Extra Dental Collections - What Should the Dentist Do?

I have a question regarding my first year collections...

My background:

I opened my office in January

I am a PLLC

I have basically lived off of savings from previous years and have not paid myself very much this year

I was saving money to make sure I would have enough for this part of the year when my rent started (got first year free) and when my loan ended its interest free period.

I earned about 30 during the first part of the year as an associate

I have about 65k in my business account

My Questions:

So, with all the deductions that I will have with the purchases made for the business, should I pay all of that extra to myself as a salary? If so, is there a problem with paying it in a lump sum or should I break it up?


Dr. Dersley Replies:

If your LLC is a pass-through like mine, all the profits are automatically counted as personal income, so it won't matter if you write yourself the check or not. Whether the profits are sitting in your business account or your personal account, it doesn't matter.


Tim Lott Responds:

It sounds like it's time to start paying yourself a salary. If there are any purchases you need to make for your practice, you could make them before the end of the year to minimize your tax liability.

Is your PLLC being taxed as a sole proprietorship or a corporation?

I'm guessing you'll have plenty of deductions with your start up that you won't need to take any more deductions. Have you done any tax planning for 2009? Will you wind up with taxable income or a loss from your practice? How will the $30k of other income impact your projection? To you have itemized deductions? If you wind up with a tax loss from the business due to the start-up deductions, what will happen do your 2009 itemized deductions? Does it make sense to carry some losses to earlier years? Carry them forward for potentially higher tax brackets? Do you have traditional IRA's to convert to ROTHs ?

You need to consider all of these questions and consider 2009, 2010, as well as previous years.

I agree with Dr. Dersley that it won't matter when you take the cash. If you need it, take it. (assuming you haven't elected to be taxed as an S-Corp!)

Coming back east anytime soon?


Thanks Tim. I have no plans to return anytime soon now that my bro has graduated and is living out here on the west coast as well. I'm sure we'll do something as a class for the 10 year, but that is still 5.5 years away...so we'll see.

I am a sole prop. I do have plenty of deductions, more than I can take advantage of. We did start some planning, but were going to wait until later to decide on some things so I thought I would get some ideas from here and thus this question. Most of those questions I don't know and I'll take to the CPA.

Can I take a loss to an earlier year if it wasn't income earned from this practice?


Generally you can carry back BUSINESS losses, but you can't carry back itemized deductions. So in years of a start-up where there may be a projected loss with the new equipment without it may be better to forgo those depreciating deductions so you can use your exemptions, itemized deductions, and maybe tax credits since you can't carry them over or back.

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

Do CPAs Have a Higher Profit than Dentists?

A buddy of mine is a CPA, and his real profit margin is way higher than ours. The difference between them and us is that they know how to legally write off more than we do, put the profit they make in retirement trust accounts, and utilizing actuaries to help them calculate out how much to put in their pension plans. We have to hire CPAs and actuaries to calculate these things for us with a mega cost, and they don't. My CPA and actuary both make way more than I do with less staff and overhead.

Your perceptions are interesting. In reality, I believe CPA "firm" profit margins to be lower than dentists. I think the biggest difference is in the labor, our industries statistics suggest that the benchmark for labor is 35% and as much as 40% is probably quite common. Dental practices float around 25%, maybe as high as 30%.

All of our other "fixed" OH is probably between 30-35%, the rest is for the owner\CPA and if you consider their compensation for CPA services I bet our profit margins aren't much higher than 10% and that's on the high end of the range. Larger firms can achieve higher return rates and that's only because they provide other non-accounting consulting services to larger companies that bring in lawyers like hourly rates of $500 per hour+ with many of these consulting jobs priced as success fees, similar to a broker getting paid 10% on a practice sale. With an efficient and quick practice sale of say $500k, the $50k if calculated on an hourly basis is probably like $1,000+ per hour.

Why is our labor so high? Maybe the best comparison is to look at our "assistants". Lets assume a CPA is akin to the doctor, the CPA is the rainmaker of their "firm", the one that has to get\sell the client and the one responsible for ALL production. Note I said responsible, they don't do ALL the producing, our "assistants" (junior accountants\CPAs) earn MUCH more than the $20/hour that most dental assistants make. The starting salary for a "junior" accountant is probably about $50k+ and it can go as high as $70k, depending on the type of CPA work you do. Even our most basic staff person probably makes an annual salary of $30k per year, whether they're a bookkeeper or an administrative assistant.

Space used to be another large part of our OH, however, with technology today, space OH has been declining with firms allowing more people to perform some of their functions from home. However, that technology comes at a cost and that cost is slowly replacing the space cost.

The thing is, I KNOW what my dental clients make, they DON'T know what I make and what I KNOW is that maybe less then 20% of my clients earn LESS than I do AND more then 80% of my clients work LESS than I do. I have many clients who work 3.5-4.5 days per week ALL year round and earn at least $300k+.

While you MIGHT find a CPA that can work 3.5-4.5 days per week for 9 months of the year, we have busy seasons where we work the equivalent of 7-9 days per week (8 hour days) that covers 3 months AND even if we do make $300k+, I suspect if you calculated our compensation on an hourly basis and compared that to a dentist, you'd see that the majority of dentists make more than a CPA.

There are the exceptions of course.

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

Should Dental Associate Independent Contractor Incorporate?

I am an associate at a couple of different offices and hired as an independent contractor. I am also looking to purchase my own at some point within next couple of years. I would like to set up my own Corp for tax advantages. I have a good accountant that will help me with that but wanted to know if there is a book or articles that you would recommend to give me some background info on incorporating yourself and business more tailored towards dentistry for my own knowledge that would teach me all the tricks.

Thanks.

What tax advantages do you expect to get from incorporation and how do the additional tax savings compare to the costs associated with

A. Creating the corporation

B. Annual tax preparation for the corporation

C. Payroll processing for you from the corporation

D. Additional unemployment taxes because you're a corporation

I am a corporation and I can tell you that it is an accounting nightmare. It is very complex stuff. I am a subchapter S which does have the tax advantage of lower tax rate on dividends/bonuses. Everyone says you need to do it for liability protection. I am not sure that I would recommend it. Most people are doing it now. Accountants and lawyers love them because that is what they get paid to do.

Not all of us love them. Although it’s true that we make more money as I mentioned above since someone has to prepare the tax return, handle some bookkeeping, payroll, etc. That is exactly why I raised the issues that I raised.

It is not a slam dunk for everyone and more times than not it won't make sense for the typical IC.

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

Young Dentist, Disrespectful Older Staff - What Should She Do?

Background: I am a young female dentist (practicing 3 yrs). A year and a half ago I became a 50% partner of a very large dental practice. The practice is established in a small town and has some employees that have been there 20+ years. I really enjoy working with my partner; he is a wonderful mentor and we complement each other well. He is probably a few years away from retirement (in his late 60s), or so he says (I think it'll never happen but that's cool with me). His weakness is that he has gotten "soft" on his, now our, employees over the years. They get away with everything. When I started, I began to notice there blatant lack of respect towards him as a leader/boss. I began bringing examples to his attention, such as employees not performing job duties. For example, not updating health histories, giving excuses why the autoclave does not need to be cleaned out, failing to comply with OSHA recommendations that we enforce, etc. I am younger than the youngest staff member by 10 yrs. They treat me like their daughter rather than their boss. I also am not respected as an authority/boss figure. I am a pleaser and I know that my weakness is that I suck at being an authoritative person. I have a hard time "telling people how it is" or saying something that might hurt or offend someone. You know how most people have a fear of speaking in public-mine is "bossing" someone around. Yes, I know this is bad and I need to get over it--workin' on it) So this past week, we had some tough calls to make. Our production/collection ratio has decreased so it became time to cut salaries to be able to make ends meet. Here's the thing: we live in a state with the highest unemployment, and in a county with the state’s highest unemployment. It's lean. We have a staff that is very over paid- hygienist making an hour rate to equal about 48% of their production, DA's making b/t 38-50k/yr (this includes benefits). So the cuts were not unwarranted. We also decided that we were going to give each person a job description and let them know that we are going to start holding people accountable. My partner and I decided that I should deliver the news to each individual employee about the pay cut so that I am viewed as someone with authority, rather than a "sidekick." I did this and it went well on my part- meaning I was able to deliver the news without throwing up, profuse sweating or a trembling voice.

Situation 1: earlier in the week I politely said to my DA "I have noticed that you have not been updating the health history, I need you to do this for every and all patients prior to me coming to the room." She politely said "no I always take the blood pressure" ME: {dazed look thinking WTF?} replies "no not the blood pressure the health history." DA: "I always do that." ME: "go back through the last 3 weeks of charts and you will see you have not." I leave the room. Later in the day she comes up to be and starts yelling defensively about me nit-picking her and being unreasonable, how she's been an assistant for years without a problem on and on. I am freaked out and panicking, and respond "I need the health history updated" and walk away floored that she just yelled at me like this. I think about the situation over night and decide to give an oral warning for insubordination. So at the "cuts" meeting I give the oral warning and she again begins yelling at me and defending that she has done no wrong. My partner chimes in with "we know you’re busy and we still love you"--could've killed him for throwing me under the bus. We have discussed this and he says he was trying to get her to shut up so we could move on. At which point she responds how she has worked here for a long time with no problems.

1. Now what do I do? She clearly does not respect me.

2. Should partner clarify with her that he is in support of my position or let it rest. After all the cuts we do not want to hurt morale even more.

3. How do I continue to work with someone, let alone pay them, when I know they do not disrespect me.

4. I want to fire her, is this to harsh?

Situation 2: Another DA who I rarely work with says during the "cuts" meeting that I act "shady” towards her. The OM, partner and I look at her confused (as I might work with her 2x/month) and ask for her to explain. She explains how during a procedure we did together earlier in the day (add into sch. and she was available to assist) I belittled her in front of the patients parents (patient was 6) by asking her to remove the suction 3 times and allowing the parents to stay in the room when she had asked the parents to leave. Okay background: so I asked her to remove the suction 3x because the first 2x she did not listen-the suction was in the way. The parents were not supposed to be in the room to start, however, she failed to "remember" this. I was behind sch. I had 2 other patients and 2 hygienist checks I did not have time to argue/debate with parents who do not want to leave their child so I went ahead and did the extraction with the parents in the room. So back to situation: I grow a pair of balls (I think it was because she walked into the room with such an entitlement negative attitude) and respond "I am who I am, and Dr. and I will run this practice as we see fit and if my ways and our ways do not work for you, you should consider another place for employment." She had some smart ass comeback and partner chimed in with "in 30 days we will have a performance review" and the meeting was over.

1. I feel like she is making stuff up to like "get me in trouble" with my partner-- Does anyone else think this is shady? I really am not a shady person; I thought I was just asking her to do what I expect.

2. How do I go on with this negative Nelly? I really cannot stand her attitude. I want to fire her too. Would you?

3. To me, I feel as though she also does not respect me, or am I being super sensitive?

My main concern is that I do not know how to manage a staff of women older than me. I feel like I cannot win. Any thoughts/suggestions. I am not arrogant, I know that I need help with practice management and will take any advice I can, except hiring a consultant. Partner has been down this road many times in his 40yrs and he does not want to go there, I will respect his wishes.

So you've been a partner for 1.5 years. How long have you been with the practice in total? If you've been there awhile so you've already established yourself, it is time to take the bull by the horns. If this is going to be YOUR practice someday, it's never too early to start acting like it's YOUR practice. Hopefully your partner will agree. If that means getting rid of the deadwood you do it. Sometimes it'll send a message to the rest of the team that insubordination will NOT be tolerated.

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

Rehiring Dental Assistant Policy

I know many dentists have a policy of not re-hiring any former staff members under any circumstance. I'd like to throw out a situation I find myself in and get some feedback.

Long time employee who left on good terms a few years ago. She was probably the most clinically astute assistant I have ever worked with. Good personality overall and patients really liked her. She left to get into another field which didn't work out and she has been back in the dental field for some time now. Her family has remained patients all throughout the time she has been gone.

On the negative side her attitude or I should more accurately say her "enthusiasm" for dentistry definitely deteriorated towards the end of her time with me although I somewhat attributed it towards her desire for another career? The reason she left was she felt that she was getting burned out on dentistry and this somewhat concerns me although she has stated that she has learned where she belongs and that is in dentistry.

This girl was sharp though and definitely knows her stuff! She has also stated that she regrets leaving and regrets learning that the grass isn't always greener the hard way.

Part of me says yes but I also have a part of me that is hesitant? Anything regarding past employees that I should be considering?

I've never heard of that policy. We would certainly not re-hire someone we let go because of poor performance, or someone that left us in a lurch. However, if someone chooses to leave and they've performed well for us, we'd certainly consider them again. We just re-hired someone this past June who worked for us from 1992-1999. They left for more money at that time. They performed well for us, and left on good terms without leaving us in a lurch (like in the middle of tax season).
 
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