Renowned children’s book author Shel Silverstein wrote a book whose meaning has kept readers guessing for nearly six decades. The tree that givesthe 1964 children’s classic that can still be found in the libraries of first-grade classrooms nationwide, tells the story of a boy and his bond with a particularly generous apple tree.
Once satisfied with the abundance of shade and fruit the tree graciously provided him in his youth, the boy grows up and wants more. Besides the apples, he wants the branches to build a house. Then, tragically, he cut down the whole trunk to make a boat. He is finally left with only a stump on which to rest his old and weak body.
Some readers view the book as a testament to the selfless love that parents have for their children. Others see it as a metaphor for overindulgence and the importance of setting limits. Environmentally conscious readers see it as a lesson in the need to preserve nature.
Financial advisors like me have a more practical view of timeless history. I interpret the message in much simpler terms: whatever you do, don’t cut your apple tree. Sacrificing the livelihood of the entire tree undoubtedly results in short-term gain for the myopic protagonist of the story. I advise my clients to use their tree instead to propagate an entire orchard, one that will sustain them abundantly in perpetuity.
You want to become a real entrepreneur
If you’re a chairside dentist and owner of your practice, you may already consider yourself an entrepreneur. Not so fast! Do you get paid four ways or, like most people, do you get a weekly salary based solely on the services you perform? If it’s the latter, then you’ve simply bought yourself a job. When you retire, you will be forced to cut down your apple tree. Hope it’s big!
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After you sell your practice, you’ll have the proceeds to support yourself, plus any nest eggs you’ve stashed away in your investment accounts. Depending on the lifestyle you are used to, this money could almost disappear in less than 10 years, which means drastic reductions in your standard of living. If you’re anything like my clients, you’ve worked too hard to succumb to retirement in a one-bedroom apartment, drinking cheap wine, bad beer, and tasteless coffee.
You owe it to yourself not only to retire on time, but also to do so comfortably. With a little help, you can create a legacy of generational wealth in the process. I support dentists in creating a business that ideally remunerates them in four ways. Maybe not all at once, but over time you can take advantage of three powerful streams of income on top of your practitioner salary.
Get paid four ways
Perhaps my favorite way for my clients to pay themselves is through real estate, specifically buying the property they practice on. The tax advantages and the potential for long-term appreciation provide plenty of reasons to stop paying rent and take on a mortgage instead. Simply owning the building when you sell your practice could earn you double or triple what you would otherwise receive. If you structure the deal properly, you can keep the real estate and collect significant rents for as long as the earth revolves around the sun.
I have several clients based in New York and California who had the foresight to purchase their office space 30 years ago. In many cases, their land alone is now worth twice as much as their multi-million dollar practices. If you like real estate as an investment, keep in mind that there are many additional real estate avenues that can grow your money in ways that far exceed the nominal gains you can expect to make in the stock market. Building a strong relationship with a knowledgeable financial advisor will go a long way in giving you the acumen needed to negotiate the right deals.
In addition to your role as a dentist, you are also the captain of your ship. You are responsible for the proper care of patients as well as the good management of the entire team. CEOs receive a management salary in addition to compensation for their day-to-day duties. In other words, not only should you be paid for the work you provide for your patients, but you should also provide compensation for the work you do to maintain operations behind the scenes. As CEO, you deserve compensation that is directly proportional to your managerial performance. Otherwise, you’re doing this part for free, which means something in your business structure is off.
As you might have guessed, some practitioners end up abandoning chairside dentistry to focus their full attention on running their growing business. They leverage their time by bringing partner dentists into the fold. Unsurprisingly, you’ll make more money running a properly run business than if you were just strapped to a chair.
When my clients understand the big picture, a light bulb goes on in their head. At this point, I know they’re ready to turn their attention to the fourth stream of income, which revolves around being an owner. This is true entrepreneurship. Up to this point, everyone is a “wantrepreneur”, a term coined by famous tycoon Mark Cuban. Owners receive dividends and profit sharing solely based on their stake in the business. Savvy entrepreneurs understand the importance of reinvesting those dividends to further grow their business.
As a stakeholder, you may be entitled to $100,000 in annual dividends. However, thanks to the advice of your financial coach, you have the fortuitous insight not to pocket this money. Instead, you reinvest it in new technology or additional staff. As a result of this calculated investment, business explodes and future annual dividends double to $200,000. Talk about leverage! Such prolific investments should make any business owner think long and hard before automatically funneling income into a traditional retirement account.
It may seem like I completely avoid typical investments like stocks, CDs, and mutual funds. No. They serve a purpose, and in fact many of my clients invest in all of them, albeit wisely. They offer predictable long-term returns, but their potency invariably erodes over time due to inflation, unlike my aforementioned favorite income vehicles. Like a healthy apple tree, they continually bear copious amounts of fruit as long as you nurture them, regardless of inflation and, more importantly, regardless of your presence next to the chair.
You are not going to be a practicing dentist forever. It’s impossible. You have no choice but to leave the daily practice behind one day. But you box remain in a strictly managerial role much longer. You can keep your real estate goldmine and collect rent checks forever. The same goes for your trading assets. You can keep a portion of your stake in the thriving practice you built from the ground up. Structure the deal properly and you’ll have no reason to tear down your orchard. On the contrary, you will eternally reap its fruits.
Author’s note: The ideas presented here require precision in their execution. Good orientation is highly recommended. If you would like to explore these options in more detail, my team and I look forward to hearing from you. Call us at (973) 422-9140 or email us at [email protected]
Editor’s note: This article originally appeared in the September 2022 print edition of Dental economy magazine. Dentists in North America can take advantage of a free print subscription. Register here.