3 Big Decisions Dentists Should Never Rush Into – Episode 97

Have you ever made a big change to your business or financial plan out of frustration? When cash was tight, the market was down, or collections were stagnant, did you allow short term thinking to get in the way of long term goals? In this episode of Dentist Money™, Reese & Ryan identify three classic examples of big sweeping changes dentists make that often come back to bite them. They also offer guidance for choosing less expensive and more effective alternatives.
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Podcast Transcript:

Speaker: Consult your advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors, a registered investment advisor. This is Dentist Money. Now here is your host Reese Harper.

Reese Harper: Welcome to the Dentist Money Show where we help dentists make smart financial decisions. I’m your host, Reese Harper, here with my trusty old, rusty old co host Sir Ryan Issac.

Ryan Isaac: It’s a fine line between trusty and rusty.

Reese Harper: You are a trusty co host but sometimes you’re rusty.

Ryan Isaac: It’s true.

Reese Harper: Today we’ve got to get the oil out and oil up those wheels.

Ryan Isaac: Yup.

Reese Harper: Because you’re going to tell us a story that’s one of my favorite stories of all time.

Ryan Isaac: You love this story.

Reese Harper: It’s about the famous Northeastern midge. I just want people to, people are probably thinking what’s a midge?

Ryan Isaac: What is a midge?

Reese Harper: A midge is a fly like insect, that I just learned about in preparation for this podcast and found it quite interesting. Thank you Q for digging deep into the archives of American folklore.

Ryan Isaac: Yeah anytime. I’m here for all of your insect needs.

Reese Harper: Thank you.

Ryan Isaac: So why are we talking about midges today? So back in 1990, this is according to the Pittsburgh Press newspaper. This didn’t happen in Pittsburgh. There was a serious concern with the conditions of the Lincoln and Jefferson Memorial buildings.

Reese Harper: Your two favorite buildings. The places you love to visit when you go.

Ryan Isaac: Located in?

Reese Harper: Washington, D.C.

Ryan Isaac: Okay, not Pittsburgh yes. But big problem with these two buildings. There was a team of architects that was hired. They were hired for $2 million dollars to do this exhaustive study on both monuments and recommend repairs. The problem is that if I get this right, the problem was the buildings were eroding. Right? The outside. The façade of the buildings were just cracking and falling down and they were constantly having to repair them. So they spent $2 million bucks. Hired some architects. And they came up with a plan that was going to cost $12 million to fix the buildings.

Reese Harper: Sounds like a good demo consulting job.

Ryan Isaac: Sounds like we’re going to go into a story about building a custom home. Actually …

Reese Harper: But we’re not.

Ryan Isaac: We’re not going to launch into that right now. So what they did, the parks service, they hired the architect team. They have their plan. Their big $12 million plan. The parks service though, did it’s own investigation and they found some interesting things. They kept asking some questions, like why are we doing this? The first thing they found was these buildings were being sprayed constantly like high pressure washed with a chemical, right?

Reese Harper: A really strong chemical.

Ryan Isaac: A really strong chemical on a frequent basis. So then they asked, well why are we spraying these buildings so often with these chemicals? Then they learned that the sparrows and starlings which are birds, okay, for our non bird aficionados listeners. These sparrows and starlings were pooping all over the buildings in high volumes.

Reese Harper: So they were having to spray the buildings with these strong chemicals to get the bird poop of the buildings.

Ryan Isaac: The bird poop was all over. And it seemed natural. Like yeah there is bird poop all over, we have to spray it with these chemicals. Then they asked, well why are there so many birds all over the place? Then they learned because there are spiders all over, crawling around the buildings, which I don’t really know that the tourist really know that that’s the case. But apparently there’s spiders everywhere and these birds like to eat the spiders. Then they asked, well why are there spiders everywhere?
Well just like you started the podcast, there are spiders everywhere because the spiders like to eat these things called midges. Yeah there’s your famous American midge.

Reese Harper: The deceptive midge.

Ryan Isaac: Deceptacon midge. So there’s these midges, these little flying insects. So then they ask, why are there midges all of these buildings? It turns out these midges, they basically, I don’t know how long they live. Like a couple days or something? They have this short reproductive cycle which involves them coming out of the ground. A flying bug comes out of the ground?

Reese Harper: Yeah.

Ryan Isaac: Weird. That’s why you love the midge so much.

Reese Harper: It’s a deceptively interesting insect with a very short life.

Ryan Isaac: They come out of the ground at dusk and they come out of the ground and they are attracted to the floodlights that light up the monuments. Then they do their mating business and then they die next to the monuments where the spiders then come out and feast on them. So what was the solution then? All they did was they decided to change the timer on the floodlights, so the midges don’t come around at dusk. And that’s it. No midges, no spiders, no spiders, no birds, no birds, no poop, no poop, no strong chemical high pressure washing, no problems with the deterioration of the building. Problem solved.

Reese Harper: So even though the solution looked like it might be $12 million in repairs that were going to be needed, it turns out, all you had to do was turn off the lights. And they even saved a little money on their electric bill.

Ryan Isaac: So today, talking about these monuments and this big multi million dollar fix that involved actually just turning off the lights a little sooner or turning them on earlier or later in the day, we’re going to talk about times when dentists think that big sweeping changes are the solution to the problems of the stresses they are feeling when actually a more simple fix will get them back on track quicker.

Reese Harper: Desperate times don’t always call for drastic measures.

Ryan Isaac: That’s going on a t shirt.

Reese Harper: I think I’m going to come up with … that’s my saying. Trademark.

Ryan Isaac: When you’re gone one day, hundreds of years from now.

Reese Harper: So I think, this came up this week in several conversations. I actually did a podcast recording with Dr. David Merloly in Vail and we kind of got off on this side tangent where me and him started talking about how many people will do pretty big sweeping changes in their lives.

Ryan Isaac: You had a conversation about this. Cool.

Reese Harper: It came up and I just remember feeling like it was a topic that I was really passionate about and I didn’t get a lot of time to go into it in the podcast with him, but I really felt like this is a subject that has affected me a lot in my life where I don’t … I feel pain. I come into the office and I feel some frustration. I’ll give you an example. It just happened this morning, about 10 minutes ago before I got on the show.
I’m on the phone and a doctor tells me that he doesn’t want to hire an associate anymore. He just doesn’t want to hire him.

Ryan Isaac: This is someone who already had one? Or was thinking about it?

Reese Harper: They have been courting for a year now, right. So they’ve been working together.

Ryan Isaac: Testing it out.

Reese Harper: They’ve been testing it out and he’s bringing this … he wants to bring in this associate full time to kind of help him grow the practice, potentially partner with him. They’ve been working together for a year plus they get along really well. They are friends. And this is like, this is literally like, this has happened probably 10 times in the last month. Because it’s a big decision where someone is like, they are feeling ready to hire this associate or bring on a partner and finally do this big decision together.

Ryan Isaac: Like yeah nah.

Reese Harper: Just last minute, like backs out. And he calls me this morning.

Ryan Isaac: Actually I hear about this a lot. When new dentist call us and I’ll ask him about, what are you working on right now? Where do you work? And they’ll say I was going to get into a practice but then the dentist at the last minute said, nevermind, I don’t want to. That actually is really common.

Reese Harper: Really common.

Ryan Isaac: Sorry. Go ahead.

Reese Harper: So I am asking this doctor. I said, “Why do you feel that way?” He said, “I don’t know. I’m going to have to bring this person on …” Basically it boiled down to a difference of like maybe $700 a day in profit that he felt like he was going to lose by bringing this person on. That was his understanding of the situation. And, was listening to him talk and I was typing some numbers on a spreadsheet and kind of looking at what he was telling me. I’m like collections, okay, this is your collections assumptions. This is what you’re going to be paying him. I’ve seen your PNL. This is what you’re overhead is going to look like. This is what’s going to change and you’re promising this amount in benefits. As he was talking, I’m just typing it in.

Ryan Isaac: Totally natural thing for a human to do when another human is talking to you is just whip up a spreadsheet real quick.

Reese Harper: So I sent it to him. I shared it with him. He pulls it up and looks at it. Just right after you get done telling me, how it was just really frustrating. Was not going to do this.

Ryan Isaac: Yeah it’s going to be a bad deal.

Reese Harper: He wanted to know if I could break the news. Like if I could break the news to this person.

Ryan Isaac: Oh yeah.

Reese Harper: Instead of him break the news. I’m too good of friends with him so will you break the news for me?

Ryan Isaac: That would make your day a lot worse than it …

Reese Harper: I was like no but we can do it together. I’ll do it together with you. I said let me just make sure that the things you’re saying are correct and I sent the spreadsheet over. He looks at it and saw that by bringing this associate on, he’s actually going to make more money and he just wasn’t thinking about it the right way. It accomplished everything that he wanted this transaction to accomplish and I don’t get paid to bring on associates and I don’t have a bias here at all, but I was surprised that as soon as I sent that spreadsheet over, he looked at it and he goes, ah nevermind. Okay. And …

Ryan Isaac: Little does the associate know that his life was hanging in the balance of this phone call.

Reese Harper: The thread of this young associate’s life is hanging in the balance of this phone call and someone goes from like …

Ryan Isaac: He’s done.

Reese Harper: I think it was literally like he was frustrated about something that happened that morning with the construction of his new office, like this build out. I think he was frustrated about the build out of his new space. And it resulted in him taking out that emotion on this conversation about the associate, because he was feeling like this thing was going over budget a little bit.

Ryan Isaac: So where can I cut? He’s the Netflix of the household budget.

Reese Harper: He was like yeah well we’re going to be done with that and I send him this spreadsheet and he’s like all right nevermind. We can talk about something else now. I was like whoa.

Ryan Isaac: That associate is lucky that your first inclination was the whip up a spreadsheet.

Reese Harper: Anyway, I think that’s maybe the first example I’d like to share is sometimes we make a huge decision, like firing someone or not hiring someone off of an unrelated item. Like in this case, I really think it had to do with his cabinetry expenses being a little bit more than he thought and that was kind of the main trigger. It’s interesting how an emotion like being a little bit over budget on something can make you look somewhere else and maybe make a cut, which in my case, I was looking at something going okay if you don’t continue this relationship with this associate, if you don’t continue …

Ryan Isaac: You can’t grow.

Reese Harper: Well you’re already doing like 75% production than you can do on your own. Like you’re already almost full time with it. What are you going to do with all that production? You’re just going to let it disappear?

Ryan Isaac: Right.

Reese Harper: And he’s like, well, he’s like you’re right. I’m not trying to say that this doctor is not intelligent. This happens a lot where it’s just easy to sort of make a big sweeping change around hiring or firing someone when it might be a relatively unrelated issue that’s the trigger that made you feel that way in the first place.

Ryan Isaac: It reminds me of the day when you walked around the office and fired everybody.

Reese Harper: And then I changed my mind.

Ryan Isaac: And then you changed your mind again. You called us all later. We got a group text.

Reese Harper: That was yesterday. Just kidding.

Ryan Isaac: It’s like every Thursday.

Reese Harper: Every Thursday.

Ryan Isaac: That’s a good example. Another one that we were talking about was … sometimes we’ll talk to people that feel the pressure in their, let’s take for example one doc, one location, feeling some pressure from maybe hitting a ceiling in collections or maybe it’s like [inaudible 00:11:39]. Like I’m not making enough money. I feel like I’ve got to make more money and sometimes the knee jerk reaction is, another location. Let’s add another practice to this. The disclaimer being many people do that and it is the solution and it’s great. It works.

Reese Harper: Think restaurant franchise.

Ryan Isaac: Yeah. If I just had more, I’m just going to get more money. Right? So, it’s kind of along the same lines, you know, that’s kind of like whatever the trigger is, it could have been … maybe it’s low profitability. Maybe it’s just not the income they thought it was. Maybe it’s the doctor’s spouse is spending too much money at home and there’s not communication and cash flow is feeling tight. And they can’t talk about it, so the doctor goes, I’m just going to open another location and just try to double my collections and then I don’t have to fight it about the budget home or something. It could be some really external trigger that makes them push for the big solution.
What could it be instead? Like this morning, you fixed what could have been a very large decision by just a little bit of data.

Reese Harper: Yeah. Sometimes I feel like we’re, as business owners, we’re always surprised, I’m always surprised how a little change makes me feel a lot better and I might have … you know me, I’m classic massive sweeping change, kind of mindset. I love making big changes, right? I want to see an entire piece of technology build like overnight.

Ryan Isaac: Yesterday.

Reese Harper: Because I think that’s, as an ambitious entrepreneur, you want to see big changes happen. You want to see big positive changes. I’m also very … there’s a difference between ambition and wanting big changes and then being very volatile in how you make changes. You can want things but executing things and making massive sweeping changes quickly is probably not … that’s the difference that we’re seeing here. It’s okay to feel the pressure of all these decisions you have to make.

Ryan Isaac: And explore the options.

Reese Harper: And explore the options. But you know, making decisions without research or making decisions without information or making decisions without exploring alternatives, that’s where you get yourself into trouble. So like take this example of a second location. Before, you make the decision to examine a second location, do you know what your personal net worth is? Do you know what you’re worth? Do you know how much money you would need to have before work is optional? Because for a lot of people that I’ve found, the level of work that, they pursue multiple locations, not just to fulfill their entrepreneurial ambition but they do it because they think that they won’t be able to have enough wealth if they don’t do it, or that it’s the smart thing to do. When in a lot of cases, they wouldn’t make the choice to add the second location if they knew …

Ryan Isaac: Had they known.

Reese Harper: Had they known they were already okay. Or that work was already optional for them. That they were going to be financially just fine. You should explore things like maybe adding hours. Maybe shifting your employee mix. Maybe adding an associate that’s more capable or more competent or one in the first place or looking at your overhead and trying to determine whether it’s being allocated effectively.

Ryan Isaac: Maybe you could cut your liability a little bit or maybe the supplies could come down a couple percent.

Reese Harper: Maybe your lease could be renegotiated in the middle of your term.

Ryan Isaac: Maybe the tax bill could come down a few percent. Maybe, we talked about this, maybe insurance plans haven’t been looked at for a long time. Maybe you’re running a loss on a big chunk of your insurance plans that you’re accepting. Maybe you haven’t raised fees in awhile.

Reese Harper: Maybe the interest rates on your debts are too high and you can refinance them.

Ryan Isaac: Lots of maybes. Maybe.

Reese Harper: There’s a lot of options that might not involve a big thing like opening a second location. But how many people have we met with, two or three locations, and not one of those locations is really being run properly.

Ryan Isaac: Yeah it’s not optimal. Yup.

Reese Harper: So you don’t want to make big sweeping changes without exploring all these alternatives. And you will be tempted throughout the day every day to make a big change and usually a small incremental change is a little bit.

Ryan Isaac: It’s kind of like me when I wake up and it’s cold and I’m like I think I should move my whole family to a warmer state tomorrow.

Reese Harper: That’s every day in the winter here.

Ryan Isaac: That’s all winter. Yeah it’s true though. Let’s take a commercial break. Warm up. Take a sip of water. This is what I have here.

Reese Harper: Creole brew.

Ryan Isaac: Creole brew. Is that what we got?

Reese Harper: That’s what I got.

Ryan Isaac: And we’ll be right back.

Reese Harper: Hi this is Reese Harper. I’m the host of the Dentist Money Show and CEO of DentistAdvisors.com. I want to take just a minute and explain why dentistadvisors.com is different than your average team of financial advisors. We help you plan, invest, and retire better using a unique set of tools you won’t find anywhere else. First, we use our proprietary methodology called Elements to assess your financial health. The Elements framework allows us to give you data driven, objective advice, based on a comprehensive picture of your personal and practice finances.
We maintain that picture in a custom dashboard that tracks all your assets, debts, and accounts so you know what you’re worth anytime and anywhere. And because we work with dentists and specialists, we can leverage our industry expertise to weigh your progress against your peers. We are the premier wealth management firm for dentists and specialists and we’re ready to put you on a more predictable path to financial independence. Start now by booking your free consultation today at dentistadvisors.com. Thanks again for listening. Now let’s get back to the show.
And we’re back. Item number two today that we wanted to talk about that’s a big gut reaction that we see a lot is people make big changes to their investments.

Ryan Isaac: Yeah, so well one example we have, this is not an uncommon conversation. It wasn’t this year because the market has been great, but a couple years ago there was a few conversations where people would call and say, you know the market is down eight or nine or 10% right now. I have student loans at 6% therefore, it makes total sense to just get my investments out of the market, pay off my student loans. I’ve got the spread, you know? I’ve got my guaranteed rate of return.
Or someone might say, I’m not going to … maybe they are not going to pull their investments but they might say …

Reese Harper: So let me clarify that for the listeners. You’ve got this second hand, second nature number’s wise.

Ryan Isaac: Yes.

Reese Harper: So you’re just saying, someone calls in because their investment account is down 10 to 12% but they’ve got a 6% student loan so they are feeling like, why am losing money sitting here when I can just pay this thing off …

Ryan Isaac: Write a check.

Reese Harper: At least I’m making money by paying that thing off at 6%.

Ryan Isaac: Exactly. Yup. That was kind of like the … that was kind of the big sweeping change to the pain they were feeling. I mean turns out after a long conversation that wasn’t the exact reason for all the pain. It’s funny how that works. Like you were talking about with the associate, you know? There is always some other underlying, distant … like the cabinetry was too expensive, therefore fire the associate.

Reese Harper: It’s funny how the littlest things just kind of throw you off.

Ryan Isaac: That’s where the emotion in finance, that’s why the study, we talk about this study from Vanguard. I bring it up all the time when we talk about investments with clients or people who would call us. When Vanguard did the study that found, you know people who make better investment decisions are getting higher returns over time. Half of that return that they’re getting from making better decisions, comes from behavior. There’s a reason and I mean these are … we are all subject to it.

Reese Harper: By behavior you just mean making smarter decisions that are with your investments.

Ryan Isaac: Yeah totally.

Reese Harper: Not buying and selling at the wrong time.

Ryan Isaac: In this example that I’m thinking of, this conversation was with a doc who was feeling a lot of pressure with his own practice. He was declining in collections. Wasn’t spending money on marketing, new competition was moving in. But this translated into the market is down. I’m going to take my investments out and pay off my student loans. I mean it didn’t really have much to do with that. But that was left unchecked. If he didn’t call first, that would have happened.

Reese Harper: Well why would that have been a bad decision?

Ryan Isaac: Because you don’t measure markets by what has happened in the last 12 months. I think we just did this on an episode a couple weeks ago with expected return, right?

Reese Harper: What would have happened in this example? I mean this is a few years ago. What would have happened in this example had the person taken the money out and paid off the student loans?

Ryan Isaac: It’s highly likely they would have been paid off and there would have been no more future investment in markets. He wouldn’t have invested money again because of that kind of experience. I mean, I think back to the actual data from that time, and the markets, when we talk, they kept going down a little bit. But then they ended the year flat and then they’ve been going up ever since. So what would have likely happened which is behavior when people get out during down markets, is that they don’t get back in.

Reese Harper: For quite awhile.

Ryan Isaac: For quite awhile. They will see it run back up and they will go, oh that feels expensive, so I’m going to wait. Then they wait too long before they … they either never do it again or they just, they miss a lot. They miss out on a lot.

Reese Harper: They would have sold at a double digit loss probably. Or a decline of 10 or 12% or more.

Ryan Isaac: It was around there.

Reese Harper: Then, moved the money over and paid off a student loan. So they’ve locked in a loss. Paid off a rate of return that was lower than what he would have earned had he just done nothing.

Ryan Isaac: Done nothing at all.

Reese Harper: Done nothing but let the portfolio just grow back over the next two years.

Ryan Isaac: Yeah and what would have happened is cash would have just piled up in business checking. He wouldn’t have had the confidence to get back into the investments again. Part of that human psychology is sticking with your decision too. Once you decide, I got out of the markets because it was bad, and I did something else, that psychology is hard to get over.

Reese Harper: Yeah you’re fairly defensive about it.

Ryan Isaac: Yeah that was the decision you made.

Reese Harper: I made that call. So I think that’s … it’s important to see though that there were multiple consequences of that decision. One was, you’re locking in losses that you just sold. You’re paying off a fixed rate of return with your money instead of letting it have the possibility of recovering or having upside that is beyond that 6% rate of return. Then you also are putting yourself in a position where you’re having to readjust your psychology to make sure that you even feel good about getting back in at a later date and who knows if you would have.

Ryan Isaac: Statistically that’s been really tough.

Reese Harper: I think one of these big sweeping reactions we see … there are a lot of people that choose to take all of their money out of their investments and keep them in cash or pay off debt or invest in something different. I do see quite often people selling their … selling investments that are in public markets like their stocks and bonds and buying real estate with them. Based on an assumptions about whether something is cheap or expensive. So, this week it happened to me where someone wanted to sell a piece of, a large chunk of their stocks and buy real estate in their city.
There were three times this happened this week that I can think of but the one that I know the best was the one that is in an area that’s close to my wife’s family in California, because that market right now has increased quite a bit and there’s a really high lease rate there. There’s a high commercial rate. I mean it’s not a cheap market. And ultimately what this person was going to do, is they were going to take from one expensive, we’ll call it relatively expensive investment, the market has grown in the last few years and they are going to put it into …

Ryan Isaac: One investment that’s grown to another investment that’s grown.

Reese Harper: To another investment that’s grown a lot but one is very liquid and diversified and one is one piece of property that they were wanting to be the landlord over.

Ryan Isaac: So diversification issues totally.

Reese Harper: And they felt like it was going to be more diverse and it would be safer and their past experience in the last, you know, year had been that they were really happy with the way their house has appreciated. The way their building has appreciated.

Ryan Isaac: Because you only check the balance once a year, man.

Reese Harper: Yeah you check the balance very infrequently. The thing that’s interesting to me is I’m not sure that they realized that their investment accounts had grown as much or more than their real estate had grown. I think it’s hard sometimes to ever think that your liquid investments are a real thing.

Ryan Isaac: Yeah. Yeah.

Reese Harper: There is something about it. It just doesn’t feel real to some people.

Ryan Isaac: No matter how much you know about it, it’s still kind of like …

Reese Harper: That’s kind of like a Russian roulette gambling thing.

Ryan Isaac: It’s a little bit of a subjective little casino there. But I kind of trust it.

Reese Harper: Really by the end of the day, that’s as tangible …

Ryan Isaac: It’s a real asset.

Reese Harper: As the piece of property you bought. You just don’t realize that it’s … that that’s the truth behind an investment in a public market. So anyway the point of this section that we really feel strongly about is try not to make big decisions to make massive changes to whether you’re in or out of the market. Now disclaimer, just because you have investments doesn’t mean you’re in the market or you’re in the right … just because you have investments and you are investing in something in the public markets or in your 401K or retirement account or a mutual fund.

Ryan Isaac: It could still be in the wrong place.

Reese Harper: I could still be in a very, very bad place. All we’re saying is …

Ryan Isaac: Very dark place.

Reese Harper: Don’t … assuming that your money is invested properly, which would be broadly diversified in a market based portfolio that has a lot of exposure to the global marketplace.

Ryan Isaac: Different sizes of stocks, different types of companies.

Reese Harper: Yeah. Then in that case, you don’t want to be bailing in and out of that. But if you’re in one sector right now, like energy or you’re in one sector like gold or you’re in one sector like oil and gas or you’re in one sector like real estate.

Ryan Isaac: One part of the market.

Reese Harper: One part of a country. That’s not what we’re saying. You can’t … those aren’t cyclical predictions that you can depend on to be in one sector like that and know that your money is going to recover. That’s not a diversified portfolio.

Ryan Isaac: Part of that, that’s the sweeping decision. Part of some of the smaller solutions someone can make when they are feeling the pressure or anxiety from investment portfolio, A, is eduction, like you said. Some people don’t even know what they’ve got or how much it’s appreciated relative to other things they feel like are safer. So understanding what you have is probably like step one. But there are other things you can do. You know, you have control over how much cash is sitting in your business. So, if it’s feeling like a little bit lean, like build some more cash in the business, so you sleep better at night.
Have a family emergency fund. Know that you have cash to get at if you need it for personal reasons. If you have any project looming on the horizon that might need some money, then put aside some short term money. Know that you’re liquid enough for some short term projects. You can do some little things that will give you that piece of mind that won’t make you feel so anxious about this crazy market thing over here. There are some little things … they don’t need to be these massive changes. You don’t need to bail or make some big changes.

Reese Harper: Let’s talk about one other big one. I think it has to do with year end tax decisions. Towards the end of the year, you kind of find out how much money you’re going to owe and some people have perfectly estimated through quarterly payments what they’re due and some people kind of have a big surprise. So two drastic measures we see people take usually during the end of the year is they will fire their CPA and hire a more aggressive CPA. Whatever that …

Ryan Isaac: That was all in air quotes too.

Reese Harper: Air quotes. So you fire your CPA and you find someone who is more “aggressive”. We don’t, just in case you can’t sense the sarcasm, we don’t really believe in the fact that there’s this magic CPA out there that is so aggressive that you don’t have any taxes.

Ryan Isaac: He has a different set of tax laws he operates under.

Reese Harper: He totally does and it’s called you will go to jail if you work with him.

Ryan Isaac: He looks the other way when he gives you his business card. That’s the guy. Don’t make eye contact.

Reese Harper: It’s blank and it’s a pager. He hands you a pager.

Ryan Isaac: I mean yeah that’s true. I’ve talked to so many people who feel like that’s their solutions for their accounting woes, especially during the tax time. I’m gonna fire this guy.

Reese Harper: Yeah my guy he’s okay. But I don’t know. He’s not very aggressive. He’s super conservative.

Ryan Isaac: Yeah.

Reese Harper: It’s like we all hate paying taxes. We all hate it. With a passion. I do all kinds of things every year within my legal limit to minimize or defer or remove the taxes that I owe. But it’s not like subjective and one CPA can’t take an unreasonable position without costing you some pain at some point down the road.

Ryan Isaac: Yeah some kind of liability.

Reese Harper: The other thing people do is they make big purchase decisions, right?

Ryan Isaac: Let’s go buy some stuff.

Reese Harper: They love buying things. I like buying things.

Ryan Isaac: You’ve got to know … I have a tax bill so I bought a truck and I bought $100,000 of equipment. You’re like oh good. Did you need those things? Like no, not at all. It’s like my fourth car.

Reese Harper: I think you can blame some of this on CPA’s that don’t communicate clearly with their clients. Some CPA’s communicate really well regarding this topic and others don’t. I think many clients that we talk are under the impression that if they spend $100,000 on something they save $100,000 on taxes.

Ryan Isaac: You write it off. You remember that Seinfeld where Jerry is like, Kramer, you don’t even know what a write off is?

Reese Harper: You write it off. Yeah.

Ryan Isaac: Yeah that’s the thought. I bought it and I wrote it off.

Reese Harper: Yeah totally. So you’re only saving at best, if you’re, let’s say you’re in California right now and you’ve got a really, really high income. You might be saving 50 cents on the dollar. All right. Most states and most of our clients are going to be 45 cents. 40 cents. So you can think whatever you buy is 40 to 50% off. Here’s the problem with that mentality. If you buy twice as much stuff, during your life than you really needed, because it was a write off.

Ryan Isaac: Pretty simple economics.

Reese Harper: Then you didn’t ever really get ahead. You just had less money.

Ryan Isaac: And more stuff.

Reese Harper: So it happens pretty frequently. You say because I get these write offs, do you think that you’re more likely to spend money twice as much than the average person who doesn’t get a write off. I know that’s the case, okay?

Ryan Isaac: How many people own golf carts out there?

Reese Harper: Exactly. Now I’m just saying … well that was a tax credit though.

Ryan Isaac: It was a tax credit one year. Little different.

Reese Harper: If you’re getting a tax credit for something, like an electric vehicle …

Ryan Isaac: Grab it.

Reese Harper: I think you’re fine with that.

Ryan Isaac: And you need that electric vehicle.

Reese Harper: A write off doesn’t save you as much as you think.

Ryan Isaac: Not dollar for dollar.

Reese Harper: So I just think, most people probably end up spending twice as much money …

Ryan Isaac: To get the write off, yeah.

Reese Harper: Yeah to get the write off and then it’s like sixes. And if you spend more, if you’re in the habit of spending more than twice as much as you would normally spend, then you start losing money. I think it’s pretty safe to say that when people are looking at write offs, they don’t get the cheapest car. They don’t buy the cheapest equipment. They don’t think about the cheapest CE. I mean it’s … if it’s a personal expense, like if you look at the average American consumer, who has no business write offs …

Ryan Isaac: And I need some CE. I’m going to do that internet course in my living room.

Reese Harper: They are very frugal in how they spend money. Because there isn’t really any advantage in doing it.

Ryan Isaac: If it’s a business one though, I’m going to Hawaii.

Reese Harper: And the government knows that. And they want to increase the GDP of the country, so they do that by having write offs be significant for business owners so that it ends up providing for jobs. You just have to make sure that you’re doing things you actually need and that you can justify.
I would much prefer you hiring someone for marketing and spending $45,000 salary on marketing, that actually probably grows your collections a fair amount and you have a chance of making that back, than just saying well I’m going to pay taxes anyways, so I’m going to buy another truck and wrap it. Or I’m going to buy another Hummer and wrap it …

Ryan Isaac: Shout out to 1997.

Reese Harper: Yeah. You’ve seen it.

Ryan Isaac: No, they are still in business.

Reese Harper: They are running around.

Ryan Isaac: It’s okay.

Reese Harper: I love them, okay? I’m loving those Hummers.

Ryan Isaac: That was like ’03. Shout out to ’03. You mentioned this before, one of the big ways you can fix that impulse of I’m gonna fire my guys, is just better communication. More often than not, when I hear this and you hear the suggestion, well how about you just set up a more frequent meeting. Meet in the spring and the summer and the fall. Don’t wait until December when he gets to you and more often than not, the CPA and account teams, are totally willing to do that. They almost rather do it, you know, because they can stay on top of it. Just improve the communications with your accounting team, can probably get rid of that impulse to want to fire the guy by the end of the year.

Reese Harper: And just make sure when you make decisions and purchases, that you’re making … you have a plan for things you need and those things happen to have tax deductions, then great. I just wouldn’t let a tax deduction drive a decision that I’m making to either expand, to improve my space, to hire people, because usually what ends up happening, what do people do with the money they write off anyway? These write offs. The big pieces of equipment, the TI’s, the additional expansion projects, the vehicles. They end up financing those cars. They finance the buildings. They finance the TI’s. They finance the equipment. What ends up happening is by the time they are done paying off that expense, and paying the interest on that expense and only being able to write off a certain percent of it this year, it ended up not being that big of a an advantage anyway, unless you needed it. And I just see too many people buying things that they didn’t really need or use, end up financing it, getting a nice tax deduction, eliminating their taxes, but paying things back, like we said a couple weeks ago is a lot harder than borrowing it.
It costs a lot more than you think. So I think it’s just a good thing to remember. Buy things you need and be very careful about saying, I need it.

Ryan Isaac: And we talked about another one too. We talked about before is making sure the retirement plan at the office is the most efficient, correct retirement plan that you should have for that tax year. In a dentist situation, they can change frequently. Especially the older you get and the more cash flow you have to put into a retirement plan. They can fluctuate quite a bit. And so, another way to be more tax efficient, again have more communication with your advisor and your CPA accounting team throughout the year about which retirement plan. I am surprised how many conversations we have. It’s at least monthly. Probably a couple times a month with people who have had a retirement plan in place for a long time and it’s not good. Either, it’s … the structure is illegal, you know, and people don’t know or they are doing …. they’ve been doing payroll completely wrong or they’ve been giving employees tons of money and didn’t know that there was another solution for it. And no one has told them that.
So just making sure that’s the right plan and the most efficient on every year. That can solve a lot of problems too.

Reese Harper: I think that’s really great insight and let’s share one quote from our friend Warren Buffet here at the end.

Ryan Isaac: Go ahead.

Reese Harper: I don’t want people to misinterpret this because we have plenty of podcasts about taking action. But today’s podcast is about not making massive sweeping changes.

Ryan Isaac: Cool your jets.

Reese Harper: To things that are already not a problem. And more often than not, if you follow this advice from Warren Buffet, you’ll be in a better spot. Warren said, “Don’t just do something, stand there.” A little bit backwards from what you traditionally heard.

Ryan Isaac: Yeah, sounds very familiar.

Reese Harper: I think he’s used to seeing a lot of like corporate acquisitions and mergers where they are probably done very quickly, hastily, people make investments for very short terms reasons. And he’s … the classic like long term value investor. And the type of person that really does something with a lot of research, very purposeful and does it consistently and sticks with a plan. I think for most of us, that’s probably a good way to go.

Justin Copier: I have a good quote too. This is an original Q quote. Don’t hire an architect for $12 million. Just turn off the light.

Ryan Isaac: See we’re going to end with that one. With that, we will wrap this thing up. We have our episodes of the Dentist Money Show now on YouTube. Dentist Money Show on YouTube. We’re also really excited to announce that we’re the official podcast for the upcoming Greater New York Dental Meeting, this year, that takes place just a few days after Thanksgiving. So we’re really stoked to be there. We’ll be at the show. We’ll be recording interviews on the floor.

Reese Harper: Yeah come see us.

Ryan Isaac: Come see us. We love to see people in person. So for registration that’s gnydm.com. We’ll put the link in the show notes as well. If you go to our website, dentistadvisors.com, you can schedule a time to talk to us. At the top of the website, there’s a link for our calendar. Schedule a free consultation. Or if it’s easier for you, just go ahead and give us a call anytime at 833-DDS-PLAN. Thanks guys. See you around.

Reese Harper: Carry on.

Practice Management