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, CFP
robert@cwcounsel.com
www.cambridgewealthcounsel.com
801-783-2241
Offices 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 Clients
Licensed 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 Overview
1. The Dental Financial Life-Cycle
2. Client Case Studies
3. 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

Local Demographics
• Idaho Practitioners: 904
• 94.4% male, 5.6% female
• Nevada Practitioners: 1,320
• 83.8% male, 16.2% female

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 55-90
Milestones Build financial
foundations
Wealth
accumulation and
advanced planning
Wealth harvest and
preservation
Timeline

==
Financial Life-Cycle
Professional
Adolescence
Professional
Maturity
Full Financial
Freedom
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:
Professional
Adolescence
Professional
Maturity
Full Financial
Freedom
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
Professional
Adolescence
Professional
Maturity
Full Financial
Freedom
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:

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 $450,000
Student 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 / year
Additional 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 spending
2. Avoid non-productive debt (debt for toys)
3. Focus on optimizing business / learning the ropes
4. 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 - $1,000,000
Student debt $309,000 (max) $0
Business debt (start-up) $124,000 $0
Business debt (buy-in) $150,000 $0
Business debt (purchase) $186,000 $0
Business debt (property) $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 less
Student debt $0 $0
Business debt (start-up) $0 Value: $750k
Business debt (buy-in) $0 Value: $750k
Business debt (purchase) $0 Value: $925k
Business debt (property) $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 value

The Dental Practitioner’s Scorecard

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 accounts
2. Commercial real estate
3. 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%

Monte Carlo Simulation

Save Additional $30k in Taxable Account

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

Dr. 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

Dr. 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 Results
20-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.

Cambridge Wealth Counsel
WM=IC + AP + RM
Wealth 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

• 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

• 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:

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.

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

Part 3.
Audience Questions

Dental Financial Life-Cycle

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