The one thing ALL of your advisors wish you’d do

December 15, 2019
In my family we have this unfortunate habit of shifting the conversation at gatherings toward the optometric industry. Our spouses listen politely as we debate the future of the industry, whether we've reached the peak of private equity and other riveting topics. BUt there's one recurring conversation we have that is worth sharing: best practices for financial statements, specifically the profit and loss statement (P&L). We have spent many an evening lamenting about what we wish we’d see versus what we typically see on that report.

Since we’re two weeks away from a New Year with new financials, this seems like the perfect time to ask doctors to make one change that their Financial Advisor, Practice Management consultant, CPA and other advisors will all appreciate: Owner’s Compensation, (also sometimes referred to as Officer’s Compensation).

Many doctors don’t use this section at all, lumping their payroll in with their staff’s or all doctors and their mostly personal expenses in with general practice expenses. And the ones who do seldomly use this section in a comprehensive manner. This makes it extremely difficult to pinpoint actual practice profitability, a number every doctor should know annually anyway, and a critical component of practice pricing when you’re ready to sell. The less profitable your practice appears, the less you'll likely be able to sell it for.

For this newsletter, I called up my brother Nathan Hayes, long practice management consultant, about best practices for the Owner’s Compensation section of a P&L. He suggests the following should be included in this category:
  • Owner’s salary
  • The payroll taxes and expenses attributable to the owner
  • Owner’s benefits, such as healthcare, retirement plan contributions
  • Auto expenses, if application
  • Travel and education expenses of the owner
  • Food and entertainment expenses
  • Any other expenses/benefits that a new practice owner might not incur

From Nathan’s perspective, this enables a practice management consultant to pinpoint actual profitability and make recommendations based on real practices finances rather than padded numbers. Your CPA will love having numbers they can easily identify and work with for your tax return. A broker or appraiser can more easily determine the value of your practice. And your wealth advisor will be able to accurately represent your practice on your personal net worth statement as well as understand how much to adjust personal spending by when you sell your practice.

In 16 days, your financials get a fresh start. Take a few minutes to pop into your accounting software and add this category and all the sub components that apply to you, or forward this email to your bookkeeper and as them to do it—think of it as a great holiday gift for your practice. 

The views expressed here are as of the date of publication and are subject to change. This information should not be construed as investment advice. It is presented for information purposes only and is not intended to be either a specific offer (or recommendation) Hayes Wealth Advisors to sell or provide, or a specific invitation for any investor. Information herein may have been obtained from sources believed to be reliable, Hayes Wealth Advisors is unable to warrant its accuracy.
All data, projections and opinions are as of the date of this report and subject to change.
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Hayes Wealth Advisors does not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions. All recommendations must be considered in the context of an individual investor’s goals, time horizon, liquidity needs and risk tolerance. Not all recommendations will be suitable for all investors.
Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government. Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.