Merge Dental Practice in with a Specialist?

In my situation, things would be a bit different than the typical merger. I am mostly ortho with some general dentistry. I would like to do ortho only and refer the general dentistry to my partner. I get a lot of general work from people coming in for ortho so that would help feed that and the partner would have his general practice that is merging into my higher visibility more modern location.

Aany feedback or suggestions?


Merger? No.

I am in the middle of a transition though where the seller has been doing some of what you're doing and TMJ stuff. So my client, the buyer, who has been associating for 5 years and only does general dentistry is buying the general dentistry portion of the practice. The seller will remain and promise to do ONLY ortho and TMJ while the buyer promises not (and has no interest in) to do ortho and TMJ and they will enter into a space sharing arrangement.

Seller originally wanted my client to purchase a 50% interest into the entire practice I asked the buyer "so what happens if the seller retires or becomes injured, who’s doing the orhto and tmj stuff?" He said "don't know, never thought about that, I just thought it was time to become a partner".

Needless to say I talked him out of that real fast, no need to buy what you don't want and the seller may as well sell what he doesn't want....win win for both. They each have their own practices, they'll refer to each other, and seller cashes out on the general dentistry portion of the practice and will see what happens 5 years down the road with his practice. Who knows, by that time my client might gain an interest in that stuff and purchase his practice at that time, OR have the gumption to hire someone to do it and buy it, he's under no obligation to do either....

So would it be better to sell to him and then associate or work out some type of space sharing deal? How would you handle compensation on the cross referrals if it is just space sharing?

Can’t say it would be better in your case. In my case, the seller is only looking to work another 5, maybe 10 years max at maybe 2 days per week doing only those specialty procedures and the buyer has no interest in those specialty procedures.

I don't think it is kosher to receive compensation for referrals, maybe that's a state to state thing. In terms of compensation, what you produce, you keep. In my case buyer has no interest in doing certain procedures so why not refer them to seller? Seller has no interest in doing general dentistry, so why not refer them to buyer? The attorney did include some sort of referral agreement in the legal documents along with language that says as long as these two doctors are sharing space they agree to refer those procedures to each other unless specific treatment planning medical-dental guidelines dictate otherwise and they agree NOT to perform the types of procedures the other does.

How did they value the GP portion?

In terms of value, I chose to carve out the specialty work as though it didn't exist, so we were left with only the general dentistry revenue and direct expenses. Ran the numbers for the past 3 years and developed what I believe to be a reasonable range of value for the general dentistry portion only.

This post first appeared on New Docs.

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

Overpaying a Little for a Dental Practice Pays Off in the Long Run - With the Right Advice

I worked with a buyer back in 2005 looking at a small practice doing $540k in collections, appraised by broker at $400k, asking price was $422k (go figure, ask for more than appraised value).

I calculated the "range of value" to be between $325k-$360k & suggested that the buyer counter @ $350k. He did and the seller would only come down to $400k (you think?), my buyer countered at $360k, "our ceiling". Seller would not budge another inch.

Buyer was in a quandary, he's offering at the top of what we think the practice is "worth" while seller isn't even offering to compromise below what the broker felt it was "worth", my buyer was getting emotional, ready to throw up his hands & walk away....over $40k.

So we talked about all the endo, OS work the seller is referring out, all the implant and cosmetic procedures the buyer does that the seller does not do and the most important fact, of the $540k, hygiene was $180k which means there was probably additional "regular" general dentistry being left on the table, at least $100k in my opinion. I had to push the buyer in accepting the $400k price.

He asked me a few days before settlement "is it a mistake to pay $40k more than what you thinks it's worth ?" of course he was getting nervous, cold feet, etc. he had been making $150k as an associate.

I said absolutely not, there's a minimum of $100k of revenue that you should be able to generate easily, don't worry about it (easy for me to say, i wasn't going on the hook for the loan).

In the first 12 months after settlement the buyer collected almost $700k, netted about $225k after debt service, in the next 12 months almost $800k, netting about $275k.

So at our last meeting I said "so, do you think your $750k+ grossing practice was worth $400k ?" I think he's still smiling.....

Don't get hooked into the emotions of negotiating, it's a business deal, it's not personal. don't feel like you have to "win" in every negotiation, or better yet, don't think that "they" are getting their way. Evaluate YOUR position, know the facts, the risks, potential rewards and act accordingly. Trust your advisors, especially if they've been down this road many times before.

Sometimes paying a premium will pay off in spades, you simply need to have a good understanding of the potential payoff and how it relates to the premium.

This post first appeared on New Docs.

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 Buy-Out Arrangement

A buyer approached me about an offer they received from their employer of 3 years to buy out one of the 2 equal shareholders, “sure”, I say “let me see the proposal”. The offer was $450,000 for 50% of a practice grossing $1,000,000 here’s the kicker, they wanted the buyer to buy STOCK ! My first thought was “geeze, what is this, a .com company from the year 2000?”

So my work began.

Basically, the sellers had the practice valued 2 years earlier and even then the practice was doing less than $1,000,000. I’m convinced that the valuation was done for a buy-out transaction relating to their shareholder agreement, maybe for life and disability insurance issues. I also believed that the sellers really hadn’t consulted with anyone before making this offer to their associate, it was an innocently BAD offer and they didn’t know any better.

I wound up having a discussion with all 3 doctors about the fact that NO ONE pays 100% of a buy out or buy in as a stock purchase, they usually pay near book value for the stock and the rest of the buyout buy in payment in the form of either an earn in or severance compensation (an income shift). I also prepared my own “price assessment” for the buyer and shared the results with the sellers and they agreed with my conclusions and seemed happy to get the feedback.

We settled on an asset purchase arrangement for around $300,000 plus 50% of the cash & a/r. Seller still got the majority of their proceeds taxed at capital gains and buyer now has income tax deductions that are NOT available when buying stock. I figured the “tax” savings for the buyer between the original offer and what was agreed to was in the neighborhood of $400,000.

The lesson here is for sellers and buyers. For sellers, make sure you seek advice on how to approach your associates when contemplating a buy-in, otherwise you risk alienating them if your proposal is so far out in left field because you simply don’t know any better. For buyers, seek your own advice on any proposals given to you and don’t assume the owners are trying to rip you off simply because an offer may seem of the wall, it’s quite possible that don’t know any better.

This post first appeared on New Docs.

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 Multi Specialty Practice Set Up

Hello

Any input would be helpful on the best way to set up a multi specialty partnership.

I want to have all the funds go into one pot for Endo, Oral Surgery and Periodontics. So all the collections for each go in one pot and all overhead is paid out then what ever each collected gets paid on that percentage.

I realize they are all different overheads but if combing them all in the end to come out ahead and make more money than trying to break it all up.

Each specialist will own equal share of the partnership as well.

Any advice on what you have experienced?

Thanks for the help.

About 15 years ago I had an orthopedic group as a client, 4 doctors, one was a hand specialist, one was knee, one was hip and one was back\neck (as I recall).

Anyway, I thought the way they handled it was very easy and straight forward. Basically each had their own entity and they created a 5th entity (which each was an owner) which was simply a joint checking account (to keep it simple).

They made an initial capital contribution into the joint checking account to fund the opening of their office and they prepared an operating budget based upon the common or shared expenses, like rent, front desk labor, x-ray tech, shared nurses, common supplies (casting material, bandages, ace wraps, etc.). Each month they funded their equal share into that joint checking account (the 5th entity) to fund those expenses.

Each did their own billing, paid for their own specialty material (knee implants, hip implants, crutches, slings, finger splints, neck braces, etc.) and paid for their own labor in addition to the shared nurses (personal secretary, etc.)

The system worked very well for them, they kept it simple and clean.

This 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 Paying Assistant as 1099, Right or Wrong?

I work in an office on weekends as an independent contractor and there is an assistant who is also works only weekends. The owner pays me 45% collection (as opposed the usual norm of 35%) but wants me to pay the assistant myself by a check from me.

Should I get her to sign a W-9 and how often should I report her earnings to IRS?

Should I also get her to sign an independent contractor with me?

I am a new grad and I want to make sure I don’t do anything illegal.

Of course he wants YOU to pay the assistant, they don't want them on their payroll and they don't want to accept the risk of calling them an IC.

JUST SAY NO, they have to pay them, not you. If you're doing them a favor by working weekends they should cave and pay....if they are doing you a favor, they'll stand firm.

Thank you Mr. Lott for your reply. I called him and told him I am not having it. We finally agreed on 40% and he pays the assistant. Mr. Lott I am practicing in MD and not too far from you. When its tax time next year I will give you call. Thanks again.

You’re welcome. If you're going to be in the neighborhood give me a couple days notice, maybe we can meet for breakfast or lunch.

Tim

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 1099/IC Offer

I have a part-time offer to become an associate as an IC. The offer is 37% minus lab bill, with lab being taken out prior to payment. Just curious what others are getting and what is regarded as average percentage. This is not to discuss legality.

So to be clear, lets say your revenue is $10,000 and lab is $700. What’s the math?

Is it:

1. 10,000 x 37% = 3,700 - 700 = $3,000 check to you? or

2. 10,000 - 700 = 9,300 x 37% = 3,441 check to you?

As you can see, #1 really equals about 30% of your revenue while the other is nearly 34.5%.

As an IC #2 would be closer to what you'd ask for since the owner gets to avoid payroll taxes and potential other employee related costs. 30% is what employees get with employers paying payroll taxes.

This 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 Compensation Scenario

Just looking for some feedback on this arrangement. It's a true arrangement but I'm simplifying it to make things easier. Current associates get a base pay $1000/day plus a percentage of production approximately equal to 40% of what you produce above $2200/day (that $2200 number does come from somewhere but this is the part I'm simplifying). A quick example is if you produced $3000 in day you would be paid $1000 + [(.40)(800)] = $1320.

The practice has two offices and each office has its own pediatric dentist - there is no going between practices.

The first office (A) is very busy, runs 3 columns which consists of a column of restorative and two columns of hygiene. The dentist there sees all the restorative and does all the hygiene (no hygienist). His daily production is the sum of all three columns of which he get 100% credit towards his production. This includes exams, prophys, F-, x-rays. A typical day might consist of 30 patients (10 restorative and 20 hygiene). Making up numbers lets say his average daily production is $5000 per day (which is also the production for the entire practice). Based on the above formula he gets paid on average $2200 per day.

The second office (B) is also very busy, runs 3 columns which consists of a restorative and two columns of hygiene BUT he uses a hygienist who is paid $300 per day. Hygiene at this practice is very busy and he takes a fair bit of his time doing checks. This doctor gets credit for his operative and $40 per hygiene check. The prophy, F- and x-rays get credited to the hygienist who is not paid on production and that money disappears into the practice. A typical day might consist 45 patients (10 restorative and 35 hygiene). The total production on average for this practice is $7000 per day of which the doctor gets credited for $3500 and is thus paid $1520 for the day.

As an aside, where the production from the x-rays and F- goes all depends on who did the prophy. Patient sees the hygienist, the assistant takes x-rays and the prophy and F- are done by hygienist, hygienist gets full credit minus the exam. Same patient comes in and is scheduled in the doctor’s column, same assistant takes x-ray, doctor does prophy, F- and now doctor get full credit for visit including x-rays.

My questions:

1. Is this an unfair system here that the doctor overseeing the busier and more productive practice is getting paid less?

No. The doctors in each practice are getting paid for what they produce, correct? Doctor in practice B has an easier day if they have hygiene doing the prophys. Doctor in practice A is doing their own hygiene, working harder, getting paid more. Makes sense to me. What doesn't make sense is why the doctor in practice B isn't seeing 20 restorative patients per day since they're not doing the hygiene????? Then they'd make more!

2. Is it unreasonable to credit the doctor in the busier practice with x-rays since he is ultimately the one who reads them and assistants take them?

Most practices give credit on x-rays to those that take them. Simply because the doctor in the busier practice isn't busier than the doctor in the other practice and therefore, makes less. This doesn't mean you should start looking for ways to pay them more, you should look for ways to make them MORE productive!

3. Do you have any other ideas for compensation with these two scenarios?

Seems to me what you're doing is fine and fair to each, why change?

I guess what I'm getting at is this system makes it more advantageous for the doctor in practice B, whose practice currently produces more, to fire the hygienist and produce less money overall by seeing all the patients himself. Why would the owners of the practice want that to happen?

Wow? Why on earth would a doctor WANT to fire a hygienist to do their own hygiene in a busy practice? If the practice is that much busier, the doctor in practice B needs to stop getting on the internet and fill their column\chair\rooms with dentistry from all those patients.

Seems to me the reason why the doctor in practice A is only seeing 10 restorative patients per days is because they're too damn busy doing their own hygiene, if they weren't doing hygiene wouldn't they have MORE time to do MORE dentistry? Maybe there aren't enough chairs!

Maybe I’m in left field with this, anyone else seeing this differently?

Just looking for ideas.

Thanks

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