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6 New Year's Resolutions For 2007
Goal Setting
Let's say we are
having a conversation three years from today and you are looking back over those
three years. What would have had to have happened for you to feel really good
about your results?
The answer to this
question should drive your goals. The people you hire to help you will drive
your strategy and execution to achieve your results. You must take personal
responsibility for all of the outcomes. Here are list of resolutions to consider
as you contemplate the question.
1) Create a wealth growth goal.
Why not grow your net
worth 15% in 2006? Here is a strategy. Place 10% of your production in
investments. Combine that with an expense reduction and normal asset growth and
you may arrive at your goal. If you cannot save 10% of your production then
several of the other resolutions may help you.
You must understand
the difference between an asset and a liability. Assets generate cash flow. Your
practice is an asset. Liabilities consume cash flow. Your automobile is a
liability. What about your home, is it a liability? Yes, because it does not
generate cash flow and can be a large cash drain.
 Here
is a trick I use to better understand the cost of a liability. The opportunity
cost concept says that doing one thing makes you forego an alternative. Before
you buy a liability, consider the opportunity cost of that liability. Let’s say
you have a choice of a $50,000 new vehicle and a $25,000 used vehicle plus
$25,000 invested in a mutual fund. Let’s also assume you buy a new vehicle every
5 years. We will assume a cash purchase to make the math easy. At the end of a
10 year period you would have exhausted the use of both vehicles. In the second
scenario your mutual fund would be worth about $90,000 assuming an 8% annual
return.
2) Explore owning my building.
If you live in an area
that is conducive to owning your building, you need to consider doing it. Your
practice will continue to lease space, but instead of leasing from some
millionaire real estate investor, you will be leasing it from a company that you
own. Since you can finance most of the building, your return on your actual cash
invested should be high. Avoid making this too complicated by having a facility
just big enough for your practice. Being a landlord can complicate your life.
Simple is better.
 The
process of moving your office is challenging and full of pitfalls. You can read
some of my other articles to better understand this. The best and least
expensive way to figure this out is to attend a design conference. Attendance
will cost between $250 and $850 but the education is incredible. Ask anyone that
has ever attended.
Since I speak at these conferences I know firsthand that
dentists receive an incredible value. To learn more go to
www.dentalofficedesignseminar.com
As a rule of thumb,
your facilities expense should be about 6% of your annual collections. Keep this
in mind when determining what you should be paying for rent. If you collect
$600,000 you should have $36,000 in facilities expense or $3,000 per month. This
does not include the cost of your equipment or technology. This rent is paid out
of your practice to another company that you own. That company owns the
building.
3) Properly structure my debt to
achieve my goals.
This will help with
resolution one. Debt is a tool and must be used wisely. Since it is a form of
leverage, it can work for you or against you in powerful ways. Your goals should
drive your debt structure. Since most goals require the use of cash, you need to
structure your debt to allow for the cash to flow. The loan principal repayment
is not an expense for tax purposes. You are using after-tax dollars to pay
principal.
That is one of the
reasons why dentists with short term debt don’t have any cash after making tax
payments. You need to have a debt strategy that is conducive to building wealth.
Failure to do this may result in your inability to create wealth. This is not a
do-it-yourself project. Get some professional financial help.
 4)
Know my lifestyle expense.
This will help with
resolution one. You must understand where your money is going if you want to
create wealth. The opportunity cost calculation can assist you in understanding
why. Let’s say you waste $1,000 per month on frivolous items. Instead, invest
that money and assume an 8% return. At the end of 10 years you will have about
$180,000.
In a marriage, if
either spouse is not a saver, wealth creation is doomed. If both are frivolous,
plan on working forever. To get a handle of where your money goes, download your
bank account into a spreadsheet. Then categorize all of the items based on their
use. This can point to where the hidden $1,000 is located.
 5)
Hire a coach or practice management consultant.
This will help with
resolution one. All great athletes have a coach. You need one too. A smart
consultant will have a handful of clients that are doing better than you in a
similar type of practice. They know what works. They also know they will be
fired if you don’t get results. Need a recommendation? Send me an email.
6) Get into physical shape.
This will help with
resolution one. Studies have shown that physically fit people outperform others,
all else being equal. If you want to feel good, you must exercise and eat right.
I ran 10 miles this morning. I feel great. People I know that exercise regularly
and eat right have a better outlook than those that don’t. In my experience,
regular exercise makes you want to eat right. Need help getting started? Check
out www.jeffgalloway.com.
When you start an
exercise program you need to set some goals. Get your body fat tested. Set a
goal to reduce your body fat by a certain percentage within a certain timeframe.
You need an achievable goal with a timeframe.
A Word about Goals
 It
is important to measure the results we create against our old results and not
our ideals. We can never hit our ideal result. If you understand this, you will
be able to enjoy the success that you achieve. Let’s take an example. Assume
your ideal body fat is 10% and your current body fat is 30%. You exercise, eat
right and feel good all year. You then measure your body fat again. It comes
back at 19%. You need to have a party. You have taken your actual body fat from
30% to a new actual of 19%. This is an incredible achievement.
In the example, you
did not hit your ideal of 10% and that is okay. You made incredible gains from
your original measurement. Measuring yourself against your ideal will destroy
your confidence. You must guard your confidence at all times. Never measure your
progress against the ideal, always measure it against your previous actual
results. For more on this subject get the book “Learning How to Avoid the Gap”
by Dan Sullivan. See Dan on the web at
www.strategiccoach.com. You can buy the book at this web site.
Have a question or a
comment for me? Send it to
david@financegeeks.com.
Finance Geeks
provide unique wisdom and expert advice to dentists that are contemplating or
have completed large financial projects like expansions or transitions. Their
strategies help dentists create and maintain wealth. David Catalano has over 20
years experience dealing with dentists. See them on the web at
www.financegeeks.com.
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