Dental Independent Contractor or Employee? What is the Risk?

Rumor has it the IRS doesn't like independent contractor status.

That is completely untrue. What they don't like are employers trying to avoid employment taxes by classifying employees as IC's. IC's are a VERY valid form of association in MANY industries, even dentistry with the right set of circumstances.

But have they ever done anything about it?

Sure they have, and they continue to look for those abuses where employers try to evade employment taxes.

I work part time in multiple offices and enjoy being an independent contractor. Am I in the wrong?

The easy answer is it depends. You can arrange your set of circumstances. I mention above to create a defensible case IF challenged and generally speaking, you won't be challenged. Your general contractors (or employers if they lose) will be challenged as they're the ones NOT paying the employment taxes when maybe they should.

Can you name a case where the IRS did anything about it and what were the consequences?

I can't name names due to confidentiality issues; however, I recall back in the late 80's when I had a stock broker tax client where all the brokers of this small brokerage firm were being treated as IC's. The IRS audited the brokerage for several years for this very issue and the brokers had to submit returns to prove that they were reporting their income correctly and paying the SE tax while the brokerage got SLAMMED for hundreds of thousands of back payroll taxes, penalties, and interest. Ultimately, they went belly up.

We've had similar stories on a much smaller scale where IRS re-classed IC's as EE's and made the client pay back payroll taxes, interest, and penalties. I have yet to see a case where the IC themselves got "harmed".

The bottom line is in just about EVERY audit of a business. One issue the agent MUST take a look at is the EE vs. IC issue to ensure employers aren't trying to evade employment taxes.

This first appeared on Dentaltown.

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

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Dental Practice Valuation Questions

When calculating the value of the practice is the value of the equipment on the balance sheet used or the tally of the itemization?

I'm in the middle of a practice acquisition after an agreed upon price.... getting to the final hours and finding out now the hand pieces , supplies, front office furniture are not staying.........seller says if you look on the list it's not on there......

My argument though is that it's part of the appraisal. It's the # on the balance sheet that is going to be used for the depreciation schedule… it's the number the appraisal uses in determining the value of the equipment........Not the itemization of the equip list; Seller feels like it's personal effects.....and why he never put it on the equip list....

So we go round and round.... he equates it to when you look at a house you don't expect to buy the pots/pans, dishes that you see when you buy a house.........

I equate it to... I'm buying a business and the ability to do business......

In hopes for further discussion as I feel it’s important since I will want to become a potential seller at some time:

What if the practice was appraised for X amount of dollars using a defined list of equipment used to derive an appraised value which would not be part of the sell which may include fun toys like Cerec, electric hand pieces, and specialized bone grafting tools. How about first class office furniture, let’s say: Snake skinned lounge furniture or a 2K dollar waiting room massage chair from Brookstone, something to that nature. Of course this would be disclosed up front to any buyers what’s not for sale and what isn't before any offer was made by the potential buyer. Do you think this is an appropriate way to approach this?

I'm curious as I plan to sell my at some point and uncertain to these measures as I personally stockpiled tons of equipment before I created my own practice and unsure if I would want it included in the appraisal value, especially new equipment that I do not intend to sell that hasn't been part of running a business yet.

Obviously I want be fair and honest about this in the future...

Your input is greatly appreciated


(Jason Patrick Wood responds):
 
Very simple. You don't get extra value on a dental practice because you have more bells and whistles than the guy down the block. Banks lend on your production figures, not on whether you use a CEREC machine in your office. Most "big ticket" items are actually harmful to a transition going forward specifically because the Seller believes they should get money out of the practice for these items. However, you buy big ticket items (or you should) to either lower your overhead, increase production, make your life easier or a combination of the three. As a result you are typically already having the value of the practice grant a "value" to that piece of equipment if you have utilized the equipment effectively. It is just a hidden value (i.e. CEREC machine reduced overhead by 5%, as a result my practice is more profitable, as a result I can command a higher value to my practice based upon comparable dental practices).
 
(Tim Lott responds):
 
If you have the appraiser’s name, ask the appraiser if their appraisal specifically excluded any assets or supplies. They're the ones that appraised it.

As Jason said, generally a practice appraisal assumes everything stays. Many times this issue gets addressed during the LOI stage. As one who represents buyers I want to make sure as soon as possible that the price includes ALL assets, supplies, intangibles, websites, web addresses, phone numbers, and even the use of sellers name as buyer sees fit for a period of time, according to state laws.

Most sellers will also state very soon in the process which "personal" items they wish to exclude. As one that values practices one of the questions we ask is if there are any assets excluded from the sale and we'll state that in our report or practice profile if we're selling the practice.

This seller is trying to pull a last minute fast one and unless there was ANY indication that these items were to be excluded when the price was agreed to I'd be looking to reduce the price already agreed to.

Good Luck!


Tim,

Thanks for your input and that makes complete sense. Its about clarity for the buyer so I would definitely aim to disclose what would be part of the sale and not for sale during and LOI. Unfortunately I think LOIs are non-binding in the State of Texas, from what I hear.

(Tim Lott responds):
 
I understand about non-binding. Still, it doesn't have to be binding to have an understanding. Even in a non-binding LOI, if the seller says the price is $xxx, xxx and it includes all assets, supplies, etc. In the event the seller tries to pull a stunt like this in the legal agreement phase, guess what: the price that was stated in the LOI no longer applies since the assets have changed. It can open up everything that was stated in the LOI for re-negotiation & that's never good.
 
This first appeared on Dentaltown.

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

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Promoting your Dental Practice when the Economy Slows

Here is a timely article from our friends at New Patients Incorporated.


Economic Reality

We do understand that certain areas of the country have been impacted more than others. Michigan, Ohio, the Buffalo/Rochester New York corridor, Las Vegas, parts of southern California, and other parts of the country have been hit harder than most. If you practice in one of these areas, just take what we are about to say and add even more importance to it.

The biggest overriding economic reality that is directly affecting your dental practices is the 2.3 trillion dollars of home equity that basically vanished. The entire US economy is balanced around 60 trillion dollars (to put it into perspective). So, 2.3 trillion dollars is quite a “chunk” to pull out of the economy in a very short amount of time. Do not underestimate the importance of how quickly that money vanished.

Who (which dental practice type) will get hit first and hardest?

The cosmetic/full mouth rehab focused practice, in even a moderately competitive market area, will be the first to get hit and the hardest hit. There is a necessity vs. elective mindset in the market. The farther away you go from family dentistry toward cosmetic/full mouth dentistry – the more “elective” the market perceives the dentistry. The real killer though is the 2.3 trillion in unavailable funding. Between 2001 and the latter part of 2005, those extreme makeovers you were doing were largely funded by home equity lines or loans. Well, that home equity has all but vanished for the vast majority of the population. If you combine an elective perception and lack of available funding, you get a slowdown. In some markets, like the markets mentioned above, a drastic slowdown.

What to do?

The first thing we recommend is to pay more attention to your existing patient base. There is likely a tremendous opportunity for practice growth within your own patient base. Between 2001 and 2005, you were all pretty “fat and happy”. Many times, promoting the practice within the existing patient base becomes complacent during “fat and happy” times. Now is definitely the time to pay more attention to your re-care system, communicate with your existing patients, and promote services to your existing patients.

The next thing we do with clients is allocate marketing dollars to what we KNOW works best in their particular market area. You should do the same. If you have been successful promoting your own practice in your market area before, over-allocate your marketing budget into the medium that has historically worked and stick with it until the economy picks up.

However you promote your practice (yellow pages, direct mail, print ads, radio, tv), start to change the design and message to be more “all inclusive”, or more family oriented. We will give you an example. We see this mistake all the time. Let’s say you are currently advertising your practice on the radio. And, it’s been successful in the past. The focus/message of your ad is sedation dentistry. Sedation dentistry is one very small aspect of what you do every day. Do you give every patient a pill before you recline them in your dental chairs? No, of course you don’t. So, your marketing dollars are paying for radio ads that only communicate one small aspect of what you offer the community. What if you had the same ad budget with the radio station but you had 4 different scripts that were rotated throughout the airtime? You certainly might have one script for sedation, but how about one for emergencies, one for family dentistry, and one for metal-free dentistry. The public at large will begin to know you as the “all inclusive” dentist, rather than the dentist that “just does” sedation. Your practice will be attractive to MORE PEOPLE for the same marketing expense! Take special note of that last sentence. We can’t tell you how many times a new client has told us that their previous marketing made people believe that they “only” provide sedation dentistry (or “just” cosmetic dentistry). Be honest with yourselves, have any of your patients ever asked you if you do “regular” dentistry? If so, there should be alarms going off in your head right now.

Be Patient

Of everything we just wrote, this one is likely going to be the toughest for you to apply. Effectively and professionally promoting a dental practice is NOT a short term endeavor. Proper promotion IS “a careful application of budget resources over the life cycle of a dental practice”. When the overall economy slows, that means we just came out of a period of time when things were easier. Patients were easier to attract to dental practices between 2001 and the latter part of 2005. If you weren’t impatient then, now is no time to start being impatient! Impatience will cause you to make terrible decisions on where to apply your marketing budget. You will bounce around with a “try this and try that” approach that is never the right thing to do.

We are both very excited to provide this content for the TPD readers. Our goal is to share what we’ve learned over all these years so you can perhaps take a 1,000 foot elevation view of how you promote your dental practice, and make it more effective and more rewarding.


by Howie Horrocks and Mark Dilatush

This article first appeaqred on New Patients Incorporated.

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

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Dental Marketing Tips

Below is an article from our friend Debra Seidel-Bittke, founder of Dental Practice Solutions.

“Six Degrees of Separation”

I began thinking that in this new world we live in, we're all just a Google search away from one another. We live in a world now where we're all intrinsically connected. Suddenly, everything you say becomes part of your personal legacy and your personal brand. You are now guilty -- until proven innocent -- in the court of public opinion. Your brand isn't what you say it is; it's what Google says it is. We're all connected.

I like the concept of branding; it’s another layer of one’s reputation. Branding exercises us into thinking broadly about what we represent. As a dental professional we should be accessible, friendly and practical at the same time. Keeping it simple is important as well. How should the next generation approach building their brand and career, balancing personal interests and individuality with working well in teams and groups? We either brand ourselves or let others develop that brand for us. A brand doesn’t need to be dominant or exclusive but should have humility and be giving.

When speaking to many of my colleagues lately they call themselves “Servant Leaders.” I like those two words: Servant and Leader. Put them together and you have a very positive image of someone who has an IQ over 100 and approachable as well.

Developing a personal brand includes understanding how people individually communicate with you and understanding how you can take that and share it with the world. It forces a much better relationship for people to have between themselves and their community, whether personal or business driven.

Once you begin a written or verbal conversation about yourself and your dental practice, such as a service or the great treatment you provide, you need to come up with a marketing plan as if remaking your image or changing the tone of conversation about the new product that you are launching.

I just looked on a clients’ website today and he is promoting numerous oral hygiene products and photographs of flossing and toothbrushing techniques. He also had a lot of great information on the website for his patients to read about cosmetic or esthetic dentistry, he offers his patients. After looking at his website I walked away with a great feeling, knowing he was an outstanding dentist and most likely on the leading edge in the small community where he practices in Northern California.

Here are some of the tools you might use to flood the web with new information, keywords and search results for the “new you.”

1. Press releases. Flooding your market with press releases is best accomplished by using all the free and paid press release services available online. This not only gets people who read releases frequently on the networks to see the new you but also earns you publicity via potential interviews, guest blog posts and a myriad of other side benefits from creating a new and exciting story about yourself or your company.

2. Guest blog posting. Offer to guest post anywhere and everywhere you can get exposure. Bloggers love great, original and exclusive content targeted to their demographics. It is not hard at all to find guest posting gigs in any market to help change minds.

3. Podcast interviews. Use places like BlogTalkRadio.com to find podcasters who are directly in front of your target market and offer you as a guest on their shows. Invite your office team members, office team, or office administrator, etc., to send letters to each and every podcaster on such a network that would be beneficial to you and schedule as many interviews as you can. Ask them to link back to your “Fan Page” so that people can learn about you and you can take control of what is being said about you on the web. Be sure to prepare and execute this carefully, and by reaching out to your network, you are most likely to succeed.

4. Facebook and Twitter. Utilize at least these two so your patients can learn what is happening at your dental office. Facebook and Twitter are just two social networks receiving a lot of attention and much conversation these days. I suggest that you have a FAN PAGE and not a personal page for the dental practice to invite patients to participate in. The FAN PAGE tends to be only about the dental practice and can be kept business only. You are able to upload photographs of your office and possibly special photographs regarding something new in your office you want everyone to know about on the FAN PAGE. You can have a link (Looks like a filing tab) to share information, etc. Be sure to add the “Join our FAN PAGE” or “SHARE TWEETS WITH US”, in everything you send your patients and especially place the wiki on your webpage so patients are just a “click” away.

5. NewDocs.com. While we are on the topic of social networking I have found NewDocs.com to be an excellent area to share my knowledge and learn from other dental professionals. Regarding the topic of knowledge sharing, I want to be an advocate of this new social network for dental professionals. Pass along this information to all your colleagues. This is a great place to network with other dental professionals. If you are part of a study club, invite them to be a part of this growing community. Your study club can have their own "Group" within this social network.

Social media is not to be thought of as one more chore but I want to suggest that you invite the entire team to become a part of social media for the dental practice. Team members may feel empowered and definitely a part of a fun and innovative group when they are invited to participate in posting information about the dental practice daily or weekly on Facebook, Twitter, or a blog.
Debra Seidel-Bittke, RDH, BS

Founder: Dental Practice Solutions

http://www.dentalpracticesolutions.com/

Office: 503-970-1122


This first appeared on New Docs.

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

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Madow versus Horrocks: Which new patient marketing works better - 'smart bomb' or 'carpet bomb'?

Below is an interesting commentary on two well respected dental marketing firms, New Patients Incorporated and the Madow Group.

I am embarking into the unknown seas of dental marketing. I am going to try a new move-in mailing with Promail from the Madow people. I am going to try it for 6 months. If the response is less than 1% I will go with Howie's people. I have bought and read his Unlimited New Patients books, which are great. Anyone try Promail and if so, any ideas for a mailing?


Augustdds@dentaltown.com

Hi August,
Let me see if I can be of some help here. First, we must agree that these are two conceptually different programs. True, both involve advertising, but that is where the similarity ends. The Madow approach is to send a mailing to EVERYONE who is "new to the area". I liken it to a carpet-bombing philosophy. You know, you drop enough bombs you're going to hit something. Now, don't think I'm putting it down. Actually, I am a Madow subscriber and use this method to attract new patients. I just want to differentiate it from a much more targeted approach that I think Howie Horrocks uses. From what I understand, Howie uses a more demographic approach, limiting the mailings to only those that meet certain criteria such as income level and such; more of a laser guided cruise missile type strike. You might want to spend more money per mailing here, as you are limiting your advertising to those you specifically know can afford your services and who hopefully want to have them done.

So why do I go with the Madow? Well, I have gone into this in more detail on another post but to simplify: I get about a 2-3 (or 4%) success rate with the mailings which cost approx $1 per address. For 200 mailings a month I get 4-6 or more families...at least a 10:1 ROI easy. So why not do it, right!

As I go on for more advanced cosmetic training I intend to contact Howie to try and attract those so inclined. Right now I'm busier than I've ever been and lovin' it. But, you can't ever take it for granted, always have to be looking ahead... not in the rear view. Madow has a bunch of info as far as new patient letters and such. I don't do any coupons or anything like that. Just a simple one page letter and business card. They also tell you to repeat mailings to the same individuals for 2 or three months. I've never done this. Just seems like too much work. It may be effective however, don't know.

If you would like a copy of my "Welcome to the Neighborhood" letter let me know I`ll fax it to you. Its nothing special but you're welcome to it if you like!

Flyer@dentaltown.com


Mike,

Yes, you're right. We try to smart bomb rather than carpet bomb. But don't get me wrong, I like the Madow's approach and in fact heartily recommend their Promail product in both my books. (And it has nothing to do with the fact that Rich and Dave are good friends of mine!) It all depends on your needs. If you are getting 10:1 ROI then break out the champagne! As my Dad used to say, "Where's the hard part?"


There are two basic approaches in new patient marketing. There's no one right way, just what works for you. One is to drag as many bodies as possible through your front door, develop a sixth sense about who are the "good" patients and who are the flakes, and spend your days sifting the chaff from the wheat. Perfectly valid approach.


The other method is to be more vigilant about pre-selecting your audience. Find out who can afford your service, where they live, what they would respond to, what they never would respond to, then craft a marketing message that you feel would get them to pick up the phone. Then go after them. You will have less quantity but more quality. With the other approach you have quantity but you have seek out the quality. I've had plenty of clients do both methods. You can do well either way but it usually boils down to the temperament of the doctor and how much he/she can "take."
Most of our clients (although not all) are NOT interested in attracting EVERY patient in town. They just want the right ones. ("Right" being defined however they define it - OK , let's be real - the ones that can afford you!)


To do this you need a selected approach. It's not rocket science. Hell it's not RCT either. Just send your message to people who first of all can afford you and then are likely to respond; don't waste your money sending it to people that could never afford you (mobile home parks, low rent apartments) or are likely to never respond to it. This comes down to using a good list broker (selecting the right mailing list is THE most important part of a direct mail campaign – even more important than having a good letter.) Then having a well crafted and written piece that is not boring but engages the reader (sorry, you have to be, or hire, a good copywriter for this part). And finally, repeating your message enough that people notice.


Good luck!

Howie Horrocks
 
This article is courtesy of New Patients Incorporated.

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

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