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Under the spotlight: Scott

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As Josh found out 😉 I like to put our 7 Millionaires … In Training! under the virtual ‘spotlight’ when they have an issue, question or decision of note. It doesn’t mean that there’s anything wrong, it just might mean an opportunity to examine their current strategy with all of our readers … you never know where the next Million Dollar Breakthrough is going to come from!


Scott is busy working on our next exercise [AJC: watch for more details in an upcoming post!] and realizes that he has reached a bit of a fork in the road:

I’ve been putting some numbers to the test the past couple of days. It’s funny, I had began getting elated because I felt like I would be able to easily get to my number a few years earlier at my current growth rate, but as i’m crunching the numbers on my plans and everything, i’m finding that I’ll ‘just barely’ arrive at my number in about 8.5 to 9 years = the exact amount of time left that I determined in my original 10 year plan, lol.

‘Barely’ scares me a little because – besides the obvious: Scott makes his exact Number of his exact Date [AJC: sure … and, I’m a balding hippopotamus 😛 ], Scott is likely to:

– Overshoot his Number by his Date … yay!

– Undershoot his Number or delay his Date … potential disaster, IF Scott’s Number/Date is critical.

In other words the benefit of overshoot is far outweighed by the potential that he simply won’t make his Number by his Date … so, we have to do a little more work. I asked Scott to clarify, according to his current plans:

1. How many practices does he need? And, according to what opening schedule?

2. Did Scott also assume owning the properties and build in some allowance there?

Scott said:

I just ran the numbers again for:

Owning 2 clinics, the first one outright in 30 months of course and then getting another one off the ground in approximately 1 year after that by using 100k of my ‘war chest’ money to open the office. I’ll have around 150k ‘left’ in that war chest after using the 100k to open clinic #2.

I also factored in keeping my current rental property, getting it refinanced to get rid of the interest only scam mortgage that I currently have on it asap(jeez, I was so financial dumb when I bought that house) and factoring in an appreciation rate of 4% per year(this may be pushing it too due to the current market, but it is in one of the most sought after parts of the city for families), plus factoring in the $500.00 per month extra cash flow from that property earned to go into the war chest.

Factoring in purchasing both of the commercial properties that both offices operate in at estimated values of 300k with a 25% down payment and a 10 year mortgage term each and selling them at the end after enjoying at 6% per year increase in value for a few years(once again, this may be pushing it!).

I also factored in the cash savings along this trip to be getting 12%(dunno if this is realistic or not, but if we come out of a recession, I would think I could at least get that kind of a return on my accumulating cash by investing in a few good stocks??)

This took me to right at 4 million in about 9 years from now if I sell the practices off for their fair market values(around 300k each), sell the commercial properties that they sit on for a reasonable price, taking into account equity gained from regular mortgage payments and estimating the 6% per year appreciation, selling of the rental property and gaining a 4% appreciation each year from this year forward, taking into account equity gained from regular mortgage payments applied to that mortgage and adding this all to my number, AND on top of all this, getting 12% on the cash flow from these 2 businesses along the way by investing in stocks after the ‘war chest’ money was used to get the second clinic off the ground and down payments were made on the 2 commercial properties to acquire them.

So, here’s the picture: again, it’s very rosy in that just owning a couple of nice medical practices and plowing the profits into RE can produce an incredible Number, like $4 million in as little as 8 to 10 years …

… but, there are some risks:

– Scott just ‘barely’ makes his Number according to this plan, and

– there are some assumptions, particularly around the returns from stocks, that bother me.

In fact, I’m wondering – if Scott reran the numbers assuming just, say, 8.5% return on cash invested in stocks, and again at, say, just 4% (assuming the cash just sits in the bank) as a ‘sensitivity test’ … would that change the outcome dramatically? If Scott’s model is highly dependent on this return, then he really has a stock strategy to get to his Number, and that’s pretty speculative!

Now, the final piece of information that I need to share before turning this over to you, is that Scott COULD offer to buy his partner out of his existing practice now … Scott can’t be certain if his partner would sell or not, and for how much, but he’s estimating about $200k. This would:

a) pretty much eat up all of Scott’s savings – and then some – for the next couple fo years or so – hence, ‘kill’ Scott’s stock investment strategy, but

b) potentially allow him to open up his second practice now rather than wait for 30 months before the practice would otherwise just be given to him (saving him $200k in the process).

Now, Scott’s busy crunching some numbers on all of these alternatives, but what advice can you give him? How/where should Scott invest (business? RE? Stocks? All? None of the above?)?

Most importantly, which fork in the road should he take?

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You know, I just thought of a really good question regarding this that I didn’t think about before.

If, in fact my partner was willing to take 200k in January for his shares of the practice and if I put down 50k (25% down payment as a probable bank requirement in this market) to actually borrow 150k from the bank, would it be smarter for me to leave this loan alone and simply keep paying the monthly minimum payments and then turn around and put another 25% down asap within 6-8 months, to get another loan(this time, I would only need 100k to startup clinic #2 and 25% of that is 25k of course) to get clinic #2 up and running asap by the end of 2010?

The numbers obviously show that I would have a greater ROI, but am I taking on too much risk by adding another 75k loan to the liability side on top of the 150k business loan, all this while still having 138k in student loans?

The numbers definitely show me getting to my NUMBER faster, but is this safe, even in an “investment” that i’m knowledgeable in?

From a straight mathematical perspective, it seems that I should just leave the loan alone and pay the minimum per month, much like we’ve learned to do with a low, fixed mortgage and my low, fixed student loan since I can get a better return on that money elsewhere, but would I be taking on TOO much risk by not paying that business loan off within next year and just starting up clinic#2 with my own saved up war chest?

According to the math, I could have that 1st loan payed off September or October if I applied all monthly cashflow to it and have 100k saved up in approximately 6 months after that to start up clinic #2.

Just a few thoughts…

@Scott. The method you suggest in your comment sounds very tantalising.

But in the back of mind I keep thinking of Andee’s videos where an entrepreneur loaded up with debt financing and then yelped in surprise when he turned around and was forced to ask:

“Hey! – where’s the money gone?”.

I worry that I can see that George in Andee’s video has got himself in a pickle, but I haven’t yet “got my head around” how you can diagnose generally when you’re walking into that strange world where you too may be forced to ask “where’s the money gone?”

Sadly, then, I know there could be danger ahead, but I haven’t got a firm enough grasp of what George did wrong, and what precisely he failed to take into account, and, to help you, how he could have organised his affairs in a better way. Help!

Or maybe none of these fears apply in this situation – I just flag it as a potential problem that might be examined and then either learned from, or completely disregarded.

Sorry I don’t have the definitive answer, but I thought I should flag this.

2) It can be worrying when every spreadsheet we build shows all the numbers zomming up to our Number.

It would be useful to examine if there are any downside factors that affect the whole “clinic breeding plan”, and whether if there are any setbacks that could mess things up if a single clinic gets hits by some problem.

I think you’re moving to a review of the potential downsides with your comment: “but is this safe?”

While entrepreneurs are renown for embracing risk, I guess it won’t hurt to review potential difficulties.

At the risk of being tacky, did the promoters ever ask: “What if Michael Jackson doesn’t make it to the stadium?”


Scott, buying up clinics is way over my head, but I do think you can return well over 10% in the market, with a well managed portfolio. I’ve been thinking of a strategy lately (mostly for MM301 efforts) which consist of buying REIT’s during the next market downturn, but only residential since it seems apparent that commercial RE hasn’t bottomed yet. At depressed prices the dividend itself is 10+% nevermind the potential stock price increase. Seems like a safe bet to me since it’s well known that the real estate bubble has just popped, making it unlikely for anyone to pay to much for these assets.
In preparation for this i’m reading “The Ultimate Dividend Investor” by Josh Peters.

@ Sott – To answer your question, Andee Sellman says: “Bottom line for me is that DEBT should be paid back when the capital it is supporting can not get a return which is at least 3 times the cost of the debt”.

But, I think you should first examine the two scenarios to see which one more surely takes you to your Number: 1. Wait 30 months, 2. Buy partner out now?

Did you run the numbers on both What did you come up with?

THEN, if you decide 2., you can run two scenarios: 1. Cash funding, 2. Debt funding.

The one caution that I would make is that you aren’t certain you can run TWO concurrent practices, let alone 3 or 4 … so, until you ‘prove’ your business model (by opening Practice # 2), the funding choices are moot. In other words, I would borrow less IF you have the cash resources to buy out your partner AND open practice # 2. AS KC says, this lowers risk …

Sorry guys I’ve been extemely busy the past two days and I’m still out of town until tomorrow, but I’ve done a little number crunching in my free time, to make some progress on this exercise. I can’t help but have a deep feeling inside that it would be smarter to take this journey without taking on so much business debt. The calculations are showing that I would only reach my number about a year or so earlier by taking on lots of business loan debt vs funding it all as I go with my cash war chest. Not to mention you all have brought up some good points each and Adrian’s right, I need to get my business model down well before considering jumping into several offices in repeat succession. If the second office gets up and running smoothly, the others can come faster in a snowball effect, not to mention I could eventually have 3 or 4 offices, instead of 2, which will MORE than make up for loss time.

[…] won’t solve Scott’s problem here, that’s the purpose of the Spotlight post that I have just placed on the 7 Millionaires … In Training! site, and I encourage you to read […]

My advice is two-fold, Scott.

1) Step back – these issues are going around and around in your head and I would recommend “taking time out”. Decide not to look at any figures; don’t do any spreadsheets; try and schedule time to just wander through the woods or along a river-bank; and mark, say, 2 weeks from now as the earliest date that you’ll consider what course to follow.

It’s weird that when you’re not forcing your brain to come to a conclusion, when you’re relaxed and focussed on other things, sometimes your subconscious resolves it for you – effortlessly.

One occasion where “no pain, no gain” does not apply.

2) To have an alternative to focus on, either go to your public library or phone round the local bookstores, and get yourself a copy of:

Muhammed Yunus “Creating a world without poverty” so you can start to focus more on what you could do AFTER the sum has been reached.

He won the Nobel Prize for transforming the lives of thousands of poor Bangladeshis by providing tiny amounts of credit so they could build their own little businesses and thereby easily feed and school their kids.

He’s “been there and done that” so he has actual experience, but he’s also a dreamer and suggests things that might be done to build on the current tranche of socially-inspired enterprises.

So I recommend lifting your head up a bit from the spreadsheets on your computer screen and let your dreams fly a little.

When you come back to this particular task, I think you’ll feel refreshed and less “pulled down” by this intense concentration on what is the right course.

Just my 2 cents worth. But get that book – its so inspirational, and there’s so much to be done.

Interestingly he talks about interventions that specifically the poor of the United States would benefit from, and so there are suggestions there of specific tasks that could be started, many of which involve the provision of medical services in line with your approach.

Take a break, but use the time to more fully engage with your broader vision. Yunus is a brilliant, business-informed guide.


Great advice KC, I’ll do that and get that boo. Thanks!

@ Scott – Hopefully, you’ll at least tell me which of the two options gets you to your Number faster (and how much faster) before you take that 2 week “stroll in the woods”?!

Ok Adrian, I just ran the numbers one more time just to check everything over.

I must have gotten something wrong the first time around because THIS time, even after triple checking the math, it appears that by buying him out 6 months from now with a business loan(vs waiting it out the 30 months) and factoring in starting up a second clinic within at least a year of owning clinic#1 in both scenarios, gets me to a 3.2 million dollar investment portfolio only 6 months sooner(9.5 years from now vs. 10 years from now).

Now this 3.2 mil doesn’t include the values of both businesses that I can then sell, or any equity value in my home or rental property or anything else at that time. When those values are factored in, we should be right at a 4 million dollar net worth, provided our home and rental property begin at least growing along with inflation in a couple of years as well as equity achieved in our home as we continue with the base mortgages and our slow remodeling process AND as my student loan balance drops faster with it’s now ultralow 1.8% rate.

I forgot to mention that in both scenarios, I set my numbers up on the conservative side with my likely incomes(in other words, I figured that the associate would only produce around 85% of what I produce in clinic#1).

With the calculations I made, I also factored in that I would be getting a 10% return on the cashflow I would be investing.

Obviously, this could quite possibly be better than 10%, if I choose individual stocks in good companies, we come out of a recession and enjoy a fairly high return to previous market levels for a while and/or I invest heavily in some good real estate that enjoys a good capital appreciation(foreclosures or just darn cheap deals) as we move out of the recession. I also didn’t factor purchasing the commercial properties the 2 offices are in, which “might” result in a higher than 10% return.

Obviously, if I can beat a 10% overall return on my investments, that 3.2 mil climbs much higher, much faster.

Now here’s something that’s also interesting. I factored in opening a 3rd office, allowing for an extra year after the 2nd office is up, running and cash flowing positive of course, as well as getting an associate doc hired, trained for a good solid 6 months before exiting clinic#2 and moving on with opening clinic#3. What I found is that I would STILL be at 3.2 million not including the same things as I mentioned above in around 9-10 years, lol.

This is because of startup clinic costs, the time it takes for them to cashflow positive as well as cuts in pay that I receive when hiring and training associates and if they only produce 85% or so of what I produce.

It’s only after that 9-10 year period where owning 3 clinics begins to seriously take off vs. owning 2! And the difference is quite substantial, but requires me to keep working past my 10 year date.

Interesting outcomes, Scott.

The aggressive chase dollar types would open up the 3rd and 4th clinics, chasing the dollar .. not realizing that it would actually KEEP them working!

I guess that your decision is pretty easy now, but you now have the luxury of time to think it over, since your post came in first 😉

Yeah, according to the math, opening 3 clinics in succession would lead to around 10 million dollars if I chose to work another 5 years and if I steadily got a 10% return on the cash flow.

I would be 49 years old at that time.

[…] to leave this critical decision to chance? Well, Scott ‘benefited’ from his turn ‘under the spotlight‘ so, we already have some insight as to where he is heading with all of […]