Let’s talk money: Building personal and practice wealth

September 8, 2020

ODs know what they don’t know—and for most that is financial planning and tax strategies. Eric Miller, chief financial advisor for Econologics Financial Advisors, a group specializing in healthcare finances for private practice owners, talks about planning for financial success. Miller shares some of the most common mistakes he sees doctors making in their financial planning.

ODs know what they don’t know—and for most that is financial planning and tax strategies. Eric Miller, chief financial advisor for Econologics Financial Advisors, a group specializing in healthcare finances for private practice owners, talks about planning for financial success.

Miller shares some of the most common mistakes he sees doctors making in their financial planning. “

You didn’t learn it at school,” Miller says, “but a lot of doctors learn it from the school of hard knocks.”

1. Doctors get too comfortable with the idea of debt

After the large amount of debt healthcare students take on to attend school and earn their degrees, Miller educates his clients that they don’t always have to borrow to purchase everything they need for their practices. Going further into debt should not be the default mindset to growing the business, he says.

“The doctors who really attack their student debt, a few years later they are in a really good financial place,” Miller says.

2. Doctors don’t pay themselves

New business owners often fall prey to a hustle mentality—everything that comes in, goes right back out into the practice. The challenge with this mindset is that ODs never build reserves or buffers for emergency situations.

This year more than ever proved that is a major mistake; many ODs are only one economic crisis or stock market crash away from losing 40 to 50 percent of their personal wealth. Miller encourages his clients to systematize their profits from the start, budgeting for their salaries as part of the normal business expense. He encourages doctors who have started their own businesses to take the first 10 percent of their practice revenue as their owner pay. Paying yourself helps protect against burnout and encourages enjoyment the fruits of your labor.

3. The business is there to serve you, you aren’t there to serve the business

Everything that an OD owns—practice, 401k—all of that money should be flowing up to the OD’s personal household and the OD as the individual. Miller suggests ODs consider all of their assets as smaller companies serving the larger “parent company” which is their personal households. As a part of this mindset, he is a strong believer in optometrists as private practice owners.

“I encourage people if you are thinking about getting into ownership, you can certainly make a lot more money,” Miller says. “You not only get your practitioner pay, but you also get the profits of your role as owner and executive of your practice. If you run your business really well, depending on how big your practice is, that could be $2-3-4-5-600,000 in take-home pay at a 25 to 30 percent profit margin from your business.”

How do you maximize the value of your practice?

Says Miller: “It starts with your mindset. You have to know what your role is in the business. Stop and think: Who am I building this practice for? Am I building it just for me? For the next owner? For my employees? For my community at large?”

Once ODs have established their practice identities and goals, put systems, policies, and procedures in place right from the start so that the practice and all employees are efficient and can function without the OD being there 100 percent of the time.

“The moment you start giving away responsibilities, you will feel free!” Miller says. “And you will notice the numbers in your practice will skyrocket.”

ODs should make sure that they schedule time for administrative duties and training staff outside of hours they are seeing patients. Working with a consultant with a proven track record in optometry and with a set system that can be incorporated into the office can help to fast track the practice.

Miller also encourages doctors that success is not all about the money: it is the reward that they get from the relationships they build with their patients, the care they bring to their communities, the jobs and workplace they create for their employees.

How to save on taxes

The Internal Revenue Service (IRS) tax code is around 4 million words, so it is no surprise that doctors and not even their accountants are versed in all of the ways to save individuals money. Miller encourages doctors to find an accountant who is not only trying to make sure taxes are filed correctly, but who also has a goal of saving money on taxes.

“You have to work with an accountant who has willingness to understand the tax code and has the mindset that they want to minimize your tax liability,” Miller says.

He recommends interviewing accountants and asking their goals. Many accountants have a goal of being a compliance officer—they want taxes to be filed correctly, but they have no incentive to look for ways to save money on taxes. Plan to interact with accountants at least once a quarter.

“Taxes are your biggest expense, so you should find someone who cares about minimizing them,” he says. “Saving on taxes takes energy, willingness, follow-through, and documentation.”

One of the strategies that he shares is a regulation that allows individuals or business owners to rent their homes tax free for up to 14 days. Use this part of the code to host at your home business meetings that need to be held anyway, but write off the expense of using your home for those meeting dates.

4 strategies for success

“Don’t make financial planning complex,” Miller says.

He shares 4 key strategies for success:

1. Focus on producing income. Know how much money you need to make to live the life you want to live.

2. Set up a system in your practice where you build in getting paid and set up cash reserves right from the start.

3. Get out of bad debt as fast you can. Not all debt is bad, but any debt that doesn’t produce income, that doesn’t appreciate in value, and that doesn’t provide a tax break is bad debt. Cars, credit card debt—that all should be paid off immediately. Homes can even fall in this category; they sometimes appreciate in value, but they definitely don’t produce income and, in many cases, they are money pits. Any debt that earns money is good debt. Buying a practice for example, or in investing in a consultant to improve the practice’s financial potential.

“There are 1,001 ways to pay off debt,” Miller says. “The best one? The one that keeps you motivated to pay it off.”

4. Make sure to protect your assets. Set up the business as a separate corporation with legal protections, trademarks, and copyrights.

To learn more, go to wealthforoptometrists.com which offers a free guide for practice owners to start implementing successful financial systems in their office.