Dental Scratch Start-Up - One Corporate Entity or Two?

I'm in the process of having another office. A scratch.

Should I open it under my current corporation, or should I start it under a different corporation.
Maybe in about 3 years, I'd like to sell my current corp. I don't know. But it’s just more paper work to start a second corp. Is it worth the hassle?

Any thoughts on what is the right way to go? Pros and cons.

Thanks.

In my opinion, the key to the answer is in your question and that is if you're contemplating selling EITHER location soon and not the other, I would suggest you have a different entity. Why?

1. It helps keep things separate in order to better evaluate the practice.

2. It should limit any potential liability to that practice that has the problem.

3. If you sell one and not the other, you don't have to "open the books" of the one you're keeping.

Now, if you plan on having both locations for 10-15+ years you could go with one entity initially and then separate them 3-5 years before you plan to sell one.

Believe me, this comes from experience. When the potential buyer evaluates the practice, and it's combined with another practice, you ask a lot more questions. As the seller, you have a lot more explaining to do and a lot more convincing to do that supply expense is really JUST for that office and not the other, that lab expense is JUST for that office and not the other, etc.

The argument will be "well even with two entities you can still have the one entity pay the other’s bills" and this is true; however, at some point you have to give the benefit of the doubt until proven otherwise in my opinion.

What kinds of savings would there be with only having one entity?

The savings of a second tax return, bookkeeping, accounting, other state filings maybe.

 I heard that section 179 is scheduled to come back down to $25,000 per year.  That would be very bad to have two practices under the same entity. 

Why?

Can you elaborate on any thoughts you have.

Not much more than what I did above unless you have any other specific questions.

This first appeared on Dentaltown.

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

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How Does PTO Impact Overtime Pay at a Dental Office?

We are trying to figure out how to handle this week as we are a startup practice.  We are paying for holidays so our employees will get 8 hours of pay for today.  Tomorrow the office is closed and they can use paid time off (PTO). How do most people handle PTO if it would cause your employees to go into overtime for the week?  Do you cap the number of hours the employee can elect to use so they can't go over 40?

You may not know this, OT is due on hours actually WORKED.

So in your example, let’s assume someone worked 25 hours Monday- Wednesday and you give them 16 hours of benefit time for Thursday and Friday. That’s 41 hours; however, they only WORKED 25 hours and therefore, you would simply pay them straight time for all 41 hours, OT of 1.5 x their hourly rate is NOT necessary in this example.

This first appeared on Dentaltown.

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Dental Associate has Practice Purchase Questions

I'm going to begin a 1-2 year associateship with the opportunity to buy 50% of the practice after that period.  I've hired a practice sales broker/CPA to provide me with a second opinion on the appraised value of the practice.  

Jason Wood, Dental Attorney:

Is he representing you as a CPA or as a broker?  There is a big difference in fees I would imagine.   

I'm trying to arrange it so everything about the associateship, transition, and purchase of the practice will be arranged in a contract prior to beginning.  

Jason Wood, Dental Attorney:

This is extremely expensive to do.  My recommendation would not be to do this but to have everything addressed in the associate agreement with the particulars of the deal (ie purchase price, ability to acquire 50% of the building, etc.) being built into the contract.  Otherwise to properly do this now will cost you around $15,000.  Wait until you know you can work together before spending this kind of money.  

However, I'd like to receive an appraisal of the building/real estate, but the CPA has informed me that it can become very expensive to have the building appraised.  Although the CPA does not appraise office buildings himself he has recommended an agent he has used in the past.  He has also told me that the building appraisal could cost several thousands of dollars and may not even matter since any bank/lender will want another appraisal to loan me the money.  

Jason Wood, Dental Attorney:

Agree that you can buy in to the building at the appraised value of the building when you acquire the practice, that way you push the appraisal out and the bank that will lend you to money for the acquisition would be happy to lend you more on the real estate since it strengthens their position.

Is there any benefit to having the building appraised this early into the associateship?  With the real estate market as bad as it is I would like to capitalize on the depressed market values. 

Tim Lott, Dental CPA

You should keep in mind having it appraised now won't guarantee you that this value will be the price in the future. Put yourself in the seller’s shoes. Historically, after real estate has declined substantially, would you be willing to lock in a price on an asset that's likely to go up in the future?

What you can do is consult with a commercial real estate agent and see what the comps are for similar space so you can get a range of what to expect in terms of real estate value. See if that range matches what the seller is thinking. I don't see any benefit in paying for the appraisal now.

With respect to the practice, I do see the benefit in trying to establish the price now; however, just know that you can appraise the practice as of say 12/31/2011 in 2013 very easily.

Good luck.

Jason Wood, Dental Attorney:

Sure.  Creating the partnership agreement, the purchase agreement, the lease review, etc. would be very expensive to do right now.  You can:

1.  Agree to the purchase price now
2.  Agree to the closing date
3.  Agree to when the parties need to back out before it becomes binding
4.  Agree on stop gap measures to insure compliance after the back out date
5.  Agree on the structure of the partnership
6.  Agree on the building acquisition

All in the associate agreement without having to draft all of the other documents right now.  That way if the deal doesn't go forward, you don't spend the extra money on the details contained in all of those other documents.

Went ahead and attained an appraisal. I'm meeting with the sales broker/CPA to discuss the appraisal. What are some questions to ask him?

Tim Lott, Dental CPA 

It seems to me your questions will be driven by how that meeting goes and the information that gets presented. I don't know what questions I'm going to ask of a seller\broker re: their valuation or asking price until I've seen what they've done, how they did it, the information they used generate their report.

Once you see this you'll be in a better position to know what questions to ask I would think.

Good luck!

This first appeared on Dentaltown.

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Bill and Hold or Placed in Service for Dental Equipment

And I go to my equipment sales rep for my tax advice too!

My startup office is under construction and won't be ready for moving in until Feb, 2012. As usual, I have placed my equipment order while I did not pay yet. My equipment guy mentioned to me about the "bill and hold strategy" to take advantage of tax deduction. He said I can have tax deduction from my 2011 income if I pay him this year as "bill and hold", and then install the equipment in the new office in 2012.

Hint: ask the vendor about that section of the code that talks about "placed in service"!

My situation is that I established the entity as PLLC and solo proprietor  this year, however, I am now working as an employee in other office, Basically, I have no income from my new office that is under construction.

First question: Do I need to file my 2011 tax return as a PLLC /solo proprietor? (like schedule C). 

Probably and you might have some deductible expenses, it's also possible that won't have any deductible expenses, just depends on the facts.

My second question: Is it a good idea to take advantage of tax deduction with "bill and hold strategy"?

Of course you assume you can deduct it, which you probably can't UNLESS you've placed it in service in 2011 (see hint above).

If that's the case, then on schedule C, I don't have any income. 

That's not a problem; many start-up businesses that open their doors for business at the end of the year might not have income & plenty of expenses...

Can anyone shed some lights on this? Thank you very much! 

Sure can, BRIGHT lights TOO!

It might be a good idea to speak with your CPA for year-end tax planning....NOT the equipment sales rep.

Thanks Tim! It's always great that you chime in to answer those questions. I talked to my accountant today as well. Basically, he has the same opinion as you do that the equipment has to be in place and function.

You did mention that I may be able to deduct some expense this year. This is a little bit difference from my accountant. I would like to hear your second opinion. I paid attorney fee, architect fee, part of the construction and equipment cost, and bought some computers and small equipment with my own assets so far. Can I deduct those expenses that incurred in 2010 from my income as an employee if I'll file as a solo proprietor? Thank you very much!
Many of those costs may not be deductible yet, however, they might be:

1. If a computer was placed in service this year to begin planning and tracking your progress

2. Mileage to meet with advisors, planners, shop

3. Other minor expenses similar to those that you might incur this year as well.

This first appeared on Dentaltown.

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Is There a Tax Deduction for Buying Dental Practice?

I am looking to purchase a practice and the building.  The appraisal on the building is pending, but assuming it seems fair, I will purchase both.  I have been approved for 100% financing for the practice 10 yr. term, 5.95% through Wells-Fargo and am applying at another bank as well to compare.  The building numbers depend on the amount I put down.

I have enough for over 25% down if I need it, but here is where I need help. I have already paid income tax on all the money in my savings that I would be using for the down payment, but the down payment for the building would be a tax deductible expense.  How can I work this where I can make the down payment without using after tax dollars or can I pay myself back the amount I put down for the building without having to pay tax on it (for example, if I put 50K down for the building with my after tax savings, can I later pay myself back 50K from the practice without having to pay tax on that 50K)?

Thanks for any help.  It is greatly appreciated. 

The down payment won't be a deduction; the cost of the building will lend itself to deductions for about 39 years, excluding the land that isn't deductible and a few other costs with different Tax lives.

Does that help?

It seems then tax-wise it would be smartest to put the least amount possible down, since that is after tax money.  However, a larger down payment will lower the interest rate by close to 1%.  Tough decision. 

Yep, tough decision and it's a cash flow/cash use decision as well...

The other thing to consider is how you allocate the price to each component, practice and real estate. Talk to your CPA about which might be more beneficial, higher practice price or higher real estate price and talk to the lenders about how that might impact financing.

Sometimes you can get pretty creative when buying both together under the right situation.

This first appeared on Dentaltown.

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Be Alert for Lease Agreement Taxes on Dental Equipment

Don’t get double taxed on your business’s personal property. Recently, we have heard from some of our clients that they received bills from the lease finance company that included a personal property tax charge. If you have entered into a lease finance agreement and your state assesses the personal property (equipment and furniture) used in your business, you may be paying too much in personal property tax.

Many lease finance companies pass personal property tax bills on to customers that have entered into agreements with them. Although you must generally report details of leased property on your personal property tax return it should not be included in the schedule of personal property to be assessed by the state.

Always consult with your tax preparer for specific reporting requirements in your state. If you have paid tax on leased property on prior year returns you may be able to amend those returns and request a refund up to three years after the due date of the original return.

For more information, contact Lance Jacob of the Dental CPAs.

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Are Quarterly Prepared Dental Financial Statements Worth the Cost?

My accountant recommends doing quarterly financial statements.  I agreed to this for the first 2 quarters so far but what I have received from them is not too much different than what Quickbooks will generate for me.  They do calculate the assets and liabilities which I can't do accurately with depreciation, but actually expenses/income report are not that much different than what I can generate with the push of a button.

They said it would make doing my tax return take more time (and money obviously) if I don't do quarterly financials.

So, should I keep paying about $500 a quarter to do financials or not?

1. Do you "need" the balance sheets every quarter? When they're prepared how do you use them?
2. Can't you record the depreciation quarterly in QuickBooks? (The answer is yes.)
3. How much more would it cost to prep the tax return without the quarterly financial statements? $2,000 more?  I doubt it

25 years ago before practices had access to software like QuickBooks and Quicken we were doing monthly or quarterly financial statements because this was the ONLY was the practices could see their Profit & Losses. Even then, what we learned was many wouldn't even read them. They would wait for our mid-year and year-end meetings for us to review them with the client and explain them.

Once practices had access to QuickBooks and the like, the "need" for us to prepare CPA financial statements decreased drastically and we were the ones that went to the clients & said "Do you really want to pay us for these when you can generate the same information yourself?" Many agreed and that's why the majority of our clients don't want or need us to prepare CPA financial statements. Just about the only time we do it now is when a bank requires it.

This first appeared on Dentaltown.

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There Are a Lot of Things to Consider When Selling Your Dental Practice

A Lot to Consider When Selling Your Practice

This is an article from our good friend, Thomas Snyder, DMD, MBA.

As our economy slowly recovers, we have seen an increasing number of doctors making the decision to sell their practice. Don't think this decision is like turning on a switch - there are many things you need to consider. Here are a few points.

1. Meet with your Financial Advisor
Can you really afford to sell your practice? You may be surprised. If you have never had a financial plan prepared, it's critical to take this step. We often speak to potential sellers who are emotionally ready to sell, but financially unable to do so. You may find that you'll have to put your plans "on hold" for a few more years, or conversely, feel quite confident that the practice sale proceeds will only enhance your retirement lifestyle.

2. Get a Comprehensive Practice Valuation
If you plan to use a broker, retain one who will prepare a "formal" valuation using multiple valuation methods.  Most brokers charge a fee to prepare a formal valuation and some will credit the valuation fee against the future sales commission. Getting a "free" valuation usually does not serve your best interest. Just having a "number" appear on a spreadsheet with financial projections does not do you justice when potential purchasers are trying to determine if they want to make the commitment to purchase your practice.

3. Discuss the Tax Ramifications of a Sale with your Accountant
If you are a "C" Corporation, for example, there are some "road blocks" that must be overcome.  How will you allocate goodwill between the corporation and yourself? How tax efficient will the future sale be? Getting answers from your accountant regarding what you'll retain after a sale is critical to your decision to sell. Remember too that the clock is ticking on the capital gains rate extension that is due to expire at the end of 2012.

4. Do Not Slow Down or Work Less Days
When you take this step, many doctors often stop accepting new patients as well. This may hurt your practice's value and make a potential purchaser less interested in buying a practice that can be in a decline.

5. If you have an Associate, Be Sure that they have an Employment Agreement
This should contain a restrictive covenant (if allowable) and non-solicitation clause as well as a clause that transfers the associate's covenant to the new purchaser. If you do not have an existing agreement, consult with your attorney, as you may ask the associate to sign an Employment Agreement with these stipulations included for additional compensation known as "consideration." This will protect your practice's value. Selling your practice without a covenant and transfer clause will be very detrimental.

6. Take an "Honest Look" at your Facility
You do not necessarily have to make any large capital expenditures, especially if you want to sell in less than a few years. However, you should consider cosmetic enhancements if needed, whether it's fresh paint on the walls, new carpet, tile, landscaping, etc. Get your practice to look more aesthetically appealing. First impressions are always critical to any purchaser.

7. Fee Increases
We suggest you obtain a fee analysis to determine where you stand within the fee percentile range in your area. If you are well below average and you still have a year or so to go before sale, do yourself a favor and increase your fees. Chances are that your patients will accept your fee increase, you will increase your income, and you may even increase the value of your practice.

8. Purge any Uncollectible Accounts Receivable
Make every effort to collect those accounts that are past due over 90 days. If you fail to do this, it will become a "sticking point" in your negotiations. Usually Accounts Receivable are collected on your behalf for the first ninety days at no charge to you.

9. Retain an Attorney who has Dental Experience
This decision alone can save you and the purchaser thousands of dollars. Ask your accountant or broker for referrals, as they often work with attorneys who have considerable dental experience.

10. Be Realistic in your Timing.
Sometimes we get calls from doctors who want to sell their practice in six months or less!  This is almost an impossible task for any broker. We advise prospective sellers that you should allow a broker 9-12 months to sell your practice.

In the end, a good deal of planning is necessary for you to really get your practice ready to be put on the market. Careful planning will give you the highest return, and most importantly, peace of mind. 

This article originally appeared on the Snyder Group website.

You may reach Dr. Snyder by following this link.

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

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Creating a Management Company for Your Dental Practice Requires Careful Documentation of Fees

Documentation is the key: For anyone looking to create a management company for their dental practice administrative tasks – Please read:

Income Tax—Intercompany Management Fees: The taxpayer owned a trucking business that was organized into five wholly owned corporations, including a single member LLC whose sole business was leasing trucks to the affiliated entities. The LLC paid management fees of $9,000 per month to the other entities for consulting, accounting, sales management, and safety and driver relations. The Tax Court ruled in favor of the IRS in denying approximately half of the management fees because the taxpayer did not show how the fees were determined and whether they were at arm's length. The court was also not convinced that the fees incurred on behalf of LLC were ordinary and necessary under IRC Sec. 162. Daniel Fuhrman, TC Memo 2011-236 (Tax Ct.).

This first appeared on Dentaltown.

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Suffering Has Never Been Made a Prerequisite to Deductibility.

I came across this in one of my readings. I really like the hi-lighted quote – future reliance on that quote could be quite interesting...

Income Tax—Hobby Loss: Taxpayer is a Certified Gilder Flight Instructor who performed flight instruction for the Boeing Employees Soaring Club. On 8/1/03, he formed an LLC to provide private glider flight instruction and glider plane rides. The LLC conducted activities primarily on weekends from March through November during times of good visibility. For promotion, taxpayer maintained a website, distributed flyers at airports and aviation-related businesses, and advertised in a flying publication. Nevertheless, the IRS audited his 2005, 2006, and 2007 income tax returns and decided that the glider activities were not conducted with the intent of making a profit under IRC Sec. 183. The Tax Court disagreed after going through the (nonexclusive) list of factors in Reg. 1.183-2(b) for determining whether a person is engaged in an activity for profit. In particular, the Tax Court noted that a business "will not be turned into a hobby merely because the owner finds it pleasurable; suffering has never been made a prerequisite to deductibility." William Weller, TC Memo 2011-224 (Tax Ct.).

This first appeared on Dentaltown.

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Dental Equipment Depreciation Question

Hi, I have few questions regarding taxes on a scratch startup practice. My accountant told me that anything removable like equipment/furniture/cabinets are tangible expense which you can deduct right away. However, construction expenses such as paint, ceiling, electricity, plumbing is considered lease hold improvement which will require 39.5 year amortization (Yikes!).

My question is:

1. For equipment installations (Chairs, Compressors, Vacuum) , can 'Installation labor fee' be deducted immediately? (I hope they are since this equipment is removable.)

Generally, the costs incurred to get the equipment in service, including labor, sales taxes and fees are treated as part of the asset cost and therefore deductible along with the cost of that asset depending on how you choose deduct whether it’s using Sec 179 or normal depreciation.

This first appeared on Dentaltown.

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

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Should Dentist Lease or Buy Office?

Right now we are leasing a 1600 square foot office for $5,000 a month (we need additional room for growth).

The opportunity has come up to purchase a 2800 square foot condo for 1.2 million.

Who/what type of person should I talk to about seeing how my monthly financials will run? I just want to make sure I can handle the increase in payments.

I remember from school, once you own the place, there are more ways to shelter money, so your actualized monthly expense is less than if I were to lease

The twist for you is your statement about wanting to expand. Is it a want or a need? If it's a need, how will it impact revenue? You need to run some projections on how 2,800 square feet will impact your practice, both in expected revenue increase and OH increase and compare that to renting 2,800 square feet.

That’s what I would do.


This first appeared on Dentaltown.

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Different Type of Dental Start-up Arrangement

Any ideas how to get financing for a practice I want to buy the patients from and then relocate them into another dentist's space where I will rent (share space)?

The office I want to move to is owned by a dentist and they work 2 1/2 days / week so the rest of the week it is empty - perfect, I thought, to move patients to. I have not worked at either location and the practice that is available for purchase cannot stay where it currently is.

Sure, let the seller finance! Offer them 25% of total revenue generated from that patient base over the first 24 months (winds up being 50% of 2 year average) and pay that amount out over 3-5 years.

Good luck!

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

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Dentist Wants to Add His Wife to Payroll for 401k Benefits

I have a safe harbor 401K + profit sharing plan set up at my office.

I'm assuming that this is a no brainer. Should I put my wife on payroll and defer the $16,500 to her retirement plan? This is the 1st year that she hasn't worked for another company and had her own plan with matching from her previous employer. I have a 4% match for those who choose to participate. Then of course the profit sharing portion to add at the end of the year if cash is good.

And I'm also assuming that I still pay the payroll tax on this amount.

Treat her like you would any other employee. If audited you better be able to show "reasonable" wage for her work.

So what would a "reasonable" wage be for a bookkeeper? She's an accountant but not a CPA--she does everything except tax filing for the office (she does budget, monthly cash flow analysis, marketing ROI, etc). I would think 15-20K would be considered "reasonable" but that sounds very subjective.

To add to our concerns, here's a recent tax court case related to a self-employed medical reimbursement plan... this case hits the point as to how careful you really need to be when simply putting any family member on payroll:

Income Tax—Sole Proprietor's Medical Reimbursement Plan: A sole proprietorship can sponsor (and deduct payments to) a medical expense reimbursement plan that provides family coverage for its employees, including the proprietor's spouse. However, the Tax Court previously disallowed the deduction where the spouse had been doing the same work for several years without compensation, then was paid $100 a month plus medical benefits for her duties in a later year. The Tax Court reasoned that (1) her payment of medical expenses simply relieved her husband of his obligation under Kansas law to pay for her medical expenses, and (2) she obtained no economic benefit from checks written from the couple's joint checking account because she was an equal owner of the funds in the account. The 10th Circuit has now vacated this decision and remanded (returned) the case to the Tax Court to consider whether or not the spouse was a bona fide employee, starting with a consideration of the common law worker classification factors. Shellito v. Comm., 108 AFTR 2d 2011-XXXX (10th Cir.).

Thanks for the heads up and research Tim!

You're welcome

I think I'm fine in this regard b/c this is her 1st year that she's not being employed full time in the corporate world. She has made around 5-7K/yr on my payroll to date and that was working full time at an outside business. So now that she's working around 1000 hrs/year with me, I think I can justify a $20K salary.

You bring up some great information which says to me that I need to fully document everything in case of an audit. However, I don't require any time sheets or clocking in/out of any of my employees so I won't have that information if the IRS asks anyway. Problem there or not?

It shouldn't be a problem with the IRS since you don't require it for any employee. Trouble may arise if you ever have another employee clock in or out or somehow tracks their hours and you have NO support for a family employee.

This first appeared on Dentaltown.

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Can Dental Associate CE Cost be Deducted from Salary?

I would like to take an implant CE course that will cost ~$6500. I am an associate in an office that does not pay for my CE. I would like to have the practice pay for this course and take the cost out of my gross income. If I understand things correctly this will save them payroll taxes and I will pay for the course with pre tax dollars. The CPA (non-dental) for the office seems confused. Maybe I am not communicating the situation properly for them? Or am I looking at things wrong?

Yes, it's likely miscommunication that's causing confusion. The practice CPA may think you're asking the practice to LEND you the money and withhold it to pay it back.

I have no doubt the CE would be deductible to the practice, therefore, maybe you can simply ask it this way:

"In lieu of paying me my normal wage, will you pay for CE up to $6,500 for this course"....of course you'll have to work out the timing since I’m guessing just one of your pay checks may not be enough to cover the full $6,500.

This first appeared on Dentaltown.

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New Dental Office Expenses - Where is Break Even?

Hi! I opened my office brand new build out since July 13th. I’m struggling with staff turnaround, training. My overhead is 35K for month. Can I get advice in regard to best marketing? How long does it take to pick up the practice? I am kind of nervous about the overhead and running out of working capital. Thank you.

• Rent $4000 (Comcast +AT&T + electric + garbage + security + nea attachment + equip maintenance + electronic)

• Claims $2000

• My loan $7000 (7 yr loan for 400k)

• Supplies $2000

• Lab fee $1000 to $1500

• I have 3 staff, one front 2 back, at 40 hours per week I am open Tuesday to Saturday with some evening hours so employees when hired they wanted make sure get 40 hours. ~ 200 hours per month at $43 total pay $8600

• Doctor pay 3000 per month

• Payroll +unemployment taxes $2500

• For quicken +accountant + license +all malpractice + disability insurance $1000

• Marketing 2000 (did back of the receipt for a grocery store + mail post card + creating web site

• Miscellaneous goodies +tooth brushes for patients + gift cards $200

First month I produced 7,000

2nd month 20,000

3rd month so far 10,000

I just want to at least break even. Am I doing OK? Is this normal?

Staff wages will eat you alive. With $2,500/month in payroll taxes that's almost $400k/year in wages. $36k appears to be you so that's maybe $360k for other staff ? That's fine if you're doing $120k/month in revenue.

You must be burning through your cash. the last start-up client I had that felt obligated to support his initial staff for 40 hours per week when the volume couldn't support it had to walk away from the practice, their loan and their house.

You must change that NOW.

Also, I hope you aren't an S-Corp with the loan in Corporation name.

1. You likely won't get the benefit of the tax losses unless you funded some portion of the start-up.

2. You're creating unnecessary payroll taxes on your own comp, which eats into precious cash flow.

Good luck!

This first appeared on Dentaltown.

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

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What Arrangement Should this Dentist Use for his First Hires?

Well, I did it..I started my 2 operatory "little-engine-that-could" practice! A little background - I work at a FQHC 2 days/per week which is located an hour from where I live and where my new practice is located. I'm at my new practice 3 days/week and have been doing so for a little over three months.

What's that mean? You pay her a percentage of the total practice collections? Is there a min or max? I might need you to put some definition on that arrangement if it's as loose as it sounds.

I started off with a good friend of mine as hygienist/assistant and have been paying her based on total collections.

So she's not an employee either? You're paying her as an IC? If so that's also very risky.

She doesn't really have a benefits package or vacation time, as she's hoping that when we go full-time (~2 years) she'll enjoy a nice %of the increased collections.

My wife was working as front desk/office manager, but really didn't like it too much. However, she's still going to come in briefly 1-2 days/week to take care of bills and payroll.

Is she getting paid? If not, does she have any earned income from anywhere? If not have you considered pros and cons of paying her something?

Anyway, I have a new girl who's very qualified and fits in well with our little posse. I've agreed to pay her $14.25/hr.

I have her job description and everything, but what do I do about vacation, sick-time, personal days, continuing education, etc...

How many hours per week, 24? More? Generally, benefits like vacation, sick, personal go with full time, though sometimes those that have worked full time and received benefits might get pro-rated benefits when they cut back a little. you'll also need to define "full" time at some point, is it 32, 36 or 40 hours? Consider CE your benefit, not hers. You should want to have your employees well trained. It's your investment, just monitor that amount of investment and make sure it's quality CE.

Our total production, on average, has been around $25k...this doesn't leave much wiggle-room. I really want to be a good employer and make her feel valued but honestly I don't know where to start.

A lot of making someone feel valued will come from your actions (how you treat people) and words, not necessarily benefits and comp.

Honestly, my hygienist is more like a partner in my practice. We're a great team and she's invested a lot into making this practice happen. For this reason I decided to pay her a portion of total collections, with no max. This way she can share in the profits of a successful practice (someday). She does not, however, legally own any shares of the company (we're an S-Corp).

I will be putting my wife on the payroll per advice from my CPA.

The new girl will be working 30 hours/week. Would she get any paid vacation, sick time etc... We have a unique little ecosystem at this practice, and she'd be one of four people running the show (myself included). I want to give her some perks without breaking the bank.

Ok. If you want to give her some benefits she'll have to earn them. Generally, after the 90 day probationary period she'll earn 1/2 day of benefit time off for every month worked so in her first year she'll earn 4.5 days. Give her the first 1/2 day after the 90 days to make it 5. The following year –give her 1 day per month up to a max of 10 days (two weeks). Make it personal time off (PTO) which covers vacation, sick, personal time. After 5 years maybe 1.5 days for each month worked up to 15 days. No carryover of days. Either use them or lose them or pay them out, most pay them out. Just remember, once you start this anyone working 30 hours will likely be entitled to the same benefit unless they have an employment agreement with different rules.

With only $25k in production/month I can afford to pay her $14.25/hr. My overhead for this practice is extremely low, giving me some leeway. Remember, I have a small 2 operatory practice (rent is $800) and only 1 other employee who I pay based on collections.

I'm paying her 8%, which is close to the benchmark percentage of hygiene overhead. What I'll likely do is as we grow is put a cap on her salary. Right now she's doing mostly assisting since we've just recently opened and haven't established a solid recall schedule.

Keep in mind, of the $50,000, generally only about $12,000 is hygiene production and if she's getting $4,000 she's right where she ought to be and that's about $3,000 of hygiene per week, or about 3 day. I know many hygienists who would take $1,000 on 3 days of work… it's as close as you can get the $40/hour that a lot of hygienists make in this area.

This first appeared on Dentaltown.

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

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Not Enough Information to Provide Range of Value for Dental Practice

I would appreciate it if you can help me with this.

I'm planning to place an offer on a practice, main highlights:

• Blue collar area, mainly seeing all kinds of insurance

• Overhead 60%

• Collection : 2010: 434k, 2009 :300k, 2008 :300k, main reason new owner came on board in 2010, 2011 year to 8/31 289k

• Net in 8 months 120k

• 3 employees 23/h, 23/h, 14/h

• Working 4.5 days/week
• Equipment in decent condition

What is the range for a reasonable offer?

Jason Wood:

Not enough information to help.

1. Need state-locality as this is a big driver of "value".

2. Is there Medicaid? Are you currently a provider?

Tim Lott:

As Jason said, not enough info:

Of the past 3 years revenue can you tell us what the production was? Can you break it down between dentistry and hygiene? How many hygiene hours per week? Why the substantial increase in 2010 other than the new doc? More days? More upper end procedures? You say 4.5 days per week, which would equate to 36 hours per week usually generates well above $400k. Does the seller own the real estate? Of the 3 employees you've listed hours for what are their positions?

Answer these questions and you should get better answers, just not enough info yet to offer a range without having it be more of a guess.

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

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Delaying a Dental Practice Purchase Can Be a Big Mistake

Below is an article from our friend Dr. Thomas Snyder, the Director of Practice Transitions for the Snyder Group.

Most recent grads have in excess of $200,000 in dental education debt. Many of them may feel that they have to work as an associate for many years before even considering purchasing a practice. We have found, however, that the cost of delay can be significant. Oftentimes, the sooner you buy a practice the better your long term financial outcome will be.

Let's look at a hypothetical situation of two classmates who bought a dental practice, but did so at different points in time after their graduation. We'll make the practice's financial picture identical so the comparison will be consistent.

Dr. A has decided to buy a dental practice three years after graduating from dental school. Let's assume that the practice Dr. A will purchase has revenue of $800,000 with a 60% overhead, so the practice's Net Profit is $320,000. Let's assume the practice sells for $504,000. Dr. A will also need $100,000 in working capital so he will require a practice acquisition loan of $604,000. Dr. A's loan terms are for ten years at 7% interest, with annual principal and interest payments of approximately $84,000. Let's also assume the practice will grow 5% a year and that overhead remains at 60% excluding any debt service. Dr. A's projected net income before taxes, but after debt service, will be $236,000 in the first year of ownership.

Dr. B does not feel as confident in purchasing a practice as soon as Dr. A did. Dr. B decides to work as an associate for three more years. Let's assume Dr. B earns an income of $120,000 a year over that three year period with 6% annual increments in associate compensation. Dr. B also decides to buy a practice grossing $800,000 with overhead of 60% and Net Profit of $320,000. We'll assume that the purchase price will be identical at $504,000 with the same working capital needs of $100,000.

However, let's also assume that interest rates will have increased to 9% (up 2% from three years ago) with the same loan term of ten years. The annual practice acquisition payments will now be $92,000. Dr. B's net income after loan payments, but before taxes, will be $228,000 in the first year of ownership. Next, if we were to compare the total income earned by Dr. A over a ten year period from the time he purchased his practice, and comparing that to Dr. B's earnings over the comparable period, the difference amounts to over $826,000! So, when considering a purchase opportunity from a timing perspective, it can make a significant financial difference.

Imagine if Dr. B would have purchased a practice at the same time as Dr. A. The additional $826,000 in income could have retired his dental school debt earlier, putting him in a much stronger financial position. The old adage "timing is everything" is quite applicable to purchasing a dental practice.

NET INCOME COMPARISON

Timeline             Dr. A (Owner Year 1)               Dr. B (Owner Year 4)

Year 1                   $236,000                              $120,000

Year 2                   $252,000                              $127,200

Year 3                   $268,800                              $134,832

Year 4                   $286,440                              $228,000

Year 5                   $304,962                              $248,800

Year 6                   $324,410                              $270,832

Year 7                   $344,831                              $278,440

Year 8                   $366,272                              $296,962

Year 9                   $388,786                              $316,410

Year 10                 $412,425                              $336,831

TOTAL                 $3,184,926                           $2,358,307

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

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Do you have a valuable art collection in your dental office?

Here is another blog post from our friends at the Dental Office Designers.

Showcase and protect your art - whether the value is in memories or monetary.

• Use accent lighting so that viewers can appreciate the art's true beauty

• Professionally install security locks on the back of your artwork to prevent theft

• Use UV and non-reflective glass or plexi glass

• Consider insuring original pieces and limited edition prints; in most cases the cost is nominal

Enjoy your artwork and keep it safe by treating it with the care it deserves.

Dental Office Designers (http://www.dentalofficedesigners.com/) a division of PLDA Interiors, sends bi-monthly "e-bites" addressing these topics and more.To be added to our list, email Barbara Portnoy at bportnoy@pldainteriors.com

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

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Assessing the Dental Offer

Our friend Carl Guthrie of ETS Dental has kindly allowed us to share these valuable tips for dental associates/specialists in assesing their offer. If you are looking for a dental practice to join, your first call or email should be to Carl.

You’ve had the interview and the practice makes an offer.

Now what do you do? Is it a good offer, great offer, or a time bomb ready to blow up in your face?

Maybe you are trying to choose between more than one offer. Perhaps you are trying to determine whether you should take the first job you’ve been offered. We are here to help. Even if your offer is not from one of our clients, we would be happy to give you an assessment of how it stacks up.

Before you accept an offer, you need to be able to answer the following questions:

Will you be paid a percentage of collections or production?

What is included in these numbers?

Would most of your patients be Fee-for-Service, PPO, Traditional Insurance, Medicaid, HMO?

Will you have a full schedule from day one or will there be a ramp-up period?

Is there a guarantee? (Hourly, Daily, Weekly, Monthly)

What is the restrictive covenant? What is a reasonable distance?

How much notice needs to be given if things don’t work out?

Is there a clear documented path to practice partnership or ownership?

What are the practices fees?

Is it better to get 25% of production, with a full schedule in a fee-for-service, high-end practice or 40% of collections in a discounted fee-schedule, insurance-driven practice?

Is it better to make less during the first year in a practice that you could own in two years or make more in a practice where you will always be an employee?

Would it be smarter to accept an offer near my friends and my Dental school making a salary of $8,000 a month or move 50 minutes away and make between $150,000 and $200,000 my first year?

These are difficult and often life-changing decisions. We will be happy to talk you through the pros and cons of an offer. We will give you a candid assessment and helpful feedback. If the offer is from one of our client practices, we will be happy to intercede with reasonable questions or suggestions about how to structure the contract in a fashion that would provide more of a win-win arrangement.

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

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Interview Tips for Dental Associates and Specialists

Our friend Carl Guthrie of ETS Dental has kindly allowed us to share these valuable interview tips for dental associates/specialists. If you are looking for a dental practice to join, your first call or email should be to Carl.

Be open to a variety of opportunities. Go to every interview you can. It never hurts to talk, and an opportunity may turn out to be more than you expected. You can learn from each interview even if it doesn’t lead to a position.

Be open to other locations. The Law of Supply and Demand applies to career and practice opportunities. Typically, the farther you get away from a Dental School, the better the opportunities. Many of the best opportunities are located in great communities just forty-five minutes to three hours away from major Dental School cities. Typically you can increase your earning potential from 10% to 100% by settling in a city or community that is underserved.

Get your references ready. They can be former employers, co-workers, or teachers. Contact them to let them know to expect some calls. Have all their contact information in one place.

Have your production numbers ready. If you do not have production numbers, then have something that will give the hiring doctor a good idea of your skill set, speed, and experience. If you are just getting out of dental school or a residency, your procedure log may be a good substitute.

Consider preparing a "Proof Book" containing:

• A current CV/Resume
• Case presentations
• Before and After photos
• Production numbers or equivalent
• Accomplishments
• Treatment plans
• Letters of Recommendation
• References
• Blank paper for notes
• Questions for the practice
• Blank Thank you notes

You may never have to open it, but it demonstrates preparedness and professionalism; this will set you apart from other candidates the practice may be considering.

The Interview

Because you are looking for a long-term position, it is as important for you to interview the prospective employer as it is for them to interview you. It is good to have some questions prepared. This will show interest and give you information you need, as well as take some pressure off the interviewer.

Questions for your interviewer:

Note: Do not lead off with questions about compensation.

• What are your treatment philosophies?
• What would be expected of me as an employee; what role would I be expected to fill; would I be limited to certain types of cases, such as endo or pedo, etc.?
• Tell me about your patient base: families, geriatric, pediatric, etc.
• What demographic changes have occurred with your practice in the last ten years? What changes are on the horizon?
• Do you actively market or depend on referrals?
• What kind of equipment do you use?
• What about your practice are you the most proud of?
• Where do you see the practice in five or ten years?
• What are your personal and professional goals?
• What are your goals for the practice?
• Are you referring a lot of certain type of case out of the practice?
• What specific things are you looking for the new Associate to bring to the practice?

The telephone interview

Return your phone messages and e-mails promptly. It speaks to your motivation, interest, and courtesy. Don’t let returning phone calls or e-mails become an issue or an obstacle to getting an interview. Even if you don’t think you will be interested in an opportunity, return the call. On more than one occasion we have seen a candidate get a call from Practice B when he was already talking with Practice A. The candidate puts off returning the call to Practice B. Two or three weeks later, the opportunity with Practice A does not work out and now Practice B will not consider the candidate because no calls have been returned.

Your main goal in a telephone interview is to get a face-to-face interview.

Ask for the interview. Take the initiative to set a time. Say something like, "From what you have told me, I would be very interested in meeting with you and coming to see your practice. When would be good for you?"

Smile--even on the phone. You really can hear when someone is smiling.

The face-to-face interview

Treat the staff with courtesy and respect. A practice owner often feels like his or her staff is like family and will listen to their opinion, especially if it is negative. On more than one occasion, we have seen excellent candidates not offered an opportunity because they treated a staff member poorly.

Smile and show some enthusiasm. More candidates are hired because of their personality and positive attitude than because of specific clinical skills. One high-end cosmetic practice told us they had interviewed six different dentists. They hired the candidate who smiled and appeared to truly enjoy being a Dentist, passing on some more experienced candidates with less personality and enthusiasm.

Show sincere interest in the hiring Dentist’s situation. Understand that the Dentist needs to solve a problem. Maybe the practice just lost a key Associate or Partner. Maybe the practice is growing and cannot keep up with patient demand. Maybe the Dentist needs someone to take over the practice when he or she retires. You need to get a clear understanding of the Dentist’s true motivation for adding an Associate. Once you truly understand the needs of the hiring Dentist, you can mutually determine if you are the solution.

Ask for the job! If you are interested, let the owner know you are interested. At the close of the interview say something like, "I just wanted to let you know that I am very interested in this opportunity and I am ready to take the next step, whatever that is. How should I proceed from here?" This doesn’t mean that you will accept the job with no further discussion. It simply shows you would be sincerely interested in discussing contract terms or meeting with other partners, consultants or staff members as needed.

After the interview

Thank you notes. Always send a Thank You note after an interview. Buy Thank You notes prior to going to the interview. Make sure you get a business card from everyone you speak with so you can verify the spelling of their name, their title and the correct address. Immediately after the interview, drive to the local post office or collection box, write a brief Thank You and mail it immediately. Do not put it off. If your timing is right, the practice will get the Thank You note the next day. Even if you don’t want the job, it is professional and impressive to thank your interviewer for his/her time.

Call the practice in two or three days. If you don’t hear anything from the practice after a few days, call them and let them know you are still interested. You will never loose out on an opportunity because you acted too interested.

Working Interview.

Offer to do a one- or two-day working interview.

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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