Financial Independence pursuit, vs small private practice obstacles

[saildawg]

Hello everyone,

I wanted to pose a scenario to get some thoughts.  I have been following WCI for 3 years now, introduced to the book and site during my final year of residency.  My wife (also a physician) and I have been sticking to most advice and have been very happy.  I have recently (last few months) become enamored with this chart on Mr. Money Mustache http://www.mrmoneymustache.com/wp-content/uploads/2012/01/years_to_retirement.png

My goal is to be financially independent in 10-12 years.  Obtacles to that are obviously expenses, mainly student loans for us.  We have paid over 120K over the last 16 months and should have them paid off in 3 years.  We have a 15 year mortgage equal to one year salary, and enjoy living a low expense lifestyle. The other main expense I see on the horizon is my private practice buy in. I work in a small ophthalmology practice, and there is one physician owner.  I would be buying into half.  Fortunately we get along well, I like the practice, love the area we work in, and my wife likes her job where she will be partner in 6 months (no buy in as her anesthesia group has no overhead).  If the financials work out where I will be collecting a significant amount more income due to partnership I will certainly do it.  However, my main concern would be buyout.  Fortunately my partner is only 8 years older (he is 42), and has no intent on stopping anytime soon.  However when he is ready to retire, I dont think I would want to run the practice by myself, I dont want the administrative extra work, and I would hopefully be financially independent at that time anyways.  I would have a hard time wanting to buy him out and have to find another partner.  I am not even sure I would want to be practicing if I was financially independent, or may want to focus on charitable work with a reduced clinic schedule.

So my question: Are there provisions that can be put in the contract that would sell the practice as a whole at the time of buyout, or he would have to find a someone to buy his share etc?

We wont be discussing buy in for another 8-10 months but I am trying to look long term at my goals and could see this as something that would add onto my years untill financial independence.  Given how unpredictable healthcare is I am not sure I want to take that risk with a small private practice, however I certainly would like job security and a higher income.  Any advice or thoughts would be much appreciated.

[The White Coat Investor]

This is going to be tricky because I'm sure this partner views you as his exit plan. I suspect that for this to work out well for everyone that you're going to need to stick around for a couple of years after this partner goes and hire both his replacement and your own if you want to get a reasonable return on your buy-in.

FIRE probably works better for an employee than someone with their own private practice unless the practice is mostly accounts receivable like EM, anesthesia, rads etc.

Although if he's only 8 years older than you and you want to retire in 12 years, you're probably going to retire before him. This could work to your advantage. You could put in very generous retirement provisions for partners retiring and he would see it as benefitting him, when in reality it would benefit you! Not sure that passes the ethical/honesty test, but I'm not sure he'll bring you on as partner if you tell him you're gone in a decade.

[saildawg]

Thanks WCI, that is an interesting point.  I would not want to decieve him as he is a good person and I consider him friend.  Thats why I would want to be up front about my goals before the contract and see if there was a mutually beneficial provision, especially if we retire around the same time. I agree FIRE probably does work best as an employee, and I have the option to stay as a salaried employee with bonus structure.   However, I am always cognisent of physician burnout and often wonder if I would want to do this for 30 years.  Microsurgery certainly doesnt get easier as we age.  Additionally I would like to maximize my income, but I guess the catch is that in order to do that I have to take on significant expense.  I was hoping there was some other structure.

[jfoxcpacfp]

saildawg wrote:

Hello everyone,

I wanted to pose a scenario to get some thoughts.  I have been following WCI for 3 years now, introduced to the book and site during my final year of residency.  My wife (also a physician) and I have been sticking to most advice and have been very happy.  I have recently (last few months) become enamored with this chart on Mr. Money Mustache http://www.mrmoneymustache.com/wp-content/uploads/2012/01/years_to_retirement.png

My goal is to be financially independent in 10-12 years.  Obtacles to that are obviously expenses, mainly student loans for us.  We have paid over 120K over the last 16 months and should have them paid off in 3 years.  We have a 15 year mortgage equal to one year salary, and enjoy living a low expense lifestyle. The other main expense I see on the horizon is my private practice buy in. I work in a small ophthalmology practice, and there is one physician owner.  I would be buying into half.  Fortunately we get along well, I like the practice, love the area we work in, and my wife likes her job where she will be partner in 6 months (no buy in as her anesthesia group has no overhead).  If the financials work out where I will be collecting a significant amount more income due to partnership I will certainly do it.  However, my main concern would be buyout.  Fortunately my partner is only 8 years older (he is 42), and has no intent on stopping anytime soon.  However when he is ready to retire, I dont think I would want to run the practice by myself, I dont want the administrative extra work, and I would hopefully be financially independent at that time anyways.  I would have a hard time wanting to buy him out and have to find another partner.  I am not even sure I would want to be practicing if I was financially independent, or may want to focus on charitable work with a reduced clinic schedule.

So my question: Are there provisions that can be put in the contract that would sell the practice as a whole at the time of buyout, or he would have to find a someone to buy his share etc?

We wont be discussing buy in for another 8-10 months but I am trying to look long term at my goals and could see this as something that would add onto my years untill financial independence.  Given how unpredictable healthcare is I am not sure I want to take that risk with a small private practice, however I certainly would like job security and a higher income.  Any advice or thoughts would be much appreciated.

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You can put anything you want in the contract that you both agree on. I think the issue is that you are unsure of how to approach this with your potential partner. He is a friend, you should discuss this honestly and work it out together. Nothing in life is guaranteed - that is why we buy insurance. You may die before retirement, he may meet his maker before he plans to do so, you buy cross-purchase life insurance plans. You may decide to retire before he does (you don't even know when he plans to retire!) and he buys you out or a younger protege' buys you out. There are many solutions to this problem which you need to discuss jointly along with your attorneys and financial planners. This is not an impossible problem to solve and I would hate to see you pass up the potential of a delightful opportunity solely because of the boogie man in your own mind.

[saildawg]

Thanks Johanna for your input, just not sure how this was done or if it was at all common to put into contracts.  I am sure we will openly discuss this.  I guess my outlook on the profession has changed after reading some FIRE blogs.  I have become more enthralled with the flexibility FI would give me in practicing.  I would continue work because it brought me happiness and fufillment, and if not I would have the abilty to do something else or retire.  It just seems that the private practice model basically would add minimum 10+ years to my FI journey.  Not that working is a bad thing, I still very may well want to, but I have a hard time parting with our investment savings with the possibility of having to pay again in the buyout.  Especially with the uncertain nature of healthcare and how increasingly difficult challenges for small private practice.

[The White Coat Investor]

saildawg wrote:

Thanks Johanna for your input, just not sure how this was done or if it was at all common to put into contracts.  I am sure we will openly discuss this.  I guess my outlook on the profession has changed after reading some FIRE blogs.  I have become more enthralled with the flexibility FI would give me in practicing.  I would continue work because it brought me happiness and fufillment, and if not I would have the abilty to do something else.  It just seems that the private practice model basically would add 10+ years to my FI journey.  Not that working is a bad thing, I still very may well want to, but I have a hard time parting with our investment savings with the possibility of having to pay again in the buyout.  Especially with the uncertain nature of healthcare and how increasingly difficult challenges for small private practice.

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Another thing to keep in mind for someone excited about the "FIRE lifestyle." It's a lot easier to be a part-time employee or locums doc than a part-time partner. When you cut back dramatically, you may still have your share of the overhead of a private practice.

Don't get me wrong, I'm all for docs owning their practices. But it's a long-term play.

[VagabondMD]

It sounds like you want your cake and to eat it, too.

I think that you should be upfront about your plans, in a general sense. You can tell your colleague/boss/friend that you may be looking at an early retirement down the road. He knows that your wife is also a high earner and will not be shocked. The fact is, you MAY be looking at an early retirement down the road. Life can throw many curves along the way, and to assume that you will be FI and able to retire in 10-15 years means that everything has gone largely as you expected. Sound likely?

A better approach would be to create terms in the partnership that you feel would be fair to either party, no matter who leaves first, and also fair to the theoretical next person who joins the group. That way, if you leave first, it will be easy to find someone to replace you, and if he retires first, the same.

I agree, if you just want a plug-and-play career that you can give three months notice, just get a job, understanding that you are likely leaving some money on the table (maybe a lot) for the flexibility. Being a partner implies a greater level of responsibility and commitment.

[saildawg]

Of course I want my cake and to eat it too!  

Reasonable buyout procedings certainly make sense, I was just wondering if anyone had experience with buyout stipulations that could work, and if they existed what would be a reasonable one.

Thanks

[Kamban]

One option would be to discuss about hiring a 3rd and maybe a 4th doc about 2-5 years before one of you retires and have them buy out one or both partners. The problem is that you may find no one if the medical landscape has changed.

Another option is to discus selling to the hospital when the time comes for both to retire. You may not get as much as a partner buying you out but it may not be a total loss of the practice.

[PhysicianOnFIRE]

Honesty is the best policy. If you follow through with a buy-in, you can hope to break even or perhaps even profit from a future buy-out (from a replacement partner or original partner). If the partner would rather have you as an employee, you would have less downside risk, but will also miss out on the potential upside from being an owner.

I have no doubt you'll reach financial independence as a dual physician couple in short order. It happened to us within a decade on one income, starting out when there was no WCI, no MMM, and by the time I knew what financial independence was, I had nearly achieved it.

Cheers!
-PoF

[saildawg]

Thanks for the advice, I enjoyed reading your story PoF and have bookmarked your blog.

[Anesthesia84]

I opted to be employed by an anesthesia group rather than become a partner. I was clear with them from the beginning that my husband is also a physician, we have kids, and my goal is to work hard when I'm working but eventually we plan to cut my hours back to 3 days per week (after more debt is paid off). That does not fit with what the partners in the group do (they take the vast majority of the call and work 5 days/week). Initially I felt like I was missing the partnership "perks" (having a vote, making the decisions for the group, more vacation, more money) but when my husband and I stepped back and realized we will easily (very very easily) meet our financial goals and that this position affords me the opportunity to be more involved in the kids' school, volunteer activities, and my interests outside of medicine, the difference in salary became completely worth it.

I mention this because I too had started reading the MMM blog etc when I started this job, and thought that the path to FI and RE was the goal. Now I realize (just 2 years later) that I think early retirement might work for some people, but I really like my job. I don't want to retire in 10 years (I'll be 42 then). What I'd rather do is work less but for longer, keeping expenses low, living frugally, etc. I think the employed position with the ability to work 3 days per week in the future is my opportunity to make my job work with my desired life.

Good luck with your decisions!

[Hatton]

Medicine is certainly becoming riskier for a new doc.  If you buy in you are committed to your partner for the long haul.  Being an owner can be satisfying.  You may like running the business.  You may make more money as a partner.  You will have more control.  On the downside you lose your flexibility to move.  It will be harder to cut back or retire.  You have to decide if you really want FIRE.  Will you really retire?  What will you do?  Is your spouse on board?