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Your Team of Financial Advisors

In the past, we have discussed the roles of Financial Planners, Accountants and Money Managers as it relates to their expertise and impact on the transition process. As a refresh:

Accountants (CPAs) keep track of money. They do accounting, auditing, tax, and consulting work. Generally they provide tax advice, profit and loss statements and prepare tax returns. They will also represent you should the IRS challenge your tax return. They are generally paid a fee for their professional time.

Money Managers either take a commission for each transaction, take a percentage of the money being managed or are paid a flat fee. In any case, they profit by long term management of your money.

Financial Planners evaluate your assets, your liabilities and your income to project the amount of money you will need for retirement and the amount of money you will have when you retire. Financial Planners make money by charging by the hour or by charging a fee for preparing a financial plan. Actuaries review the increase or decrease of assets in the financial plan each year and re-project, using actuarial data, how the plan is tracking. After new projections are determined, the financial planner comes back into the picture to adjust investment strategy to meet the financial plan goals.

Evaluating Expertise
This is all important as, more and more, we are seeing financial planners and accountants acting as money managers and “Transitions Experts.” A number of well known, large nationwide firms, as well as many that are more local, have entered the practice transitions forum for any number of reasons, but with the further intent to manage the proceeds of the sale. In some cases claims are made that the right structure allows taxes to be avoided or deferred to a future date. While we all would like to pay less, taxes cannot be avoided! They may be deferred, but ultimately you will pay the taxes.

Further, when considering practice value, either as a seller or a purchaser, it is important to review our previous articles on valuations (such as When Is a ‘Valuation’ Not a Valuation? Why it’s Important Know the Difference). Further, keep in mind that while any of these advisors may understand financial matters and have “a lot of local dental clients”, they may not be well versed in dental business valuation methodology and/or may not have a real feel for market pricing and factors or specifics in transitions.

Choosing the Right Team
To be clear, these resources are important in your transition, whether you are selling or buying. Understanding the role of these key professionals in your transition and financial planning, though, is necessary to choose the right advisors. Most knowledgeable attorneys advise that being the financial planner and the money manager is a conflict of interest. Attempting to provide all four services within one firm seriously exposes your transition and your retirement plan to prejudicial advice. Using separate entities affords you an automatic check and balance system which is ultimately in your best fiscal interest

As in all transactions, “Caveat Emptor” or “Buyer Beware.” We strongly recommend finding a knowledgeable accountant; a good financial planner, who will usually refer you to an actuary, working at arm’s length; a list of money managers, again arm’s length, with whom they have worked and are comfortable; and finally, of course, an ethical transitions expert. This grants you the protections offered by diversity and separation.

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