PracticeCFO's Tenets of Wealth Building

On the subject of financial independence, I want to tell you what our tenets of wealth building are here at practice cfo. And if you're considering being a client of practice CFO in the future as you buy your practice and you want CFO services, the accounting, the tax, the payroll, the business planning, and the personal financial planning, an integrated way. If you feel that's going to be the model you're looking for, then it's important you understand our own principles, our own tenants of wealth building, because this is what we are going to coach you and recommend you on. And if these don't align with yours, then you're probably going to be better finding a different service provider who has a different model that's going to be more in line with you or simply allows you to sort of build your financial growth plan on the tenants that are more aligned or specific to you. Now, not only do we believe in these, we encourage them strongly because we have found these tenants to be the patterns of success with the highest probability across our clients. That's why these have become our tenants, because we've seen them in action, we see them work. And when we see doctors following other tenants, we see the probability of success is dramatically lower and that doctor.

Has a much longer path to become financially independent. So here's what our tenets of wealth building are at Practice cfo number one, Simple. Spend less than you earned. Number two, always pay off your credit card debt every month, both in the practice and in your personal life. And there should be virtually no reason to not do that other than some extenuating reason like COVID 19 hits your practice and you've got expenses and no income. I get that. But generally speaking, pay off all of your credit card, our third tenant. Make savings a line item at the top of your budget. Don't just wait till everything is spent and you've paid everybody else to decide what's left. So I could save that. Pay yourself first and then cascade through the rest of your outflows. Number four, other than your home in your practice building, be very careful about owning real estate. Now, I'm not telling you to not own real estate. I'm telling you to be careful about owning real estate. Real estate is not a passive asset. You generally don't just buy it and close your eyes and it does its thing, like say you bought a mutual fund or you invested in a stock. It requires maintenance, there's tenants and complaints, vacancy finding people to rent it, collecting on rent. It requires some activity. Even if you outsource that to a property management company, trust me, it's going to be pulling more of your time than you might expect. Remember from my prior module on financial independence, time is the most valuable resource that you have and you will generate a lot more return and cash flow out of focusing on the heart of your cash flow, which is your business, which is your practice, than you are going to be on a rental property over here. Now that said, it's okay to own real estate. Real estate is a good asset. It appreciates in time you can leverage it through the bank. I get all the concepts of real estate, but I oftentimes see doctors who want to be real estate moguls who end up spending so much time over there that they neglect their practice and they don't have the cash flow they need in their practice to really even invest and get their real estate going. And it becomes sort of this catch 22. So that's why we've seen over time that other than owning your building and your home, be very careful about owning other real estate. Number five, hold investments through the stock and bond market. This is a way that allows you to channel your energy on what matters and that what you control, you don't control the overall markets, you don't control what happens to Apple stock. But if you invest in a global sort of index approach to the markets then, and you try to do that at a low cost, then you can really focus on your practice to generate the cash you need to continue to fund that. Number six, target ownership of a practice that is collecting at least 1 million. I know it's going to come with more debt and some of you want to buy a practice at 250,000 and then grow it to 1.5 million, that's fine. And if I've seen that happen, and I've seen it successfully by doctors who are very motivated and great leaders. But it's often hard to do that as well. The safest place, and I'm just going to emphasize the safest, that's all. The safest, highest probability way or path to cash flow is by buying a practice that's netting you a million dollars or more and then making sure that your overhead structure is such that you have a 35 to 45% profit margin on that million dollar plus practice. Now you've got healthy cash flow and if you're following these other tenets of wealth building, you're going to be doing great. Well, number seven is build tax with build wealth with pre tax money. And the IRS only gives you a certain amount of bucket space to fill with pre tax money. Fill that up and that's going to be your 401k, your profit share plan, maybe defined benefit plan later in life, perhaps an IRA or a Roth ira. Fill those buckets up and then you can go and maybe pay down some debt, some non cancerous debt like maybe your home or your practice. Although I'm a little reluctant to pay those off early because they're so low in the rate and they're tax deductible. You could go and invest in a taxable account once you fill up those buckets, but really focus on filling up those pre tax buckets first. Build wealth with pre tax money. Number eight, focus on one practice location. I know half of you listening to me right now are thinking, but Wes, I want to own four practices. I want to become a large group practice. I want to become, I want to build an empire here of dental practices. There's something exciting about that because it goes beyond, I don't know, it goes beyond the operatory room to something big and great and you want to be attached to something big and great and it feels great. But I can tell you I get a call at least once every couple weeks of a doctor who has bought three, four, five practices thinking that they're going to get to 10, sell it to a DSO or sell it to private equity and write off in the sunset. And what happens is the first practice that was cash flowing pretty well ends up having to subsidize the lack of cash flow in the other practices because these are all these practices have a very heavy fixed costs and there's only one of you and it's very difficult to get somebody else who doesn't own or is even a minority interest to really love and care for the other practices. Now there are models that work and it's out there and it's happening and we're seeing adjustments in the industry. But what I'm saying is again, go with the odds. The highest probability of you building financial independence and having a stress free life and being able to balance your time in your practice with time with your personal life and recreation and family. Run a great one million dollar plus practice with your overhead managed, live below your means and that's a good life. As a dentist, be very careful to fall into that trap of thinking, oh, I can just double my cash flow by buying office number 2, 3, 4 and 5. And if you do, consult with a CFO advisor, let's look at the numbers to see if it even makes sense to attempt to do that. Number nine, don't pay down low rate tax deductible secured debt. And I mentioned this a little bit a minute ago, but why pay off your practice loan that's at 3.75% tax deductible, which means the true rate is closer to 2, 2.5% when you could invest that in your 401k where you're going to save 30 to 40%, you're going to reroute 30 to 40% of every dollar that goes in there from the IRS back to you, you get that return right away in year one and then you get compounded return year after year in that 401k. So don't pay down low rate tax deductible secured debt before funding your tax advantaged retirement account. Remember the benefit of compounding growth. So we need to start that early. And I did a module where I showed you pay down debt first, then you Invest in a 401k versus you start, you start paying your funding your 401k early and you don't pay down your debt early. And the benefit is sizably different when you start investing early even though you don't pay off that debt right away or before its 10 year schedule on say an acquisition loan. Number 10 is keep your financial life simple. Avoid opening four different checking accounts and five different credit card accounts in your business. Avoid that. It's not necessary. So keep it simple. One idea might be to have both your personal and your business accounts at the same bank. So when you log in on your phone and you're checking your balances, you can see everything right there. That's the way I've personally done it myself. And it's super easy to transfer from one account to another both within the business and even outside of the business. If you make a distribution and it's a simpleness is uncomplicated, which reduces stress and it's easier to manage. Number 11.

Tax plan. But always play by the tax rules. I hope you watched our module on that number 12, be willing to be coached. Again, a characteristic that is so unanimous among those people who have really thrived in is they're willing to be coached now. They're very smart on who they choose as their coach and they might interview a few and they watch what they're paying the coach versus the real value they're getting out of that. But they seek out good coaching. And we as CFO advisors, we're here to help coach you and make the right decisions and be a part of your team to help you become financially independent earlier. And those are the tenants, the practice cfo Tenants of Wealth Building.