Dentists Who Invest Podcast

How To Achieve The Best Exit Number For Your Dental Practice with Luke Hurley & Anick Sharma [CPD Available]

• Dr. James Martin • Season 3 • Episode 379

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If you’d like to discuss your finances with a professional, you can connect with Luke and Anick here: https://www.viderefinancial.com/contact

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Get your free verifiable CPD for this episode here >>>  https://www.dentistswhoinvest.com/videos/how-to-achieve-the-best-exit-number-for-your-dental-practice-with-luke-hurley-anick-sharma

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Are you holding onto your dental practice longer than needed? The quest for the "highest valuation" might actually be costing you precious years of freedom.

In this illuminating discussion, financial planners Luke Hurley and Anik Sharma reveal the critical distinction between maximizing practice value and achieving your personal financial independence. Through real-world examples and comprehensive cash flow modeling, they demonstrate how dentists can determine their actual "number" – the amount needed to fund their desired lifestyle without financial constraint.

The conversation challenges conventional wisdom about retirement age and practice exit timing. Rather than clinging to arbitrary targets or industry benchmarks, our experts walk through how to reverse-engineer your financial needs, taking into account existing assets, pensions, and investment portfolios. This approach often reveals that many practice owners are already closer to financial freedom than they realize.

Financial planning software vividly illustrates how even modest practice valuations, combined with accumulated wealth in pensions and investments, can provide sustainable income well beyond traditional retirement age. The discussion includes important considerations around sequence risk, tax optimization, and the psychological aspects of transitioning away from practice ownership.

Perhaps most valuable is the exploration of what retirement actually means in today's world. Far from the outdated concept of "being put out to pasture," financial independence offers the freedom to choose how you spend your time – whether that's continuing clinical work on your terms, pursuing new business ventures, dedicating time to family and travel, or exploring entirely new passions like the former solicitor who became a flight instructor.

Ready to discover your number and gain the clarity that comes with knowing exactly when you could sell your practice? Listen now and claim your free verifiable CPD by completing the questionnaire through the link in the description.

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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional. Investment figures quoted refer to simulated past performance and that past performance is not a reliable indicator of future results/performance.

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Dr James:

What's up everybody. Welcome to another podcast in the Dentists Who Invest platform podcast slash webinar, just to be strictly accurate. And this is all about how you can get the best inverted commas. And the reason I'm doing air quotation marks is because how do you actually define the best? As well, we're gonna delve into the philosophy of that, because the best doesn't always mean the highest, particularly when it means that you're clinging on for a few more years of practice ownership, whereas in reality you might just want to go ahead and pull the trigger more on that discussion in just a second, but just before we do, welcoming my two guests this evening who are going to be speaking on this exact subject, mr Luke hurley and mr Anick sharma, I'm also happy to share that there is free verifiable cpd associated with this episode.

Dr James:

Whenever you finish the episode, all you have to do is click the link in the podcast description. It'll take you right through the Dentistry Invest website. You'll be able to complete a short questionnaire and, once passed, you fill in your reflections and we'll go ahead and email over to you your verifiable CPD certificate, which is entirely free. What that means is this podcast episode will be able to contribute towards your verifiable CPD hours during this learning cycle. Guys, do we even need intros at this point? Possibly I don't think that's for either Luke or Anick to say, no, we don't need intros. No, we don't need intros. So I'm semi-joking. Maybe it might be nice to have a bit of a recap.

Luke:

Eh, just a hello yeah sure, um thanks, James. Uh, also, I'm Luke um financial planner. Been helping dentists now for about 15 years, believe it or not um with their financial planning needs. Uh, and we've got uh annick with us as well today. Hi Anick.

Anick:

Hi Luke. Thanks for that, James as well. Yeah, hi everyone. Similar to Luke, I've been a financial planner for quite a while now, helping business owners, dentists, etc. With financial planning needs and gearing up for later life, essentially, and whatever that might look like from one person to another.

Dr James:

Brilliant. So let's jump in with the meat and potatoes this evening. What is the best number? So there's two real components to this. I mean, there is increasing the valuation and profitability of your practice, and then there's the whole other side to it, and insofar as, how do we know what target or what valuation we're aiming for in order to, let's just say, we want to sail off into the sunset as in retire, or certainly how most people would conventionally view the concept of retirement? But of course, we want to just make it super clear that that doesn't mean that you have to just down tools and never do any work for the rest of your days, because for a lot of people, that's actually not what their version of retirement looks like, and I, like I just want to make that so clear. It's not that you don't have to do anything, but you have the option and you've got the financial means to be able to, at your leisure or at your will, decide how much you know active pursuits you want to have every single week, whether that be continuing to do a little bit of work or not, or doing whatever the heck you want. That's the whole point. So that's how we're defining the concept of retirement and sailing off into the sunset today.

Dr James:

And, like I say, here's the thing let's say. I'll give you an example. You know, it's very common that we're trained or we have this sort of internal belief that we need to cling on to get the highest valuation possible for our practice. But if it means that we're clinging on for a few years, this is just an example, of course, but it means that we're clinging on for a few years three, four more years of practice ownership versus we could have just pulled the trigger and made an exit at a specific time that because we calculated the numbers and done the maths, we know that that would have given us enough anyway. So if we're clinging on for a few more years of practice ownership when we don't have to, that's kind of what we're getting at today.

Dr James:

Knowing your number in terms of your financial independence number will allow you to help make that decision. And this is also particularly true if you've been contributing to investment accounts your whole life, like a pension or an ISA. So in other words, there doesn't all of your retirement pot doesn't necessarily have to come for your business. So we need to factor those into and all of a sudden you can begin to see just how many moving parts there are here. So that's what we're getting at this evening.

Dr James:

So there's two real sides to the best number, I guess, for your dental practice. The first one would be actively taking measures to increase the profitability and then, therefore, valuation of your business. And then the second side of things is what I was talking about just a second ago, which is crunching the numbers and understanding just what that number is, that financial independence number we talked about a second ago. So if we just revert to what I was saying, first side of things is increasing the valuation of the business. We're not going to be covering that in super great detail tonight, except to say that, well, all the obvious stuff would be included in that bucket with regards to investing in the business. So that would be investing in equipment, investing in your staff, for example, maybe bringing certain specialities into your practice.

Dr James:

There's a whole conversation there about how much, uh, nhs dentistry you do versus private dentistry you do, what proportion of mixed. It seems to shift every single year as to what practices uh, you know, have the, you know, carry the highest multiple in terms of their setup. It varies a little bit. It's not really our field specifically, of expertise in order to cover that in great detail tonight. That's where getting a practice valuation and speaking to a broker can really help, or perhaps some form of mentorship within your business. So it's good to know that those things exist and it's good to know that that is one half of the equation, but what about the other stuff? What about how we can actually figure out what that number is in order to say what our financial independence number is and in order to say how much we need to be able to sail off into the sunset? Well, that's where constant numbers really helps, doesn't it, Luke?

Luke:

Yeah, 100%, and I think you made the point speaking to getting a team of professionals lined up in advance of a potential exit. Getting a team of professionals lined up in advance of a potential exit, um, particularly, you know, if you, if you're to get a professional valuation in quite early to help guide improvements as you ready really a business for exit. Um, I think that the core theme really is planning, and obviously I would say that I'm a financial planner, but for us, you really want to start planning that exit. I would say three to five years in. There's a lot more that you can be doing with that sort of run-in, as opposed to kind of making the decision sort of a bit more last minute. So, really good, if you can get three to five years in advance, then that enables you to make the improvements if required and get things lined up. Enables us to do some work around figuring out what your number is, getting the financial planning side of things optimized in advance as well In terms of how we go about doing that and how we help people work out what they need and ie how much is enough for them to really switch off the tap in terms of wealth creation and instead, you switch to being dependent on the wealth that you've created to fund your lifestyle because you're no longer able to work or your business has been sold.

Luke:

So the way we go about that is using software primarily. We go through a full session in terms of defining what somebody's vision is. Uh, can I share my screen, James? I've got something I can I believe so.

Dr James:

There's a little button at the bottom there it says share. Let's have a look. Yeah gotcha.

Luke:

So the first thing we do uh, let's not pull through yet, has it? Let me know when it's showing? Yeah, we're good the first thing we want to do is define what somebody's vision is you know, start with the end in mind.

Luke:

So for us that means getting to know what the, the, the why is of the plan, but also also drilling down into what your goals and objectives are, so that can be, for most people, your lifestyle need. So how much money do you need every year for the rest of your life to spend on living, just living life, enjoying yourself, achieving all of the things that you had planned when you finish work? So there's an annual amount that we need to plan towards an annual lifestyle cost that's not going to be static all the way through. That's clearly going to change as you get older. For me, I draw up a timeline for clients. This is just a demo example client somebody that's going to be working in the run-up to trying to exit at age 50. I've broken down what I would call their timeline, which is running from their age now through to age 100, into different stages or phases. So we've got phase one, the first phase of retirement. That's where they're going to be more active, they're going to be spending more money. I've got that running through to age 80. And then I've got phase two, which is where they're going to be from 80 to 95, slowing down, spending less money on life. And then I've got the final five years of life. I've got some extra, quite expensive numbers there for possible care costs to really stress test their plan. So we've made some assumptions about how much money they need every year, net of tax, to spend on lifestyle.

Luke:

Lifestyle is the key thing here and it's different for everybody. I meet lots of people and everybody has a different lifestyle. Everybody has different preferences on how they want to spend their money and how they want to align their money with achieving their objectives and also being in alignment with their values. So everybody is different and we go through a whole process to help people work out exactly what they need in terms of what their lifestyle cost is going to be, or certainly getting as close to it as possible. What I would say and I've said this on previous webinars and podcasts people's preferences from experience don't suddenly change overnight. You know you don't suddenly change your hobbies and your interests night. You know you don't suddenly change your hobbies and your interests, and so a very good starting point is to to work out exactly what you're spending now and be intentional about ensuring that you know what you're spending and that having a spending plan and then that leads into when you've stopped work, because that's the starting point.

Luke:

You may want to increase your spending on various items. You might want to travel more, you might want to gift more money to family members, whatever it might be. But the starting point is how much does it cost to run your household? What are your essential outgoings? How much do you want to spend on the finer things in life, having some fun? So we cost all of that up and we enter that into the system and we attach that to various phases. So if you can see my screen, you can see how that is broken down and how different phases we can attach different numbers to. So for this particular client, in their first phase of retirement, I've got them as a household spending £120,000 net of tax all the way through to age 80. I've then got that dropping down quite significantly because we're making assumptions here From age 80 to age 95, I've got them spending 60k per annum. Again, it probably wouldn't be such a steep decline, but this is just a demo example.

Luke:

So once we've worked out what the annual projection of lifestyle costs is going to be, we then might want to consider some one-off costs, some milestone goals. Now, that might be gifts to children, it might be paying for weddings, it might be maybe a new business venture, it could be anything. Everybody's got different goals and objectives and our role is to help define those. But those could be different markers that we place on the plan for different events, different milestones. Some of these markers tie into financial events. So this here you can see is a client beginning their NHS pensions. So some of these markers are more financial related. These markers here is because these demo clients have a son here at university and they have a cost that's attached to that and you know we can attach a value to what that's likely to require in the plan. So once we've defined our timeline and we've put some numbers in in terms of the requirement, lifestyle, wise, milestone goals, we can then work out what the current assets and resources are in the plan to try and achieve those objectives. And that requires us doing quite a deep dive on somebody's personal finances and working out what their current sources of income are.

Luke:

So this client, their business owners, they're taking drawings from their, from their practice husband and wife partnership. They're set up as a limited company. They're taking some salary and some and some dividends. They're keeping themselves below the hundred thousand pound threshold because they've got the rent from the practice freehold here, a commercial property that is being paid to them directly as rental income and they are going to keep hold of that property because that's part of their retirement plan. We attach, obviously, assumptions that these drawings are going to stop at this point when they sell their business. Their aim is to sell at age 50. We then have their savings investments. So this client has modest ISA savings. They've just got 20K each in ISAs. They've got some property their main residence. They've got the freehold of the practice. They've got some property their main residence, they've got the freehold of the practice and they've got a valuation here for the goodwill which I've just entered as £1 for reasons which I will reveal later. But we are just currently valuing their practice goodwill at £1. They have pensions. So they both have SIPs. They both have NHS pensions relatively modest because it's now predominantly a private practice and they've got some state pension entitlements. I've just seen that that is last year's figure so we can update that. The final thing I said is they've got a residual main residence mortgage here that needs to be cleared at the point of retirement so that they can go into their retirement debt-free.

Luke:

In the background of this, obviously we're making assumptions for inflation, investment growth and various other factors which we won't go into now. But we, I would say that we are very conservative with our assumptions. We would always be cautious about what we're assuming. So what the next step really is that the client will have a balance sheet. We want to sense, check that with the client, very similar to a business. We want to look at the household and view their balance sheet and we want to just check all their numbers. And then we're going to have a look at their cash flow chart. So their cash flow chart is the black line represents a year's worth of spending. So that's how much they need in each given year. That includes tax. So that's all factored in. I'm just going to remove all of that. So that's the total amount they need each year for the rest of their life.

Luke:

Effectively's various spikes on here, including. You can see right at the end. You can see those care costs, expensive care costs. You can see the drop down in income when they go from phase one to phase two because they're spending less money, uh, when they're, um, when they're slowing down slightly in their 80s, I believe typically you. The stat is that you spend roughly 40 less in your 80s than you do in your 60s, so it's well worth us making some assumptions for that.

Luke:

The reason why there's a bit of a mix up here is because of at the moment where the system thinks that that's coming from it thinks it's coming from a pension and there's tax factored into that.

Luke:

This spike here is because there's a gift. You've got a hundred thousand pound gift being given to their son at that point when they turn age 60. But you can see there's red on the plan. These other elements that we're looking at and we're layering up are sources of income. So the pink is an assumed amount that's coming in from the commercial property. In reality, it's likely that they would sell that at some point, but we've got that running all the way through for now. We've got got a dark blue, which is a state pension or two state pensions for the client kicking in at their state pension age. We've got the green, which is the nhs pensions kicking in at 65 2008 section, and we've got a small amount, which is the ices in the light blue. Now what we haven't got on there clearly is the sale of a practice, and there's a. There's a reason for that, because we can reverse engineer things to allow the system to tell us what do the clients need when they do aim to sell their practice.

Dr James:

Look. Can I just point out something that maybe it's. How can I say this? It kind of struck me from looking at that graph. In this particular example, which probably not unheard of there's a little bit of a shortfall you can see there in the red okay, but there's not a great deal. You know, they're actually close-ish. So I guess there's probably a lot of people who are just clinging on from this huge windfall, from their practice, whenever it's actually marginal, where they need to get to in terms of their uh, you know money, you know income in order to sustain themselves. I think, as a general trend?

Luke:

I think people don't, because they don't go through these exercises, I think they overestimate the amount that they need and they undervalue some of the assets and resources that they've got in place, particularly around state pensions, nhs pensions and so on and so forth. And so I do see it's quite common for people to be really quite surprised when we kind of reverse engineer this and look at actually, this is how much you could spend, um, and these are your options. And so I do see that quite a lot. Um, I would say that the real value in this process I'll say this now is when we talk about planning and we talk about having enough.

Luke:

Everybody's number one fear when they're retiring or selling their business is whether they're going to run out of money. Ultimately, that's the number one fear Am I going to run out of money? And so the fear of not having enough can be really quite detrimental, and I would argue that it's just as detrimental as not having enough money, because if you don't know the trajectory you're on and you don't know that you're on the right course, and you don't know that you have enough, you could be living the life of somebody that doesn't have enough. And so doing this exercise in the lead up to an exit or a retirement gives people that peace of mind to say we're on the right path here, and then they can come back into the present and make informed decisions about how they choose to allocate their resources in the time that they have left. Because ultimately, you know, our precious and number one most precious resources is time and, uh, you know time, time is very much finite, whereas the you know. So what we're looking to achieve here is to give people that peace of mind to say you have enough money. This is how much you need to sell your practice for. Um, you know, this is your number. This is how much you need to sell your practice for. You know, this is your number. This is how much.

Luke:

If you continue on the path that you're on, this is how much you could spend when you do exit your, your business. And it opens up the possibilities. And then we sit down and say, well, let's look at those possibilities. What would you, in an ideal world, what would you want to achieve between now and the point at which you, you do pass away? Um, what, what's really important to you? And we can attach some, some, some figures to that and that might be. There's only really two things you can do with money, right? You can either spend it or gift it in one way or another. There are really only two things you can do with money, so we either. If there's too much money in the plan, then we either need to plan or give more um so what I've run here is the, the results of of that.

Luke:

That. That kind of calculation is that this client needs, at the point of exit, a net figure of 778,516 pence um, which is very good because actually, uh, their practice is worth a million pounds. So let's put that back in. Come back to the cash flow chart. Now there might be some changes that we make around ensuring that this is as tax efficient as possible, which obviously I'm not doing now. You can now see this injection of cash on exit and you can see the cgt that follows slight spike afterwards um. But now it's about us optimizing this plan and making sure it's as efficient as we possibly can. Um. And from that, the second part of the of the story, if you like, is once we know that the cash flow for our clients, the rest of the client's life, is taken care of, and then and they're on the right track and they haven't got a shortfall we can then look at the second part of the equation, which is how much money are they actually going to be left with?

Luke:

And that comes back to that. There's only really three outcomes for a financial plan. You're either going to not have enough, you're going to get it just right, or you're going to have too much. And then the conversation shifts from do I have enough money for retirement to? Am I possibly going to die with too much in my personal name and end up my heirs, my beneficiaries, are going to pay significant amounts of inheritance tax, and that's at 40% over the allowance. So that becomes a different conversation where we then come back to the plan and look at how we can transition that wealth to future generations and that's, in short, how we can give people that clarity over what their number is. If I just jump in, there.

Anick:

Luke, that was great. Thanks for going through that. There is so much value to be added in this process. I've seen firsthand when someone for going through that. There is so much value to be added in in this process. I've seen firsthand when someone's going through a buying and selling process. It's so multi-disciplinary because you've got the various bodies involved and quite often there can be a lot of friction. The buyer wants the lowest possible price and the seller wants the highest possible price, so naturally that friction can stagnate the process completely.

Anick:

Now, having gone through this process, if I was a client, if I was this person right here, if I'm holding out for 1.5, 2 million pounds because in my head that's what I've latched onto, that I need this number All of a sudden now you're saying I only need circa 800,000 net of tax.

Anick:

It removes the friction completely and we can just get cracking with this sale.

Anick:

And all of a sudden I can think about later life and retirement and spending money with the kids and traveling and and getting that meaningful, meaningful amount of life. And you said as well, on the flip side, if you have too much money, then then what can you do? Getting this right is so important because, well, quite obviously, this person has too much money and if we know what our number is, we can be conscious about the tax consequences, the financial planning elements such as is it appropriate to maybe move some shares around pre-exit to try and get some of that value out of your estate before the exit happens? And those sort of mechanisms are so powerful and so important to get right because it's a one-time only event and once the exit has happened you can miss out on those windows of opportunities which could impact you, your life, your kids and any potential wealth that's passed on throughout the generations 100 yeah you know, there's a great question that someone's actually asked in the chat, which we're gonna come to uh very soon.

Dr James:

But I like uh questions that I like and I think are really fascinating to ask to to people like yourselves who have obviously been on the other side of the table to these conversations is, in your experience and I think we touched upon this earlier, you know, but, Luke, you were saying that it's quite frequently the case that dentists have a little bit too much rather than not enough. And I was just interested, just as a sort of rule, or maybe not so much a rule, or just in your experience, what's the earliest you've ever seen anybody be able to sell their practice and have enough to be able to retire in terms of age? Maybe like mid 40s, 50s, something along those lines. Because people and the reason that I ask this is we all have, we're all conditioned to think that we have to be a certain age to be retired, right, like there's like this subconscious belief that we have to be 50s or 60s or something along those lines. But retirement isn't an age so much as it is an income number and a level of wealth effectively.

Luke:

So to answer the question in terms of the youngest, I mean, I had a client who exited his business for a considerable sum of money in his 30s and had enough money there to never work a day again. But he's set up a dental practice recently because for him it's not, it's a different dimension, because for him it's not it's a different dimension. So, but you know he's done that by choice, not out of necessity, because he'd already achieved that exit with a significant sum that could have sustained him for the rest of his life and his family if he wanted that. So it's very, very different for everybody, but it's powerful when you've got that level of clarity of knowing that you've got enough, very powerful in terms of your decision-making process.

Dr James:

I think one thing that's very good to know and I've seen you guys do it on the cash planning side of things before is you've got a fixed age that you can tap into your pension and that's going to be what 57 in a few years, and a lot of people are clinging on for that age. But realistically you might have a sizable pension. You've got the exit from the business and potentially some other savings in an ISA or in your own name or something along those lines, and that can tie you through to the pension as well. You don't have to get it all at once right, but that's the power of planning, isn't it?

Luke:

yeah, it's a really good point. A lot of people latch on to these numbers, these ages, and often they're driven by normal pension ages, whether that be private pension, like you've mentioned, or NHS pension, and, in fairness, you have people that don't fully understand how you can access these pensions. The NHS pension example you know you don't have to continue to 60 just to to benefit from the nhs pension. Um. So, yeah, completely right, it's about really knowing, uh, what your assets and resources are, what your options are, what flexibility there is, layering those up to ensure that you don't have a shortfall every year for in the future, and then, um organizing things in terms of the, the order in which you access your, your different assets and resources, whether those be savings, investments, as you said, um private pensions, ie sips, etc. Uh, it might be nhs pensions and the timings of those.

Dr James:

Those events are important, um, obviously, the key there is to, to, to get, get that right and not make mistakes, and then it you know it's um, they're expensive decisions yes, and just to reiterate what you were saying earlier about that particular chap that you were talking about, who sold their business when they were in their 30s and they have enough to sail off into the sunset should they so wish. But they're going again with another dental practice and that's fine. You know good on them. I think sometimes people have this fear that retirement means that they just have to do nothing. It's not like that, it's just. It's more peace of mind. It's as much a peace of mind thing as anything else to know that you don't, no matter what happens, you've got enough. But like I was saying, like we were talking about on this webinar, crunching the numbers is a huge part of that.

Luke:

Guys, just on that, James, I've got a really good example of that, I think one of my. I had a client some time ago come to me and we went through this exercise and we worked out that they had enough money as a household, they were perfectly comfortable, they had secure sources of income and they were on the right, on the right path. And as part of the vision vision exercise, his, his main interest and love was flying. Uh, he was actually he wasn't a dentist, actually he was a, he was a solicitor, um, and he was able to organize his retirement as soon as he realized he had enough money. And, uh, since then he's been working as a flight instructor, teaching people how to fly, and he spends his week doing what he loves, which is his passion.

Luke:

Um, I think retirement and we will mention it in due course, it it's about retirement doesn't mean that you're, you know, put out to pasture. It could be you sell your business and you go on to the next project. It could be that you dedicate your time to some other cause, different for everybody. I've seen lots and lots of different scenarios on that and we go through exercises to really work out what you know the ideal future is for for a client, and whether that be work related or good causes or whatever it might be leisure, traveling or a mix, but that one always stands out to me as somebody that really embraced the process and made quite significant changes to their, you know, to the course of their life really.

Dr James:

That's awesome, good to hear. We are going to throw the mic out to the audience very soon so that anybody on this webinar can ask any questions they like, not just about what we've spoken about, this even but even in a broader sense anything financial. All of those questions are welcome tonight. Just before we do that, annick, Luke anything that you'd like to say to wrap up I think there's a couple different components to this.

Anick:

So well there. Think there's a couple of different components to this? So well, there's more than a couple. But from a purely financial, strategic perspective, it's that adage of failing to plan, plan to fail. Now, getting your ducks in a row, ensuring you're improving profitability.

Anick:

It's really easy to get driven on certain metrics EBITDA, or whether you should be taking money out of the company or making pension contributions and the impact of multiples. The key thing is that we're evidencing growth over periods of time. We're understanding the impact of deal structures. They can be so complicated. What works for one person or someone you know of might not work for the other, whether that's an asset sale or share sale, understanding the implications of earnouts and deferred payments. Tax planning, too, is a huge one within this Business. Asset disposal relief is essentially a relief on the capital gains tax. It's changed quite a bit over the last few years and there are plans for it to change moving forward. So from April 26th that's going to change to 18%. I believe Just being organized, getting things in a row, can can make such a huge financial difference, as Luke has demonstrated with the cash flow model, can make such a huge financial difference, as Luke has demonstrated with the cash flow model.

Anick:

By being as optimised as you can, then you can have more money to do what you want and live the life you want. Getting a good team of dental specific brokers, solicitors, financial planners around can add value, particularly within the context of what you're aiming for people who have been there and done it. Some of the nitty gritty stuff legal preparation If this is something you're serious about, engage with a solicitor early on. Get the due diligence sorted financials, contracts, nhs information, et cetera, adhering to regulatory compliance. Make sure all your housekeeping is in order. And then for me don't get me wrong I absolutely love the numbers and the financial aspects of it, and Luke touched on it there.

Anick:

It's so important to get the emotional and psychological aspects sorted. Throughout the process. There is going to be a roller coaster of emotions from pride, fear, loss, excitement, sadness that this, this entity you've built up, your baby, has now been sold and given on to someone else. And all of a sudden, you might not like how they're driving Plan ahead for life after dentistry. Luke mentioned the flying example before, and that's brilliant.

Anick:

It's so easy to latch on and say from age 57, I'm going to live life in the Bahamas sipping coconuts every day, because that's what we idealize, or people can idealize, as the perfect retirement. But what's perfect for you could be different to someone else. So it's really important to hone in on your vision and we do that a lot because it's your life. It's not a rehearsal. You only get one shot of it, so you need to know what a good retirement looks like for you.

Anick:

It's really interesting in my client meetings if I ask a client what's what do you want in your retirement? What's the goal, what's the objective? Nine out of ten times people. It takes a bit more prompting and deeper questions to get there, which is fine. It's my role. If I ask you, what does a bad retirement look like? What's the worst possible outcome? I call that the anti-goal. People tend to know what that is and it's really powerful because once we know what we don't want, we can start thinking about what we do want and what perfect looks like.

Anick:

Have you had thoughts about retirement? Is this what you want? Again, people might like the idea of it, but in my experience, the amounts of business owners that have then gone back to work because it's not actually what they wanted to do. They saw the, the exit value. They think they want to stop working, but they get bored after a few years and end up being an associate and then equally hate their job because they're now working with someone else.

Anick:

It can be quite cyclical. So, like Luke mentioned before, that example of someone who retired in their 30s and wants to go again that's absolutely fine If that's what you want to do. Have a really deep think about what you want to do, what you want to get out of life. There's been a shift within society of what retirement looks like. Talk to people who've been there and have done it, fellow peers, et cetera. Then the other thing as well a lot of you who have practices when it comes to selling have a strategy in place to talk to your staff, your patients, for the transition, because a lot of your patients have probably dealt with you for however long Staff employees have had a long-standing relationship and all of their, their world, as they know it, is changing and with that comes the element of timing and sensitivity. Um, don't overlook the emotional aspects of of what a retirement and exit looks like, because it is so powerful to get right and making sure you're doing the best thing for you thanks for that and like wonderful stuff.

Dr James:

Well, guys, thank you so much for sharing your wisdom. As ever, let's go ahead and throw the mic out to the audience. Just as we were saying a second ago, guys, now is your opportunity to ask any question that you like. First come, first serve basis we'll work through all the questions that are in the chat. So, looking over at the chat right this minute, first question from amjad ali shout out to amjad amjad asks what size of investment portfolio does one need if I would like to take 80 000 pounds net per annum throughout my retirement eg 40 years without being affected by sequence returns?

Anick:

sequence returns risk eg combination of sip, isa gia inequities so that is a question that needs calculating and there's no point trying to pull something out of the air for no reason. I would say you mentioned about impacting by sequence risk and it sounds like that's something that worries you a lot. But then you go on to say about the combination of SIP, icgia and equities, icgia and equities. If sequencing risk is really a driver for this worry, then there's a wider question on the financial planning piece. If you need that £80,000, does it make sense for the current asset allocation with how it's invested? Maybe, maybe not? It's impossible to say without knowing all of your circumstances and situation. The key thing is with sequencing risk is getting your asset allocation right, because we have no control over capital markets when a downturn might happen and we will never, ever try to predict when that will happen either.

Dr James:

Go on, Anick I thought you finished.

Anick:

Having a good strategy in place is so important to make sure you're withstanding the potential impact and whether that's holding a bit more cash or making sure the portfolio is powerful enough to try and recover from that. Look at what happened in 2020, the whole list trust situation. Fixed interest went through the floor. Portfolio returns went through the floor as well. Because of that impact of not having enough juice within the equity piece of a lower equity portfolio, quite a lot of portfolios out there in the universe have struggled to recover from it because it hasn't had enough power to try and get back from that sequence risk. Essentially.

Dr James:

And you know sequence risk is a really interesting concept. Would you be able to explain it in your words for people out there who don't know what that is?

Anick:

So it's essentially day one of retirement. You're going to take £80,000 out in one go. Let's say If the market's dropped by 10%, then that £80,000 is a bigger number proportionally if you're a total pot. So let's say you had a total pot of a million quid for argument's sake then that million pounds drops to £900,000. All of a sudden, the £,000 pounds you're taking out is it's a it's it's a big proportion of the entire pot overall. Now, when you look at all of the data, it's really difficult then because the portfolio has had a bit of a beating and then you're continuing to take on withdrawals over the long term. Now, if that's, you get that wrong. Portfolios can't really recover because you're taking ongoing withdrawals and it can be very detrimental without good financial planning and cash management and asset allocation and it can have a detrimental impact on future retirements and those cash flow projections Luke showed before. You can find yourself running out of money quite easily unless it's managed adequately.

Dr James:

Yeah, and just to add to that, the way I heard it explained once. Well, it was exactly that. It's the sequence, the sequence at which you take out withdrawals from your account. Right, you have have to. The idea is that you wait until the market's more buoyant, of course, because 10, a 10 drop in your portfolio, well, we'd have to crunch the numbers, but you'd have to get a 15 gain to get back to where you were before. So that's how, the sequence of which you take out withdrawals from your account. Well, it can affect how long it's going to last effectively and whether or not you run out of money, but as, as you say, if I'm correct, you can somewhat protect yourself. Again, it kind of comes back to the cash flow thing we were talking about before, because really, in an ideal world, we should have started to cycle out some of our portfolio away from equities whenever we're going to take money out. So I'm going to say that the cash flow planning side of things helps against sequence risk.

Anick:

Yeah, absolutely. Cash flow is key and for some people, reducing equity content is one strategy, for others it's maintaining an adequate amount of cash. It just depends on the personal situation, circumstances. The key thing is the cash flow. Now, if someone's taking 80,000 out a year for a couple of years and it drops to 20,000 pounds, then the likelihood is that sequencing risk is not likely to be detrimental. It all depends on the the personal circumstances, what that person's financial plan is and what the expenditure pattern is likely to be in the future as well yeah, of course, because if you have income, supplemental income from other assets, whether in sequencing risk is, you know whether the market drops.

Anick:

You don't need the money immediately if there are guaranteed sources of income, say pensions, nhs, etc. That can help protect the investment portfolio but listen.

Dr James:

Great question, because there was a lot to talk about in there.

Luke:

Thanks for that, jad just one thing on that. Can I share my screen again? Yeah, if I can, again, yeah. So one of the tools that we use which I'm not going to spend a lot of time talking about but I'm just going to demonstrate very quickly is a tool that actually has historic investment data going back to I believe it's 1915. And we can tell the tool we use this to sense, check a financial plan. We can tell the system what a client is aiming to achieve from their accounts and it will backtest that using historic data.

Luke:

So the example presented in the question I think was 40 years, for example, £80,000 a year. Is that sustainable or not? There's so many variables to that which we can't go into now the asset mix, targeted investment return, risk comfort and so on and so forth, and tax, clearly. But as a very quick demonstration of how we can really help get people that peace of mind of knowing that they're not going to run out of money, this fictional character, john Smith, has an ISA with £1.6 million pounds in it and he wants to draw 80,000 pounds a year from his ISA for 40 years until he's 105. What we can do by clever pieces of technology is we can backtest that and look at 828 scenarios across the last 110 years of history and when we look at that in this example, 89% of the time he would not have run out of money effectively.

Luke:

Now, there's so many various variables to that, so please don't base your retirement on that. It's a very crude, simple calculation alone. However, this is really useful. It shows us if you were to start that journey, that 40-year journey, at any point historically, what would have been the outcome the best, the worst and everything in between. You can see the different start years here and we can really stress test using the worst that mankind has kind of thrown at us in the last 100 years. I would say that this portfolio I've used here is 100% in growth assets. Again, that's something that would need to be assessed, but I think the question did say equities. So just a demonstration, really, as to how you can use technology to answer some of these questions.

Dr James:

Thank you. There is, of course, the rather crude rule of 4%, thank you. There is, of course, the rather crude rule of four percent.

Luke:

Isn't there, but there is and it is crude because of you know. You know, factoring in charges, factoring in the different types of account uh, it was a us study. No, you know, there's all sorts of um caveats to that. But yes, if you're reading a book, um on the fire movement, they would tell you to to apply the four percent rule. Um, but we tend to go a bit more scientific than that I think with the four percent rule, bengen.

Anick:

Actually he came up with it in a time that's not as relevant today. There's actually a bit of research more recently done and four percent actually more like just over three percent. I need bigger pots of money, so, but for some people getting a I wouldn't say ballpark, getting a rough city worth, it can be useful, um, but I would not be basing retirements on off a four percent rule or three point, whatever percent yeah, and that's where the cash flow also comes in handy, because it's got the tax and it's got the other sources that will supplement the capital.

Luke:

So so you're not just relying on proceeds from practice. There might be other streams of income that that we need to factor in.

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Dr. James Martin

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