Preparing for the (un)expected

By Thomas Dickson, Chartered Financial Planner at Wealthwide

We are often advised to 'prepare for the unexpected' and as a Chartered Financial Planner, that sounds eminently sensible. However, I'm not sure how useful this advice would be. COVID-19 was an unexpected event - but how could anyone have prepared for that? More recently, the repercussions of Kwasi Kwarteng's mini budget on the value of the pound or mortgage interest rates wasn't something any of us could have predicted. It strikes me it would be much more useful establishing what might realistically happen in our lives and careers and preparing for that.

We advise hundreds of principal dentists and there are several issues I can pretty much guarantee are going to crop up. Here's just a few we've seen over the years:

• Your star employee is going to get sick and have some time off work, or even worse leave for another position

• You'll realise one of your employees isn't engaged with your practice and patients, and you'll need to extract them from your team. Getting, and keeping, the right people 'on the bus' is crucial to building a successful dental practice

• Some patients are going to be late for their appointments or not show up at all. An orthodontist told me recently that she used to lose about 2½ hours a week to 'Did Not Attends' (DNAs) - since the lockdowns, this has doubled to five hours a week

• One of your patients is going to be difficult and potentially even make a formal complaint

• Your equipment is going to fail and will need fixing or replacing

• This will probably happen when you are hundreds of miles away on holiday

• As well as the general routine maintenance and renovation of your practice building, it's likely it will need urgent repairs at some point

• Interest rates on your practice loans are going to increase (given where rates have been for the last decade - it doesn't seem likely they'll go down any time soon)

• Laboratory bills and other equipment are going to increase in price - and probably above inflation

• The UK is going to enter into a recession and some private patients are going to decide they can't afford your treatment plan

• Tax is going to increase (the Autumn Statement delivered last month was no exception - with the additional rate income tax threshold reduced from £150,000 to £125,140, a Corporation Tax rate increase, reduction in the Capital Tax exemption, as well as other threshold freezes)

• At some point before, during or maybe even after this recession, the stock market's going to fall… and then at some point bounce back again.

These issues are all fairly common and predictable and as a dentist or practice owner, you need to accept these are problems you should be expecting, and crucially making sure you're prepared for them.

Worst-case scenario planning

As a cyclist, I'm conscious of my vulnerability on the road and as a result, my ability to continue to run the business in the event of an accident. We therefore have a continuity plan for either my premature death or disability. This detailed written document confirms who takes over the senior management positions, which advisers will look after which clients and how they'll get paid - both in the short and if necessary, the longer term, all the professional advisers that need to be contacted such as accountant, solicitor, IT, and compliance - and their contact details, and how the team will continue to get paid every month so the business can continue to function as smoothly as possible. I very much hope no-one ever has to open up that document and go through those steps - but it's still important to have a plan - I certainly feel I owe it to our loyal team and clients.

One of the crucial agenda points in our monthly team meetings is to discuss risk factors to the business and ask ourselves some questions: What could go wrong? What's the impact of it going wrong? What processes do we need to change so we can reduce the chances of something going wrong, or at the very least minimise the impact?

Your health and ability to work and earn as a dentist is also at risk. Dentists' Provident - the leading income protection provider to dentists in the UK, announced in their latest annual report that they had paid out a total of £5.4m of income protection benefits to members - that's a total of 1,190 claims in 2021. I like one of their straplines which suits the title of this article - 'Plan for the future. Live for today'.

So how can you prepare for some of the above events?

Key issues for principals

• Ensure you're constantly recruiting and looking out for great people who could join your team

• Look after your existing team members - it's not just about giving them bonuses or salary increases, sometimes it's just making sure they're doing ok and have enough (but not too much) challenge and stress in their job, or have other benefits such as flexibility to vary their hours or for example buying additional holidays

• Accept that great people will move on and that this present an opportunity to find someone else who might be an even better fit with your team

• Give your team increasing responsibility, so they have the competency, experience and authority to deal with difficult situations

• As a principal dentist, make sure you have regular time set aside to deal with issues - if you're working clinically five days a week, you'll end up squeezing all the emergency issues (that are almost certainly going to happen) into your evenings and weekends. You can also use some of this time to check you're working with the right suppliers and getting the best deals

• With regards to the inevitable increase in costs - it's important to have cash savings, over and above what you might realistically need for normal working capital.

• If you're struggling to put cash aside in the business and, understandably, you don't want to reduce your drawings, it's very possible you need to increase your prices, or make other improvements to the business such as providing more high value treatments, reducing your costs or attracting more patients.

Cost of living

We're already experiencing energy price rises, and inflation is impacting dentists personally and professionally. A key principle that might have helped, or could help you in the future, is to get used to spending less than you earn. If your income's variable (often the case for those that are self-employed) you can still create structure by setting up standing orders for different accounts such as for holidays, tax bills, emergency funds and longer-term savings such as ISAs or pensions.

This is all key to ensuring you spend less than you earn - during a period when your costs are higher than your income, you can cut back on your savings or even dip into them, to ensure your practice continues to run smoothly and you can maintain your lifestyle.

Stock market

You should only be investing in stocks and shares (also called equities - as you have a small stake or equity in the business) for the long term - that's at least five years and preferably a 10-year horizon. The reason this is so important is that the values of companies (and the value of the stock market) rises and falls in cycles - we just never know when, how high or low it's going to go.

Over a short period of time, cash often outperforms the stock market, but in the longer term you're very unlikely (provided you're invested appropriately) to be better off by keeping cash. You should also ensure you're taking the right level of investment risk - take too much and you might just want to bail out when the market starts to fall. Make sure you have enough money set aside in cash savings for the inevitable 'rainy day' - so you don't have to cash-in any equity investments at the wrong time in the cycle

Insurance

I met a dentist many years ago who owned a building that burnt down and unfortunately the property wasn't sufficiently insured, creating a significant amount of stress and financial anxiety. Although it's likely you've insured your property against fire, natural disasters and burglary, when was the last time you checked your insurance was set up correctly?

We almost always recommend principals take out Practice Expenses cover. This means that if you can't work for up to a year (due to illness or an accident), the practice has a regular income to cover the additional costs of management, recruitment and ensures all the salaries and any loans, continue to be paid - protecting the value of the goodwill.

It's also important to check your personal insurances, such as income protection, life cover and critical illness cover, are sufficient. It's interesting that the youngest dentist to make a claim with Dentists' Provident in 2021 was just 26 years old and the average age was only 48.

To make sure your insurance pays out when you need it, you should ensure you've disclosed all relevant details when you apply. Common areas you need to get right on application are telling the insurer if you've even been advised to reduce your alcohol intake, your smoking status, weight, existing medical conditions and any impending medical tests.

In my opinion, insuring your health is arguably one of the most important factors. If events happen outside of your control - such as a patient complaint, or the economy crashing, within reason you can do something about it - albeit it might mean extra work and stress. But, if you can't work as a dentist because of an accident or illness, you are totally reliant on savings, support from family and friends and any insurances to cover your monthly expenses.

Life has a habit of turning out differently from our expectations. While we have no control over events such as wars, mini-budget fiascos or global pandemics, there are some things that happen with sufficient regularity that they can be reliably predicted. It's important to set aside time to think through these risk factors and put in place a plan to 'prepare for the expected'.

On a final note, I would highly recommend investing in a Financial Plan. This will enable you to model various predictable but unwelcome events such as the stock market falling substantially, your earnings not keeping pace with inflation, or having to retire earlier than you'd hoped. This investment of time can provide the foundations and security to allow you to live life without worrying about money, and make important decisions with confidence and peace of mind.

Please be aware of the following investment risks

• The value of your investment can go down as well as up and you may not get back the full amount invested

• When investing your capital is at risk

• Levels and bases of, and reliefs from taxation are subject to individual circumstances and may be subject to change

• The Financial Conduct Authority does not regulate taxation and trust advice

• Information is provided only as an example and is not a recommendation to pursue a particular strategy