Creating Your Practice’s $1 Million Retirement Buyout

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Retirement Buy Out

Creating Your Practice’s $1 Million Retirement Buyout
One of the most common complaints we hear from Doctors is that they are frustrated that their decades of hard work are not building anything of concrete financial value. In other words, Doctors are frustrated that their practice will not be “worth anything” when they retire. As a result, they cannot “sell it” and enjoy a lucrative exit from the practice of medicine the way other business owners can with their non-medical businesses.
It is certainly true that the days of an outside practice management firm coming in and purchasing a Doctor’s practice for millions of dollars are long gone. On the other hand, there are a number of tactics a Doctor can employ to create a $1 million “buy-out fund.” We are not talking about the funded Buy-Sell arrangement that applies to unforeseen circumstances such as a disability or premature death of a partner. The buy-out funds we will discuss here are mechanisms to exit a practice at the Doctor’s chosen retirement time and take over $1 million out at that point. Of course, this would also be in addition to whatever the Doctor has in qualified retirement plans and other personal assets.

Buyout Funding Options
As you will see below, each of these tools require periodic funding over time. With the compound growth over an entire career, a Doctor can create significant retirement buy-out funds over 10, 20, or 30 years. A nice bonus is that the funds can grow on a tax-deferred or tax-free basis in most of these arrangements. With all of these tools, Doctors have two potential ways of funding them:
A. Solo Practice Model
Here, the Doctor in question simply takes advantage of one or more of the tools below and funds them from the practice. This approach is certainly better than not funding them at all, thanks to the asset protection and potential tax benefits that many of these tools afford. These options force the Doctor to build the buy-out fund with dollars that might otherwise be spent on personal consumption. Therefore, any and all of these tools can be used in the one-Doctor model.

B. Group Practice Model
In this model, in addition to the potential tax, asset protection, and forced savings benefits, Doctors enjoy another crucial benefit described earlier on in the book. They get to use other people’s money (OPM) to achieve a long-term goal. OPM is involved here because each of these tools can be Leveraged in a way that older Doctors of the practice require the younger Doctors (partners or not) to contribute into these vehicles. While the contributions go partly to their own buy-out fund, part of it could also fund the buy-out of older Doctors. When these younger Doctors become more senior, they too will benefit from this arrangement and the funding by younger Doctors at that time. This “pyramid” model is common in professional firms outside medicine, such as consulting or law firms.

Buyout Funding Toolspost 18
As you will see below, all of the major buyout funding tools are arrangements that we have already described earlier in this Lesson. Let’s examine each of them again briefly and review how they apply to the goal of creating a buyout retirement fund.
1. LLC Lease Back
A valuable piece of equipment or the practice’s office can be transferred to an LLC and then leased back to the practice entity. As explained before, this provides asset protection for the practice (vis-à-vis claims from the property or equipment), the property/ equipment (from claims against the practice), and for the Doctors (from both).
The LLC lease back works as a buyout funding tool through the rent paid by the practice to the LLC. Each month the practice will pay tax-deductible rent to the LLC. In the solo practice model, the Doctor could utilize a gifting program for the LLC interests and, over time, get the benefit of lower tax bracket “borrowing” of children or grandchildren. Proceeds remain inside the LLC, asset protected at a (+2) level. They can be managed by professionals in a tax-favored way and build up over time to create a buyout fund. More

Protecting Your Practice’s Accounts Receivable

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Protecting Your Accounts Receivable

Protecting Your Practice’s Accounts Receivable
Since a medical practice’s Accounts Receivable (AR) is typically its largest and most vulnerable asset, one would think that most Doctors would focus on protecting it (Fortress) from the many lawsuit risks that Doctors, medical practices, and any operating business with employees and customers face. Unfortunately, this isn’t the case. Also, since the Doctor earns the right to be paid weeks and often months before the AR is ultimately collected, one might think that most Doctors would try to apply the concept of Leverage to this unproductive asset (Engine) to get more out of the asset. Again, you would be wrong.
In this Chapter, we will explain the exposure of a practice’s AR to claims against the Doctors and employees of the practice. Then we will compare and contrast two options for protecting the AR and leveraging this asset for further wealth creation.

How Doctors Lose Their Accounts Receivablepost 17
A medical practice’s accounts receivable (AR) is the Doctor’s most vulnerable asset when it comes to losing wealth in any claim against the practice. These claims can be medical malpractice claims, employment claims, healthcare related suits, or any number of financial risks to the practice. This financial risk exists because every case against a physician or the practice will include the medical practice as one of the defendants in the lawsuit. When there is a successful lawsuit against the practice, attorneys will look to corporate assets to satisfy the corporate debt. What is the biggest (and possibly only) liquid asset that a practice has? The Accounts Receivable (AR).
The accounts receivable has already been earned by your practice. You are only awaiting payment. Most medical practices “turn over” their AR every 60-90 days or so. This means the creditor only needs to wait 2 or 3 months, at most, to get access to your AR. It doesn’t matter that the AR is used to pay salaries and expenses. Once there is a lien against the AR, it becomes the property of the creditor and you have to find other ways to pay salaries and expenses. More