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

Using Other People to Make You Money

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Using other people money

While leveraging assets and capital are fundamental wealth-building techniques, these techniques cannot succeed without also leveraging people. At the end of the day, every deal, investment or transaction needs people to manage or oversee it. No matter how rich you are, you still only have 168 hours per week. To our knowledge, no one has figured out how to be in two or more places at one time. As a result, the single most powerful type of Leverage is the Leverage of people. By properly leveraging people, you can have multiple levers working at once. This is where greater wealth is created.
This chapter is going tUsing Other Peoples Moneyo explain why—and how—to get the most out of leveraging people. More specifically, we will focus on:
1. Leveraging employees
2. Leveraging advisors

Leveraging Employees
The most common method of leveraging people is by hiring employees. Those with financial means can afford to hire other people to do jobs for them. The employer has successfully Leveraged people if the collective group of employees helps the owner earn more money than the amount it costs the employer in salaries and benefits.

Simple Leverage: Pay Less Than Productivity
The more employees you have, the more potential Leverage opportunities you have. Sometimes you hire staff to support these employees. That is an investment that you hope increases the productivity of the other employees by more than the cost of the administrative help.
To Leverage your employees successfully and yield a profit, a simple rule is to pay people less than the value they provide your firm. Law firms have followed this lesson for years. For example, law firms may bill out attorneys to their clients at $200 per hour and require the attorneys to bill out 2,000 hours per year. Though the firm collects $400,000 for the services of the particular attorney, they may only spend $300,000 for that particular attorney’s salary, benefits, and allocated overhead. The firm earns $100,000 per attorney. If they can afford to hire 10, 20 or 100 less-experienced attorneys and can find enough work to keep them busy, the senior partners of the firm can earn a very nice living-10 to 25 times that of Average Americans and 5 to 10 times that of a less experienced attorney. In doing so, law firms are leveraging their employees’ productivity. They are training less expensive attorneys to do the work. This, in turn, enables the senior partners to focus on very profitable activities like landing contacts and building relationships for the firm.

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