What Rent Should a Subletting Dentist Pay?

I have a dentist who sublets space in my office. We share the days equally and we share disposables but nothing else. I'm not sure what a reasonable rent for this type of arrangement should be. Does anyone have experience with this?

5% of revenue may be the benchmark for space rent, however, it sounds like you own all the equipment, furniture, computers, etc., therefore the 5% will not cover the use of all those items.

You need to start with what it is you pay for the space that would be equally shared: rent, utilities, cleaning & maintenance, security, condo fees, water, cable\internet, etc.

Then consider any other expenses for either the facility & equipment\furniture\computers that you also pay. things like property insurance, premises liability insurance, property taxes, equipment repairs & maint, etc.

You should be able to come with a pretty accurate annual number.

This is YOUR annual operating cost to rent that space & own that equipment.

That's the baseline.

Here's a question, should you add a premium to this amount since you're the one on the hook for the lease? I say yes, maybe 10-20% more...

Here's the difficult part, determining an amount that covers the rent for the hard assets they use like the equipment\furniture\computers and one method I've seen is to simply take the total purchase cost of those items & divide by 10 to arrive at an annual rental rate.

Let's say the cost of those assets is $200,000, divide by 10 givens you $20,000 per year, or approx. $1,500.month. Is it a perfect method? No, lets face it, it's all negotiable. Maybe 15 years is a better divisor.

Don't sell yourself short whatever you do.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

Follow us on Twitter, Facebook and Pinterest

Is $650,000 a Good Price for a Dental Practice?

We have come across a 6-year established office in a shopping strip whose GD and Endodontist are relocating to a professional medical building by the end of this year. They want to sell the current location for $650,000. For the price, all we are getting is the location and the equipment/fixtures. They are taking the patients with them.

They have 3 years remaining on their current lease. The total rent is nearly $3200. The approximate square footage is 2000. It has 5 operatories with ADEC chairs, digital x-ray, digital panoramas, 9 computers, new compressors, nitrous oxide tanks and plumbing (no idea of exactly how old). Number of patients and production information was not offered. The office's location is very good. It is nearby a major grocery chain. There are between 5-10 other dentist offices within a 2-mile radius.

Essentially, what my wife and I asking ourselves (and hope to get advice for) is: IS THE $650,000 WORTH IT FOR JUST THE EQUIPMENT AND LOCATION? (The price includes the GD's costs for renovating the office) OR should we just look for an empty location and start - literally - from scratch?

Since my wife is sill working for a group practice, this is our first experience. Can you advise us of how to proceed or how to negotiate with the GD seller?

$650k is the ASKING price, I doubt it'll be the AGREED UPON price.

You MIGHT be able to duplicate that office for approx. half of that, maybe not depending on the build-out cost.

The fact that you're considering this leads me to believe you'd consider a scratch start-up & if that's the case, the question is, how much are you willing to spend on a scratch start-up that comes with NO patients? THAT number may be the number that your willing to offer at MOST, probably less since you're buying USED equipment\improvements.

Don't be insulted by the asking price, it is what it is, nothing more. Make an offer & plan on sticking very close to it. The WORST that can happen is they say no & you're in the exact SAME position you are now, nothing lost.


Good luck.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

Follow us on Twitter, Facebook and Pinterest

Dental Associate Buying Out Older Dentist

I have a 'hypothetical' question on behalf of an associate friend of mine. In his situation, the owner is ready (sort of) to sell the entire practice, with the condition that he can still be some part of it. Basically, he doesn't have a golf course or anything else to retire to due to his disability, but realizes that it is time to sell the practice.

Then he should sell & get out of the picture. Would you buy a house & let the seller "hang out" from time to time? Well, maybe some would.....

The associate does NOT want to buy in. He only wants to buy OUT. He is perfectly happy to have the owner come into the practice as much as he wants to. He is a great asset in talking to patients, motivating the staff, and for general advice.

Buyer can always consult with the seller whenever they need to, make it on an as needed basis, DON'T put anything into a contract giving the seller the RIGHT to "hang out".

There is vast room for improvement that the associate believes can turn this classic car into a finely tuned machine.

That'll be easier to do without the seller "hanging out" telling buyer what they disagree with & potentially sabotaging any planned changes.....

This certain associate wants some opinions. When is it a good deal to buy a very large practice?

When it's a good deal AND the buyer can manage it.

Does it make more sense to start small and get big in a few years, or to just buy big?

Depends

More importantly, how would you structure a deal to keep the owner at the practice?

I wouldn't, in my opinion that's simply asking for trouble....

What are the advantages/tax implications to making the purchase price significantly less and keeping the owner on salary as a "consultant" or something?

Man, keep it simple, let your CPA advise you on price allocation that benefits you, don't worry about that now.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

If you'd like to be added to our Dental CPA newsletter, email arose@dentalcpas.com

Follow us Twitter and like us on Facebook

Unique Dental Practice Purchase Offer

Senior Doc opening a new practice 7 miles away from the old office and offers to go 50/50 on the cost of the startup and the net profits at the end of every year + 55/hr (goes up if production gets pumped) + no management responsibility - the senior doc will NOT work at the practice and will continue working in the old office.

What do you say?

1. What if the total cost is $300k, will he LEND you $150k & you can borrow the other $150k from a dental lender & simply pay him interest as you would the dental lender? The senior doc may have to stand in line behind the other lender which they may not like unless you can get the other lender to take the same position on the assets.

2. If you MUST be EQUITY partners, I suggest you work out the specifics as to how you get compensated for your dental services (I guess that's the $55/hour) although I'd suggest at least 35% of collections and for your management services, maybe an annual salary of $50k per year and the remaining profits are split based on equity.

3. The other thing you could to is work it so YOU get paid for your dental & management services and the remaining profits have two tiers, the first being that each EQUITY partner gets a 10-15% return on their INVESTMENT first, then the 2nd tier goes to you as the PROFIT partner.

Just be sure you're clear on the difference between a return on equity (partner profits) vs. being compensated for services.

An example: if the CEO of Disney and I own the same # of shares of stock, we get the same dividend as "owners".

However, because he's the CEO, he gets a trillion in compensation BEFORE those dividends are paid.

Point being, if he's managing (which I'm still confused about since he's not working there), pay him a fair compensation for those services, you get a fair compensation for your services & any remaining "profits" are the dividends. In your case (the dentist generating the revenue) you might want certain levels of compensation based upon certain revenue thresholds.

Good luck.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

Follow us on Twitter, Facebook and Pinterest

Dental Practice - Should I Sell, Merge or Stay?

I'm 42 and I'm two years away from completely owning my practice.

At that point my income increases substantially.

I was poor and in debt when I bought the practice (which was overpriced and underperforming.) Now, it's productive but I'm questioning whether I want to stay. Right now I feel tired, burnt out, and not motivated to keep the leadership energy flowing. My question is - are group practices better?

For instance, I'd like to take a real vacation before I retire. (2 weeks would be nice) I'd like to discuss complex treatment plans, I'd like to share overhead, I'd like some company (an office manager would be nice.)

Yes, I've got a good staff but I'm their boss. Some have suggested finding a consultant - I'm burnt out on those. I've had three - and they really didn't help much. (One was a mentor, one was getting started in the business and one was way overpriced) I'm still paying off the last one. I feel like I could sell this practice and make a profit. Then, I could work as an associate as I find a group to become partnered with. Have people done this? What are some pros and cons?

Not knowing you (personally anyway), it's difficult to give any real advice, so I have to use assumptions.

Assuming you still want to own & work, it sounds like you want to have more time off, share the call (i.e. better quality of life) and hopefully maintain some ownership so you can maintain a share of the profits.

If those are some fair assumptions you could:

1. Look around for a younger dentist who currently owns their practice & wants to grow their practice, maybe with deferred payments & you could merge your practice into theirs & work out some type of deferred sale. For example, become 50/50 partners in one bigger practice, this way you'll have some security knowing if something happens & you need to retire or sell, your partner will buy your half. Keep in mind you'll have to buy theirs if something happens to them first. They can come into your space, or you there’s, whichever is a better location.

2. Find a young doctor looking to own a practice, hire them as an associate with the opportunity to buy-in.

I have 6 partners & have never worked alone, so I can only comment based on my experience. I was out of the office all last week and my other partners were able to handle any calls that came in for me that NEEDED attention. I can go away & not have to worry about a client’s ability to be serviced, just as my partners can do. If I were solo, last week would have been more stressful knowing that IF something came up that needed partner\owner attention the client would have to wait.

I doubt you really want to sell, that's just a guess though.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

Follow us on Twitter, Facebook and Pinterest

Dental Practice Purchase Question? Which Dental Practice is Best?

I have a couple of opportunities presenting themselves to me and I need help deciding whether anything is good for us. We are located in a suburb of Philly.

Option 1: Purchase brand new brick free-standing building on busy road (40,000+ cars/day) for 425K. 1700+ sq ft inside, one floor. It is just a shell now so I would need to fit it out. Does anyone know how much that would cost? We were thinking around 250K? This would be a start up. There is another dentist about 200ft from this property, but not directly on road. I would market this practice as a "dental spa" since there are none in the area. The dental demographic consists of several older docs not ready to retire just yet.

Just some very quick math: $425k x 1.05 (closing costs) = 446k + $200k improvements + $150k equipped & ready to go + $60k working capital = $856k with no real patients from the get go AND you say money will be tight, doesn't seem like your first choice.

Option 2: Purchase existing practice from doc. This practice has about 600 active patients, 1 doc op, 1 hyg op. Current doc/hyg is working 3 days. Producing 400K+, 5 new patients per month (no marketing done). Practice is small 700+ sq ft and attached to the house. Potential to expand but limited. Located on street with steady traffic all day in upper middle class suburb. He is looking to sell the home as well. The home is roughly 2700 sq ft. with nice size yard. Everything is maintained immaculately (house & practice). He is asking 175K for the practice and 510K for the house.

I've seen this somewhere before. If 2 ops in 700 sqr ft attached to your home is your idea of the perfect practice this might be heaven for you, if not, it's not even a consideration. You need to think about how you want to practice for the next 10+ years.

Option 3: Purchase practice from 77 y.o. doc looking to finally retire. He has been practicing at this location for 25 years and hasn't updated anything since. He is currently only treating patients on a emergency basis. This would essentially be a start-up as well. 1700+sq ft office that would need to be completely redone. Located on a busy road in a middle class area. Also looking to sell home upstairs (1700+sq ft). Doc is looking to get 355K.

This seems like the best of the 3 and you've provided NO info. There must be a patient base, what is it? 1,700 sqr ft is the average size practice, especially for starters. redone can mean alot of things; if you mean the layout is good & simply needs redecorating that might be less than $25k, if everything needs to be ripped out and REALLY redone you might be looking at well over $100k. Updated equipment for 2-3 ops might be $50kish depending on what you get.

So again, some quick math on the high end: $355k (is this for practice AND house or just practice or just house? You’re unclear) + $100k for improvements + $100k on equipment + $60k working capital = $615k AND AT LEAST YOU'LL HAVE PATIENTS FROM DAY ONE.

I don't know which route would be best for us. My husband just started his third year of dental school and would like to be a pedodontist so his lack of income is also playing into this. What do you think???

Again, very limited info provided, so if you really want to know which direction to take you're going to have to hire a consultant to help you analyze the numbers of the options.

Good luck!

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

Follow us on Twitter, Facebook and Pinterest

Need Dental Practice Purchase Checklist

I have only been out for 2 years now and an opportunity has come up for me to purchase my own practice...

I am so excited but also scared!

Ok.... I have no clue about what to look for, questions to ask, what I am purchasing into or getting myself into....

Can you please please help and just briefly give me ideas/opinions/advice on what I should be looking into, checking, asking, researching, investigating - before I go ahead and buy?

Thank you sooooooooo much!

Too much to write. Click here for a comprehensive checklist on a new practice purchase and other items you may want to learn more about.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

Follow us on Twitter, Facebook and Pinterest

Deducting Dental Disability Expense on Tax Return?

I am a new associate. What are things that I can claim as a business expense? I have in the past included my malpractice insurance amount.

To deduct or not is certainly a personal choice. I won't deduct mine.

The tax savings on a few thousand dollars of premiums is a couple hundred dollars in tax savings. Sure, over 30-40 years those savings could add up, however, the potential tax cost on potential benefits paid over a year or two would likely eat those savings up.

I have a client that's been collecting over $140k in disability for 20 years now, at an average tax rate (fed & state) of +-25%......

The tax cost over 2 years is approx. $70,000, thank goodness he didn't deduct his premiums.....

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

Follow us on Twitter, Facebook and Pinterest

Dental Tax Break? Renting Equipment from Wife and Kids?

What is the tax advantage of putting equipment, etc. in your children's/wife's names and then renting it back? I ran across a practice for sale where the owner does no draw to himself but rents everything from his kids/wife.

There's absolutely nothing wrong or illegal with this set-up. It's no different than owning the real estate your practice is in and renting it back, is it?

I'm guessing the seller is older and the kids are probably older as well. I say this because before the kiddie tax & then the more recent tightening of the kiddie tax rules, this was a very common strategy for businesses to shift income from the higher income tax brackets of the parents to the lower income tax brackets of their children. Why the wife's name is involved, I'm not sure, it might also be a move to NOT have assets in the name of the doctor in case of patient lawsuits...

As long as the rent being paid is fair & the income is being reported on another tax return the IRS can't say a thing about it.

What a prospective buyer needs to do is to make sure they consider these expenses when analyzing the target practice financials to narrow in on the REAL practice expenses.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

Follow us on Twitter, Facebook and Pinterest