This article from Heritage Financial Consultants draws on the same core materials that are included in the management consulting program for Levin Group clients. By gaining a deeper understanding of their financial situation and the options available to them, dentists can make informed decisions that will enable them to reach their retirement goals sooner.
— Roger P. Levin, DDS
John G. McCarthy III is a partner with Heritage Financial Consultants.For most dentists and specialists -- even those with highly successful practices -- a secure financial future doesn't simply happen. Instead, it must be carefully crafted to help meet your most important goals and leave nothing to chance. Of course, the future is unpredictable and your own personal situation changes over time. That makes it all the more challenging to answer the most crucial of financial questions: Are you on track toward achieving your financial objectives?
As a practice owner looking to make the smartest possible decisions about your money, you need a comprehensive understanding of your current financial situation and a reliable road map of where you're headed. The key lies in an important but often overlooked component of the financial planning process called cash-flow planning.
Cash-flow planning helps you determine if you'll accomplish your goals and live the life you desire. It can give you the knowledge to better control your financial destiny.
Analyzing your balance sheet
At a basic level, cash-flow planning is the process of analyzing your annual income sources, such as salary and practice income, against your annual income uses, such as student loan and practice debt, living expenses, and taxes -- in short, "money in" versus "money out."
Working with your financial planner, you can employ advanced computer modeling to develop "what if" scenarios about your financial future by projecting your cash flow, practice growth potential, taxes, the size of your estate, and other relevant financial data over your life expectancy. This will assist you in making intelligent decisions regarding one or a series of objectives.
Armed with such knowledge, you can analyze whether your current financial plan is adequate -- or whether you and your financial planner need to make any changes to stay on course. You'll also be well-positioned to make financially sound decisions as new needs arise, such as funding your child's education, purchasing a second practice, or investing in a major office renovation. The following are some of the ways cash-flow planning can enhance just a few elements of your overall financial plan.
Retirement panning
Cash-flow analysis enables you to estimate the growth of your overall net worth each year, based on the specific financial strategies you use or are planning to use, as well as the impact of taxes and inflation. Your financial planner and you can evaluate that information to assess if you're saving and building wealth fast enough to help reach retirement on schedule and in the way that you envision. Likewise, cash-flow analysis will enable you to create the optimal retirement income distribution plan built around your specific needs to help ensure you don't outlive your savings.
Debt management
As the asset side of your balance sheet grows, so too may the liabilities side. Cash-flow analysis can help clarify the long-term impact of your debt and expenditures. This exercise can help lead you to new, more cost-effective strategies for managing your liabilities and freeing up cash for more effective and profitable uses.
Estate planning
Without proper planning, estate taxes may significantly erode much of the estate you plan to leave to your heirs or to charities. But the cash-flow planning process can help your heirs avoid unpleasant surprises in the future by estimating your estate tax burden and other related costs. Your financial planner can work with you to implement estate tax reduction strategies that give you maximum control over the disposition of your assets.
Business succession planning
As a practice owner, the decision to keep or sell your office can significantly affect the strength of your cash flow and overall net worth. By using techniques to develop multiple "what if" scenarios, you'll be well-positioned to make the most informed business succession decision possible -- one that reflects your needs, those of your family, and those of any partners or associates you wish to include in the process.
Regardless of your goals, the process of cash-flow planning can provide you with the road map you need to make informed, confident decisions regarding your wealth and your financial plan. If you have previously reviewed your cash flow, consider conducting a new analysis based on updated information. If you haven't yet, now is the time to run the analysis.
John G. McCarthy III is a partner with Heritage Financial Consultants and a registered representative of Lincoln Financial Advisors. He can be reached at 410-771-5677. Heritage Financial Consultants is not an affiliate of Lincoln Financial Advisors. Lincoln Financial Advisors does not provide legal or tax advice.
Disclaimer: The comments in this article are not meant to be taken as financial advice. DrBicuspid.com and Levin Financial Group recommend that you always consult with your financial planner before making any significant changes in your financial situation.
The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.
