Since 1956, dental practitioners have counted on our team of dental accountants and dental CPAs for high-caliber guidance and support. We take a comprehensive approach with our dental clients. This translates into dental tax planning meetings, the ability to address special dental projects, and a network of trusted dental resources available outside of our firm.
This as part two of my five part blog on “What’s most
important to YOU when looking to purchase a practice ? In case you missed Part1, there’s a great thread on www.dentaltown.com
asking this question and it got a lot of great feedback from people with
different perspectives. As a reminder, I won’t be telling what SHOULD be
important to you, that’s for each doctor to decide and prioritize for
themselves. I’m just giving you some food for thought as you contemplate
purchasing a practice.
Part I revolved around the revenue portion of the practices
cash flow and assessing the asking price and practice performance. We will
discuss the expense or overhead portion of the practices cash flow in this
You’ll want to assess the cash flow that you will have
available for the practice in which you’re considering, not necessarily what
the seller had. While there are expenses you’ll have very little control or will
have very little impact on YOUR cash flow, like rent, utilities, malpractice
insurance, merchant services, etc., there are other expenses you’ll have the
ability to control. Some of these are non-discretionary expenses like
advertising, dental supplies, lab and the like and others are more
discretionary ,for instance, retirement plans, computer expenses and support,
office expenses and supplies, some continuing education and dues and maybe
wages (I’ll elaborate more on practice wages below). There are also other
purely discretionary expenses or owners perks that we don’t consider as
required to operate a dental practice like the owners automobile expenses,
meals and entertainment, some travel and maybe some family wages. Some of these
purely discretionary expenses are easy to identify, others maybe be buried in
categories like office expense and support, advertising, telephone, insurance,
etc. . As a buyer, part of your due diligence is your ability to dig deeper and
drill down into certain categories to make sure you understand which expenses
are truly needed to operate the practice and which may not be necessary.
You need to verify exactly what YOUR overhead is going to be
since it has a direct impact on the practice cash flow, which you’ll need to
service the debt on the purchase price. Of course it also affects the practice
price and it will help you assess the practice performance issues related to
overhead. Some of the expenses are directly impacted by the procedures the
seller was doing and the procedures you will be doing, they may be the same,
maybe not. This is why you need to understand how the revenue is generated and
how those procedures may impact your overhead.
So we spoke about the fact that there are some expenses you
have very little control over and others you’ll have a lot of control over.
While some believe a buyer has the ability to easily control labor costs, it’s
an area where a buyer needs to tread lightly. There are many reasons a buyer
may not want to hire an existing staff or let them go in short order. Maybe
they think the practice is overstaffed or the employees aren’t needed for as
many hours anymore. Maybe the employees’ hourly rate is too high (very common
with long term employees) and\or maybe their benefits are too rich. Whatever
the case is, we believe part of any goodwill of a practice relates to the staff
and the buyer needs to examine every staff member currently employed with the
practice and how much impact they may have on the stability of the goodwill.
For example, in a very rural area, where everyone knows everyone, you may have
a front desk person who’s been employed with the practice for a VERY long time,
knows every patient in and outside of the practice and may be a real detriment
to the retention of goodwill if a buyer were to NOT agree to hire them when
they purchase the practice. On the other hand, there may be an assistant that’s
only been at the practice for a month, chances are if they don’t return the
patients won’t even notice. Then there are the hygienists and once again, the
buyer really needs to assess each hygienist and whether or not they’ll have a
significant impact on the goodwill if they aren’t hired for any reason.
The other area of labor costs that a buyer needs to tread
lightly is employee benefits. We see practices where the seller has been able
to afford to be VERY generous to their staff. They might be paying 100% of
their family’s health insurance, providing them with four to five weeks paid
time off for sick leave and vacations in addition to paid holidays and offering
a very generous pension benefit. A buyer would be foolish to think they can
simply go in and begin slashing these benefits without any repercussions from
the staff. That’s NOT to say a buyer can’t control these benefits overtime,
again, each practice and each employee is different.
There are many other areas of overhead that a buyer needs to
examine as part of their due diligence, we’ve just touched upon a couple of
them to get you thinking. Part three of our five part blog will talk about “people”
side of a practice and the purchase transaction from a brief discussion again
on the staff, to the patients and the advisors surrounding the transaction.
My good friend and fellow townie (that’s what we call
members of dentaltown.com,
the forums board) Dr. Tom Bonsack posted a great thread on dentaltown with that
question, “What’s most important to YOU when looking to purchase a practice?” It
got a lot of great feedback from people with different perspectives so I
thought I’d blog about it. Keep in mind, I won’t be telling what SHOULD be
important to you, just giving you some food for thought as you contemplate
purchasing a practice.
Since I am a CPA/CVA that represents buyers across our great
nation I thought I’d start with some of the financial aspects that you, the buyer,
may find important. This is part one in a
series of five.
SO what’s the first thing you think a buyer considers when
it comes to a practice they may want to purchase? Price, right? What’s the
price? While this is very important, I will tell you that many times it’s NOT
the most important financial piece you should be looking at. In fact, I gave a
presentation at the 2014 townie meeting in Vegas on this very issue and you can
actually still view that presentation here.
So what could be more important than price when it comes to
the financial aspects of buying a practice? What about cash flow? Sometimes
both buyers and sellers get so focused on price that they overlook cash flow,
after all, that’s what’s going to service the debt to pay the purchase price
isn’t it? What makes up cash flow? Collections and expenses. So to understand the
cash flow that YOU will have, you have to dig a little deeper and drill down
into the collections and expenses.
For collections, you need to understand how they’re
generated…collections can only be generated from the production of the
providers. For this blog I’m going to focus on a GP practice. You have to look
at the production by providers, the doctor and the hygienists and analyze who’s
doing what and understand their relationship to each other. As the doctor
buying the practice you need to ascertain what procedures the seller is doing,
what procedures you do, are they the same? Does the seller perform procedures
that you don’t & vice versa? Can you increase production by adding procedure
the seller doesn't offer? Is the hygiene
department performing the same procedures that you want them to? What about the
frequency of those procedures? What about their recall system? All of these
impact the collections.
What about the payors? Is it a fee-for-service (FFS)
practice? Is it a PPO practice? Maybe a 60/40 mix of PPO & FFS? Do they
accept Medicaid patients? Which PPOs do they participate with? Are you familiar
with the delta premier issue? Again, all these things impact collections.
What about their fee schedule? How do the procedure fees
stack up to the other practices in the area? When was the last time they raised
fees? Even if their fees seem to be where you’d want them for the area, what
about the fees for procedures they rarely or never offer and you do, where to
These are all the issues a buyer needs to consider when
evaluating the revenue aspect of a practice and decide what’s most important to
him/her with regard to these revenue issues. Part II will talk about the overhead aspect of the cash flow-financial
aspects of the practice you’re looking to purchase.
Here is Part 2 of Deana’s
QuickBooks Best Practices Tips:
4. Data Input
One of the major challenges about maintaining accurate
QuickBooks records is keeping the information organized. When you have been in practice for a while
and have a long list of clients, it’s easy to get busy and backed up with correctly
organizing your records. Over time, renaming and adding accounts to your chart
of accounts may become a problem when your balance sheets and profit-loss
statements become difficult to read. As the balance sheet shows the practice’s
Importance of balance sheets
Balance sheets shows your practice’s
financial position at a single moment in time and also show a lifetime of
results. It should always be accurate. Here is a helpful article on some QuickBooks balance sheet basics.
As far as keeping your records organize, always enter as
much detail as possible- its saves time later on if there is ever a discrepancy.
It’s always best to choose a quiet time or designate an hour or two without any
distractions to prevent any errors. Be sure to identify and correct any code
errors you catch in the system as this can affect your practice’s income. Simple
awareness of your funds can really have a positive impact on your bottom line.
With QuickBooks, regularly recurring transactions are saved
and can be automatically entered at your regularly scheduled times. This
reduces the amounts of mistakes, saves time and increases the accuracy of your
5. Bank Feeds
A newer option for QuickBooks is the ability to
download the transactions right from the bank or credit-card company. This has
become a huge timesaver. Once the transaction has been coded it will be
memorized for future transaction download. Here are someinstructions
on how to use the QuickBooks bank feeds in versions 2014 or later.
Downloading by Most recent transaction or by statement
Banks now offers the option to download information into QuickBook
6. Lock Down
A common issue we see with our clients is entering or editing a transaction in
prior periods. Whether intentionally or unintentionally, changing prior-period
data can cause a huge mess with the books. Known to have driven many
accountants crazy over the years, posting into prior periods can actually be
controlled by using the closing date feature within QuickBooks. It’s easy to
set up a unique username and password for each user's preferences to prohibit
them from changing items once past the closing date. You can also lock down the
prior-period date as the year progresses.
Another option for organizing information in QuickBooks is through
the applications’ memorized reporting function. This will save you the trouble
of having to re-create the reports every time you need to access them, it will
also make it easy for you to access these reports quickly. QuickBooks also
provides a feature called Process Multiple Reports, which enables users to
group together dozens of reports and print them in a single step.
With QuickBooks, and a trustedDental CPAon
your side, being organized and ensuring that your practice’s finances are
accurately managed is simple. Regardless of the size of your Dental practice,
you want to ensure that you are running your business efficiently by having
good bookkeeping and accounting practices.
Stay tuned for our 3rd
and final portion of this series on Ten Tips to Stay Organized and Efficient. You
can also check out Deana’s original Dentaltown articlehere.
For information on questions
specific to your practice’s accounting needs, contact Deanaor reach out to any of our Dental CPAs
Does your practice service patients 65&over who have medicare coverage? Here are some important details that our friends at Veros Dental recently shared about the 2015 Medicare Enrollment:
including a specialist, who treats Medicare beneficiaries must either enroll in
the Medicare program or opt out in order to prescribe medication to their
qualifying patients with Part D drug plans. Most every patient 65 years of age
and older is a Medicare beneficiary. This decision
should be made promptly and the process should be undertaken now to ensure
implementation by the June 1, 2015 deadline. Only those
dentists who do not treat Medicare eligible beneficiaries (65 years or older
patients and certain disabled individuals) are free from making a decision and
acting. By not acting (creating a formal status with Medicare), Medicare
eligible patients will not be covered for prescriptions you write for them
(this will tend to irritate them as their coverage should cover most all
prescriptions and will not be covered solely because of your failure to act). If you treat
Medicare beneficiaries and must make a decision, there are actually two
decisions you have to make. The first is whether to enroll or opt out. The
second, if you enroll, is whether to enroll as a Medicare provider or enroll as
an ordering/referring provider. ENROLL
- Medicare Provider By enrolling
as a Medicare provider, you are agreeing to accept the Medicare fee schedule
for covered procedures you perform for these patients. Dentists perform few of
these services but may include biopsies, some TMJ services and sleep apnea. If
you do enroll, you'll have to follow Medicare procedures for claim submission.
This enrollment then also allows your Medicare patient prescription to be
- Ordering/Referring Provider If you do not
perform any Medicare covered services, you may choose to enroll as an
ordering/referring provider. This allows service providers to whom you refer
Medicare patients to get paid (labs, imaging services, other procedures). It
also allows your Medicare beneficiary patients to have their prescriptions
covered. You will not be able to perform Medicare-covered services under this
status, however. OPT-OUT At first take,
choosing to opt out sounds like it would be the easy approach. It isn't that
simple. By choosing to opt out, your practice will actually be required to send
an affidavit to the Medicare carrier in your region. The opt out affidavit
lasts for two years. At the end of the two-year period, you are faced with the
same decision again -- to enroll or opt out. In addition to
the document you must file with Medicare, you also need to inform your Medicare
beneficiary patients and have each of them enter into a written private
contract. This contract is an agreement that you are not an enrolled Medicare
provider and that the patient won't submit any covered treatment claims to
Medicare. These contracts will need to be kept as records of the practice and
also need to be renewed every two years. This contract must follow all of the
specific Medicare stipulations (even including the appropriate font size!) for
it to be valid. By having
these contracts in place, the practice can follow their own fee schedule for
the Medicare covered procedures, and the patients can have their Part D
prescriptions covered under Medicare. How to
Decide? Each practice
will need to formulate their best approach to what to do. Here are some
you or will you see a Medicare eligible patient in the next two years? If
yes, you have to make a decision. If not, there is nothing for you to do
many Medicare eligible patients will you see? Run a demographic report to
learn how many active patients you have over the age of 65. If this is
low, consider opting out. Opting out actually will result in more work, as
every patient over 65 will need to sign an agreement with you every two
years. So depending on the numbers, opting out could possibly cost a lot
you perform Medicare procedures? If you do, you'll need to consider
whether you want to accept their fee schedule (enroll) or not (opt out).
If you do perform these procedures, a thorough analysis of your fees and
the Medicare fee schedule should be considered.
you do not perform the Medicare procedures but don't want the ongoing
burden of the opt-out paperwork, then enrolling as an ordering/referring
provider is likely the best option. You won't be able to send claims to
Medicare, but your referred service providers will get paid and your
patients' prescriptions will be covered. You can enroll later as a
Medicare provider, if necessary.
If your your patients are affected, be sure to make the implementation by the June 1, 2015 deadline.
For additional information and/or questions specific to your
practice,contact one of our Dental CPA team members at 800-772-1065 or email@example.com. Don't delay your decision, give us a call and we can help guide you to the best solution that works for your practice. Also visit the ADA website as
well as DentistryIQ
for additional articles related to the medicare enrollment.
One of our Dental CPAs, Deana
Jordan, posted an article in the January issue of Dentaltown
magazine discussing QuickBooks:
10 Tips to Stay Organized and Efficient. We received so much great feedback
from clients and others in the dental community who found the article
really helpful. So we decided to further discuss Deana’s QuickBooks tips in a
3-part series blog post!
These tips help educate dental practice QuickBooks users on what they should be doing to not only better manage and organize practice finances but also help the practice advisers, especially in regard to
Here is Part 1 of Deana’s QuickBooks Best Practices Tips:
. 1.. The Beginning: Basic Booking Tips to Jump Start Your Journey
oMaintain separate accounts
The rule of thumb for any business is to always keep personal and
practice checking accounts separate. Your business is a separate entity, so
never comingle funds.
oKeep Track of your receipts to support your
Keeping accurate expense records and updating your records regularly is
the best way to ensure organization and efficiency. Whether it’s scanning your receipts or using
a filing system- don’t throw them away. They can be used for record
verification when you least expect it.
oHave a spare credit card for practice
Using a separate credit card for your professional practice expenses is
key. Also reconcile your credit card’s expense statements monthly- even if you
can only spare 30 minutes to do so. By reconciling your expenses on a monthly
basis, your records will remain up to date and accurate. So when
your financial manager goes in to pull reports, they can do so more efficiently
without waiting time digging around to find missing receipts.
2.Selecting the best QuickBooks Software Version
oChoose the version of QuickBooks that best suits
your practice’s needs
§QuickBooks Pro- For practices that are just
starting out and are more focused on getting up and running
§QuickBooks Premier- For more established
practices that are expanding their business and service offerings
§QuickBooks Enterprise- For practices that have
more complex levels of record keeping and need more flexibility in targeting
the software specifically to their needs
§QuickBooks Online – For online access for dental
practices on any level
oOur Dental CPA team recommends QuickBooks
online, so you can login anywhere at anytime. There is no software data to
manage and the system is automatically upgraded. Your data is stored on the
Intuit servers so there is no need to process manual backups. If you have an
offsite bookkeeper, QuickBooks online makes it easier for them to access your
books from anywhere, that’s less time spent commuting to the office!
-3. Creating Customizable Chart of Accounts
oIf your practice is in its early stages, and you
are not sure as yet which reports you prefer to see, start with a Standard
Dental Chart of Accounts. QuickBooks will generate a chart of accounts based on
the type of business entered at initial startup, in this case, a dental
practice. Here is an example of a Chart
of accounts for a general dentist.
With QuickBooks, and a trusted Dental CPA on your side, being organized
and ensuring that your practice’s finances are accurately managed is simple. Regardless
of the size of your Dental practice, you want to ensure that you are running
your business efficiently by having good bookkeeping and accounting practices.
Stay Tuned for part 2 of our three part series on Ten Tips to Stay Organized
and Efficient. You can also check out Deana’s original Dentaltown article here.
For information on questions specific to your
practice’s accounting needs, contact Deana
or reach out to any of our Dental CPAs by emailing firstname.lastname@example.org