Residency to Retirement Resource Center

Use financial modeling to evaluate first job opportunities

Sanjeev Bhatia, MD 
Sanjeev Bhatia
David B. Mandell, MD 
David B. Mandell

by Sanjeev Bhatia, MD; and David B. Mandell, JD, MBA

Newly minted physicians can often be idealistic when looking for their first jobs. After years of hard work, relocation and delayed gratification, it is natural that new doctors and their spouses seek a career opportunity that is perfect and permanent.

Unfortunately, many millennial physicians do not have the time, tools or experience to accurately evaluate their first employment opportunities and ultimately are disappointed by their circumstances being different from what they envisioned. Sadly, but commonly, this situation can lead to significant personal and family stress, professional insecurity and financial hardship.

According to various reports, 50% to 75% of physicians will change jobs during their first 5 years of work, with the bulk of them switching after 2 years of practice. Although various factors, such as family circumstances, location and practice conditions, play a role in a young physician’s decision to change jobs, dissatisfaction with one’s financial situation has been shown to be one of the biggest contributors to job changes among young doctors.

In this column, we present a simple method all physicians can use when evaluating various job opportunities.

Not all about the money

First and foremost, focusing on a specific job’s financial situation is not everything. Fresh out of training and loaded with debt, it is not uncommon for young physicians to gravitate towards the highest paying career opportunity only to change practices a few years later when financial stressors decrease, or practice conditions and family situations change. Always focus on the big picture during the career search process.

Compensation is often cited among the top two reasons for a change in employers. Although many young physicians leave a practice because their income expectations were different than what they were actually paid, the situation is often worsened by complex compensation formulas and overhead/partnership costs that are typical in a medical practice setting.

Financial modeling for future decisions

Financial modeling is the process of creating a summary of a company’s expenses and earnings in the form of a spreadsheet that can be used to calculate the impact of a future event or decision. Financial advisors on both Wall Street and Main Street frequently use these tools to guide decisions and estimate stock prices, relying on the same present value of future cash flows that was discussed in our article that addressed using insurance to protect a physician’s future income from disability and death.

If you know, approximately, what you may be expected to make in each job opportunity, as well as various other costs (ie, living expenses, partnership buy-ins and taxes), a simple spreadsheet may be a valuable tool in financially modeling your net worth in various job opportunities. If you plan to invest your disposable income, it is helpful to estimate expenses and desired rate of return to see what you may be able to save and compound over time.

Job 1
Figure 1. Financial modeling for hypothetical job 1, a private practice opportunity with a starting salary of $150,000 and a $50,000 partnership buy-in during year 3.
Source: David B. Mandell, JD, MBA

Job 2 
Figure 2. Financial modeling for hypothetical job 2, a hospital employment opportunity with a fixed salary of $275,000 in a state with higher taxes.

Comparison 
Figure 3. Graphical net worth for the physician at various time points with job 1 and job 2. Note that if the young physician were to leave job 1 before the break-even point of 5 to 6 years, his or her net worth would be considerably lower than it would be had the physician left job 2 after the same number of years.

To demonstrate the value of this technique, Figure 1 is a spreadsheet that depicts a hypothetical private practice employment opportunity that offers a $150,000 starting salary and a $50,000 partnership buy-in during year 3. Like many private practice opportunities, income in the partnership is dependent on production, but the practice provided the job candidate with an estimate.

Figure 2 shows a spreadsheet that reflects a second job opportunity with a $275,000 annual salary that is in a state with higher taxes.

To take the analysis a step further, the physician’s net worth can be graphically compared in various job opportunities (Figure 3). Although it takes time, such efforts may help the young doctor better understand the trajectory of his or her earning potential in various job settings at different time points.

In the examples provided, although job 2 had a $125,000 higher starting salary, after 5 to 6 years the two job opportunities break even financially, with job 1 having a far higher trajectory for long-term earnings growth. However, if the young physician were to leave job 1 after 2 to 3 years, his or her net worth would be about $100,000 lower than it would be if the physician left job 2 after the same time point.

This valuable exercise allows young physicians to easily model a “worst case” and “best case” scenario for each employment offer including what their net worth would be at a specific time point if they had to move for some reason.

Searching for a job can be stressful for physicians of all specialties. The financial aspects of a job should never be the most important factor. However, too often, young doctors poorly understand their compensation expectations prior to signing, and this may later lead to discontent. Financial modeling is a simple tool that may help physicians make better decisions when evaluating different opportunities.

Disclosures: Bhatia and Mandell report no relevant financial disclosures.

Sanjeev Bhatia, MD 
Sanjeev Bhatia
David B. Mandell, MD 
David B. Mandell

by Sanjeev Bhatia, MD; and David B. Mandell, JD, MBA

Newly minted physicians can often be idealistic when looking for their first jobs. After years of hard work, relocation and delayed gratification, it is natural that new doctors and their spouses seek a career opportunity that is perfect and permanent.

Unfortunately, many millennial physicians do not have the time, tools or experience to accurately evaluate their first employment opportunities and ultimately are disappointed by their circumstances being different from what they envisioned. Sadly, but commonly, this situation can lead to significant personal and family stress, professional insecurity and financial hardship.

According to various reports, 50% to 75% of physicians will change jobs during their first 5 years of work, with the bulk of them switching after 2 years of practice. Although various factors, such as family circumstances, location and practice conditions, play a role in a young physician’s decision to change jobs, dissatisfaction with one’s financial situation has been shown to be one of the biggest contributors to job changes among young doctors.

In this column, we present a simple method all physicians can use when evaluating various job opportunities.

Not all about the money

First and foremost, focusing on a specific job’s financial situation is not everything. Fresh out of training and loaded with debt, it is not uncommon for young physicians to gravitate towards the highest paying career opportunity only to change practices a few years later when financial stressors decrease, or practice conditions and family situations change. Always focus on the big picture during the career search process.

Compensation is often cited among the top two reasons for a change in employers. Although many young physicians leave a practice because their income expectations were different than what they were actually paid, the situation is often worsened by complex compensation formulas and overhead/partnership costs that are typical in a medical practice setting.

Financial modeling for future decisions

Financial modeling is the process of creating a summary of a company’s expenses and earnings in the form of a spreadsheet that can be used to calculate the impact of a future event or decision. Financial advisors on both Wall Street and Main Street frequently use these tools to guide decisions and estimate stock prices, relying on the same present value of future cash flows that was discussed in our article that addressed using insurance to protect a physician’s future income from disability and death.

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If you know, approximately, what you may be expected to make in each job opportunity, as well as various other costs (ie, living expenses, partnership buy-ins and taxes), a simple spreadsheet may be a valuable tool in financially modeling your net worth in various job opportunities. If you plan to invest your disposable income, it is helpful to estimate expenses and desired rate of return to see what you may be able to save and compound over time.

Job 1
Figure 1. Financial modeling for hypothetical job 1, a private practice opportunity with a starting salary of $150,000 and a $50,000 partnership buy-in during year 3.
Source: David B. Mandell, JD, MBA

Job 2 
Figure 2. Financial modeling for hypothetical job 2, a hospital employment opportunity with a fixed salary of $275,000 in a state with higher taxes.

Comparison 
Figure 3. Graphical net worth for the physician at various time points with job 1 and job 2. Note that if the young physician were to leave job 1 before the break-even point of 5 to 6 years, his or her net worth would be considerably lower than it would be had the physician left job 2 after the same number of years.

To demonstrate the value of this technique, Figure 1 is a spreadsheet that depicts a hypothetical private practice employment opportunity that offers a $150,000 starting salary and a $50,000 partnership buy-in during year 3. Like many private practice opportunities, income in the partnership is dependent on production, but the practice provided the job candidate with an estimate.

Figure 2 shows a spreadsheet that reflects a second job opportunity with a $275,000 annual salary that is in a state with higher taxes.

To take the analysis a step further, the physician’s net worth can be graphically compared in various job opportunities (Figure 3). Although it takes time, such efforts may help the young doctor better understand the trajectory of his or her earning potential in various job settings at different time points.

In the examples provided, although job 2 had a $125,000 higher starting salary, after 5 to 6 years the two job opportunities break even financially, with job 1 having a far higher trajectory for long-term earnings growth. However, if the young physician were to leave job 1 after 2 to 3 years, his or her net worth would be about $100,000 lower than it would be if the physician left job 2 after the same time point.

This valuable exercise allows young physicians to easily model a “worst case” and “best case” scenario for each employment offer including what their net worth would be at a specific time point if they had to move for some reason.

Searching for a job can be stressful for physicians of all specialties. The financial aspects of a job should never be the most important factor. However, too often, young doctors poorly understand their compensation expectations prior to signing, and this may later lead to discontent. Financial modeling is a simple tool that may help physicians make better decisions when evaluating different opportunities.

Disclosures: Bhatia and Mandell report no relevant financial disclosures.

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