THE MILLIONAIRE DENTIST PODCAST

EPISODE 75: PRACTICE? WE'RE TALKING ABOUT PRACTICE?

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EPISODE 75: PRACTICE? WE'RE TALKING ABOUT PRACTICE?

Casey and Jarrod are joined by Certified Financial Planner Stacy Phillips to discuss the hierarchy of needs and how everything starts with the practice, especially practice cash flow and bank accounts.

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EPISODE 75 TRANSCRIPTION

Annoncer:
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 it again at the Millionaire Dentist podcast. We're in studio with co-host, Jarrod Bridgeman.

Jarrod Bridgeman:
Hey, good morning.

Casey Hiers:
And we have a special guest with us in the studio, Mr. CFP, Stacy Phillips.

Stacy Phillips:
Good morning, gentlemen. Thanks for having me.

Casey Hiers:
So we had a brief conversation yesterday and we decided, let's record a podcast. What do you want to talk about today, Stacy?

Stacy Phillips:
Well, guys, today we're talking about practice.

Casey Hiers:
Practice?

Stacy Phillips:
Serious brownie points go out to anybody that can get the reference to what we're talking about. This actually goes back to the 2002 rant by Allen Iverson in the NBA. I think they had just lost in the first round of the playoffs to the Boston Celtics and some joker in the media happened to bring up the fact that Allen had missed, I think, one practice the entire season. And he proceeds to go on a three-minute rant and says practice about 50 times and that's always stuck in my head as one of the funniest things I've ever seen.

Casey Hiers:
It's worth a Google or a DuckDuckGo if you're into to that search engine. Yeah, we're talking about practice. [crosstalk 00:01:29]

Stacy Phillips:
Every time I hear that it puts a smile on my face.

Casey Hiers:
And so then we started talking about how it could relate to our listeners and it went from a funny clip to the business side of dentistry.

Stacy Phillips:
Absolutely. And that's the whole thing if somebody is listening to this, and they're like, "How does this relate to the business of dentistry?"

Stacy Phillips:
Well, it actually ties in fairly well, our process here and the hierarchy of needs in a practice and how everything starts with the practice and specifically, with the practice cash flow and the practice bank accounts.

Casey Hiers:
Cashflow and bank accounts, that is a core issue that unfortunately doesn't get addressed.

Stacy Phillips:
I think it's always on people's minds, but they don't know. There's so many things going on in a practice. They don't know what to tackle first. And we try to-

Jarrod Bridgeman:
Well, they have so much stuff to worry about on top of that too.

Stacy Phillips:
Right. I mean-

Jarrod Bridgeman:
So I get it. They're kind of all over the place, sometimes.

Stacy Phillips:
They are. I mean, they went to school for dentistry. They're not great at the business side of dentistry. And that's-

Casey Hiers:
Well, you mentioned cash flow on bank accounts. Here's what I hear, a lot of people talking about the band-aid stuff, right? They're looking at the trees, not the forest. They're talking about their staff. They're talking about their team. They're talking about all the OSHA requirements, all these little things that day-to-day gets them wound up. There's a hecticness to it. And it comes down to the cornerstones, the foundation, Stacy, that really we brought you in to talk about today. And there is a mental shift from the little things. While important, there's a lot of little things day-to-day that caused a lot of stress and angst. And that's what's on their minds. And when you ask them, what stresses you out? They list those things where the core of it is what we're going to talk about today. What's the core reasons why people maybe feel hectic or stressed out?

Stacy Phillips:
So they're talking more about the side effects or the ailments, right? Is that where you want to say it and then not-

Casey Hiers:
The symptoms.

Stacy Phillips:
The symptoms, thank you. But not what's causing the symptoms. What's the disease?

Casey Hiers:
Yeah, that's a good analogy.

Stacy Phillips:
I would say is. So I would ask, let me ask you, Casey, what is one thing that dentists tend to focus on as one of the main things?

Casey Hiers:
There's one really emotional thing that I hear a lot and that's debt.

Stacy Phillips:
That's exactly right.

Casey Hiers:
And half our listeners probably had a little twitch when I said debt. Highly emotional, you get a lot of it early.

Stacy Phillips:
Sure do. And that's where that mental shift comes in of, we have to flip our focus and put debt down the line a little bit and focus on the practice cash flow and the practice bank accounts. Basically, look at it. If you don't have good cash flow in your practice and money in your bank accounts, then guess what, your income going home is not going to be very good. So we first have to focus on what's going on in the practice.

Jarrod Bridgeman:
And then wouldn't your debt go up too, because you don't have the money to pay for things?

Stacy Phillips:
Well, that too. Absolutely. So we changed that focus and then you have to start thinking about, well, how do we improve the cash flow and our bank accounts in the practice? Well, you're starting to look at things like overhead, insurance, your scheduling, your loan structuring, the timing of purchases. All those things are a little part of going into fixing the cash flow in the practice.

Casey Hiers:
I just had a conversation with a wonderful partner of our series consulting and they specialize in leases and they specialize in those things. And from their perspective, they were saying, in this COVID world, dentists have an incredible amount of leverage. And so I'm looking at these things, there are so many items that are big-ticket items that, if those get mastered, the little things don't bother you as much. Right?

Stacy Phillips:
Correct.

Casey Hiers:
So you mentioned cash flow and practice account balances. And again, if our listeners are going all right, what's the magic wand? How do I fix it? And the answer is if there was a magic bullet or secret sauce, everybody would be doing it. And that's the point, right? But let's piece this together. Stacy, as you help our clients, once the practice account balances, there's some consistency and predictability to them, what's that do for the client? Help calm them, relax them, give us a foundation?

Stacy Phillips:
Absolutely. And a lot of the issues when people are talking about the business side of dentistry is they're stressed out and your practice bank accounts are part of that. Just the general cash flow is part of that. If we can get that straightened out, that really takes a lot of stress off of them. It allows them to start taking more money home. And when you have more money at home, then we can talk about, "Hey, let's start saving some money."

Casey Hiers:
So let's go back to the practice account balances, right? They need to have a focus on it. We like to say 10% of collections, right? If you have a million-dollar practice, you want a $100,000 in your practice account. So the first step is identifying what's the goal. So let's say 10% of collections, that's the goal. And then have that focus of what and how can I get those two? Again, we do this for our clients all day, every day, and master it. But for those out there that aren't clients that want to at least understand it a little bit. That first domino is the practice account balance, have the goal, know where you want to, and make that the focus to have consistency and predictability around it.

Stacy Phillips:
That's right. And you're going to be looking at this every month, trying to focus on where we at this month and what are we doing in the practice to help the cash flow to get to that number we need. Now, there's also something that you run into from time to time where people keep too much in the practice. They got too much cash in there. And the reason they're doing that is because they're used to these huge tax surprises at year-end where they had a really good year. They get to the year-end. CPA says, "Oh, by the way, you owe a $100,000 in taxes." So they have been trained or conditioned to keep extra funds in the practice because they know that big tax surprises coming. So the key there is let's focus on this on a monthly and quarterly basis all year, through better tax planning. We can avoid those big tax surprises. And then we don't have to keep as much in the practice.

Casey Hiers:
Then your bank account doesn't take that hit that's so frustrating and then you're hoarding cash, excellent point.

Jarrod Bridgeman:
So if you have, let's say you have too much cash in there, what do you suggest to those people that have that? If they finally with us, let's say-

Casey Hiers:
Well, the first thing is getting the tax management under control-

Jarrod Bridgeman:
Yes.

Stacy Phillips:
That's right.

Casey Hiers:
... when you don't have that threat, then there is that conversation, right Stacy?

Stacy Phillips:
Absolutely, and then obviously there's more to it than just I have extra cash and we'll take it all out. Well, you may not be able to do that depending on your basis, which is a whole other conversation, but the bottom line is better tax planning will keep you from having to keep as much in your practice bank accounts.

Casey Hiers:
All right. So now we've got the practice account domino, lot of practice owners skip paychecks or take what's leftover. There's a very inconsistent, just like their practice account balances, inconsistent income. Once the practice account balances get straightened out, then you're able to maybe get that cornerstone, that next foundational block of income?

Stacy Phillips:
That's right. We're doing a consistent W2 income. A lot of times, you'll find where people are doing everything via distribution. So there are wild swings in the distribution amounts on a month-to-month basis, because they have no idea what their cash flow is on a monthly basis. So we really want to smooth that out, such up on a consistent W2 income. Again, that just makes the cash flow better. It puts less stress on you as the doctor. It's a much better situation.

Jarrod Bridgeman:
Well there's different taxes situations dealing with distributions versus W2's too, right?

Stacy Phillips:
That's correct. I mean, distributions can be a great thing. It just depends on, like you said on your tax situation, what's your basis is in your practice. There's other reasons why W2 income versus distribution, some of that has to do with the 401k plan, and 401k matches that type of thing.

Casey Hiers:
I mean, I'll throw some numbers out there. I would say 30 to 40% of practice owners don't have a set W2 and a consistent distribution.

Stacy Phillips:
I agree with that.

Casey Hiers:
You think I'm in the ballpark.

Stacy Phillips:
Absolutely.

Casey Hiers:
And so again, once you get some consistency and predictability around your income, right. Then that next step, as you alluded to, you've got more income, better cash flow, practice account balances are better than you can potentially save more. Now again, this all comes down to producing great dentistry, making sure dozens of metrics are in line from supply cost on up. But this is the cliff notes version, right? Then you can start to save more. Once those two foundational parts are in there, once you're saving more than you can get to debt, right? That highly emotional topic of debt that we talked about. People want to go there first. I want to get rid of my debt. It makes me feel yucky. And so I want it to be gone. And at the base of it is how it makes you feel business decisions shouldn't be made on how you feel, right. There's good debt. There's bad debt. There's a mix of paying it down and saving, but, to your point, flip it on its head.

Stacy Phillips:
Yeah, we're flipping it totally backwards where debt is number one in people's minds. We take that from number one to number four. It's the very last thing. If everything else is not in line, you're not in a position to be paying down debt.

Casey Hiers:
And you can have it all. Once these things get structured correctly, the debt starts to go down and retirement savings are up. But when you have a singular focus of debt to your point, there's a feeling of stress, of being on a hamster wheel of all those things. And nothing really changes. They say, well, I'm going to do this, that and the other. And 18 months later, nothing changes.

Stacy Phillips:
Right. And here, our firm, the focus is on how much we're saving every year. And the magic in that is, if you get the practice going well, cash is good. That trickles down to your personal accounts. You're able to start saving a lot of money personally, and that takes a lot of stress off of you. And then, in turn, what happens is you're able to start paying down some debt and eventually-

Casey Hiers:
Well, and eventually, again, continuing this foundation, continuing how these dominoes all work, there's going to be money to then come back home that you get to do whatever you want with. Because your income's consistent, your bank accounts are consistent. You've got a plan for reducing debt and saving for retirement. And so then without that singular focus, you've got a large universal focus. There's more money to play with to come home. That's very common for our clients. They: "Hey, here's a $5,000 raise." "What should I do with it?" "Do whatever you want with it." Everything else is covered.

Jarrod Bridgeman:
When you don't have to worry about it. They can focus on other things.

Stacy Phillips:
Absolutely. So yeah, the magic in getting the good income coming home, you're using that to start saving. You're getting into your retirement savings goals that allows you to start paying off debt.

Casey Hiers:
Well, you talk about retirement, and again, if you get a million-dollar practice; 1.1, 1.2, 1.3, 1.4, whatever. You should be saving six figures. We always like to throw that out there, not for shock value, but that's what's possible. And if you're not doing it, it should be, and following some of these steps again, it's all connected, right? It's not singular. Once you can get these things moving in the right direction, you really can have it all. And you look up and there's some consistency and predictability. You as the practice owner are; deep breath, calm down, feel rejuvenated that affects your staff. As a leader, your staff, your team, then feels a little more relaxed in the culture and it really is all connected.

Stacy Phillips:
So another important thing about the... Once we're hitting our retirement goals and savings, what it really does is it takes the pressure off of your investments. In that, again, that is at the forefront of a lot of people's minds up there with paying off debt. They're worried about their investments and their returns every year. If you're hitting that savings goal to get you where you would need to be in retirement, the investment returns become a lot less important.

Casey Hiers:
The conversations I have, they're looking for that quick fix, the big return. It's because they don't have any of these other areas handled well. So what do you need to do? They need to quote-unquote, study the market between patients, right? I mean, that's an extreme example, but they're following the market. What can I do? I need to get into this. I need to get into that. My friend's got this investment scheme. I'm going to give him $50,000, right? It's not called a scheme until your 50 goes to zero. Then it's a scheme before it's an opportunity. But yeah, all of that time and effort and stress, in my opinion, wasted because you're not getting the basics right? The blocking and tackling, as a football analogy, with anything you do, you've got to cover the basics and the fundamentals the right way. And you'll be better off versus the quick fix.

Stacy Phillips:
Absolutely. It's very liberating when you get to that point where you're not worried about what your investment returns are.

Casey Hiers:
Because you know you're making more and saving more and on track for a net worth way higher than your peers and your dental friends because you've done these fundamentals the right way. That's when you don't... The market's at 15%, your buddy got 17 and a half percent. He's telling you all about it on the golf course. Well, you're a couple of points behind, but you're blowing them away in the big picture.

Stacy Phillips:
Sure are. And all this stuff we're talking about here, shifting the mindset and flipping everything on its end. You need a coach. To coach you through the process of how you go about tackling all these different areas and getting everything in line to where it needs to.

Casey Hiers:
So many analogies, right? The best golfers, the best baseball players, the best quarterbacks, they all have tons of coaching. And they're working on the fundamentals. And when the fundamentals are intact, right? Then you have that visual of, let's say, Peyton Manning, looking at the defense, calling audibles, doing these amazing things. That doesn't just happen. Right? That's because he has all the fundamentals down. Same thing with all of this on the business side, you're not just going to get into the colony audibles or making some crazy investment and thinking you're going to be successful unless you've got the foundation, right.

Stacy Phillips:
Absolutely.

Casey Hiers:
Practice. We're talking about practice, but yeah, that's where this started from. Basically, it was us having a chuckle and going, you know what when you think about it. He's saying practice and it's all about the practice and it's all about the fundamentals and it really does pay off.

Stacy Phillips:
Absolutely. We'd like to thank Alan Iverson for the podcast topic today.

Jarrod Bridgeman:
Thanks, Alan.

Casey Hiers:
Well, Stacy, Jarrod, and I want to thank you for coming in here and talking about these topics. Hopefully, our listeners will understand. You got to make the complex simple sometimes. And the business side of dentistry can be incredibly complex, especially if you're going at it by yourself. But there's a simplicity to it to get the fundamentals in line; build from account balances, income have a sequence to it. And there's a lot more success that can be out there. Thanks for joining us.

Jarrod Bridgeman:
Thank you.

Stacy Phillips:
Thanks, guys.

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.