We know that planning for the future isn’t always at the forefront of a busy dentist’s mind, especially when it requires shifting their focus away from the daily activities of running their practice. The world of dentistry comes with its own financial complexities. However, like any business, planning for your financial future early in your career can help avoid issues later. We’ve compiled 4 tips that dentists need to achieve better financial planning.
1. Have an overview of your practice.
Knowing how your practice is doing is important for its overall growth. A practice valuation gives you that overview; it helps you take the right next steps, measure the gains, and understand where your practice is not working at its best. If you know where these red flags are, it will help you see what’s stopping your practice from reaching its full potential.
A dental-specific CPA or certified financial planner can give much-needed insights into your practice’s overall financial health. They have the industry knowledge to make you aware of key numbers and assist you in defining your goals. Together, a practice valuation from a broker, and the insights from your financial team, can help you learn where you need to be to sell your practice and get the most out of your investment. (Join the Transitions Plus Program here if you need some help.)
2. Don’t rely on the practice sale to feed your retirement.
You shouldn’t solely rely on your practice sale. Ask yourself, do you have enough saved to live a stress-free retirement?
That being said, your practice sale can provide a boost to your retirement plan. To figure out exactly where your practice value stands, have a practice valuation. Don’t forget to also focus on maximizing practice efficiency and create a sound plan with your advisor. After all, you want your money to work FOR you, not against you. When you’re ready to sell, you’ll be in a better financial position, less stressed and on track for a smooth transition process.
3. Protect your assets and investments
Protect your investment with insurance.
We always tell our clients to protect their assets through as much insurance as possible, especially for new practice owners. We’re fans of having every type of insurance possible because it’s generally inexpensive and can save your future plans.
Be more efficient to maximize practice value.
A seller or practice owner should make strides to run a more efficient practice to maximize value. This means not allowing your numbers to decline, which could result in a lower asking price for the sale of your practice. In conjunction with protecting through insurance, which you probably already have, you must also focus on protecting the value of your practice through the way you run it. This means protecting your patient base, your knowledgeable staff, and making sure equipment isn’t falling apart.
We’re not saying to spend $100,000 dollars on new equipment right before selling, but make sure your equipment is in working order and doesn’t look ill-treated when someone walks through the doors.
Uncover red flags in your practice with an advisor.
Don’t wait to have someone look at your practice. Work with an advisor to know what potential problems you may face and where you may need to invest more money and effort. This will ensure that you’ve got the kinks sorted out well before it’s time to sell.
At the end of the day, protecting your assets not only protects yourself, but it protects the value of the practice, your equipment, your patient base, and even your employees. This will grant you peace of mind and prepare you for the future.
4. Create a dental practice budget
There are many reasons why it’s important to have a budget. First, a budget will keep your personal and business expenses separate, which benefits you when it comes time to sell. The buyer sees that you’re organized and the bank knows exactly what the expenses are, making it easier to fund the loan.
Second, it allows you to keep your finger on the pulse of your practice through numbers. By keeping a close eye on your numbers, you can determine where you might be overspending and can make corrections as you go.
Third, creating a budget makes you aware of what you’re getting paid (or tells you what you should pay yourself). When you sell, a potential buyer will want to see what you’re making. If you’re forgetting to pay yourself, a buyer will wonder if they also will be unable to pay themselves. (Read more on budgets here.)
Financial Planning Will Save You Heartache Later
While making smart decisions at the beginning of your career will save future heartache (and headaches), it’s never too late to get started. Connect with a financial advisor, protect your assets, maximize the value of your practice, and create a budget to maximize guaranteed retirement income. If you need help, meet with our dental financial experts for help with your transition, start-up, or exit strategy. We know dentistry and we’re here to help!