understanding your finances
DESCRIPTION
An overview of personal finances and practice finances for dentists.TRANSCRIPT
Understanding Your Finances
IUSD Lunch & Learn: D1 – D4Presented by:
Amber Banks, Consultant – Veros DentalAaron Irwin, VP – PNC Healthcare Banking
Kevin Patrick, VP – PNC Healthcare BankingMarch 21, 2012
Main areas to consider Budgeting Income Risk management Expenses Debt
Personal Finances
No right or wrong way Detailed budget Understand your monthly “inflows” and
“outflows” and where you are currently Track your transactions Ability to make better buying decisions Monitor & track where you stand Help you understand employment options Make goals! (saving, retirement, new house, debt repayment)
Budgeting / Planning
QuickBooks®/Quicken® Excel Handwritten Mint.com Filing system – calendar with expenses or
folder system
Budgeting Tools
Understand your income! Single or dual income (Can you afford to go from a
dual to single income?)
Source of income – risk associated (commissions, % of production, stability of employer)
Secondary source of income (spouse, part time job)
Time commitment (non-compete, ability to “walk away,” does it fit in your schedule?)
Income
Considering Your Income…
Consider your income when putting your budget together What can you afford? What “lifestyle changes” can
be made? Contemplate career options and decisions
What do you need to make? Prioritize your personal goals and objectives
What do you want to pay off first? What risk level can you tolerate?
Start-up/acquisition/associateship
Protect your current and future income Associateship contracts/LLC
Insurance needs Disability Life Auto Malpractice Homeowners/Rent Health
Risk Management
Understand your expenses! Identify your fixed and variable costs (what can you control)
Understand your current costs (what costs can be cut, if any?)
Emergency fund (3-6 months of living expenses, 6 months long-term)
Buy vs. Lease – Auto Buy vs. Rent – Home Savings goals College savings Marriage/Children Taxes!
Expenses
Good debt vs. bad debt Credit cards Student loan debt Debt to buy or start your practice Credit scores
Debt
Budgeting/Goal Setting/Break-Even Point Bookkeeping/Accounting Banking Taxes
Practice Finances
Understand practice fixed and variable expenses
Understand how to meet collection goals Set goals!
Collection income, expenses & marketing Measure the goals regularly!
Know what you have to do daily Update goals as situations change Make plans to achieve your goals!
Budgeting/Goal Setting/Break-Even Point
Bookkeeping & Accounting
Bookkeeping
Paying bills Making deposits Recording all activity
Accounting
Using bookkeeping data to create statements
Real time data Understand the reports Assists in making timely
decisions Measures performance over a
time period Compare to industry averages
Largest expense you will incur Basics – pay taxes on your “wages” and
practice “profits” Laws change frequently Be proactive! Weigh tax savings and cash flow
“It costs money to save money”
Taxes!
Spend an hour and put together a personal and practice budget
Monitor and stay on top of your budget! Review your risks Review your debt situation Set your personal and professional goals and
your plan Surround yourself with dental specific
advisors
Items to Consider…
Financing Presented by:
Aaron Irwin, Vice President Kevin Patrick, Vice President
PNC Healthcare Banking
PNC Advantage for Healthcare Understanding the make-up of a good credit
score Your personal credit report Is it a good time to borrow?
Topics to Cover
Special Financing for Dentists
Practice Acquisitions Practice Start-Ups Partner Buy-Ins
Commercial Real Estate Purchases
Operating Line of Credit
Refinance of Existing Practice Debts
Equipment
A credit score is a numerical score which credit reporting agencies assign to you. Lenders use these scores to measure “risk.”
Commonly referred to as a FICO Score Determines the interest rate you pay for home
mortgages, auto loans, credit cards, etc. Lenders use these scores to help determine if
you are a good “risk” or not, then approve or decline your application.
What is a Credit Score?
Equifax – Beacon Score
Experian – Fair Isaac Score
Transunion – Empirica Score
The Reporting Agencies “BIG 3”
720 and above: Excellent credit, likely eligible to receive a lender’s most favorable rates.
675 to 719: Once it dips below 720, you may no longer be approved for the lender’s best rate, but you should have little difficulty finding a good loan.
620 to 674: With a below-average credit score, your options will be reduced and you’ll pay a premium on your loan – perhaps as much as 2% more than borrowers with excellent credit.
Below 620: Below 620 put you in the category of a “sub-prime” borrower.
What Do They Mean?
Obtained from LendingTree.Com
What Affects My Credit Score?
Positives
Paying your bills on time Using 25% or less of your
available credit Steady employment
Negatives
Late or missed payments – typically has to be >30 days late before they get reported
Using more than 80% of your total amount available
Bankruptcy Periods of unemployment Too many request for new
lines of credit
Payment history Outstanding debts Length of time you have been
building credit Number of inquiries
Main Factors That Affect Your Credit Score
Individuals can receive one free credit report on an annual basis. Many sites provide this information but may try to advertise other products for a fee.
AnnualCreditReport.com Takes you to each of the three reporting
agency websites Provides a complimentary credit report
Credit Reports
Let’s take a look at interest rates from a historical perspective and compare to how this affects financing projects.
The cost of borrowing: The Prime Rate example
The Prime Rate is defined by The Wall Street Journal as “The base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks.”
Interesting Note: Some banks may have a different “prime rate” than what is reported in The Wall Street Journal. Other banks may have floors or ceilings on variable rate, prime based lending.
Is it a Good Time to Borrow?
Primerate.net
Prime Rate 2007-2011
2008 2009 2010 2011January 6.50 3.25 3.25 3.25
April 5.25 3.25 3.25 3.25
July 5.00 3.25 3.25 3.25
October 4.50 3.25 3.25 3.25
Cost of Capital and the Affects on Project Financing
A typical example for equipment financing$100,000 5 year July 2010 @ 3.25% $1,808
January 2008 @6.50% $1,991January 2007 @8.25% $2,039
On a $100,000 project, there is a $13,860 difference in the total cost of financing due to interest rate fluctuations between January 2007 – July 2010.
$40,000 4 year July 2010 @3.25% $891January 2008 @6.50% $951
January 2007 @8.25% $984
On a $40,000 project, there is a $4,464 difference in the total cost of financing due to interest rate fluctuations between January 2007 – July 2010.
Contact Information
Veros Dental
Amber C. BanksBusiness Consulting ManagerVeros Dental(317) 452-4580, ext. [email protected]
About Veros Dental…Practice consulting, start-up and acquisition assistance, tax, accounting and financial planning services.
PNC Healthcare Banking
Aaron J. Irwin Kevin PatrickVice President Vice PresidentPNC Bank PNC Bank(317) 267-8845 (260) [email protected] [email protected]
PNC Healthcare Banking…PNC understands the complexity of the dental industry, and knows a generic approach to banking services isn’t the right solution for your unique financial challenges. Our healthcare bankers can deliver specialized experience and customized solutions.