Is a dentist better off selling the practice sooner or waiting for a period of time? Many doctors think they should hold on to the practice until the last minute. Or at least they feel no sense of urgency to turn their investment in their illiquid practice into one that earns a much higher return.
I reviewed a local, highly respected mutual fund performance review and found that the past 3 years their fund with the lowest return had an annual return of 6.38%, and their fund with the highest return had a return of 28.99%. The 5 year annual return was 25.72% and 10 year was 24.34%
Using the annual returns, the $300,000.00 invested with them after 3 years would have a value between $361,161 and $643,857.
In contrast, I am confident that during the past 3 years the value of the unsold, illiquid practice of a doctor of a practice established for many years declined in vale, remained the same, or at best increased marginally. It is not unusual to see a precipitous decline in value, not to mention the high risk of disability or death.
Thus a doctor who sold his or her practice for $300,000 and invested the proceeds in a retirement fund would be ahead after 3 years from $61,161 at the 6.38% to $343,857 at the 28.99% rate. These funds do not include any money earned while working at the practice should the doctor desire to do so.
The thrust of this discussion is not to recommend investment in a mutual fund, bonds, cds, or any other investment. The point is to highlight the opportunity cost associated with the decision to wait to sell a practice. Discuss with your financial planner your investment options and their return should you sell your practice. Regardless of the rate, it will be greater than the return of your practice investment.
That is, maintaining an investment in a static or declining asset (the practice) can be expensive.
The wise dentist gathers information and facts, weighs the options, and makes an informed, intelligent decision rather than simply maintain the status quo.
So take time to educate yourself on what options are available to you. You can continue to practice as long as you desire and at the same time use the value of your Practice to achieve your retirement fund goals.
At Transition Consultants, we specialize in helping the doctor unlock the value of the Practice at it’s maximum potential and contribute to a secure and dignified retirement. Please call for a free consultation about the numerous options available to you.
James M. Robertson
713-822-5705
