Financial mistakes dentists regularly make (and how to avoid them)
Everyone should have a will, but when you’re running a business, it is especially important to ensure that the business and your family are protected. Make sure you’ve got quality wills, powers of attorney, testaments to trusts, deeds of mutual wills, or whatever else you may need.
Once you’ve set up all this paperwork, review it every few years. Situations and assets change, and it’s important to ensure those additions are captured in your will. Do it right the first time. You’ve got to get it all done and do it properly and then just go, “Right, breathe, my family’s looked after if something goes wrong here from all levels.”
You are leaving money on the (tax) table
Most businesses do not claim anywhere near what they’re able to claim legally. These businesses don’t get advised on maximising legal deductions through their business year-in-year-out. Again, finding a good accountant will help ensure you are claiming everything you are legally allowed to claim.
Small businesses making less than $10 million a year, especially, have a lot of options for how to legally claim more tax deductions. This can make a big impact on your taxable income for the year.
Feeding the Golden Goose
If you are guilty of any of these, maybe you even already knew it was something that needed to be handled, great! Today is the today. In the short term, now is the perfect time to seek appropriate advice and the appropriate advisor so you can put whatever strategies in place before 30th of June to minimise taxes this year. Claim what you’re legally able to claim. In the longer term, it’s time to start thinking about your situation and finding the right advice to ensure you’ve got the best asset protection, whether your assets are owned as best way they can for asset protection, whether your structure has got the most tax minimization and flexibility.
Ultimately, your business is a vehicle to generate cash. So the most important thing is to have the right structure in place for asset protection and tax minimization and efficiency and effectiveness. Finally, have a strategy in place to create wealth long-term for you and your family. At the same time as you’re doing all that, make sure you’ve covered up on all the downside in your business. Review all your insurances, business and non-business. Make sure you’ve got the appropriate powers of attorney in place. Review your estate planning and will.
Not starting early enough
There is no such thing as ‘too early’ when it comes to financial planning. It’s just as important – if not even more so – to plan ahead and take control of your finances at the start of your career, as it is when you’re mid-way through or close to the end of your working life. Often, people take more interest in their finances when they have accumulated a few assets or they’re about to make a big decision, such as buying a practice or retiring. But the earlier you begin planning, the better off you’ll be in the long-run.
The first step is to take time to review where you are now and what you want to achieve. You need to create a financial snapshot of your current position, so that you can put the right measures in place to help you reach your goals. To create that snapshot, ask yourself: what benefits do I already receive? What assets do I have? What investments do I have? What loans do I have? What income protection do I have?
Forgetting that you are your biggest asset
This is particularly common among younger dentists, who think that because they’re at the start of their career they have no assets. However, more experienced dentists can also make this mistake. When people think about assets, they tend to think about bricks and mortar, such as your home or dental practice, should you own one, or investments. But even if you don’t have any of these things, you still have your biggest asset – yourself. To become a dentist, you’ve undertaken years of training and maybe additional specialist courses after graduating. Your whole career and ability to continue earning income is based on you being able to use that knowledge.
Having income protection means that, if you have an injury or illness and are unable to work, you can still earn money and continue paying bills or adding to your savings. It can be particularly worth considering if you are self-employed. The earlier you secure this protection, the better. When you’re young, fit and healthy, you can feel indestructible, but there is always a risk of unexpected illness or injury and if you leave it until after something happens, you may find it harder and more expensive to access the right kind of cover.
Depleting your wealth too quickly
As you ascend from dental school to full-time practice, your income will skyrocket. When this happens, it may feel like you just won the lottery. While you’ve certainly earned it, this does not mean you suddenly have an endless stream of money to spend. From providing loans to gambling on high-risk investments, the opportunities are endless. But without proper planning and budgeting, your wealth can evaporate quickly.
Make a habit out of living below your means. Set aside a fair amount of your income to invest, save and pay down debt. After all, your student loans aren’t going to repay themselves; nor will that mortgage loan on your dream home. By prioritizing your long-term and short-term goals up front, you will ensure you continue to build your net worth over time.
Doing nothing to grow your wealth
Overspending isn’t the only way to endanger your financial future. Plenty of risk also lies in doing nothing with your money. Simply setting it aside in a low-interest account may actually set you up to squander your assets down the road. Instead, focus on steadily building wealth over time. This will help you finance valuable endeavors in the future. From your child’s college education to your own retirement, long-term investments take time, patience and balance. It’s never too early to get started saving for your future self.
Final Words…
A good accountant is an invaluable advisor that can offer counsel, support, and advice, but she can also hold you accountable. Finding the right accountant can help you ensure your business’s finances are bulletproof, protect your family, and see your business turn a good profit year after year.
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