Balance retirement planning and investments in your practice—without draining your wallet.
When you are thinking about selling your home, you walk the tightrope of spend or save. Do you invest in upgrading the kitchen to command a higher purchase price? Or do you hold on to the cash you would spend on those granite countertops and new appliances, and accept a lower offer from buyers who see a kitchen in need of a rehab?
You have to balance the same tightrope when you’re looking to sell your practice. If one of your exit strategies is to sell, particularly in the next decade, you want to balance investing in your practice without shortchanging your retirement account. You don’t want to raid your own personal nest egg to possibly increase a hospital sale down the line.
Here’s how to prioritize your investments in your future by continuing to set aside money for retirement while keeping your practice up to date.
Invest in a practice valuation. At least five years before you plan to sell, have your practice analyzed. A good valuation is an investment, costing $6,000 to $12,000. But you do need a baseline of where your practice stands and how you can improve to get top dollar. Use that feedback to highlight where your funds can best be spent.
Know your timeframe. If you have a decade until retirement, consider sinking some cash into updating your practice. If you want to get out next year, scale back what you put in. Just like selling that house, you want to spruce it up before you put out the “for sale” sign. If you want to sell in the next 12 months, maybe you’ll spend a few thousand dollars making it look good. If your timeframe is longer, it might make more sense to invest in state-of-the-art equipment.
Think like a buyer. Will a coat of paint in exam rooms and the reception area be enough to give new energy to your practice? Or will out-of-date equipment overshadow cosmetic changes? Exam rooms have the highest ROI based on their square footage when it comes to improvements. Lab equipment is next.
Consider your retirement goals. Talk to your financial planner about how much you need to have socked away. Like any diversified portfolio, you need to have balance. You don’t want your entire financial life relying on your practice. Budget so that you can contribute to your retirement plan regularly, even while investing in your business.
Create a retirement savings plan. It is essential, not just for you, but also for your staff, that you have a 401(k) or another tool that allows for larger tax-deferred contributions than an IRA. Build a nest egg that extends beyond your practice.
If your practice valuation comes up short, here are strategies to get the number you want:
- If there are shortfalls in a valuation, the main culprit is likely on the income side. An estimated 75% of the costs of running a practice are fixed, so you want to look at income. Analyze your fees and implement annual increases.
- Make sure operations run smoothly. That includes having an employee manual that outlines how things run, up-to-date practice management software, and weekly team meetings.
- If you want to make lower-cost cosmetic changes, consider updating the paint and décor in the reception area and exam rooms, and invest in landscaping to improve exterior curb appeal.