Should Dentist Buy-In as a Partner or Purchase Solo Dental Practice?

Let me start off by saying the decision can only be yours and if the numbers are similar from a cash flow perspective it'll come down to whether you believe working alone is better than working with a partner. If it's all about the numbers here are my comments:

Practice #1- Rural setting- father/son practice. Father has been practicing 30 yrs. last 10 yrs have been working 2.5 days a week with 3 months off. The son has been there 12 yrs and works 4 days (7hr days) a week with 7 weeks off.

I would be buying the father's percentage of production. Purchase buy-in would be around 225000.

Does that make you a 50% owner? If so and that means the practice was valued at $450k, does that fall within a reasonable range of value? Based on the revenue it seems to be.

They refer all ortho, implants, and most 3rd molar surgery.

What does that mean? Are these the procedures you do? Any other procedures you do that they don't?

Roughly 3000 to 3500 patients.

Maybe in charts. If their average hygiene time is 45 minutes or more you're likely looking at approximately 1,500 "active" patients. What's the breakdown of the $900k in revenue between hygiene and dentistry? New patients per month?

They do no marketing, no website, and really pretty comfortable with the situation.

So how many new patients do they get and where do they come from? Do they participate with PPOs? If so, what percentage of the practice? Why don't they market? Only game in town?

The son is open to expanding but doesn't want to work anymore than he already is.

What’s the reason to expand? Are you talking space or both space and hours?

Compensation is paid out at 40% collections and then split any profits left after expenses paid.

How are profits split? Ownership? Collections? Hybrid method? Is hygiene separated out and split differently?

6 ops and runs around 50-55% overhead. Office produces around 900000 a year.

The overhead looks good and about right for a multi-doctor practice.

Practice #2- rural setting as well. Solo practice- 11 years- 4 days a week with 4-5 weeks off a year.

Why are they selling?

Office does most aspects of dentistry ie cerec, soft tissue laser, hard tissue laser, some ortho, most endo, most OS, and runs a very efficient practice with 5% marketing budget. I am able to do implants, some ortho, and most 3rd molar ext.

Do you do the same? What kind of marketing for $37,500 per year?

Booked 1-2 weeks out. 1500 active patients. 4 ops. produces around 750000 a year with about 65% overhead. Building is also for sale

I’d say no more than 1,000 "active" with only $750k in revenue. Again, of the $750k, what's hygiene and what’s dentistry? New patients per month? PPOs or FFs? Why is OH 65%? What's higher than average and why?

Practice would be sold for 500,000 and he would be willing to finance office purchase if I want.

Will they finance the practice AND building or just the building?

Which one is better?

From what perspective? Purely from a numbers perspective there's not enough information.

I only hear negatives about partnerships but this particular opportunity seems better than most.

I hear negatives about marriage from divorced people also...and occasionally from married people

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

Dentist Disability Insurance Premium Question

We are considering adding a disability insurance policy for the doctor and practice. Do you have a company that you have had a positive experience with? Thanks for the help!

It is a crap shoot. If the average premium was $5k/yr over the 40 years, $200k in deductions, therefore, at 40% saved $80k in taxes vs. getting disabled, receiving $140k PER YEAR generating $42k in tax (assuming 30%) and you'd eat into your $80k savings in 2 years.

Personally, if I become disabled, the $2,000 per year tax savings isn't worth the annual tax cost of $42k if I become disabled.....that's just me.

I have a client who's been collecting $140k disability per year, tax free, since 1986...I can't remember how many times he's thanked me for advising him NOT to deduct those premiums.

On the strategy of reimbursing after the years premiums are paid, I also believe that's a crap shoot. It may not have been challenged yet under audit (I've not heard of any cases), maybe because it hasn't been found (after all you have personal checks to vouch you paid personally, right?) If it gets caught AFTER one becomes disabled....that annual benefit will be a HUGE incentive for the IRS to attack that strategy. That's a headache I don't want if my family is relying on ALL that tax free income.

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 General Dentist Consider Opening a Second Office?

How many GP's have two offices? I know this is very common for specialist, but not so much for GP's.

I am flirting with he idea of doing a second start up with a partner. We both have our own practices, mine open Tuesday-Friday 10 hour days and his is Mon-Thurs.

My first start up will be two years March 2011, and has been very successful. It would still be my primary office. This second start up would ultimately be for an associate to run. Hopefully an associate that would want to become a future partner. We were thinking of initially opening 3 days a week, I would do Mondays, he would do Fridays, and we would alternate Saturdays.

I think worst case scenario is having it take 6 months before it could support an associate. That would mean I would be busting ass...alternating between two offices and working 5 days a week one week and 6 days a week the next. Dentistry is very demanding and that pace would be pretty grueling to say the least.

Thoughts? Comments? Experiences?

Good luck. A few can be successful at this WHILE maintaining the success of their existing practice.

Most of the clients we've had that did this lost focus on their existing practice and it began to falter. Unless your current practice is running on all 8 cylinders AND can continue to do so while you begin focusing your efforts elsewhere, be prepared to spend a year getting your current practice back in shape after your done giving the other practice all of your attention.

Point: don't lose focus on the practice that's paying the bills and feeding the family.

This first appeared on Dentaltown.

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

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

Follow us on Twitter, Facebook and Pinterest

Dental 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

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

Follow us on Twitter, Facebook and Pinterest

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

Follow us on Twitter, Facebook and Pinterest