Over the past two Fridays I have discussed at length the late in life discoveries that I made regarding dividing up the Dental Office income, in an appropriate manner.
This division was and is diametrically the antithesis of the way I had been practicing private practice dentistry.
Last week, I spoke specifically about paying yourself in the manner that you would pay an employee dentist, on the same commission rate that employee dentists get paid…Pay yourself 40% of your own personal production firstly!! Again, this principle is not the way that I had learned to practice dentistry.
To see that blog, go here http://bit.ly/U4aDQn
Today I’d like to deal with the division of the remaining 60% of income generated by the practice.
In 2007, when Dental Corporation acquired my dental practice, they did so under the following principle, or agreement. As a Principal Dentist, I was obligated to stay on as a dentist in my own practice for a further five-year term. During those five years, for each and every one of those five years, I was to repay Dental Corporation 20% of my gross annual fees, as profit, or EBIT. This was a specific dollar amount. Not a percentage as such, but still designed from a percentage.
Now, the naysayers will point out that Dental Corporation paid their Principal Dentists a multiple of EBIT to purchase that practice. That multiple was between 4x and 4.5x EBIT.
The naysayers then point out that if Dental Corporation had not bought my practice, I would have earned the sale price anyway as profit. Over that 5 years anyway…. [this is a whole OTHER thread to discuss at a later date!!!]
What this target pointed out to me was that in the daily, weekly monthly, annual figures for a thriving Dental Office, after paying the labour of the dentist, and then paying the overheads of the practice, there should still be 20% left over as PROFIT for the Office Owners, the Business owners!!!
Light bulb moment!! No more paying the bills and keeping what is left, if any, after looking at bottom lines only!!
This simple division of numbers now provided clear delineation in where the practice income should go!!
Specifically today, that twenty percent for the Practice Owners can be divided up as needed…some for capital expenses, like new equipment, renovations, etc..money to reinvest INTO the business. As well as leaving money over as a dividend for business ownership. Now this is important!!
It is imperative as an investor, an investor in YOUR BUSINESS, that you draw a dividend appropriate to the market for the capital you have tied up in your business.
Just simply, if you have $800,000.00 invested in your dental office [be that start up costs, purchase price, etc. of the business] then make sure you are drawing a dividend for that capital, otherwise you may as well sell the dental office and invest the $800K in bonds or fixed interest…am I making myself clear?
[Similarly too, if you own your own premises, your Dental Office should be physically paying you an acceptable market rent. More on that next week].
It is absolutely imperative that this profit from the business capital, as business owners, be physically drawn…
If you are not segmenting this twenty percent, and allocating, then you are surely on your way to financial desolation, as opposed to heading toward your own Independence Day…
Omer Reed told me in May 2012, that in the USA, 95% of dentists at age 65 have insufficient resources to retire well…that is only 5% have attained true independence at age 65..95% have to keep working because they have to, not because they want to.
Follow my principles, and you will be well on the way to making it into the 5%!!
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