149: What's your exit strategy?

 

What's Your Exit Strategy?  

 

Hi everybody. Welcome to the KC CHIROpulse podcast brought to you by Kats Consultants, helping doctors keep their pulse on success. I'm your host today, Dr. Michael Perusich. I'm actually in the studio by myself. Usually I'm joined by one of our other coaches or one of our other partners.

 

But, today I just wanted to come talk to you guys a little bit about exit strategy. 

 

Now, if you're only in practice, you know, if you're in your first year of practice, you're probably not thinking about an exit strategy. And I get asked this all the time. When should you start like a year out from wanting to retire or something?

 

No, the answer to that is easy. It's no, you want to start working on your exit strategy pretty much when you get into practice. Now, I might give you a pass on year one, but by the time you're two, three. Or so in practice, you really should be starting to think about this. Now, what do I mean by an exit strategy?

 

Well, what's going to happen when it's time to leave practice? Now, why would we leave practice? Well, the obvious is we want to retire probably at some point, right? Um, at least most of us do now, I realized that chiropractic practice is so much fun and, and, and, and so on and so forth. But there are, there are reasons why sometimes we retire sometimes.

 

Practice just beats us up physically and we just can't practice anymore. Sometimes we do really well in practice and we want to just enjoy life and not be tied to the office so much. So we want to retire. Sometimes we have an opportunity to sell the practice. That's a reason to exit.  And unfortunately, sometimes our health gets to a point where we either are succumbing to disease, we get injured, and we just physically can't practice anymore.

 

So we need to make sure that we have some strategy in place.  If you're a client. If you're a mastermind client, you know that we often in some of our doctor's retreats and things, we talk about exit strategy. So  this really is kind of for everybody else because in the mastery program at Kats Consultants, we really dive deep into exit strategy and how to value your practice and how to grow the value of your practice over time and so forth and how to prepare for retirement.

 

And the contingency plans of, you know, what can happen along the way, injury, illness, family issues, whatever.  So,  so today I'm just going to kind of cover some surface points. And if you want to know more about exit strategy, please feel free to contact us at KatsConsultants.com. But in the meantime,  exit strategy.

 

So you want to start planning your exit strategy out as early as you can.  Now, why is that important? Well, again,  Your exit strategy strategy is not just what's going to happen 40 years down the road. When you're ready to retire, your exit strategy  encompasses all the little nuances that can happen. It's kind of like your business plan.

 

If you don't have a business plan, then you, it's like your roadmap. You don't, you don't know where you're going. You don't have your GPS turned on. If you don't have a business plan.  And so  in addition to our business plan, it's kind of a subset thereof is the exit strategy. So we need to start planning that out as soon as possible.

 

Now, part of the exit strategy is being prepared financially. Now, a lot of you guys know out there, a lot of y'all know that I was. And investment banker, I was in mergers and acquisitions and private capital, um, equity fundraising prior to my career in chiropractic. So I know a little bit about this side of the business.

 

Um, actually I know quite a lot about this side of the business. So I don't tell you that to impress you. I just tell you that to say, listen up here a little bit because. I think I've got some things that you probably need to hear. Now, I'm not going to give you investment advice. I'm not an investment advisor.

 

I'm not a stock broker, nothing like that, but I do have a lot of experience in the financial world. One of the things financially that we have to think about being prepared for is. What's going to be in the bank account when we get done with practice, no matter what drives us out of practice, what's going to be in the bank account.

 

So how do we fill the bank account up? Well, number one, we have to be saving monthly. We have to be saving monthly. I'm going to say that one more time. It's kind of like, what's the most important thing in real estate location, location, location. One of the most important things about having enough money at the end of the life cycle of chiropractic is to save monthly. 

 

We recommend that your business save 15 percent of your cashflow every month. Now, some of you are probably thinking, wow, that's the money I live off of.  Look at ways to grow your income. And again, that this is one of the primary things that we help practices with, but  look for ways to grow your income, but also look for ways to.

 

Cut your expenses back as much as possible. Some of you are carrying expense loads that are just ginormous and they don't need to be. Chiropractic practices should not be expensive to run. In fact, if your expense ratio is above about 55 percent of your revenue,  then you probably need to really buckle down and look at either. 

 

Are you collecting everything that you're doing? Are you collecting for everything that you're doing? Is insurance cutting you too much? Are you moving patients over to maintenance and cash based services and they're paying you cash?  Are your  fee structures set properly? In other words, do you have a good solid, what I call a rack fee structure, your insurance fee structure?

 

And are you taking advantage of programs like ChiroHealth USA to create a legal secondary cash fee schedule that your patients will,  those kinds of programs really help your patients retain in your practice. Now that's a key. You also have to look at retention here. If you're not able to put 15 percent of your cashflow away every month, you need to look at your retention.

 

Businesses are built. Out of retention, not out of new customers, new customers help because you do have to replace some patients, but creating a high retention rate practice is incredibly important because that's what stabilizes your cashflow. So back to the basics here, we need to be saving at least 15 percent of our cashflow.

 

So here's what I recommend.  Start a separate savings account and put 15 percent in there. And when you get to the point where you have at least three months of expenses for your practice covered by that account, then start adding money to a business investment account where it can actually earn some money and grow.

 

This is where you're going to want to get a financial advisor to help you with that. You know, who am I talking about? You know, there's Schwab, there's Fidelity, there's Chase, J. P. Morgan. You know, there's all kinds of...  Uh, investment, uh, advisors out there, there, there are fiduciary investment advisors, which just merely take a, a small percentage of your, um, your growth each year as their feed.

 

They don't, they don't take commissions and those things along the way. And those kinds of financial advisors are great. So just find a good fan, a financial advisor, talk to your accountant, who's a good financial advisor. Talk to your friends. Who are they using? Um, talk to successful people in your community, who are they using? 

 

Those are great ways to find a great financial advisor. So we put 15 percent away every month. Once we have a reserve of about three months, then you want to start a business investment account. So you're actually earning some money. On it. So at the time of this recording, for example, two year treasury bills are paying almost  5%.

 

That's a pretty good rate of return, especially when you consider that the stock market on average over, over the years has returned about 7. 5 percent yield to investors. So 5 percent versus 7. 5 percent pretty good. Treasury bills are very, very safe, at least right now. So, you know, there's just some great opportunities out there. 

 

And again, I'm not giving you investment advice. I'm just giving you some examples. So we need to be saving that money along the way.  Something else that you can do  is you can start your own Roth IRA. Now, what's a Roth IRA? Well, a Roth IRA is where the money you put in, you can pull back out  tax free because you're putting it in after taxes.

 

So what's the advantage of that? Well, you have access to your capital.  As it grows, the growth part is tax exempt until you reach retirement age. So it's a great vehicle to be able to put some money away. And when it comes to IRAs, if you're above a certain age, and I apologize, I can't remember exactly what the age is.

 

It's somewhere around 50, 55. If you're above that age, you can do what's called a catch up IRA, where you can actually add up to about 6, 500 into that IRA each year instead of the traditional 2, 000.  Now,  there are other great investment vehicles that you should be getting into  if, in my opinion, if you're really thinking about retirement down the road.

 

Okay? One of them is a simple IRA, often called a SIRA. Now, what is a SIRA? Well, a SIRA is kind of this quasi  401k slash IRA  that is specific, a specific vehicle for small businesses.  In this, here's the great thing about it. You can  pull money out of the company. Basically, you're pulling it out of your paycheck and investing it into this IRA type vehicle.

 

Here's the great thing. You can put away as much as $13,500 a year. Now, when this podcast comes out, And we're getting close to the end of the year next year. It may change a little bit. It may go up. We don't know yet, but anyway, you can put away about $13,500 a year. So can your spouse, if she's an employee, if he or she is an employee of the company,  they can put away that.

 

So, so think about that. You can put away $27,000 a year pre tax.  To keep growing for you out of the company. So this is a great way to move money out of your company into retirement and defer the taxes on it. So I'd highly recommend looking into a simple IRA again, an investment advisor, a brokerage firm  can help you set this up.

 

They're super simple now. If you set one up, you also have to offer it to your employees. But this is a great way to retain great employees and there's some rules around it, but  it's a great way to way to retain employees because employees want retirement plans as well. So not only can they contribute, but the company's gonna match up to about 3% of their pay.

 

And you may be thinking, well, I don't want to pay 'em an extra 3%. Yeah, you do. If they're a great employee.  That's not that much money. You know, it's, it's a few bucks a month. It's a cup, a hundred bucks, or maybe 200 at the most a month that you're going to, you're going to contribute for them. It's well worth it.

 

Again, it helps retain key employees, but it helps them grow some retirement opportunity as well.  And so then it works kind of like a 401k, you know, it sits there until you retire or if you, if an employee leaves the company, they can move that over to their own IRA  if they want to  now, what are some other things that you need to think about with exit strategy?

 

Well, number one.  And I already mentioned this, but I'm going to go back to it. You have to plan for the little nuances that can happen. What can happen? Disability is one of them. You get injured. You decide to join a softball team. This actually happened to one of my associates. One time you decided to join a softball team.

 

You go out, you dive for a ball, you separate a shoulder. Boom. You're out of practice for six weeks.  Now, what do you do? Well, you might want to look into disability insurance that might pay you for that time that you're off of work, or think about your practice. How can your practice run? If you're not there, what kind of income can be derived?

 

If you're not there, what kind of income can be derived if you're not adjusting patients, but you are in the clinic. Okay. So think about that. If you, if you have decompression tables, for example,  And you're injured, but can still be in the clinic. Guess what? Your clinic can still derive income through your decompression.

 

Is it going to be as much as if you were also adjusting the patients? No, but at least you have some income coming in. So we have to think about those kinds of things. How are we building our treatment plans? Will our treatment plans allow us to be at the clinic and not be in a position to adjust patients, but still derive revenue?

 

Okay. So this is something that a lot of doctors don't really think about is what happens if I can't adjust a patient? What happens if I can't physically evaluate a patient? Can I be in the room and show a staff member how to do it, but I'm still there doing the decision making kind of things in a lot of states you can.

 

So. You know, really,  really drill down and think about some of these things. What happens if I'm not there? I'll tell you a personal story. I was, uh,  Marissa's husband and I used to coach soccer. We used to coach our girls in traveling soccer, and we only had one goalkeeper. So a lot of times, because I had played goalkeeper when I was a kid, a lot of times I would go and be the goalkeeper in the other goal.

 

Well, dummy me. I dove for a ball one time. I jacked up my elbow. Then a couple of weeks later,  um, I didn't realize it, but I had tore, torn, slightly torn my distal biceps tendon. Okay. So I didn't realize it at the time. A  couple of weeks later, I'm shoveling snow and snap my distal biceps tendon says, Nope, not doing this anymore.

 

We're done. I had to have distal biceps tendon repair done on my elbow. I was out for three months. Now,  I was only out of the office for about three days. I could actually be at the clinic, but I couldn't adjust anybody.  So  I learned how to use the activator a little bit, kind of one handed opposite hand kind of thing, but long story short,  luckily we had.

 

Revenue centers that could drive revenue for the clinic.  As long as I was there, we could still do decompression. We could still do laser therapy. We could still do rehab and those kinds of things. So luckily we were able to make it work. I had disability insurance, but because I had other providers in the clinic at the time, my disability insurance didn't pay me a dime.

 

So it's one thing you have to look into. If you're going to sign up for disability insurance, how and when will it pay? When will it not pay?  So all I got was my premiums back that didn't cover my income loss of income. So, you know, we, you have to forward think some of these things and  you can't think of everything.

 

You cannot think of everything, but you've got to think of some of those things. So  is it important to have disability insurance? Yes, maybe, especially if you're a single doctor in the clinic, but just look into how it works. When, and when will it pay? When won't it pay?  Do you have Uh, revenue centers in your practice that will help derive revenue.

 

If you're not able to adjust patients, how are your staff react? So we need to build all these things into our exit strategy. The other thing we have to realize is that  there are things,  and I don't have time to really go too deep in the, into this, but there are things that build practice value and things that.

 

Deplete practice value. And I far too often, I see chiropractors following this very,  uh, steep, if you will, bell curve of practice value. They write the practice up about 10 years. They, they peak out and then they start to slow down a little bit. And then the practice ages along with them. And before they know it, they've got a geriatric practice, their geriatric, they're ready to get out of the practice.

 

Isn't worth anything. And they're wondering, wait a minute, what happened? I spent 30 years here, 40 years practicing, thinking I was building the value of the practice. And over time it would be worth something. And unfortunately, sometimes we find out it's not worth much. So that's another thing you have to build into your exit strategy is how am I going to keep the value of my practice up over time? 

 

And I'll give you a hint. It's not by filling it with other doctors. There's a lot of little intricacies to it. So if you're a client, that's one of the things that we talk about a lot is how to keep that practice value up. Um, and again, I'm sorry, I don't really have time to go into it too much here. Now, the other thing to think about before we close this podcast out, The other thing to think about here  is  how much money do we actually need for retirement?

 

Have you thought about that?  I'm getting the signal. We need to take a break for a word from our sponsor, but when we come back, I want to talk a little bit about how much is enough. So we'll be right back. Hang in there. 

 

SPONSOR MESSAGE

 

All right, everybody. We're back from the break. Thanks for the word from our sponsor.  I started to talk about how much money do you need in retirement? Now that's a very open ended question.  And a lot of the investment gurus today say that if you're a professional, who's used to  Uh, a high level of income.

 

And I'm just taking a stab at what that is. I don't know exactly what their level of income is that they're talking about, but I'm, I'm just going to tell you from experience that  if you're used to making $75,000 a year or more,  you probably need about a million and a half to two and a half million tucked away to comfortably, comfortably live during retirement. 

 

That's a big number. If you really stop and think about it, that's a big number.  So  In chiropractic practice, how are we going to save that much? Well, the answer actually is pretty simple. We start early and we'd be incredibly diligent about the process. We do the Roth IRA. We do the Syra that I talked about.

 

We save money, 15 percent at least out of the clinic every month and set it aside. We do all those things and we set ourselves up. They're awesome. Some other great investment vehicles, not only, um,  in the stock market and those kinds of things, but, you know, owning real estate, real estate has a tendency to grow over time.

 

You know, maybe, maybe you look at investing in some real estate and I'm not talking about necessarily owning your own building. Um, I'm talking about income producing value, producing real estate. Um, Whether it be rental property or commercial property or, or, or land banking, what is land banking? That's where you buy an empty lot and you put something on it, um, that can be removed later, like storage units, for example, but they derive income. 

 

We call that land banking.  Excuse me.  Look for those investments that are going to help grow you, grow your financial position over time. That when you get to retirement, could be liquid enough that you could sell some of those assets off. derive the profit from it and be able to live off of it. There are some other things you can do too.

 

Life insurance is, I think, a very important thing to have if you own a practice.  Heaven forbid, if something happens to you  and stuff happens, you guys, um, you know, I, I lost my wife to cancer, um, several years ago and, uh, things will surprise you in life. It's just unfortunately how it works. It's, it's God's plan.

 

But anyway,  having life insurance.  To protect your family if your business is no longer able to operate or you have to do what's called a fire silk is in a lot of states. If the doctor, if there's not a doctor that owns the clinic, it can't fall back to the family and continue an operation. You only have a short period of time, sometimes 90 days to sell that clinic.

 

So you're going to basically be giving it away. So having that life insurance in place to help cover the value and the loss of income.  That happens is incredibly important.  There's these great insurance plans out there too, that they're called return of premium. And they're, they're typically term policies, but they do build some cash value, but that's not the point.

 

It's not the cash value that you're worried about.  That's important. What's important is that. After the term ends, whether it's 10 years, 20 years, whatever,  after that term, after that 20 years, for example, you get all your premiums back plus a small percentage rate, like two or 3%. That's a pretty good deal that if you beat the insurance, you get all your premiums back.

 

Wow. That's not a bad deal.  Did it really grow your money? No, but at the end of a term life policy, for example, It just most of them just end and whatever premiums you paid in They're happy to shake your hand and say thanks a lot, but you don't get anything back So if you're going to get insurance term insurance, especially look into return a premium  So that's another vehicle that you can use to help kind of be prepared for that end game, that exit strategy of retirement.

 

Now, how do we get to that one and a half to two and a half million? Well, like I said, we just have to be diligent about the process. We have to make sure that we really buckle down. You know, we don't necessarily need.  You know, five cars in the driveway, we don't necessarily need a 80, 000 pool in the backyard.

 

We don't necessarily need the $20,000 vacations.  We don't need to spend a lot of money along the way to live a good life. So be careful about how you spend your money, you know, make every dollar work, track every dollar that you spend. It's not, it's really not that hard, especially with today's online banking and QuickBooks and those kinds of things.

 

The other thing is I mentioned a financial advisor and I said, talk to your accountant. About,  you know, who's a good financial advisor. They know a lot of them, but make sure you're actually working with an accountant. A lot of you are working with bookkeepers. And in my opinion,  you really need a CPA working behind you.

 

Somebody that can give you advice. And set the expectation that you want to meet with them at least twice a year.  So, you're going to meet with them once around tax season so that you can get all your tax things together. But you really should be meeting with them mid year, third quarter, somewhere in there, in there as well, to understand what your tax liability is looking like.

 

Because we can, as business owners, a lot of times we can offset some of our tax liability by buying a piece of equipment. Now, don't buy equipment just to buy equipment and then put it in the back room. If you need to replace a table or something,  they can be a good tax advantage for your practice. So think about tax advantages. 

 

Tax advantages aren't illegal. It's part of the tax code as crazy as it is. Take advantage of those and make sure you're working with somebody that can really help you identify those kinds of things.  Yes, I know having a CPA, it costs you a couple thousand dollars to do your taxes and stuff and to do your monthly bookkeeping and so forth. 

 

In the end,  they're the ones that are going to help save you money along the way. They're going to point out things that can help you. They're going to point out things that can help give you some shelter against taxes. They're going to help you understand how best to spend your money, how to save your money.

 

There are other things you can do too. And again, I apologize. We don't really have time to get into all those things, but you know, bottom line of today's podcast is make sure that you're at least thinking about your exit strategy and writing some of it down. Then make sure  key staff and your family know where to find that exit strategy.

 

If something happens to you, it's kind of like your living will. It's basically the living will for your practice. So  make sure you really buckled down on that and  start working. If you, if you don't have one in place. And it's, it's a living document. It's ongoing. Make sure that you have that exit strategy in place or that you're at least working on it.

 

And if you need help with it, again, this is one of the great things that we offer to our clients at Kats Consultants is helping you guys build that exit strategy. Now we do this in our path to mastery program. And as you know, we have different programs. There's Path to Prosper, Path to Mastery.

 

There's Path to Prosper+One. Um, so we have several options for you, but if you're in our path to mastery program, in our annual doctor's retreat, which everybody loves  in the annual doctor's retreat, we often-times spend  a good amount of time talking about this. In fact, we did an entire series this year on exit strategy in our mastermind sessions.

 

So. You know, if you haven't done so already go to cats, consultants. com, see all the great things that we're helping doctors with. And, and here's a big takeaway. I told you earlier that my background was in investment banking and private, uh,  private equity capital prior to chiropractic, we know a lot about business, you know, and it's not just my experience, Marisa, Troy, all of us have Kelly, Alex, we, we all have a lot of business experience, both inside and outside of chiropractic, which is a benefit to you guys, because that allows us to help you build a better practice. 

 

And what's a better practice?  It's a practice that not only brings you the profitability you're looking for, but it's a practice that you enjoy working in and working on.

 

So go to Kats Consultants, check us out. Uh, we've got some free downloads on there. Um, sign up for one of our upcoming events and see what we do.  All right, everybody. I'm, uh, I think done rambling on and on and on. And remember, today was not about investment advice. It was about exit strategy and just some things to really think about along the way.

 

So thanks for listening, everybody. Appreciate you tuning into the KC CHIROpulse Podcast every week brought to you by Kats Consultants. 

 

We will see you next time.