Dental Office Mortgage Questions

I am looking to refi/modify my current office mortgage. I have $441,000 left at 6.4% for 15 years. The same bank will modify the terms to 10 years at 5%, but they want a $5000 fee. I was wondering what types of rates others are currently being offered. Any help?

Can you clarify? Is this a mortgage against the real estate your practice operates from OR is this a practice loan you started or bought the practice with? Some people use the term "mortgage" pretty loosely.

The loan is for the office building only, it has gone up to 6.4% and was a construction loan turned mortgage. I am using a local bank and they offer only 5 years fixed after which it can go 2.75% above the Federal home loan bank of New York rate. Currently it has gone up to 6.4% which I thought was very high with interest rates so low. I called them and they offered to lower the rate to 5% and shorten the term to 10 years (my request) but they want a $5000 fee to do so. I feel the $5000 is excessive to just modify the loan but I was wondering what other banks were offering for commercial mortgage rates. The office building is assessed at $585,000 and we owe $440,000.

So they're charging you a little over one point to modify the note. On one hand, you'll be saving a ton of money which will more than offset the $5k; however, doesn't hurt to ask them what's behind the $5k. Why so high? What are their costs in modifying the note? The higher cost now MIGHT be in lieu of a pre-payment penalty OR to make up for some of the "loss" they're taking on reducing their rate from 6.4.

This first appeared on Dentaltown.

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

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Scratch Dental Office - Is the Profit Margin Too Low?

I am in my 4th year of a scratch startup and the practice's collections are on track to reach $1.2 mil this year.

YTD the profit margin is only 16%.

I'd say 10-15% AFTER "normal" comp for the doctors.

I know the Levin Group says it should be 38-40%.

That's what a SOLO doctor NETS after their overhead; you might be comparing apples and oranges.

The office manager is my wife and doesn't get paid anything except part of my salary.

You should factor in a cost for her when arriving at your OH % if you're going to compare to other practices or general statistics.

We are a heavy PPO/Medicaid practice with 84% of our patients with insurance.

This will usually create higher percentages across the board as your collections will be lower as a percentage of your GROSS production.

Here are my individual expenses:

Staff Wages/Payroll Taxes/Associate Pay 49.3%

What’s the percentage without the associates component?

Facility 4.5%

Dental Supplies 8.8%

Lab Fees 2.7%

That’s low and maybe why your expenses percentages are higher. Your more expensive procedures might be lower compared to the typical practice.

Advertising 4.9%

Office Supplies 1.2%

From what I've understood the staff wages/payroll taxes/associate pay should be 22-27%

Correct. Forget what it MIGHT be with an associate. That runs a wider range.

Office Manager ... included with my salary

Front desk $14/hr

Floater Assistant/Front Desk $16/hr

Expanded Assistant $19 / hr

Expanded Assistant $ 22.25 / hr

Expanded Assistant $ 21 / hr

Expanded Assistant $16 / hr

Hygienist $29 / hr

Hygienist $29 / hr

Hygienist $29 / hr

Hygienist $34/ hr

Front Desk $16 / hr

Dentist #2 $500 / day or $83.33 per hour

If you weren't married would you even need an OM?

Now, this doesn't leave a whole lot of money for me. I'm not doing horrible, in fact I'm probably doing just as well as most associates plus I only see patients 24 hours a week. I have every Friday off and I've just taken my 6th full week of vacation this year so I see the good side of things. I just think with some good management things could be even better. Thanks for any advice.

Here is the complete Expense Report:


Expense


4000 • Personnel Costs


4010 • Staff Wages 31.71%


4020 • Payroll Taxes 8.71%


4050 • Contract Labor 0.73%


4070 • Associate Wages 8.13%


Total 4000 • Personnel Costs 49.28%


4100 • Facility Costs


4110 • Rent 3.04%


4120 • Utilities 0.79%


4130 • Telephone 0.38%


4140 • Cleaning & Maintenance 0.2%


4150 • Building Repairs 0.1%


Total 4100 • Facility Costs 4.51%


4210 • Dental Supplies 8.76%


4220 • Laboratory Fees 2.69%


4230 • Office Supplies 1.22%


4240 • Interest Expense 1.99%


4250 • Advertising 4.88%


4260 • Bank Service Charges 0.55%


4270 • Gifts 0.08%


4280 • Legal & Professional Fees 0.4%


4290 • Liability Insurance 0.52%


4310 • Postage and Delivery 0.13%


4340 • Uniforms 0.06%


4360 • Depreciation Expense 3.29%


4370 • Sales Tax 0.03%


6560 • Payroll Expenses 0.17%


6570 • Payroll Fees 0.03%


Total Expense 78.58%


Net Ordinary Income 21.42%


Other Income/Expense


Other Expense


4410 • Doctor's Salary 3.63%


4420 • Doctor's Payroll Taxes 0.29%


4470 • Professional Development 0.23%


4480 • Malpractice Insurance 0.03%


4490 • Licenses 0.09%


4520 • Meals & Entertainment 0.44%


4530 • Dues and Subscriptions 0.1%


4540 • Charitable Donations 0.04%


8000 • Ask Accountant 0.23%


Total Other Expense 5.07%


Net Other Income -5.07%


Net Income 16.35%

Some of your expenses percentages don't make sense:

For example, payroll taxes generally aren't much more than 8% of gross payroll. Between staff and associates you show wages of 39.84%. So based on collections of $1,200,000 your wages s/b approximately 478,000 and 8% of that is $38,000, which should be the payroll tax cost for JUST those wages. $38k of $1.2mill is 3.2% and you say they're 8.71%? That's about $60k higher than I would expect. What else are you putting in there? Is the 39.84% NET or gross wages? Also, do those payroll taxes include yours? If so, that could explain about 1%.

I'd start with the 78.58% and eliminate the associate and their payroll taxes (call it 9%), remove the interest & depreciation of 5% and now you're at 64.58%, a little more in line to the 57-60% we see, still high by say 6%. Supplies is high by 2%, advertising and marketing high by 2%, staff wages if gross are too high by at least 4%, payroll taxes are off the charts for some reason, some may be your payroll tax.

If I were you I'd want to make sure I'm starting with clean, comparable OH stats before jumping to any conclusions.


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

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Is it Accounts Receivable or Collections? Dentist Needs to Know the Difference.

I just noticed that my accounts receivable, or at least the number I get from my PM software is much higher than what my accountant reports on a PnL statement.

A couple of comments:

1. By "accounts receivable", are you talking about the balance at any given point in time OR the collections figure from an A/R report?

2. It sounds like you're describing the "collections" that are on your P&L report and if you've asked your accountant to "report" on a cash basis, then it's being reported correctly.

3. I hope you're not trying to compare an A/R balance with collections.

4. If you are comparing PM collections with accounting record collections there could be several valid reasons why the numbers don't match: do you use care credit? Do you deposit cash payments (don't have to answer that here ;-))? Are your PM collections net of patient refunds? Are the P&L collections net of refunds?

Does your PM collection number include any other "credits" not actually collected?


Shouldn't he be looking at the "actual" sales from the PM software (Dentrix in this case)?

Only if you're paying him to look at them. If you're only paying him to produce cash basis P&L's for income tax prep purposes there's no need for him to see your PM reports.

And then there's the accounts that are paying in installments, so there's a lot of sales earned but not collected that he is not accounting for.

Now it sounds like you’re talking about PM production, NOT collections.

Also what happens when we have to write off a certain amount , either because the patient or the insurance company didn't pay, how is that recorded for accounting purposes? Should it be?

In the PM software yes. For tax or cash-basis P&L purposes, no.

Lastly, have you asked your accountant these questions and ask him to help you understand?

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

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