Welcome to the Madow Brothers audio series with Rich and Dave Madow
One Doctor’s Financial Planning Story
Madow: Welcome to the Madow Brothers audio series. I am Dr. David Madow. Welcome back. It’s great to have all of our listeners again with us for what is going to be a fantastic program. I’ve got Dr. Mitchell Josephs back in the studio. How’s it going, Dr. Josephs?
Josephs: Going great, good to be back in Baltimore in the studio, live.
Madow: Good to have you back. Last time you were here you gave an incredible; we did an hour basically on this new way that you’ve got to get new patients into your practice. Today you’re back, we’re gonna be talking, it’s a totally different topic. Today’s topic is “One Doctor’s Financial Planning Story.” We’re gonna get all of the financial tips we can from Dr. Josephs that he took from a very early age to, I hate to give your age now, but you’re turning fifty, I hear.
Josephs: Yeah, yeah, sure.
Madow: Nothing wrong with that.
Josephs: I’m proud, I’m proud I made it, I’m, finally reached middle age.
Madow: And you should be proud.
Josephs: I plan on living to a hundred so this is the halfway point…
Madow: Only halfway.
Josephs: Yep.
Madow: So you’ve got some things that you’ve been doing from a young age that you’ve learned that have gotten you to a point now at practically age fifty that, if it’s ok for me to say, you’re practicing dentistry now because you love it and not because you have to. It’s a lifestyle, which you love.
Josephs: Definitely, definitely, and that’s, I think, the goal for all of us doctors is to get to that point preferably as soon as possible where you’re not working because you have to work and you’re worried about every penny you’re taking in and you’re stressed out because of the financial aspects, but you want to get to that point where you’re working because you like what you do, you like keeping busy, you’re enjoying your patients and you’re not killing yourself either.
Madow: You know, when you wake up in the morning and you get out of bed and you go to work because you love going there, it’s a totally different story than getting out of bed being stressed out, going to the office because you have to pay certain bills, you have to make a certain amount of money to support a lifestyle; it’s a totally different story going there because, you know, I love what I do and you know something, I don’t need this money, it’s good money…
Josephs: Yeah.
Madow: …I don’t need the money to live on but I’m doing it because I love it.
Josephs: I used to think that when I was stressed out that it was dentistry that was making me stressed out. I think what gets people stressed out is the financial aspect and responsibilities and pressure and it puts a bad tarnish on the craft that we practice. And you have to realize that sometimes when you get burned out or you’re getting disgusted with dentistry, it’s not the dentistry; sometimes it’s the financial struggle, the personal struggles, the family trying to make a living. If you do your things right like I feel I did over the last twenty years that I’ve had my own practice, I would like to see a lot of doctors achieve what I’ve achieved where you get to the point where you’re sleeping well at night, you’re looking forward to going to the office in the morning because you don’t have these financial weights on your shoulders.
Madow: I couldn’t agree with you more. It is, the financial stress is the thing that pretty much is gonna make you love it or hate it as opposed to the, you know, whether a crown looks good or not.
Josephs: Yeah.
Madow: Let’s face it, I totally agree with that. So you’ve got a bunch of, I’m gonna call them your original rules, a bunch of Dr. Mitchell Josephs rules here. Let’s go one by one, some of them will be like really quick, there’s others we’ll probably want to expand upon, they’re, I’ve read them all, they’re all great, so why don’t we start off with number one and let’s just take it from there.
Josephs: Yeah, well, advice number one is, listen to your father or your parents; listen to your parents more than your brother-in-law. You know, brother-in-laws or sister-in-laws, they love to present interesting financial advice for you, things to invest in, a property here, a yogurt store here; listen to your parents because even though they’re your parents and maybe you fought with them when you were a kid and you think you know more than them, usually they’re right. Every time they told you it’s raining and cold outside, put a jacket on, you know that when you didn’t you had, like, pneumonia for three weeks after that. So even the basics you should have listened to them. But, like, here’s an example, like, my father told me, look, when you’re buying your first house, try to buy a house that is going to be big enough for you and your expanding family where you’re not gonna overgrow the house very quickly and have to worry about selling and moving the house. Instead, rent for as long as you can to save up enough money so that you’re buying an affordable house, but a house that’s of big enough size that you’re not gonna outgrow it. Because if you can pay off that house as quickly as you can, that’s money in the bank and that was something my father always told me, and he was right. And he said, even if you’re buying that first house and it’s a little rough for you financially because it’s a little bigger than you thought of the “starter home” would be, tighten your belt for a couple of years; he knew that I was getting started in buying a practice from a retiring dentist and he knew that I was losing sleep at night and I was constantly worried about money, but I took his advice. He also told me when you buy your first house, don’t get a thirty-year mortgage, get a twenty-year mortgage and every once in a while send in some extra payments. I wound up doing that. I’ve been in the same house for twenty years; I paid off the house at eighteen, and when I turned forty-seven I had no more mortgage and I don’t need to move because even with a family and kids and a dog, I have plenty of space, and before you know it, your kids go to college, in the blink of an eye, next thing you know you’re an empty nester and it’s just you and the wife. Your house feels like a mansion even though you might have thought it was a little tight when kids were home, but I’m so happy I took my dad’s advice in this aspect.
Madow: You know, mansion or not, I think you’ll agree there’s no better feeling than the house that you own free and clear. Because you’ll know that you wake up the next morning and no matter what happens to the stock market, no matter what happens to the economy, no matter what happens if you have a tough year in your practice, you own your house and nobody is gonna be able to some take it from you; you own it, it’s yours.
Josephs: Absolutely, having a paid-off home, let’s say hypothetically your mortgage is three thousand dollars a month, not including property taxes, three thousand dollars a month for ten, twenty, thirty years. If you have a paid-off home, not having to shell out that three thousand dollars a month is the equivalent of you having a six hundred thousand dollar bond in your nest egg. It’s literally as if your Aunt Rose wrote you a check for six hundred grand, bought you a bond, put it into your nest egg, because you’re not shelling out the three thousand dollars a month, six hundred thousand dollars in a bond earning five percent annually is the same as getting three thousand dollars a month. That is the new status symbol as financial and radio talk show host, Dave Ramsey, says, “The new status symbol today is a paid-off home; that has replaced the BMW.”
Madow: Exactly, as investment of choice or something like that, it’s, yeah, and I really, really believe that, so great advice. Let’s go to number two, Mitch, and it has something to do with buying a practice.
Josephs: Well, for dentists at any age that are either getting out of dental school, finishing their residency programs, or dentists even my age that are relocating to another state or country and you’re starting all over again. I’m not of the favor of building a practice from scratch and just waiting for patients to walk in. You know, that movie with Kevin Costner, Field of Dreams, that had that classic line, “Build it and they will come.” Although that was a catchy line, I can’t tell you how many different professionals that I know would quote that, build these Taj Mahal dental practices out of marble and stucco and sponge painting and fancy lighting and million dollars just for a build-out for a one dentist general dental practice and we would say, “Why are you putting so much money into this dental office you’re building?” And they would say, “If you build it, they will come,” from that movie, and you know what? The only thing that came was a recession and these poor guys that have a million dollars in a build-out of the fancy dental office, just have an empty dental practice. I am of the favor of what I did and that’s to buy an existing dental practice and I think you should pick an area that is an area that fits the demographics of the kind of dentistry you want to practice. Obviously if you want to do pediatric dentistry, be in an area where there’s a lot of modestly priced homes with families that are just starting out moving in, or if you’re gonna do like what I do, a lot of veneers, dental implant surgery, complex crown and bridge cases, implant over dentures, regular dentures, you know, then you want to look in an area where perhaps there’s some retired people that are newly retired and moving into those areas or people in financial districts that are interested in cosmetic work or people in the theater district or show business. So find a location that suits the kind of dentistry you want to practice, but I recommend to do what I did. I bought a very inexpensive, very old, small dental practice; a small, a thousand square feet, three chair dental practice that had an older dentist in his seventies, very low grossing practice; that’s why the practice only cost two hundred and twenty thousand dollars in 1992. Because older dentists, they refer out everything. If a patient comes in with a molar that needs a crown and it’s all the way in the back, he’ll refer it to a prosthodontist. They usually do no perio surgery, no implant surgery, no extractions; they refer out all of that. They do root canals, usually on anterior teeth. Anything with more than one canal or a canal that’s not as straight as a drag strip, they refer to the endodontist. So these low grossing, inexpensive, small old dental practices, I think, are great, and that’s what I did. I had no money; I had four hundred dollars in a checking account and I found this old dentist that had a two hundred and twenty thousand dollar practice for sale because that’s what his average of his last three years gross was, two hundred and twenty thousand dollars. I knew from meeting with him and looking at his numbers that he refers everything out; it seemed like it had a lot of potential. I did owner financing with him. He stayed around for a couple of years just as good will to help with the transfer of patients. I remember giving him three credit cards for the fifty thousand dollar down payment; I paid those off in a few months, and I paid him, like, four, I was in, four thousand dollars a month for six years. I never missed a payment and the practice doubled, tripled, quadrupled, quintupled, and so on, and I turned a two hundred and twenty thousand dollar grossing practice into a one point two million dollar practice in a relatively short time. You have to start somewhere, so building a big Taj Mahal office and just waiting for people to come in, you are not gonna sleep at night. I feel that money, spend a quarter of that money and buy an existing old small practice that has a built-in clientele to work with.
Madow: And some listeners might say, look, yeah, that sounds great, but if I buy a small practice, you know, a thousand square feet, whatever, with two or three treatment rooms, I’m never gonna be able to expand and I’m never gonna have a big practice, I’m never gonna make a lot of money. How do you…
Josephs: Well, to quote a famous general manager of a dental seminar company, he always used to say, Mitch, that’s a high-class headache. A high-class headache means, God bless you, your new dental practice in your thousand square feet with your three chairs, I should only hope that it should get so busy and so lucrative that you need extra room and, hey, if that happens, there’s a possibility that you could expand on the existing site or there’s a possibility you could move across the hallway. Maybe you’re in an office building and there’s more office space. I’m in a residential condominium building. So if anything, I’m the one that should be saying that hypothetical problem because, really, in a residential condominium building, my dental office, I can’t really expand to the left or to the right, if you’re looking at my waiting room door because I’ll be in Mr. or Mrs. Bernstein’s apartment on the left and the Schwartzbergers’ on the right. But during, I think, about six years into my practice, there was an opening of a unit across the hallway that was a possibility. For a while I thought of possibly building a second practice in that extra space where it would be a pediatric practice and I was thinking of hiring a pediatric dentist, but, you know what, that all changed because when I started to get involved in, like, dental implant work and veneers and complex crown and bridge work, those cases generate a lot of fees per patient. So my practice became a low volume but extensive dentistry per patient type of practice. So spacewise, I’m ok. Just because an office is growing financially, meaning it’s grossing more, does not necessarily mean you need more space. You know, lean and mean is the way to go. So I would not be afraid that the size of the space is something you should fear, that you’re afraid you’re gonna outgrow that space. You should be so lucky that you get to that point.