $350K - $550K Final 5-7Retirement
SP Owner Income
$400K $400K - $750K Final 5-7Retirement
GP 401k Max year 8 Roth 401k + cash balance x2
Creditor protected
SP 401k Max year 3 Roth 401k + cash balance x2
Creditor protected
Additional savings
Begin to fund investment accounts
Funding min. $75k / year
Tax strategies for distribution
Income & Investments
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
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==
Financial Life-Cycle:
Professional Adolescence
Professional Maturity
Full Financial Freedom
Housing Careful, start modest
Move to dream home & pay it down
Mortgage paid off
Student Loans Student loan interest non-deductible
Debt paid off Student loans paid off
Personal Debt
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
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==
Financial Life-Cycle
Professional Adolescence
Professional Maturity
Full Financial Freedom
Business: Startup
10-15 year amort.
Debt paid off 5-7 years - prep sale
Business: Buy-in
10-15 year amort.
Debt paid off Prepare for sale to partners
Business: Purchase
10-15 year amort.
Debt paid off 5-7 years - prep sale
Commercial Property
Save down payment
Pay down building
Building paid off – rent to buyer
Business Debt
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Why Stages?• The three stages represent specific
financial levels of progress with the goal to transition through the levels “on time” or early.
• The penalty for transition delay or not completing the corresponding milestones is significant financial hardship for you and or your family.
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Your Goals are Important
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Where do you fit in?• Lack of knowledge can often be a hurdle in
reaching our hard fought goals • By helping our clients through the three
stages we have developed tools, techniques and strategies to speed up the transition process
• See how you compare! Get a free scorecard assessment:
www.cwcounsel.com/UDACopyright 2014. All rights
reserved.
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
The Dental Practitioner’s Scorecard
www.cwcounsel.com/UDA
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Stage 1: Professional Adolescence
Timeline•Time in Stage: 7-12 years•Target Age for Completion: 40•Milestones: Decide on Career Path, Develop Hand speed. Locate, Evaluate, Negotiate/Finance Practice Purchase or Buy In, Set up “Best Practices” Operation. Set Personal and Business Comprehensive Goals, Outline Personal and Business Budgets, Develop Understanding of Business Operations, Upgrade Old Equipment and Systems in Practice, Solicit and Plan Personal and Business Tax Projections. Purchase Home. Reevaluate Personal Budget. Evaluate, Place and Regularly Have Reviewed; appropriate cost effective Risk Management in Auto, Homeowners, Personal Articles, Umbrella, Life, Disability, Health, BOP, Malpractice, and Theft Insurances. Complete Comprehensive Estate Planning Documents including; Wills, Trusts, POA, and Advanced Directives and Overcome Disagreements Regarding Guardianship of Minor Children. Evaluate and Regularly Fund Investments, Outline Comprehensive Retirement Plan including Staged Savings Amount and Optimal Location of Various Asset Classes. Negotiate for and Buy Building. Review, Set up, Fund and Monitor a Practice Retirement Plan. Increase Production and Collections while maintaining expense controls to move personal income into “Above Average Range”. Pay down student loans…interest is no longer deductible. If Married – Stay Happily Married while having last 1-2 children.
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Stage 1: Professional Adolescence
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Beginning of phase
End of phase
Associate income $136,000 - $300,000
$136,000 - $300,000
Owner income $200,000 - $400,000
$250,000 - $400,000
Housing debt $450,000 $450,000Student debt $390,000 (max) $202,000 (min.)Business debt (start-up)
$450,000 $178,000
Business debt (buy-in)
$600,000 $250,000
Business debt (purchase)
$750,000 $280,000
Business debt (property)
$400,000 $379,000
401k (GP) $0/year $25-$52,000 / yearAdditional savings $15,000 / year $15,000 - $45,000 / year
Professional Adolescence - Stage 1
Milestones•Review and set written personal and business goals•Review and benchmark progress regularly•Review personal and business borrowing for rate changes/terms•Review and upgrade your tax projections to minimize surprises and give time to make pre-year end adjustments(2X Year) •Review, design and execute an estate plan•Review, design, fund, and monitor retirement planning•Review, analyze, and select, cost effective- proper insurances in all areas
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Greed/Fear
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Stage 1: Professional Adolescence
Key Strategies•Eliminate all undisclosed conflicts of interest•Have Fee-Only Fiduciary assemble an Expert Team that will collaborate well and is dedicated to your personal and business success: • Comprehensive wealth manager, corporate
attorney, estate planning attorney, CPA, bookkeeper, seasoned insurance agency, third party custodian for investments
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Stage 1: Professional Adolescence
Key Strategies•Four key areas of focus in years 1-7
1. Manage spending2. Avoid non-productive debt (debt for toys)3. Focus on optimizing business / learning the ropes4. Save and invest aggressively from early on
•Common mistakes• Overspending: Pent up demand of dentist &
spouse IS REAL• Over-buy on first house
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Stage 2: Professional Maturity
Timeline•Years in Stage: 20-25 years•Target Ages in Stage: 35-60•Milestones: Continue with review and monitoring of changing needs in the areas of personal and business goals. Personal and business budgets and benchmarks. This stage focuses on building on the Financial Foundation created in Stage 1. Laser focus on harnessing business cash flow to complete debt payoff of practice, equipment, and buildings and build personal wealth. Student loans are retired in this Stage. Investment Wealth will go from $1-4 Million in liquid assets as rigorous funding of the 401k plan and annual Taxable Investment Targets are reached. Practice revenue target is 3rd and 4th Quartile. GP Income Target $350-550k+. Specialists Income $400-750K.
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Stage 2: Professional Maturity
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Beginning of phase
End of phase
Associate income $136,000 - $300,000
$150,000 - $350,000
Owner income $200,000 - $400,000
$350,000 - $650,000
Housing debt $450,000 $750,000 - $1,000,000Student debt $309,000 (max) $0Business debt (start-up)
$124,000 $0
Business debt (buy-in)
$150,000 $0
Business debt (purchase)
$186,000 $0
Business debt (property)
$367,000 $0
401k (GP) $25-52K/year + $17.5K
$25-52K/year + $17.5K
Additional savings $15,000 - $45,000 / year
$30,000- $84,000 / year
Stage 2: Professional Maturity
Milestones•Track business cash flow
• Set annual investment and capital goals to harness cash to fund preset targets. As debt is paid off and more cash flows through both the business and personal accounts it becomes more crucial
•Review, analyze and monitor areas of tax, insurance, estate planning, retirement projections and investments regularly
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Stage 3: Full Financial Freedom
Timeline•Years in Stage: 25-35 years•Target Ages in Stage: 55-90•Milestones: Wealth Harvesting and Preservation are the Milestones in Stage 3. Continue with review and monitoring of changing needs in the areas of personal and business goals. Personal and business budgets and benchmarks. This stage focuses on preparing the business for sale and maximizing the net after tax amount. The net proceeds of sale are then invested in the taxable investment accounts. The Investment portfolio is sizeable and the asset allocation is managed for Wealth Harvesting and Inflation hedge. Monte Carlo Retirement Modeling is used to regularly back check probabilities of success in retirement. Downsize house -pay off all debt.
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Stage 3: Full Freedom
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Beginning of Phase
Retirement
Associate income $150,000 - $350,000 --Owner income $400,000 - $650,000 --Housing debt $400,000 Value: $1MM or lessStudent debt $0 $0Business debt (start-up)
$0 Value: $750k
Business debt (buy-in)
$0 Value: $750k
Business debt (purchase)
$0 Value: $925k
Business debt (property)
$0 Value: $475k - $1.5MM
401k (GP) $25-52K/year + $17.5K
Value: $2.5 - $3.7MM
Additional savings $30,000- $84,000 / year
Value: $2.3 - $3.5MM
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Stage 3: Full Financial Freedom
Key Strategy•Commercial Property Ownership/Practice Sale
• 50-60% of practitioners own their office/building• Capital / Debt: $500k to $1 million• Purchase 5+ years into practice. Pay off within 15-20
years• Rent to buyer of practice for $3-6k per month after-tax• Practice Revenue of $1,250k = $937,000 Sales price.• Sales prices range from 0.70 to 1.0 + X gross revenues
• The stronger / more profitable the practice the higher the multiple.
• Location, stable patients, net income are key to valueWho we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
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The Dental Practitioner’s Scorecard
www.cwcounsel.com/UDA
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
A Word on Investments• Stage 1 – Stage 3: Investments play an
increasingly important role• Retirement is about spending and monthly
cash flow • Pillars of full financial freedom:
1. Investment accounts2. Commercial real estate3. Practice sale value
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Part 2.Client Case Studies
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Retirement• Timing: 25 to 35 years in practice• Annual Spending: $150k to $200k (after tax)• Housing: • No debt on house• Downsize at or in retirement
• Business: • Sell practice• Work part-time
• Investments: • $4 - $8 million in investment assets + commercial
property
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Retirement Projection #1 Dr. Alfred B. New: Assumptions•Married, 35 years old, retirement at 65, live to age 90•Retirement spending: $12k month ($144k annually)•Save $52k/year from age 35 until age 65•Sell practice for $750k before taxes ($532,500 after taxes)•4 year college for 3 kids at $18k per year per child•Inflation: 3%•Pre-retirement returns: 8%•Post-retirement returns: 7%
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Retirement Projection #1 Monte Carlo Simulation
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Retirement Projection #1 Save Additional $30k in Taxable
Account
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Retirement Projection #1 Dr. Alfred B. New: Results•Result in Monte Carlo Simulation: 64% success rate•To achieve 92% success Dr. New Must also save $30k per year in taxable investment accounts form now until retirement•Retirement is about monthly spending after work ends
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Retirement Projection #2Dr. John R. Mature: Assumptions•Married, 46 years old, retire at 65, live to age 90•Retirement spending: $15,833 per month ($190k annually)•$450K in retirement and wife has $89k• Saved $52k/year from age 46-65, plus $17.5k for spouse• Also saved $7k month ($84k annually) in taxable accounts
•Sell practice for $937k before taxes ($66,5625 after taxes)•4 year college for 3 kids at $18k per year per child •Inflation: 3%•Pre-retirement returns: 8%•Post-retirement returns: 7%
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Monte Carlo Retirement Simulation
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Retirement Projection #2Dr. John R. Mature: Results•Result in Monte Carlo Simulation 94% success rate
Retirement is about monthly spend after work ends.
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Another Word on Investments
• Investment returns in projections range from 7-8%• The most sure way to fail in retirement is to let
greed and fear or lack of focus control your investment strategy.
• We use institutional class mutual funds with• Very low costs• Tax efficient management• Patient long term performance focus
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
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Average Investor Results20-Year Annualized Returns by Asset Class (1993 – 2012)
Source: Dimensional Fund Advisors for Dimensional indices (DFA 60/40); The S&P data are provided by Standard & Poor's Index Services Group (S&P 500); Barclays indices copyright Barclays 2013 (Bonds); MSCI data copyright MSCI 2013, all rights reserved (EAFE); Debar, Inc. “Quantitative Analysis of Investor Behavior 2013,” www.dalbar.com (Average Investor); US long-term bonds, bills, inflation, and fixed income factor data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.
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Cambridge Wealth Counsel
WM=IC + AP + RMWealth Mgmt. = Investment Consulting + Advanced Planning + RM
• Investment Consulting – Fee-Only Fiduciary—No Conflicts of Interest
• Advanced planning• Wealth enhancement• Wealth protection• Wealth transfer• Charitable gifting• Relationship management• Expert team / client relationship management
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Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
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Client Case Study #1• 15 years in practice, $125k income per
year• Single, male, early 40s, Southeast U.S.• Associate for first 10 years of practice• Poor location• Management issues• Overhead and staff costs too high• Very average marketing• Scheduling not optimized
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
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Client Case Study #2• 24 years in practice, $500k income per year• Married, age 56, West Coast• Owns building (paid off by retirement date)• Purchased practice 21 years ago• Tax optimized:
• 401k $52k + $5.5k catch up + $23k spouse• Saves / invests $84k per year in taxable
accounts• Vacation 6 weeks per year (one European
vacation)• Ends work day at 4:30 P.M.-will retire at 62
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
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Client Case Study #3• 14 years in practice, $430k income per
year • Income $430k per year• Married, age 43, 3 kids, Southeast U.S.• Associated for 4-5 years – (10 years on own)• Business / Marketing undergraduate degree• Cold start-up; $1M gross revenue by year four• 401k plan: $52k per year• Purchased $1 million building• Works four days a week
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
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Call to Action:www.cwcounsel.com/UDA
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions
Conclusion • Dental Practice can be both rewarding and
challenging. Working with the right Expert Team in the right way will help you move through the 3 Stages of the Dental Financial Life-Cycle in the most reasonable way - saving you time, frustration and money. Strong consistent progress brings peace of mind and a sense of satisfaction.
• If you are interested in exploring a deeper working relationship with our Firm –visit www.cwcounsel/uda sign up and take our self-assessment.
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Persistence“Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent.
Genius will not; unrewarded genius is almost a proverb.Education will not; the world is full of educated derelicts.Persistence and determination alone are omnipotent.”– Calvin Coolidge
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Cambridge Wealth Counsel
Counsel. Plan. Prosper.
Robert Hockett, CFProbert@cwcounsel.com
www.cambridgewealthcounsel.com
801-783-2241Offices in Atlanta and Salt Lake City
- Serving Clients Nationwide -
Part 3.Audience Questions
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The Dental Practitioner’s Scorecard
www.cwcounsel.com/UDA
Who we are » 1. Dental Financial Life-Cycle » 2. Client Case Studies » 3. Audience Questions