Many physicians view the eventual sale of their practice as their retirement plan. There are two major problems with that strategy.
Are you the owner or part owner of a group practice? Many physicians view the sale of their practice as their retirement plan. There are two problems with that retirement strategy.
1. You almost never get the amount of money you feel the practice is worth, because the buyer wants to pay as little as possible.2. You then have to pay tax on that money. After the taxes are paid, you are at risk of outliving the money.Let’s start by looking at the first problem — Getting the most money from the sale of your practice.
The most important assets of any medical practice are the physicians and key employees who work there. One of the first things any buyer will want to know is whether or not the key people who work at the practice will stay on with the practice after the practice is sold. If your key people are not tied to the practice, you give any buyer a very strong upper hand. The absolute best way to tie your key people to your practice is to provide them with a lifetime pension plan that has a long vesting period, such as 10 to 20 years. Another way to vest pension plans is to have them vest at each individual's retirement age.
The pension plan itself is very affordable because it is funded with bank financing, and you only need to offer it to your key people. Check out The Alemian File episodes The Physicians Retirement Plan , Pensions Are Back, and How to Start Your Own Pension for more information. When you can show the buyer that your key people will stay with the practice for many years to come, you have vastly increased the value of your practice.
Now let's solve the second problem of outliving your money from the sale of your practice. First and foremost, include yourself on the pension plan for the key employees. This guarantees you'll never run out of money, whether you sell your practice or not. Second, use some or all of the funds from the sale of your practice to buy an annuity that creates a second lifetime income stream.
This means you make money while you are in practice, you make money when your practice is sold, and you make literally millions of dollars in retirement from the lifetime pension you awarded yourself in your practice. When you eventually pass on, you leave behind a legacy for your beneficiaries.
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