Dentists and Money
Some dentists have a knack for such things, so this is not meant for them. Honestly though, that is not really a large number. Others pay someone else to manage their money, and I would quarrel only that it is not that difficult to do adequate bookkeeping, and some of the prices I have seen for such things are almost criminal. Though, even with these atrocious charges, I guess it is better than not understanding…and not properly handling money.
For the vast majority of dentists, money is managed poorly by themselves, a spouse, or an employee. So much is improperly spent and wasted, that dentists as a group could provide free basic dentistry throughout Latin America (or some other worthy pursuit), if they more effectively handled the money they earn. (That is my estimate by doing some quick arithmetic, so it is subject to discussion; though the point is still valid.)
Dentists, even those not in the top tier, earn in the upper 2% of people in the world, and many are in the top ½ %. Yet, their financial management skills are rudimentary, at best. There are reasons for this, some rather valid. First, dentistry is not about money for most dentists. Most dentists are caregivers first and foremost. Pre-dental courses are almost always science-oriented rather than business-oriented. Few dentists enter dental school with a degree in business, and dental schools have a full four years of clinical education to cover. Credit is extremely easy to get for a young dentist, so he/she can get too deep really quickly. They can borrow much more than they should. Then, those who own their own practices discover that practice ownership carries with it another enormous financial management burden. It costs a great deal to begin and operate a dental practice providing the type of dental care that dentists have learned in school.
Unless there is some financial management skill introduced early in life, it must be learned along the way by dentists. Yet, along the way there is a great need for continued clinical education. And, even the training of childhood cannot really prepare anyone for being a business owner. Is there any wonder that so many dentists are not good money managers?
Dentists have problems in two areas with money. They have trouble with their personal income and they have problems with their practice income. Solutions from accounting and bookkeeping firms are oriented toward one or the other, and the companies which work with both as a unit are exceedingly expensive. Yet, this stuff is not rocket science, if a few simple steps are taken.
I am going to try to clear up some of the mystery with this short message, but I will run long, so I will have to ask the reader to click into our website for the final portion. Click this paragraph to be taken there automatically. Don’t worry, I am not trying to sell something, I just want to finish the entire subject. Thanks.
Financial Status Evaluation. Actually, you cannot decide how to get where you want to go unless you really know where you really are. Suppose I want to drive my car from our office in Tampa to our office in Minneapolis (bad idea, but bear with me). I wouldn’t have a chance of picking the right roads, planning the trip, calculating the cost, or estimating an arrival time if I simply said I am leaving from Florida. But, by starting with my address from here in Tampa, I can precisely choose the right roads, etc. Now, I don’t actually have to have the final destination until I get a bit closer, but I do have to know where I am beginning.
Admittedly, it is a bit harder to collect all the information to know where you are financially, but for proper planning it must be done, and there are easy ways to do that. I know it is a bit scary, like looking in a teenage son’s closet, but ignoring where you really are financially is a recipe for disaster. It is particularly important to prepare for downturns in the economy.
Realistic Budgeting. This idea is so odious to so many people that the word budget itself is almost a curse word. Well, if anyone is still with me, let me explain why the idea of budgeting should not send shivers down your spine. Too often a budget is used as a weapon to restrict spending with violations leading to arguments, stress, and massive guilt.
After 20 years working directly on a day-to-day basis with dentists I can attest that dentists and their spouses almost universally dislike (and delay or avoid completely) the process. Most of us do not want to face how much money we spend on a monthly basis because it exposes our waste, errors in judgment, and weaknesses. Forget all that. It is your money, and you struggled through eight years of school, accumulated student loan debt (usually), acquired even more debt to begin the practice, and have overhead that is a constant monthly pressure.
Budgeting is not about controlling realistic spending. Dentists earn a great deal normally, so they are not supposed to live like a college student or someone who has less education and reduced expectations. A budget should be crafted with reality and an understanding of human nature, so that it does not lead to marital conflicts, or a suppression of the good things in life. It is true that a dentist is not likely to own a personal jet or a villa on the Riviera. However, with earnings in the top 2%, at least, a nice home, regular vacations, club memberships, etc. are definitely allowable while still saving for the future.
A budget is not a restrictive covenant, if it is realistically prepared and regularly updated for changing conditions. It should be a document of comfort…not stress.
Continuous Tracking. Okay, let’s go back to my trip from Tampa to Minneapolis. I have planned the trip, but I still have to watch where I am at all times to make sure I have not gotten on the wrong road. Likewise, we have to keep our bookkeeping properly and professionally recorded to be sure we are on track. In addition, the IRS (or other governmental taxing agency) will shut you down, if you do not have good records.
The best way to do this is to have a close relative (like a spouse or yourself) keep the books on a software program like Quickbooks. I am a little leery of using an employee because that can lead to problems more often than not. 90% of embezzling is done by an employee who is trusted with too much knowledge of the financial situation. An attitude of entitlement seems to creep into their heads especially if they are struggling financially. It is hard to see the doctor earn hundreds of thousand a year while you earn $15 an hour. The cost of schooling, establishing the practice, monthly obligations, legal liability, etc. get conveniently forgotten when someone gets too close to the doctor’s finances. Beware of who you allow to do your bookkeeping.
The bookkeeping can be sent out to a bookkeeping service. Many local ones are reasonably priced and can provide usable reports (if properly directed). This process inevitably escalates costs and often they present themselves as accountants charging accounting fees when all they really provide is simply bookkeeping services. You need an accountant to file your taxes and provide tax advice, but you do not need an accountant to enter data into Quickbooks. Still, it is a way to keep the books current. I have seldom known a dentist who is comfortable with the reports he/she receives from these services, but that can be improved, if they are properly instructed.
Timely Updates. As the Scotsman Robert Burns said in “To a Mouse”, “The best laid schemes o’ mice an’ men / Gang aft a-gley”. So, no matter how well a financial plan is devised it must be altered appropriately along the way as unforeseen events occur. This means understanding the original plan, diligently and regularly watching its progress, and adjusting when circumstances dictate. Had I not done that in my lifetime with my career, I would be a very unhappy NFL wannabe, failed politician, bankrupt high tech entrepreneur, etc. We cannot always predict conditions for the future, and we cannot be sure we will have the same goals. We will change, circumstances will change, and our financial plans must change.
Information For Appropriate Decisions Along The Way. This is more of a catchall to include things that happen about which we must gain in-depth knowledge so that we can make decisions about them. For instance, we may need to increase insurance coverage, purchase a beach house in order to improve our quality of life and keep the family together, increase the size of our college funds for a child who wants a PhD in 18th century Scottish poetry (never going to be able to make much money), or accelerate retirement plans due to ill health or changed priorities.
We must be able to find resources for the right information and counsel for decision-making on major issues. Knowledge is power, so we need to have access to as much as possible in areas with which we may deal only once in a lifetime. We cannot be experts in all subjects, but we can know where to find the experts. That is the key.
If you inherited $10,000,000 from a great-aunt in Buffalo, or whatever, this is not a very important discussion for you. But, if you are like the rest of us, who will have to earn every penny ourselves and preserve as much as possible, you need to be realistic here. Do not ignore good financial management and planning because it is scary. There are some “experts” out there who are predatory, I admit…and I hear about them every day it seems. But, there are good, honest, helpful resources, too.
Call or email, if you have questions. I have provided some links for a few items to help, but I am happy to discuss your personal situation with you.