Business owners are struggling to cope with the economic downturn caused by the coronavirus outbreak. If you’re a practice owner, such as a dentist, vet, optometrist, or lawyer, know that you’re not alone.
To help you get through this tough time, I turned to Tom Bodin for guidance. Bodin is a Practice Integration Advisor and Advisory Team Leader for Buckingham Strategic Wealth.
He is a CFA and CFP® and focuses on complicated financial planning issues for business owners and practice owners. He shares how to address financial planning amid the pandemic.
Who is Tom Bodin?
Tom Bodin, CFA, CFP®, is a Practice Integration Advisor for Buckingham Strategic Wealth.
He works with practice owners to develop their wealth creation plan.
Before that, he was a CFO for the Indiana Attorney General’s Office and was also their Chief Economist for several years. Bodin has a background in econometric modeling and legislative analysis. This experience helps him to understand the CARES Act and how it can help small business owners.
Challenges facing practice owners
Bodin primarily works with dental practice owners. He also has clients in the legal space, veterinarians and optometrists.
The challenges of having to work from home due to COVID-19 are creating roadblocks to business owners.
“Dentists and optometrists that own their own practice went to through clinical school,” said Bodin. “They did not have a lot of opportunity or free time to get their MBA on the side or become a certified financial planner.”
A Student Loan Planner survey in April found that optometrists and dentists were the worst hit. Pre-pandemic, dentists were one of the most stable professions. Many are now earning nothing.
It underscores the importance of having a plan as you go into and through your career as a business owner.
At Buckingham Strategic Wealth, the focus is to become the CFO for the practice and the household. This helps to merge the business and personal side of wealth creation.
“We can maximize the tax savings opportunities in a business; we can help [practice owners] with business decisions and provide capital analysis in terms of equipment purchases to help them define financial freedom to support their family, their household, their legacy desires,” said Bodin.
Cash balance planning for practice owners
Cash balance planning is a strategic method for health care professionals to decrease their adjusted gross income (AGI). Since student loan payments are a percentage of your AGI, using a cash balance plan can lower your monthly payment because it lowers your AGI.
It is complex so I wouldn’t suggest you try it on your own. But the benefits go beyond your student loan repayment.
With a cash balance plan, you could put away six-figures for retirement annually instead of the $19,500 limit you see with traditional retirement plans.
“When we’re working with our clients, getting a deep understanding of their lifestyle and exactly how much do we have leftover for savings, how can we set up a cash balance plan to be a supplement for wealth creation,” said Bodin.
The goal is to stay away from making it an obligation that takes away from your desired lifestyle expenditure.
“We’re able to design plans that have maybe a minimum funding of $30,000 to $50,000 with a maximum funding of $200,000 to $250,000,” said Bodin.
And that’s all pre-tax, so it brings down your AGI and taxable income.
“Anytime we’re able to right-size lifestyle and pre-tax savings to engineer income for practice owners, we get this great double-bite at the tax savings and strategy,” he said.
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Cash preservation techniques for business owners
When you buy a practice, you must think like a CFO. Know that you’ll have good years and bad years. The best way to prepare for the unexpected is to use the good years to build a financial cushion against the bad years.
“We try to make sure [our clients] have at least two months of total overhead operating expenses as cash on hand, the same way that we do on the personal side of having that emergency savings account,” said Bodin.
He also recommends putting a line of credit in place but warns against utilizing it until an emergency hits. “They can become a great buffer to make that two months’ worth of operating costs really extend for a long period of time,” he said.
How much does wealth planning cost?
The practice integrated wealth management provides an opportunity for a client who wants to be a business owner to get to the level of wealth they want as quickly as possible.
The CFO-level of service for a practice owner comes at a monthly cost. The amount covers the services Buckingham Strategic Wealth offers, including tax planning, personal wealth management and a financial plan for the practice.
“Being able to have that monthly charge as it comes to CFO-level service for the practice allows us to start that relationship significantly earlier,” said Bodin.
While some firms might require a minimum of $500,000 or more, Buckingham doesn’t have a minimum amount to get started.
“If you’re serious about wealth creation and you’re serious about practice ownership,” said Bodin, “that monthly fee will allow us to work with anybody out there who’s thinking about a practice purchase now.”
Where to get more information about Buckingham Strategic Wealth
The financial planners at Buckingham Strategic Wealth are fiduciary advisors. “We’re going to act in the best interest of our clients,” said Bodin.
He believes the fiduciary relationship starts with a no-cost, risk-free introductory conversation.
“If I can’t come in and identify a couple of implementation items that will cover the first several years of our fees, then it might not make sense to move forward,” said Bodin.
But more often than not they’re able to introduce tweaks to a practice that gives immediate value.