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Ontario Dentist - December 1998
by A. L. Roy Brown, CAM CBI
Making the Choice
Deciding to retire or semi-retire from your practice is one of the major events in your life. Are you ready physically, mentally and financially? Are you free of family responsibilities, such as children's education, children's marriages, and free of major debt?
Total retirement can be very difficult for some. Sociologists point this out when they explain that from the moment we are born we are encouraged to be active and busy. To work is good. Now, many years later, the reverse happens. To work is bad. It's best if you take it easy.
What will you do?
How will you spend your time? Will you adjust from many years of working almost every day, week in and week out. Will you miss your staff and treating your patients? Review your new schedule, daily routine, vacations and hobbies. Will you be reasonably content?
In relation to this, I am reminded of a telephone call I received one day:
"Mr. Brown, we appreciate that you helped my husband sell his practice and retire but can you find a place where he can go to practise? I was at home for over 40 years when he was at his office and I had my own routine. Now, he sits and listens to my telephone conversations with my friends and must know every word and explanation of my calls. Please find him a place and get him out of my hair!"
Before retiring, have a plan or things to do to keep you busy or involved. You're used to it!
Reasons
The reasons and timing for retirement are personal and individual choices. There is no specific predetermined time or age. Reasons for retirement can be any one or a combination of situations. Your choice may be based on health, family, declining motivation or time for a change. You may choose based on a desire for more free time to pursue other interests such as travel, longer vacations, hobbies, charity work, more recreation; or the need for a more relaxing lifestyle away from the daily responsibilities of overseeing and managing a dental practice.
Another Option
Semi-retirement or a gradual phasing out or slowing down is also an option. Selling your practice and associating with the new owner part time may be the route to take. This can be accomplished only if your practice is large enough to support the purchaser and you, the part-time associate, say, two days a week for 10 months a year or so.
Financially
Okay, so you are ready to slow down and are confident you will be happy with your new lifestyle. But can you afford to retire? Many dentists have not saved or invested sufficiently for retirement. Financial planners or accountants are qualified to review your net worth and future cash flow (see Tables 1).
Okay, I am ready, what next?
Prepare a time plan allowing one to three months for a professional appraisal; one to three months to prepare for marketing or selecting a qualified broker, and three to twelve months to a successful close of sale. This means a total of six to eighteen months, depending on the saleability of your practice and the location.
Why a Professional Appraisal?
As discussed in last month's Practice Management column by Dr. Roger Ellis (November Ontario Dentist), documentation of all assets - equipment and goodwill at fair market value for your practice and the specific geographical location - is necessary. This appraisal will be carefully scrutinized by the prospects and their advisors, such as accountants, lawyers and especially the banks putting up the capital finances.
Why a Broker?
Marketing a practice can only be legally done by you or a licensed business broker. The advertising, screening, showing and preparing documents can be a considerable task. A broker can do this for you for a fee payable on closing of the sale. Also, a broker can assist in the transition of patients, staff and numerous other details necessary to the close of the sale.
Table 1
CALCULATING NET WORTH
(Net Worth = Assets minus Liabilities)
Assets (list these in order of liquidity)
Cash, GICs, bonds, stocks, property, savings, RRSPs or RRIFs and the estimated value of your practice. (Omit personal property, such as furniture, cars, jewelry, art, etc.)
Liabilities
List mortgages, loans, credit cards and other debts and current and past income taxes due.
Cash Flow and Income
List your cash flow and annual and monthly income (from all sources) (see Chart below). Canadian Pension Plan (CPP) can be paid before age 65, if application is made, but at a reduced rate.
Note: 1998 Old Age Security $410.00, CPP up to $740.00 (approximately per month).
| CASH INCOME ANNUALLY |
WIFE |
HUSBAND |
| Practice Income (if part-time) |
X |
X |
| Old Age Security (OAS) |
X |
X |
| Canada Pension |
X |
X |
| Interest on Net of Practice Sale |
X |
X |
| Interest on Investment |
X |
X |
| Dividends on Investment |
X |
X |
| Minimum payments RRSP or RRIF * |
X |
X |
| Extra payments on RRSP or RRIF * |
X |
X |
| Other Income |
X |
X |
| TOTAL |
X |
X |
LESS
All expenses budget (including income tax) |
X |
X |
TOTAL
Difference |
X |
X |
* RRIF: Since 1996, the law requires that RRSP holders must convert to RRIF at age 69. Minimum payments on the total range from year of age 69 for about five per cent to nine per cent to age 79, and increase each year thereafter. The amounts over minimum is subject to withdrawal tax hold backs.
** Individual lifestyles vary. Most professionals require after-tax annual income of $40,000 to $80,000 year.
Inflation: $40,000 cash flow today at four per cent inflation would require $59,000 ten years later to maintain purchasing power.
Be sure to have your net worth and cash flow plans checked by a qualified professional or your accountant.
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