By: Dr. James Pitts
Have you ever wondered what is the most important item in becoming financially independent in Dentistry? Certainly, there are many factors.
High-Producing Practice?
Some Dentists would think having a high-producing practice is the key. While producing a lot of revenue makes it easier to become wealthy, it is not the most important factor.
I have known Dentists who produce over $3,000,000 per year and don’t have anything saved for retirement.
Controlling Your Overhead?
Another factor would be controlling your overhead. In the past, a dental office would strive to keep its overhead below 60%. If Dentists could bring home 40% of their profit, they would be considered good managers of resources. Again, keeping track of and controlling overhead is essential to a good financial plan.
However, controlling overhead is still not the most important item. One can control office overhead and spend all the profit.
Choosing the Right Investments?
Some people would think that choosing the right investments is the biggest factor in building wealth. Most of us don’t get to buy the next big tech stock at its lowest price and watch it go up 900%. We are not Warren Buffett or Peter Lynch.
If we are smart, we diversify our investments across many categories. We get to participate in the growth of the market, but typically don’t hit a home run with our investment picks, and still not the most important item.
Selling Your Dental Practice for Huge Profit?
Still, other Dentists may think selling your dental practice for a ton of money is the most important factor. The revenue from the sale of your practice is important to your overall financial plan. However, the sales revenue won’t compensate for years of bad habits or neglect.
If we look at a typical sale, the sales broker will get 10% of the amount. Then, the Dentist must pay capital gains on most of the sales revenue. This could potentially cost another 20% of the total. Furthermore, if you have any unresolved debt in the practice, that will need to be paid at closing.
A selling Dentist could potentially end up with only 60% to 70% of the actual sale price after taxes. If your standard of living is high, the proceeds of the sale won’t generally maintain your lifestyle for the duration of your retirement, and it is still not the most important item.
What is the Most Important Factor??
What then is the most important factor in becoming financially independent in Dentistry?
The answer is simple.
It is your ability to save the profit from your dental practice and invest it in the right place before it gets spent.
Most Dentists don’t save nearly enough. They produce enough, and the office collects enough, but they just never save it. I think the reason for this lack of saving is that it’s not exciting to save money.
You don’t get the exhilarating feeling of buying that new sports car or even the newest dental toy. However, saving money is the one thing that you directly control in your financial plan. You can’t control the investment markets and the ups and downs that occur. You can’t control taxes or their ability to increase. You can’t control the value of real estate or even the market value of your dental practice.
You can control, however, how much you save and how you invest it. By having a plan that helps you automatically save and invest, you will have the most effect on your financial future. It is by far the most important and predictable way to build your wealth and financial security over time. A Dentist can out-save the ups and downs of the market if the right strategies are put into place. The next time a friend gives you a hot stock tip, just smile and save more.
