Oct. 2005             On Practice Management                                   By Janyce Hamilton

‘Rich Dentist, Poor Dentist’ Aims at the Aimless

  “Most dentists retire poor, don’t be one of them!” cautions the subtitle of David Catalano’s report, “Rich Dentist, Poor Dentist.” He emailed me the report after I contacted him out of curiosity. I had seen his name on e-newsletter articles, and wondered who he was and what he offered dentists.

Mr. Catalano, it turns out, is CEO of a consulting company called Finance Geeks, which is based in Indianapolis. He has been working with dentists for almost 20 years in various capacities, but has put in a decade worth of experience specifically helping healthcare professionals through complex financial issues. He attends conferences as a speaker. For example, he speaks at the T.H.e. Design conferences (www.thedesign.com).

 “Through an affiliate company, I have been engaged in over $500 million in lending transactions, many of those with dentists, so I understand their consistent mistakes, success traits, overhead trends and practice patterns.  We have identified the success traits of the wealthier dentists, and our advice is built on that data,” he explained. “We are merely observers who are reporting traits.”

             Mr. Catalano answers questions on financial matters below.

 The Interview

 Janyce Hamilton (JH): What is "Rich Dentist, Poor Dentist'?

 David Catalano:  It is just a tale of two dentists who made different decisions that caused dramatically different outcomes.  The idea was to compare and contrast the behaviors of a financially successful dentist with their counterparts.

 JH: I understand there are five strategies outlined in the story, can you list and explain each?

Mr. Catalano: I would characterize them as strategies for a happy and balanced life.  You have to read the article to understand each element.  They are:

1. Proper debt management —the proper use of this tool is critical
2. Investing early in a tax deferred vehicle—compounding your returns takes time.  When you start drives what you will need to save.
3. Commit to a dental practice consultant—the best players have a coach.  Yes, I have a coach.  I use www.strategiccoach.com
4. Effectively market your practice—patients have to show up before you can help them.
5. Proper facility design ergonomics and esthetics—the most efficient service business’ always study this.  It drives your productivity, health and patient perceptions.

 JH: What are some of the biggest and most common mistakes you see dentists make?

 Mr. Catalano: The common mistakes are really just the opposites of the success traits. The first is not properly managing debt. Dentists try to pay their debt off before they have properly funded their retirement. This causes them to post-pone investment which means they will have to invest more money to achieve the same goals. Postponing investment is a huge problem and stems from the poor debt management. The two are related. The third area is lifestyle spending.  Many dentists spend beyond their means. You cannot spend more than you make unless you borrow money to do it. Many do just that. So the big three are poor debt management, failure to begin funding retirement early and a lifestyle that is beyond their means.  For example, consider that you are living in the most affluent country the planet has ever seen and you are making more than 95% of the population, you should be able to pay cash for your car. If you cannot pay cash for your car, then maybe you are spending too much on a car. You may want to re-consider your lifestyle expenses. 

Let’s put this into perspective by using the Opportunity Cost concept.  Let’s say you have $30,000 today. If you spend it on a car you forgo the opportunity to investment those funds. If you invest $30,000 once and leave it invested for 20 years at 8% you will have $147,800. You have to decide between a car today and five times that amount in 20 years. Based on the behavior I have seen, people prefer the car today. Some would say this builds the case for financing your cars. That may make sense. The point is you have the cash to buy the car. It’s a choice.

 JH: What course would you teach in dental schools if you had the opportunity and why?

 Mr. Catalano: The course would be titled “The Trick to Wealth in Dentistry.”   The students would come away with a model which they could use to make decisions.  I would also discuss ego subjugation, unique ability, debt management, compounding and simplicity.

JH: What's the best advice anyone ever gave you? The worst?

Mr. Catalano: My father told me to save half my money. That put me on the right track early. As a kid I would make money and walk to the bank to deposit it. I had a pass book savings account and enjoyed watching the balance grow.

My accountant told me to form an Employee Stock Ownership Plan (ESOP).  Now that’s a bad idea. Shouldn’t have done that.

JH: Is there anything money can't buy or make better?

Mr. Catalano: Most things. Happiness is internally driven. If it were externally driven, we would never arrive at it. The Ego would always make us look for more.  Business acumen and street smarts are usually leading not lagging indicators of wealth accumulation. So money is not going to make you successful. Money just eliminates many of the hassles the alternative poses. It also gives us an easy score card to measure our business progress.

 JH: Is there a way or suggestions to make saving fun instead of just about discipline? (Many humans have trouble being disciplined about exercise, eating healthy, etc.)

Mr. Catalano: We all have discipline.  We are just disciplined with the wrong habits. When people say they need more discipline what they are usually saying is that they need different habits. Dan Sullivan of the Strategic Coach gave me that observation. Since fun is relative, my ideas may not appeal to everyone.  Consider the opportunity cost of things before you buy them. You are forgoing future consumption. For example, for every $1 you spend today, you forgo $4.92 20 years from today assuming an 8% return. Spend a weekend looking at everything you buy in those terms. You may reconsider the utility you receive from current consumption.  

JH: I heard you will answer one financial question free of charge? If so, how can dentists reach you?

Mr. Catalano: www.financegeeks.com and subscribe to my free newsletter.  When you get the newsletter you can click on the link to ask a question.

 JH: Lastly, tell me about one of your success story dentists.

Mr. Catalano: Most of my clients will get a return on their investment in my service of three times or more. I tell them before hiring us that if they do not feel they will get that return, they should not engage our services.  We saved one client almost $100,000 in interest by preventing him from borrowing money from the bank he had decided to work with. That bank was owned by his family.  Without our models, it would have been difficult to choose another lender and still get invited to Thanksgiving dinner. Our fee for this client was about $7,000.

Conclusion

Are you a rich dentist, a poor dentist, or somewhere in between? Whatever your financial situation, looking down the road is prudent. And getting $4.92 for every $1 dollar (saved at 8%) 20 years from now is something to think about.

Email any money-related question to David@financegeeks.com and get it answered for free by Mr. Catalano.  The Financial Leadership Solution is explained at www.financegeeks.com, or phone (317)581-5664.