‘They’re reluctant to ask for advice. They have a sense of omnipotence.’ : Firm Prescribes Fiscal Remedies for Physicians and Dentists
Mel Enzer likes to tell the story of some doctors who invested in a restaurant. They agreed to pay the promoter a percentage of the gross, which gave him a great incentive to generate sales.
The trouble was, the restaurant was losing money, and it sure wasn’t making it up on volume.
The doctors--about a dozen in all, Enzer said--ended up losing more than $1 million before they became his clients.
When it comes to investing, doctors can be notorious suckers, and Enzer’s 27-year-old accounting firm, Kaufman & Enzer, specializes in steering medical professionals clear of such pitfalls. Clients in the health-care field make up 60% of its $3 million in annual gross billings.
400 Doctors, Dentists
“We have close to 400 doctors and dentists,” said Enzer, adding that the Encino-based company also works for health-maintenance organizations, medical groups and hospitals all over Southern California.
The remaining 40% of the firm’s business is mostly from other kinds of professionals, such as lawyers, and some small entrepreneurs. Kaufman & Enzer has six partners, 16 other accountants, and about 25 bookkeepers, secretaries and other staffers.
Accountants said doctors need financial first aid because many are naive about business. They are in one of the few professions in which new graduates immediately start earning enormous sums, Enzer pointed out. Also, their training is entirely medical, they are very busy and they are stunned by the enormous taxes they find themselves paying.
Horror stories abound. In the case of the restaurant, the business went bankrupt, Enzer said, and some of the same doctors went into business with the same promoter again--only to fail a second time.
Housing Scheme
In another case, Enzer said, some doctors invested in a student housing scheme in which the promoter forged their names on bank loans. The project was not completed in time for the fall term, a disaster for a student residence, and, when the loans went bad, the physicians were forced to settle at great expense.
Kaufman & Enzer is one of three large accounting firms specializing in medical professionals in Southern California. Kellogg & Andelson in Los Angeles, and Leon Anderson, at Anderson, Lynn, Bezich, Wierks & Munson, in Fullerton, also specialize in the medical professions.
“It’s a matter of knowing how to handle them economically,” said Robert Patterson, Los Angeles managing partner for Laventhol & Horwath, commenting that Kaufman & Enzer “have it down to a T.”
Patterson said Laventhol & Horwath is so fond of Kaufman & Enzer that it tried to merge, but that the two sides could not come to terms.
Enzer, 54, said his firm usually works on a retainer basis, with a fee of $6,000 to $7,000 a year usually covering everything for a sole practitioner.
Help at Every Level
Medical people have other accounting needs, too. “Doctors don’t tend to have in-house bookkeeping staffs,” so they often need help at every level of running their business, said Patterson.
Then there is the matter of ego.
Accountants say both doctors and lawyers have a problem in this area. “They’re reluctant to ask for advice,” said Enzer. “They have a sense of omnipotence.”
CPAs like Anderson have high praise for the Encino firm.
Anderson, who has nearly 100 medical clients, said some accountants don’t want doctors for clients because they are so headstrong. He said one reason founding partner Ben Kaufman has succeeded with doctors is that he is not afraid to stand up to them.
Accountants say lawyers tend to be more sophisticated in business than doctors. But, in recent years, they say, doctors have sharpened their business acumen considerably.
It helps that most tax shelters that do not make investment sense have been swept away by the 1986 Tax Reform Act. In the past, many doctors were hurt when dubious shelters backfired, producing far greater losses than expected.
In Specialty by Chance
Kaufman & Enzer got into its specialty by chance. When Kaufman, now 69, was practicing accounting in the 1950s he acquired a few doctor clients who had been his friends at UCLA, Enzer said.
In those days, many doctors were just using bookkeeping services. As Kaufman & Enzer got more medical clients through word of mouth, Enzer said, the firm began to specialize.
The firm reviewed proposed investments, for example, without any vested interest in whether a doctor decided to make a given investment. It would also scrutinize the building expenses landlords were passing along to physicians, letting the building owner know that such pass-through clauses would not become a blank check.
Perhaps most important, Kaufman & Enzer began incorporating its clients, which has made it possible for a physician’s retirement plan to shelter enormous sums, more than the $15,000 a year limit available under the old tax law for Keogh plans, or pension accounts for employees of unincorporated businesses.
Enzer said he has long preached “the magic of compounding,” putting away retirement money each year with a goal of $1 million socked away by age 65, the maximum the law allows an individual retirement plan to contain.
A good retirement plan also makes risky tax shelters unnecessary, Enzer said.
Playing It Safe
In keeping with Kaufman & Enzer’s guiding principle for doctors--play it safe--final investment decisions are left up to the clients, but the firm strongly recommends low-risk investments such as Treasury bills and blue chip stocks.
The firm’s second tenet is: Restrain yourself. Enzer warns that some young doctors get into trouble because of years of deferred consumption. After they complete their residency and start making money, doctors often buy expensive houses and cars, feeling that at last they can spend freely.
Yet Kaufman & Enzer is not completely risk-averse. It has run a series of perhaps 20 investment deals for clients over the years, in which the firm itself puts up money and serves as general partner, but gets nothing for its organizing and diligence besides a small extra share of the profits.
These partnerships have involved shopping centers, condominiums, citrus groves, date farms, raw land and drilling for oil, Enzer said, adding that only one went sour.
