Our house was once a brand new house. But the green carpet, plumbing nastiness, and nearly 50-year-old floors had become a safety hazard—and an eyesore. Both my mother-in-law and my son slipped and skidded down our sketchy, steep stairs on separate occasions. But we live in a relatively expensive suburb and remodeling the home would come with a hefty price tag. To complicate things, my business was also in need of some crucial investments. My life and business were on a collision course and I was faced with a classic housing vs business growth decision.
The decision wasn’t easy, and my wife and I stressed over the options for a long time. I remember feeling urgency because of the ages of our kids. I wanted them to have some time to enjoy our home, and they were all growing up so fast. Plus the overall flow and function of our home felt like it was stopping us from getting organized. I can remember moments, days, and even months when it was really on my mind for a big chunk of the time. After a lot of debate, we decided to make the most out of our old home until our business matured a bit more. I had no idea how important that decision would ultimately be.
At that time my business was much smaller than it is today with only a handful of employees—and everyone was doing almost every job. Even though my wife and I were kind of bummed out with the “let’s wait” decision, we tried to hold onto some positives: the big yard; outdoor recreation and mountains nearby; and our neighbors. Sometimes you just have to remind yourself of the trade-offs you consciously chose along the way.
For me, this was an important crossroads. I was either going to be nearly irreversibly buried with the daily demands of servicing new clients myself, or I was going to pursue a bigger vision that allowed me to focus on the highest value tasks I could do to help our clients have better investments, better planning, and better service. I couldn’t do everything.
The Right Decision and the Right Timing
Looking back, I can easily say the choice to save money and live in an older home was probably the single most important financial decision my wife and I made that resulted in the success of our company. The cash we would have otherwise spent on a remodel or down payment (and the additional cash flow we would have taken up with a larger mortgage) was directed towards some critical investments at a critical time.
The business has grown a lot since the early days. And it continues to grow under the supervision of some really talented people. Our investment in “sticking it out” in less than ideal housing became part of our culture and has been the difference between extraordinary success and average outcomes. The business is finally at a place where my personal remodel won’t come at the cost of vital business resources.
Now we’ll have both a healthy business and a great place to live. But as you can tell from my own story, I have some opinions on the topic, and I hope that they’ll help a few of you. Let me give you three good reasons why I’d hold on the house decision for a while and push the biz forward.
The Early Years of Practice Growth are the Most Critical
There are so many building blocks you need to invest in when growing your practice. Like attracting the right type of patients with excellent marketing and positioning; or getting the right employees in place (both management and role players). The list is long. You’ll need to spend money on CE, new equipment, and your facility. And as your practice grows you’ll discover a wide range of new challenges and opportunities.
I believe the investments you make in your team in the early years often determine how fast your collections will grow—and your ultimate practice value. The potential for a great return on your initial investment is probably one of the reasons you got into dentistry in the first place. Whether you’re just trying to get to breakeven, or you’re wanting to push into a new gear of growth you never thought possible, you need to put some meaningful money back into your business to make that happen.
When you purchase a home, you’re not just committing to a mortgage, you’re committing to a lot of out-of-pocket expenses—down payment, landscape, and furniture and decor, just to name a few. An investment into your practice of that same amount could generate a substantial return. In some cases, the return on that business investment can make owning a much nicer home (with much less financial pressure) happen within just a few years. We delayed our decision consciously for about 5 to 6 years, and that made a huge difference for me.
The money I invested in my business gave me a nice return, creating enough value to pay down for much of my new house—and even give me a nice cushion for retirement. Alternatively, had I started earlier, my dream house would have created a significant financial drain on my liquid reserves and put pressure on my cash flow. By jumping the gun, I wouldn’t have been able to afford the extras in my new house anyway—the landscape, the furniture, and the finishes we wanted. But we were able to get things just the way we wanted by waiting a little bit longer. On the business growth side, without adequate liquidity, I wouldn’t have been able to sustain our marketing campaigns, our investment in skilled employees, and our growth plans—especially during choppy markets or times when the economy may not have been as strong. Those commitments are prerequisites to growth, and they all take liquidity to execute.
Make Sure Your Income Is High Enough
Buying that first home is super exciting. But the thrill of finding the right place can feel more like a burden when you’re stuck in the financial pressures of entrepreneurship. I’m sure you’ve heard stories, or you know people who weren’t prepared for all the costs that accumulate after a purchase, a remodel, or new construction. It’s really easy to be quickly over your head with landscaping, repairs, taxes, furniture, and personal property items. In my own case, when I finally was able to afford “the” house, it was funny how many side items started to pop up on my radar that just wasn’t there beforehand.
You want to make sure that your income can easily support the housing costs you will incur. Affordable housing should be a low percentage of your gross income (like 12 – 20%). Avoid putting too much pressure on your current income, or you won’t be able to be an “investor” in your practice. Stay away from housing costs that push 30%+ of your gross income and don’t look back. The mortgage broker will qualify you for 40%+ of your gross income, and that just won’t do for entrepreneurs who want to have money left over to grow a business.
Plus you should plan on 1.5% – 2.5% of your appraised home value for repairs, upgrades, and maintenance. Depending on where you live, or the age and size of your home, this percentage could vary. But I’d be surprised if over a five year period you were ever under 1.5% per year for maintenance costs.
Two of the biggest financial decisions you’ll make in your life are the timing and amount of money you invest in your personal housing and your practice. For many of you, these two decisions might feel like they need to happen at the same time. I know it’s hard to know which milestone to take care of first—and with a growing family and the sometimes urgent pressure to “get into the right schools” or “enjoy life,” it’s easy to feel torn between growing a practice or investing in a home.
But if you want to invest in something that will give you high returns (and a sense of satisfaction), invest first in your own business. Start by building up the right levels of liquidity, and make conscious investments into some unusual things that most people aren’t willing to do. Like investing in high-quality people, the right professional’s advisors and consultants, and a strong marketing program. With the right amount of liquidity to back your practice growth, you’ll make decisions with more clarity. Once your practice hits the size you want it to be, and the profitability levels are where they should be, you’ll feel better about (and be more prepared for) an amazing new home. And maybe you’ll even get a pool.