Turn Your Practice Into a Financial and Wealth-Building Engine

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Do you run your own practice or hope to run your own practice in the near future? If your answer is “yes,” then you will want to pay close attention to the information within this Lesson. The purpose of this section of the article is to help you get the most—financially speaking—out of your practice. You will have to do more than the typical cookie-cutter planning that many CPAs and attorneys will suggest. As you learned in Lesson #3, an advisor who doesn’t specialize in the unique issues that Doctors face is likely to miss a number of key elements in their planning.
If your goal is to efficiently get the most out of your practice, you may find this Lesson to be the most valuable in this book. While intelligent planning can improve all aspects of your life, it is the impact on your practice that can be the most significant. You need to begin thinking about your practice not only as a treatment facility for patients, but also as a financial Fortress and a wealth-building Engine for you.
The Fortress analogy is important because we want to make sure that the practice is fortified. As the vehicle through which you will make most of your earnings in your career, the practice needs to be protected against all financial and legal threats. As you learned in the previous sections of the larger article, these threats are not just medical malpractice lawsuits. They include healthcare issues, employment risks, and other financial threats that can impact your ability to work and make money.

The Engine analogy is crucial because we want your practice to be an engine for wealth accumulation. You will want to apply the important concepts explained earlier in this book (e.g., Leverage and Efficiency) to your practice structure and operations. By doing so, you will finally be able to derive as much financial benefit as possible out of your practice—both during your working years and through your retirement.
In this Lesson, we will discuss ways to structure and operate your practice so it will act both as a Fortress and as an Engine. Specific articles will cover other risks to the practice not yet discussed, including the premature death or disability of a partner. This Lesson will also explain how to turn the practice into a Fortress by protecting your accounts receivable, real estate, and equipment. You will also be introduced to tools that can be used to transform your practice into a smooth-running Engine—including the use of qualified and nonqualified plans, friendly lease-back arrangements, and captive insurance companies. Finally, we will explain the ultimate wealth-building Engine—the million-dollar retirement buy-out.

How NOT to Structure Your Practice

Every year, we meet many Doctors who are practicing within a structure that offers very little, if any, protection for the assets of the practice. Even worse, we encounter Doctors who have put absolutely no barrier between the potential risks of their practice and all of their personal assets. In some cases, this is due to ignorance on the part of the Doctor. Other times, this is the result of poor advice. Many accountants have suggested that Doctors might not see enough benefit from incorporation to warrant the added time and expense corporations require. Other advisors still recommend general partnerships, although this practice form is all but extinct. In this chapter, we will discuss the pitfalls to avoid when structuring your medical practice.
It may be difficult to believe, but most Doctors who call us have practices that are structured with two things in common:
· Maximum lawsuit exposure
· Minimum tax-saving potential
In this chapter, we will discuss the common medical practice structural and operational mistakes that can cause these two highly undesirable outcomes. After you learn how not to structure your practice, you can continue reading the rest of this Lesson and learn how you can structure your practice for maximum flexibility and efficiency, enabling you to create the Fortress and Engine you desire.

The Worst Way To Structure A Practice: As A General Partnership
Fortunately, it is far less common for Doctors and their advisors to structure new medical practices as general partnerships today. Though new practices are rarely configured as general partnerships, we still come across dozens of mature (and profitable) practices every year that continue to be operated as general partnerships. There are rarely absolutes in medicine, finance, or the law. However, here is one simple rule: You should never operate any medical practice or other business practice as a general partnership. Why do we say this? The general (pun intended) reason is because a general partnership is a creditor’s or plaintiff attorney’s dream and a partner’s liability nightmare. More specifically, let’s consider the three hidden dangers of a general partnership:
1. Partners Have Unlimited Liability for Partnership Debts
This tragic fact goes unrealized by many Doctors who are involved in general partnerships. Without signing personal guarantees on every debt, the Doctors who are involved in a general partnership are, by default, personally guaranteeing every partnership debt and personally assuming the risk for malpractice, accidents, and other liability sources of the entire partnership. These Doctors fail to consider that their liability as a partner is joint and several with all other partners. A plaintiff who successfully sues the partnership can collect the full judgment from any one partner. Let’s look at an example to see how dangerous this arrangement can be:
Case Study: Jane and Ted’s Real Estate Venture
Jane and Ted were physician colleagues who wanted to increase their income by buying “fixer upper” houses, renovating them and then selling them. Events went well for a while, but the real estate market went sour and they defaulted on a $650,000 loan to the bank. Jane was much wealthier than Ted, so the bank pursued Jane for the full amount, ignoring Ted, under the theory of joint and several liability. To collect Ted’s share of the liability, Jane had to file suit against him, More

Smart Doctors Don’t Want to “Fit In”

Posted by & filed under Business, Business Owners, Doctors, Healthcare.

We hope that you now understand that there are significant differences between Doctors and Average Americans—at least in terms of basic demographic data. This book will hopefully teach you how you should act when faced with financial and legal issues. These very different attitudes and methods of approaching wealth planning are integral to your success.
We also hope that you have gained some insight into why nearly every newspaper, financial website and financial magazine is forced to focus its content on a group of subscribers or readers that have a very different set of concerns than Doctors. These media outlets need to provide “common sense” advice to the general public (i.e. Average Americans) to fit their business model of attracting the most eyeballs. There are simply far more Average American “eyeballs” than there are wealthy, or more specifically Doctor, “eyeballs.”
It stands to reason that, if financial “common sense” has been developed for (and should generally be used by) Average Americans, then this common sense will not apply to physicians. In fact, the only way Doctors can achieve desired levels of wealth and have peace of mind is to follow advice that doesn’t make “common sense.”
Going against “common sense” is not easy. There are many deeply rooted psychological factors that push someone to go with the crowd, rather than against it. This is certainly true in the financial planning context. As an example, consider this proposition:

It is a bad financial idea for a Doctor to pay off a mortgage and own a home outright. For many of you reading this now, this may be difficult, if not impossible, to believe. It is exactly the opposite of what your parents told you (and they are the smart people who taught you so many life lessons). It is the polar opposite of what Suze Orman and hundreds of websites, magazine articles, and television programs suggest. Further, it just may not “feel” right, because it goes against what all of your friends are doing. Keep those feelings and thoughts in mind when you read the other Lessons in the book.

Why Ignoring “Common Sense” Is So Difficult
Most children and adolescents try desperately to “fit in.” As we get older, we try to find the right groups in college. In our first jobs, we want to toe the company line. All states have laws that govern our behavior. Most religions have commandments, rules, or other codices of condoned and forbidden activities.
Most people avoid actions they fear their friends and relatives would criticize—or at the very least, they refrain from sharing details of their potentially critical activities with their family and friends. We are not implying that Americans are sheep. Rather, we are saying that society typically rewards those who are similar and creates more challenges for those who are not.
This is not a particularly astute observation. It is merely support for the significance of the #1 challenge that must be overcome if you are to truly work less and build more. To do so, you not only have to admit to being different from Average Americans, but you also have to EMBRACE the fact that you are different.

Embrace Affluence And Your Differences: A Key Lesson
If you want to successfully achieve or maintain wealth, you must be comfortable with your unique circumstances and be comfortable doing things differently than your friends. If your only comfort comes from doing something and knowing that “everyone else is doing it,” then you are destined to achieve and maintain mediocrity. Wealthy Americans became affluent by being different or by doing something different. If they did what everyone else did, they would be like 80% of Americans who earn less than $80,000 per year and they wouldn’t have achieved the wealth they now have.
Savvy physicians don’t want to “fit in.” They understand that Average Americans work very hard to pay their bills while scratching to save for retirement, occasional vacations, and precious luxury items. Savvy Doctors understand that the two groups have very different financial challenges that require different types of advisors and strategies. These physicians don’t need the financial and legal advisors and firms that cater to 150,000,000 Average Americans. Doctors don’t need techniques, strategies, or products that are adequate for the needs of the many. Doctors don’t need free checking, higher money market rates, lower online trading costs, do-it-yourself legal documents, or the advisor with the lowest hourly rate. Doctors don’t need advisors to tell them how nice their shoes are or how wonder-fully decorated their home or office is. They know these things are nice—they bought them. Doctors don’t need to be surrounded with “yes” men or women who agree with all of their suggestions. They need advisors to question them, challenge them, and help them consider all alternatives before taking action. Smart physicians shouldn’t put much stock in advisors who send calendars, fruit baskets, or sports tickets, or seek out advisors who will take them golfing or out to dinner. You can pay for all of those things yourself.

Good Dr.'s Don't Want To Fit InDoctors need to understand that there are millions of attorneys, accountants, investment advisors, and financial planners who would all like their business. You should know that many of these advisors and their firms regularly give away “special perks” to try to convince people to become new clients or to guilt them into staying with the firm. You should understand that an advisor referred by a friend is a good start, but a referred advisor from a friend who is in a different financial situation is likely a waste of time. There is an entire section on how to build your advisory team in Lesson #3: Accept Referrals to Specialists. The third lesson is a must read for anyone who picks up this book. Doctors have family and friends just like Average Americans do. You want to spend your valuable and limited free time with your friends (and some of it with family—just like Average Americans). When you spend More