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EPISODE 165: Common Reasons Why Dentists Can't Save

Do you find it hard to save money the right way or at all? You're not alone. This is a common issue in the dental community. Casey and Jarrod discuss a few of the most common reasons why dentists are unable to save.

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EPISODE 165 TRANSCRIPTION

Announcer:
Hello everyone. Welcome to the Millionaire Dentist Podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry finances, and business practices to help you become the millionaire dentist you deserve to be. Please be advised, we do speak with an honest tongue, and may not be safe for work.

Casey Hiers:
Hello and welcome. This is Casey Hiers back at the Millionaire Dentist Podcast in studio with co-host Jarrod Bridgeman.

Jarrod Bridgeman:
Casey, how are you?

Casey Hiers:
Good. We're approaching the longest day of the year. I love it.

Jarrod Bridgeman:
This one's going to be 24 hours. That's crazy.

Casey Hiers:
What? That's in Alaska.

Jarrod Bridgeman:
What?

Casey Hiers:
What are you talking about, 24 hours.

Jarrod Bridgeman:
Each day is 24 hours. It was a terrible joke. Casey, tomorrow you are going to be presenting at Top Golf in Auburn Hills, Michigan, outside Detroit. By the time people hear this, you already have been back. What are you looking forward to on your trip and on being there?

Casey Hiers:
Well, this'll sound cheesy and if I didn't mean it, I wouldn't say it. But ultimately when we do these events to prevent the subject matter, you're going to have your people that are CE junkies, they just want another hour for their bio. There's other folks that want free top golf and food.

Jarrod Bridgeman:
Sure.

Casey Hiers:
But there's going to be people there that when they hear this, they go, "Huh?" And they start thinking and they're go. And potentially to be able to help one person in that room retire sooner with more money, with less stress, getting the practice healthy again, that that's when I go into a room, I look at them, I go, "Who's it going to be today?" And so it sounds cheesy, but I'm excited to see who we can help potentially today.
Now, of the 20 people that are going to be there, I'll probably talk to 15 of them afterwards, but ultimately we're only going to help one, maybe two. And that's only if it bears fruit looking at data. But yeah, that sounds cheesy, but that's what I'm looking forward to.

Jarrod Bridgeman:
That's awesome. And part of what you talk about when you present is a lot of the focus on cashflow. Some of it's on saving and putting money towards retirement and things like that. But there are some pretty glaring and obvious reasons, obvious to us, I should say, of why a lot of practice owners are unable to save or unable to save properly.

Casey Hiers:
If our firm had a love language, it would be saving for retirement. And there are a lot of headwinds when it comes to saving for retirement for practice owners. Even when they're in a position, meaning they're producing a lot of dentistry, they're collecting a lot of dentistry, the money's there. It's still challenging, but they could, there's things that can prevent them from properly saving and entity structure is one of them that we talk about in our course.

Jarrod Bridgeman:
A lot of these practice owners before they come to us, do not have a W2 in place for themselves. Now, can you tell me why that is important?

Casey Hiers:
Yeah, I can. And thank you. And we'll back up a little bit. It's incredible how many practice owners when asked how they pay themselves on an offline conversation, "Well, I take what's left over at the end of the month or I'll skip a paycheck, but I'll make it up in some erratic distributions throughout the year," or, "At the end of the year. We just drain the accounts after we build them up all year." If you're doing that-

Jarrod Bridgeman:
Sounds rough.

Casey Hiers:
... Yikes.

Jarrod Bridgeman:
How do you plan for your bills or emergencies that may pop up at home?

Casey Hiers:
Well, unfortunately, entity structure can prevent practice owners from achieving their goals. If one of the big ones is retiring, let's reverse engineer this. Well, what do you need to retire? Well, I need X amount of money. Okay, how do I do that? Sometimes entity structure prevents practice owners from saving, and it's really easy to keep skipping that thing every year. Well, I'll do it next year. I'll do it next year. I'll do it next year. Well, I'm going to wait till I get my debt, student loan debt paid off. I'm going to and it's probably a low interest rate. And that's another conversation.

Jarrod Bridgeman:
Sure, sure.

Casey Hiers:
Emotionally I want to get that and then well, I'm going to get the practice paid off. And well, yeah, I'm going to do this and I'm going to do that. My friend gave me the Dave Ramsey book, so I'm going to make sure all my debt's gone. And they keep putting it off and then they look up and they go, "Whoa."

Jarrod Bridgeman:
I'm 50 and not much is there.

Casey Hiers:
Yeah. I talked to somebody recently they, they've done that and they've got all the stuff, but they don't have as much for retirement and they're backs starting to hurt and their necks starting to hurt. And I saw mean they looked at me and go, "Casey, I'm a little concerned I can't work into my sixties." But yeah, sometimes entity structure will prevent people from doing that. And ultimately sometimes they don't why. They've gotten poor advice from their CPA or an accounting firm.

Jarrod Bridgeman:
Well, what's a benefit to getting onto a scheduled pay system for yourself like a paycheck?

Casey Hiers:
Well, the funny answer is you have some consistency so you feel better. Your spouse is feeling better because it's again, predictable. It's really hard what I mentioned earlier, when you're skipping paychecks or taking what's left over when there's erratic distributions, it's hard for the practice owner. It's even harder for the spouse. So at home that's better.
But from more of a business sense, having a W2 allows you to have a 401k, allows you to save more. There's some reduced tax liability. There's a whole bunch of things we can dive into today, but ultimately that is the foundation for giving people an avenue to achieve some of the things they need to achieve if they want to retire and not be in their seventies or god forbid, eighties. Eighties.

Jarrod Bridgeman:
Now, in that little tirade you just did, you mentioned-

Casey Hiers:
Tirade? You've seen nothing yet.

Jarrod Bridgeman:
... a 401k. Now is there a reason why a sole practice owner may not have a 401k?

Casey Hiers:
Well, sole props generally don't have a 401k. So if your entity structure is a sole proprietor, a sole prop, generally you don't have a 401K in place and they opt for a simple IRA there. I don't want to get too much in the weeds here, but there's not as much opportunity to save with that. Or save as much as one should.

Jarrod Bridgeman:
Could it also be, there's always bad advice out there or someone just not knowing how to do it, how to get it started?

Casey Hiers:
Well-

Jarrod Bridgeman:
'Cause I can tell you right now we have a 401K here. But if you've just sent me out on my own into the wilderness, I couldn't tell you how to get one started.

Casey Hiers:
Well, listen-

Jarrod Bridgeman:
Personally.

Casey Hiers:
... I just talked to somebody and they're going to have some dental work done. They don't know how to do it. So they're going to a dentist and then a specialist and they expect them to know what they're doing and they follow their advice. What do practice owners do? They go to an accounting firm that three of their dental friends go to and they expect to get sound advice. And unfortunately, some, hopefully just a little bit, but some go decades and decades with that.
And then they talk to a dental specific firm who does this all day, every day and master it in our sleep. And they realize, "Oh my gosh, I've been set up in the wrong way and it's a limited me." But they trusted that their person, their accounting firm, was doing the right things because they're the expert. And I have been on tirades previously where the standard of care with accounting and dentistry for practice owners is unfortunately-

Jarrod Bridgeman:
Pretty subpar.

Casey Hiers:
... Abysmal. Not all cases at all, but goodness. Over seven out of 10, there's typically some big old red flags that we find and it's...

Jarrod Bridgeman:
Seven out of 10, that's like 60%, right?

Casey Hiers:
You are the numbers guy.

Jarrod Bridgeman:
Well, and the nice thing with 401ks is once you get that in place, you can also have your LLC, whatever it is your company, match your funds as well to really kind of double down on that.

Casey Hiers:
Well, ultimately, what do you want in an entity structure? You want reduced tax liability and you want it to be better for cash flow and you want to be able to save more for retirement. And how about paying quarterly taxes? That's a great idea. That helps the tax situation.

Jarrod Bridgeman:
Hey, our last week's episode if you have not listened to, it was all about quarterly tax estimates.

Casey Hiers:
And again-

Jarrod Bridgeman:
So just listen to that episode 164.

Casey Hiers:
For some people they're like, "Yeah, of course. Why wouldn't I?" Well guess what? There's a massive percentage of practice owners out there that if they're paying them, they're not up-to-date because you've grown. Or maybe somebody had a kid and took six weeks off or eight weeks off. So they're not-

Jarrod Bridgeman:
Or they're producing their hearts out and they're all day every day in the chair and they get home and don't want to touch the books.

Casey Hiers:
Exactly right.

Jarrod Bridgeman:
Thank you Casey. So as a kid, I would try to save up money. Never great at it 'cause there was always a brand new Ninja Turtle action figure.

Casey Hiers:
You love the shiny new thing.

Jarrod Bridgeman:
I do love shiny stuff. I like retail therapy, but I have, and I still have it to this day from my grandparents' house. It's a Tootsie Roll Bank. It's a tube and it's got a little slot in it and I would save all my little money. I still got a couple of $2 bills from my grandfather in there from 30 years ago.

Casey Hiers:
How much are they worth?

Jarrod Bridgeman:
I think 2.05, maybe.

Casey Hiers:
Two?

Jarrod Bridgeman:
But that was my system. I do a couple chores, get five bucks here and there and stuff it in there. Why is that not a great idea to just keep money in one place like that?

Casey Hiers:
Well, I think what you're referring to is hoarding cash, right? And so there's some entity structures out there where like a squirrel storing acorns, they're hoarding cash, and it might sound like a good idea to build it up.

Jarrod Bridgeman:
The initial idea and on an emotional level makes sense. Having more money in, let's say your emergency fund means you have coverage for emergencies. But we have a benchmark with our company that we advise people of, "Here's how much you should have in that fund."

Casey Hiers:
Absolutely. Well, and it all ties together. If you are getting poor tax management and it's erratic and the way you want to have some extra money in the bank to be able to pay for those mistakes, that ultimately they're not tax surprises because you're used to them every year. It's just a matter of, "Do I owe 30 or am I going to get 30 back?"

Jarrod Bridgeman:
Or more.

Casey Hiers:
Yeah,

Jarrod Bridgeman:
We've had a couple people come through-

Casey Hiers:
60, 80. Yeah.

Jarrod Bridgeman:
Obviously you do need X amount in an account basically at all times.

Casey Hiers:
Well, there should be benchmarks for everything. And if you're a practice owner and you, I don't know, collect $1.35 million, 10% of that's $135,000. An ideal bank balance would be $135,000.

Jarrod Bridgeman:
Why is it a bad idea to say haven't tripled that amount in the account? Why is that? Why would we suggest or advise against that?

Casey Hiers:
Well, there's some proprietary strategies that we use and things of that nature for our clients, but ultimately it comes down to this, and I'll be sharing this in Auburn Hills. But folks that have five, $600,000 in their practice accounts, it makes them sleep good. They feel better about it. But ultimately, again, it comes back to cashflow. Let's reduce some debt. Let's say for retirement. People go, "Well, how are your clients saving $200,000 a year for retirement?" Well, there's 401ks. There's profit shares, there's brokerage accounts.
Now, for different practices. There's different timings and strategies to all of those things because sometimes profit shares, the timing isn't right, but maybe in three years it is. But those are the ways we get that done. Again, reducing debt, saving for retirement, significantly like six figures, but better cash flow right at home. But having that 135 in the bank, if you have a $1.35 million practice, that's an ideal amount. Keep that as a trend. Three months, four months, five months. Then if you go, "Well, I've got $180," great, you have 185. We'll do that for simple math, you have an extra,

Jarrod Bridgeman:
How much is that?

Casey Hiers:
50?

Jarrod Bridgeman:
Yeah,

Casey Hiers:
40, 56 70. An extra $50,000. So if you see that for a couple months, well, it's safe to say that there's $50,000 that we can now look to what? [inaudible 00:12:06] Pay debt, go on a trip. If you need a car, buy a car. Redo your kitchen, pay down debt, save for retirement. Listen, it's not all stuff that's not fun. Our clients have great stuff, great toys.

Jarrod Bridgeman:
Oh, I've seen some of our clients will send us some of their new cars they get, not the car, but send us pictures of the car. And some of those are real pretty.

Casey Hiers:
No, again, if you're listening, you work hard and your hard work needs to be reflected and you should feel good. You shouldn't have a house of cards or you look like you're the successful dentist, but in the pit of your stomach that you're not. And that you might have to work until you're in your sixties and that frightens you. And again, getting this all right leads to being able to retire early and have nice things now and in the future. But entity structure is a real foundational thing that unfortunately a smaller percentage, but they don't have it right. And they don't know why. They don't know why it's set up that way. They simply trust the people that are doing it.

Jarrod Bridgeman:
Or it was set up that way 15, 20 years ago and [inaudible 00:13:01]-

Casey Hiers:
That's right. And so ask yourself, ask your accountant, is this good for cashflow? Is this good for reduced tax liability? Is there flexibility with it? And is there consistency with it? And those are typically good things to look for.

Jarrod Bridgeman:
If they want a second opinion, Casey, what can they do?

Casey Hiers:
Do we have a website?

Jarrod Bridgeman:
I think so. If you go onto the intranet.

Casey Hiers:
Interwebs.

Jarrod Bridgeman:
Yep. There's Google, Bing-

Casey Hiers:
Http.

Jarrod Bridgeman:
... whatever.

Casey Hiers:
Is there some slashes in there?

Jarrod Bridgeman:
S://www.fourquadrantsadvisory.com. Fill out the form and just mark that you're interested in maybe looking at our taxes. We do offer a free tax assessment. We can look at your structure and give you a little bit of advice and really open the gateway to, "Hey, if you want to take the next steps, we can do even more than just what we did today."

Casey Hiers:
Well, and there's a lot of people that we engage in some conversations, some phone meetings, look at some data, it's not a good fit. We can't help them to the level that we want to help them, timing isn't right for whatever reason, but typically if they go through that, we're going to give them some complimentary advice. Because we don't want to-

Jarrod Bridgeman:
Nobody comes out worse.

Casey Hiers:
... We don't know that we want to work with somebody until we go through our process and many times it's not a good fit. And we tell them, Hey, you don't need to pay us for our services. That being said, you engaged in our process here's some things that we saw-

Jarrod Bridgeman:
Here's some red flags we found.

Casey Hiers:
Let's talk next year.

Jarrod Bridgeman:
Exactly, Casey. Really appreciate your time today. I hope you have a good trip and you really get to learn in on some dentists.

Casey Hiers:
Be well, thanks.

Announcer:
That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you, the listener, for tuning in. The Millionaire Dentist Podcast is brought to you by Four Quadrants Advisory. To see if they might be a good fit for you and your practice. Go on over to fourquadrantsadvisory.com and see why year after year they retain over 95% of their clients. Thank you again for joining us and we'll see you next time.