The 3 Most Common Mistakes When Selling Your Dental Practice
Dentist Retirement Planning is More Than Selling a Business
“Many hardworking practice owners and high income earners cling dearly to their identity as someone who is well respected, needed by their teams, their staff, their patients, their clients. And once they decide that it's time to leave, it becomes an existential crisis for them.”
There are 3 major pitfalls for dentists when selling their practice…
#1 – No Plan for Income Replacement
Retirement planning is about accumulation for most people. You need to build up the 401k, your savings, or other retirement accounts, and hopefully exit from the practice with a big enough capital gains profit after taxes.
Many blindly hope that they have a mountain of money or net worth big enough to outlast the rest of their life once they retire. BUT hope is not a plan. And you certainly cannot blindly trust somebody else (a financial advisor for example) to carry your future forward.
The mistake most people make is never learning how to create passive income from that accumulated net worth or nest egg. Remember, it's all about the income.
Yes, there's a time in your life when you can certainly grow wealth without cash flow because as long as you trade your time for dollars (active income), you don't need to rely on your assets or your investments to produce income.
But when you want to take time off, transition out of part-time or full-time work and sell your practice, now you have to take those assets and put them to work.
That’s the problem facing most doctors and dentists. If you never learn how to do that, then you’ll never get to the next step of creating your specific plan/blueprint based on generating passive income from assets that you’ve invested in.
This is where your Freedom Number (the number needed to replace your lifestyle burn rate) comes into play and where you start reverse engineering your investments to get to that number. Once you get to that number, you are financially free – free of having to trade your time for money.
Most dentists, however, still work off of the traditional financial plan, which is to deplete your assets over time and hopefully die before you run out of money.
Not the plan that I would go for, nor the plan you should go for, and certainly not the plan we implement in Freedom Founders.
#2 – The Illusion of Loopholes and Magic Bullets
Dentists and other high income business owners often fall for tax avoidance schemes or fall under the illusion that one investment product/tactic will take them all the way or solve all their financial problems (a magic bullet, if you will). There are quite a myriad of tax avoidance schemes out there today.
Buyer beware. There are companies that will sell you anything and tell you that you can defer the taxes on your capital gains profit for as long as 30 years. They'll put you through all kinds of trusts and machinations that leave you “on the hook”. If you are ever audited, they have no liability.
You sign off disclosures and they will still make a bunch of money off of setting these things up, keeping your capital under management.
It's a great way to get a hold of people's net worth and money and all they do is “promise” to save you money on taxes. I'd be extremely cautious before jumping in on any of these tax saving schemes.
#3 – What Do You Do With Your Time After You Retire?
Do you know what your Next is after selling your practice and retiring from active income?
Many hardworking practice owners and high income earners cling dearly to their identity as someone who is well respected, needed by their teams, their staff, their patients, their clients. And once they decide that it's time to leave, it becomes an existential crisis for them.
If you have not planned for a Next, if you have not been seeding the ground for a future beyond your technical training, this can be very hard to deal with. It's something we look at closely in Freedom Founders. (In fact, I wrote a book about it called “What's Your Next?” which you can find here.)
It is a big piece of this complicated puzzle. Most people think it's all about the finances (another big puzzle piece), but one’s Next, often put off until having just retired or sold one’s business, is just as important.
You look over the cliff (retirement and redefining oneself) and say, “I'm not ready to jump, there's no safety net down there. I don't want to do it.” You sabotage the sale, that transition, because they're just lost in life.
These are the big three obstacles that dentists face today. Understand them and start preparing to face them even if you're not close to transitioning out.
Once you’re prepared, have a vision and a blueprint for your freedom, it makes the road to freedom less difficult and more enjoyable.
To your freedom!
P.S. Whenever you’re ready, here are some other ways I can help fast track you to your Freedom goal (you’re closer than you think) :
1. Schedule a Call with My Team:
If you’d like to replace your active practice income with passive investment income within 2-3 years, and you have at least $1M in available capital (can include residential/practice equity or practice sale), then schedule a call with my team. If it looks like there is a mutual fit, you’ll have the opportunity to attend one of our upcoming member events as a guest. www.freedomfounders.com/schedule
2. Become a Full-Cycle Investor:
There are many self-proclaimed genius investors today who think everything they touch turns to gold. But they’re about to learn the hard way what others have gained through “expensive” experience. I’m offering a free report on how to become a full-cycle investor, who knows how to preserve and grow capital in Up and Down markets. Will you be prepared when the inevitable recession hits? Get your free report here.
3. Get Your Free Retirement Scorecard:
Benchmark your retirement and wealth-building against hundreds of other practice professionals, and get personalized feedback on your biggest opportunities and leverage points. Click here to take the 3 minute assessment and get your scorecard.