Pakissan.com; Financial Planning Guidelines for Veterinarians and Practice Owners

PaulPion: Welcome everyone to Sunday Night Rounds. My name is Paul Pion. I am President and co-founder of VIN. I will help host this evening's session. Tonight Our topic is Financial Planning Guidelines for Veterinarians and Practice Owners.

VIN is very pleased to introduce Terry Hall, DVM, CFP. Terry is a former small animal clinician/multi-practice owner (20 years) and one of few veterinarians to have achieved the Certified Financial Planner designation. He has provided telephone and on-site financial management assistance to more than 1,500 veterinarians and practice owners and owns a full-time financial planning practice (8 years) that specializes in financial success strategies for veterinarians and practice owners. Welcome Terry!

TerryHall : Thanks for that introduction. I think we could aptly title this presentation : How to Save, Accumulate, and Spend Your Money! Tonight we want to discuss the important areas of focus when developing your financial plan. I have converted those focus areas into a FINANCIAL PYRAMID. See if you can access the diagram of the FINANCIAL PYRAMID now using this link... http://www.vin.com/Members/SearchDB/Misc/M05000/M02249.htm

The FINANCIAL PYRAMID is divided into four general strategies and into smaller sections within each general strategy group. Each section is seen as a "body system" just as in the clinical setting with a patient. In developing and implementing your financial plan, the patient is you, your family or your practice and your "financial well being" is the total focus. Like in the clinical setting, a thorough "financial history" and complete "financial physical exam" are essential for the patient to be correctly evaluated and most effective treatment plan recommended and implemented. Time limits may prevent a complete discussion of all "financial body systems" tonight but complete information is available in the VIN library.

To ensure you receive as much practical and useful information as possible from this session, we will use a discussion question/answer outline covering the most frequent topics I encounter in my financial planning practice. Ready to take the Financial Planning Quiz? Let's go!

First Question: How much of gross personal earned income $$$ should individuals & families save monthly, quarterly, annually?

PamelaOgden: 10%
AlexanderJuhasz: 10%
BethShannon: 10
LorraineChalkley: 10%
SusanClark: 20% annually
MaryODonnell: 15%
KathyEckler: 15%
SheilaChisholm: 10
LauraMeaux: 10% monthly
MarcGurtman: 10%

PaulPion: Might be jumping ahead, but does this have to be in cash? I've taken to strategy of trying to pay off my mortgage faster.

TerryHall: All vehicles are included.
Cash Accumulation (Savings) Guidelines:
Minimum Savings Target: 10% of Annual Total Pre-Tax Earned Income
Guideline Savings Target: 20% of Total Annual Pre-Tax Earned Income
In some situations the target must be 25% of Total Earned Income to achieve the desired financial objectives.

LauraMeaux: Is this just to retirement? When I consider savings... school payments..etc...it is hard to save.

TerryHall: Savings for retirement, yes.

MarcGurtman: Does this include mortgage principal on home?

TerryHall: Marc, no

AlexanderJuhasz: What are the situations regarding 25% saving?

TerryHall: Short pre-retirement period, large accumulated target.

PaulPion: I'm guessing that the answer to the mortgage pay down answers this, but is it the same answer for owners vs employees in that owners often take less and hope that they will be building value?

TerryHall: Paul-I plan on addressing soon.

PaulPion: ok :)

TerryHall: Second question: How much earned income $$$ should individuals and families contribute to a "qualified" retirement plan annually?

PamelaOgden: Try to max out the amount allowed
PaulPion: As much as they are allowed to?
MarcGurtman: As much as allowed
LorraineChalkley: All that is allowed
SheilaChisholm: Maximum allowable amount
KathyEckler: 10 % of gross salary
SusanClark: Max

TerryHall: Maximum amt allowed is correct. Excellent Tax Efficient Strategy to Build for Retirement: $$$ Not Accessible until Age 59 1/2 in Most Situations, Maximum Allowed Varies with Type of Plan, Except for Special Circumstances, Annual Maximum Allowed Should be Deposited.
EGTRA 2001 Established Progressively Higher Annual Maximum Contribution Limits in Future Years and Established Catch-Up Provisions when Specific Requirements are Met; 2002 Annual Contribution Limits:
401(k) $11,000
SEP $30,000
SIMPLE-IRA $ 7,000
Trad/Roth IRA $ 3,000

[[Guidelines for Profit Sharing & Other Plans are too Detailed for this presentation but are available by calling my office.]]

PaulPion: What about the new educational tax deferred savings plans?

TerryHall: Good ideas but do not address retirement.

Third question: How much liquid cash $$$ should be kept available in reserve account(s) for:
a) Personal Unexpected Emergencies & Contingencies
b) Practice (Business) Surprise Expenses

SusanClark: 3 month cash flow a and b
LauraMeaux: A) 3 months worth of expenditures B) dunno!
SheilaChisholm: 3 months salary
LorraineChalkley: 6 mos., 6mos.
PaulPion: have a good line of credit :)
PamelaOgden: 3 months
AlexanderJuhasz: a 6 mo b: ?

TerryHall: The Liquid Cash Reserve Account(s) Guidelines are:
Personal: Minimum = 3 months expenses
Recommended = 3 to 6 months pre-tax earned income
Practice: Minimum = 3 months expenses not covered by business overhead insurance
Recommended = 6 to 12 months expenses

Note: Non-Cash Depreciation Expense from Practice P&L Report should also be Deposited in Reserve Account

PaulPion: How many people here can claim to meet both of those? If you care to answer...

SheilaChisholm: not me
PaulPion: I know I could get it and survive... thru selling things, line of credit and parents :)
MaryODonnell: I only wish

LorraineChalkley: What is non-cash depreciation expense? probably meet a but not b

TerryHall: Lorraine-this is a non-cash expense on financial statement for wear and tear

SusanClark: Not even close because cash goes to meet 20 % goal in investments

TerryHall: Susan- your plan is excellent. would need more details to know if you are ok

PaulPion: Susan makes good point to clarify I look at $$$ put away for kids and $$$ put in paying down mortgage as liquefiable (if that is a word) - but no longer really available) Which leads to the - I could get it answer. It seems hard to meet all the goals at once.

TerryHall: Bottom line = we all need to save a lot more than we think we need

Question 4: What amount of the total assets required to completely fund post-retirement income cash flow should originate from the sale proceeds of practice equity at retirement age? Answer in %.

LorraineChalkley: 25%
KathyEckler: 10%
SheilaChisholm: 10
LauraMeaux: as little as possible! 0% if possible!
SusanClark: I wouldn't count on any
MaryODonnell: 5%
JulieSchell: 0%
KathyEckler: just a guess that it shouldn't be a lot

LauraMeaux: At retirement age you should have your savings set for your plan - anything else is lagniappe!

LorraineChalkley: Unfortunately my value may be land not practice--so the zero's are probably right

TerryHall: Laure? lagniappe?

LauraMeaux: bonus - Cajun word, sorry.

TerryHall: Thank you for the details
Portion of Total Retirement Assets that should Originate from Sale of Practice Equity: 25% at Maximum. The less the better.
75% of Total Required Assets for Retirement should be Accumulated during Income Earning Years

PaulPion: How about home value?

TerryHall: Paul-if home is included, when do you liquidate? where do you then live?

PaulPion: Don't need to fully liquidate

TerryHall: Paul explain more

PaulPion: Could always payoff, then refinance if needed is my thinking, so gain from equity value if needed (or buy a tent :)

TerryHall: Paul Ok if you want a tent, but my suggestion is to leave it out of the plan

Question 5: What are the correct steps to take to ensure YOUR financial success? Do you know what types of written Financial Plans exist for:
Individuals & Families
Practice Owner(s)

TerryHall: Answer Y if you know and try to give an example. Answer N if you don't know.

MarcGurtman: n
KathyEckler: n
MaryODonnell: n
JulieSchell: n
SheilaChisholm: n
LauraMeaux: n
PamelaOgden: n

PaulPion: How many here are Owner = O or Employee = E ?

PaulPion: o
MaryODonnell: e
KathyEckler: o
LauraMeaux: e
JamesMackie: o
SusanClark: o
MarcGurtman: e
PamelaOgden: o
KathryneKerwan: buying now
SheilaChisholm: associate considering buying in
NickNail: e
MarcMalek: o

TerryHall: The types of Written Financial Plans for individuals & families are:

Income/Expense Plan Models, utilized to plan & control cash flow.
Pre-Retirement & Retirement Plan Models, utilized to determine correct targets & strategies to ensure satisfactory accumulation of retirement assets and correct utilization of retirement assets so satisfactory income is available to life expectancy.
Post-Retirement Models, utilized to correctly position and manage retirement assets.
Special Needs Models: College Funding, New Practice Start-Up, Existing Practice Purchase/Buy-In, utilized to determine correct strategy to accumulate for special expenses and large capital $$ amount for a variety or purposes.

JulieSchell: If one is an employee, should they become incorporated?

TerryHall: I do not understand your question...

PaulPion: Julie.. I think that is not in Terry's expertise, but you could ask that on the boards and if no one has good info we could get Ed Guiducci our favorite veterinary corporate structure attorney to address that.

TerryHall: The types of Written Financial Plans for Practice Owners are:

Improved Profitability Models
Increased Compensation Models for Non-Owner Staff and for Owner Staff
Practice Start-Up Models, and Practice Expansion Models

Question 6. What is a written Financial Plan and how should It be used? I know you can come up with some ideas so GA, everyone type in an answer now.

PaulPion: Combination of words and a spreadsheet (or back of napkin calculations) that you use to keep yourself honest as to what you do based upon projections you set out as goals.

TerryHall: Paul nice try buddy, but here is the info YOU need

A Financial Plan is a Comprehensive Customized Written Set of Strategies Structured to Ensure Your Financial Success. All Financial "Body Systems" are Evaluated before the Plan is Written.

All Areas are Discussed (See Financial Pyramid). Detailed Recommendations with the Best Alternative(s) are Itemized for Each Area Requiring Attention.

Plan Implementation and Accountability to the Plan must be ensured.

Written Financial Plans are "Living Documents" meant to be reviewed & revised on a regular basis as required.

Individual & Family Financial Plans are reviewed every 2 or 3 years unless a "Life Event" occurs (financial impact) which requires immediate revision.

Practice (Business) Financial Plans must be reviewed annually at minimum. During the first 1 to 2 years after starting to follow a new written plan, they must be reviewed quarterly (some cases monthly) to ensure successful transition from the "old habits".

TerryHall: Question 7: How do you decide when to develop a written Financial Plan?

SheilaChisholm: do it now
MaryODonnell: ASAP

TerryHall: Thank you ..take a look at this: Individuals & Families that want (most need):
Specific, detailed financial objectives with intermediate targets and dates from now to age 95.
Established set of strategies to follow with check points and dates to achieve financial objectives to age 95
Written version of current "perceived" financial plan and desired to confirm it is accurate.

PaulPion: How does one find a financial planner they trust and how much would it cost - on average - to develop such a plan?

TerryHall: Locate CFP licensee (Board Certified Financial Planner). Cost will vary tremendously. The work to be done needs to be evaluated before accurate.
Now for Practice Owners: Practice Owners (all need some type of written plan)

If you have questions regarding maximum financial potential of your practice.
If desire to improve financial performance of your practice.
If desire optimum potential sale price for your practice at retirement.
If have questions about purchasing existing practice vs starting a new practice.

To conclude tonight's session, I would like to leave you with a few general observations from my financial planning practice. These might be helpful for each of you.

1) Veterinarians & Practice Owners must improve their focus on planning for financial well-being. Usually too much time is spent working IN the practice and not enough time is spent working ON the practice planning or personal planning.

2) There are multiple and complicated components to the Financial Planning Process that need to be addressed in a structured and systematic method. Postponing attention to necessary planning is common in our profession because we are trained to want to do it ourselves but in fact it is often too time consuming or requires too much study and is left unattended.

3) It is always helpful to ask the question of "Efficient" versus "Effective". Efficient means doing things right at all times. Effective means doing the right things at the right time. Is your current personal or practice financial plan efficient, effective or both?

PaulPion: Thanks Terry, great first rounds on VIN. Hope we see many more and see you on the message boards to help us thru the daily issues.

TerryHall: Thank you for the privilege of presenting this session.

KathyEckler: What is Terry's e-mail?

TerryHall: Thalleagle@aol.com

If you would like to begin development of your financial plan or if you would like assistance in determining how to start working on your financial plan, please click on this "Checklist for Veterinarians & Practice Owners" link:

http://www.vin.com/Members/SearchDB/Misc/M05000/M02248.htm

NickNail: Thanks Terry
PaulPion: thanks all
TerryHall: Thank you all for participating
SheilaChisholm: Thanks Terry!
KathyJames: great job, Terry
MaryODonnell: Thank you!

Conference Room participants:TerryHall KathyEckler MaryJeanCalvi DanMeadows AmyKorengut JamesMackie PaulPion MarcGurtman NancyBeeman LauraMeaux GregUpton SheilaChisholm MaryODonnell KarenJames NancyBeeman AlexanderJuhasz HerbBetts NickNail PamelaOgden SusanClark BethShannon KathryneKerwan LorraineChalkley KathyEckler LorraineChalkley SuzanneDanielson LauraMeaux VioletNix SusanSikule RussStar DuaneSteward RomuloBraga JulieSchell PhyllisWebster MarcMalek LucBeaulieu DeborahEasterlingCharles JohnAbella

Dr. Khalid Shouq

Pakissan.com;