Dental Financial Life-Cycle

Copyright 2014. All rights reserved.

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


Cambridge Wealth Counsel

Counsel. Plan. Prosper.

Robert Hockett, [email protected]

www.cambridgewealthcounsel.com

801-783-2241Offices in Atlanta and Salt Lake City

- Serving Clients Nationwide -


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


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



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


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



Media Coverage



Presentation Overview1. The Dental Financial Life-Cycle2. Client Case Studies3. Audience Questions


Part 1.The Dental Financial Life-

Cycle


The Dental Practitioner’s Scorecard

www.cwcounsel.com/UDA




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


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




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




Regional Income Demographics

General Practitioners•Average income: $205-$225k•Average revenue: $775k

Specialist Practitioners •Average income: $335-$347k•Average revenue: $945k



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)


Where do you fit in?



==

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



==

Financial Life-Cycle




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



==

Financial Life-Cycle:




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



==

Financial Life-Cycle




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


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.



Your Goals are Important



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.


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.






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


Greed/Fear



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




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


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.






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


$150,000 $0


$186,000 $0


$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


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



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.



Stage 3: Full Freedom



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


$0 Value: $750k


$0 Value: $925k


$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


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

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



Part 2.Client Case Studies


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



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%



Retirement Projection #1 Monte Carlo Simulation



Retirement Projection #1 Save Additional $30k in Taxable

Account



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



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%



Monte Carlo Retirement Simulation



Retirement Projection #2Dr. John R. Mature: Results•Result in Monte Carlo Simulation 94% success rate

Retirement is about monthly spend after work ends.



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



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.



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




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



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



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



Call to Action:www.cwcounsel.com/UDA


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.


http://www.cwcounsel/uda


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



Counsel. Plan. Prosper.

Robert Hockett, [email protected]

www.cambridgewealthcounsel.com

801-783-2241Offices in Atlanta and Salt Lake City

- Serving Clients Nationwide -

Part 3.Audience Questions


Dental Financial Life-Cycle

Economy & Finance

Transcript of Dental Financial Life-Cycle