Some thoughts on Profit Sharing

So, as part of our comprehensive accounting and wealth management package, we help our clients to set up and manage retirement plans. These enable the doctors to put away money for retirement and at the same time offer a great benefit to their employees.

While dentists and physicians may have different types of plans (many physicians are parts of groups, while more dentists have solo practices), the principles are the same.

Some doctors may shy away from setting up full-blown retirement plans because they think the employee contributions will be too costly. If you can create the right plan, and you have enough income as the doctor, this is not the case. I would suggest that the cost of not doing it is even greater.

Let me explain through an example:

Let's say that by implementing a retirement plan doctor is able to contribute $50,000 for herself and her staff. If her staff cost is $15,000 then she's actually getting a pretty good deal. You may think that $15,000 out of $50,000 seems pretty high.

How about this? Let's say the doctor didn't set up the plan at all and didn't get this $50,000 deduction... Now she is going to owe at least another $15,000 to $20,000 in taxes and her staff is bummed that they don't have a 401k plan. So would she rather give $15,000 to the government or to her staff?

Obviously, giving it to her staff helps them feel appreciated and happy... a much better thing than simply giving the money to Uncle Sam. Plus, she gets to put $35,000 in a tax deferred retirement plan.

Retirement Plan = WIN WIN Situation!

While it is great to give this great benefit to your staff, you do want to be sure that it is cost effective, too. In our pension firm (Pension One Advisors) we specialize in designing and administering plans that provide this excellent benefit to doctors and their staff.

Dental Practice Transitions

This always has been and continues to be a hot topic among dentists and their professional advisors. I have recently been involved in a lot of these transitions. I typically represent the buyer. In representing them, there are two major issues we deal with.

1. Ensuring that the asking price is reasonable and can be substantiated by a certain amount of documentation. This is important for obvious reasons. Plus, I do a quick little cash flow analysis to make sure the cash flow pans out.

2. Trying to get a fair allocation of the purchase price between the assets that are purchased -- mainly Goodwill and Equipment. These are the two major asset classes. This is an important point because the two types of assets are taxed differently from the seller's side and they are depreciated (or expensed) differently on the buyer's side.

The allocation is a little more subjective than the actual price, and because the interests of the buyer and seller are usually oposite, this is a point where the buyer needs some support.

Capital Performance Advisors (CPA)

Tonight I want introduce another essential element that our firm brings to the table for our medical and dental clients. CPAs have always played the role of "trusted advisor" in everything from tax preparation to business planning to legal matters, even in their clients personal lives.

Because of this close relationship with clients, CPAs are often asked for help regarding financial decisions, such as different investment ideas, retirement planning, wealth transition planning, etc.
This made it easy for firm like Capital Performance Advisors (CPA) to come to life.

Continuing that role of "trusted advisor" our firm has created an investment advisory firm -- CPA. In this firm we take the role as wealth strategists. We help our clients to make sound investment decisions that truly meet their life goals and expectations. We take the time to get to know our clients, what they want in life for themselves, their children, etc. Then we help them to come up with an investment strategy... and even more importantly, we educate them about their decision and help them maintain the discipline necessary to stick to it and achieve their goals.

As Larry Swedroe, of Buckingham Asset Management would say (especially during times when the market is behaving like it is now), "We need to be like postage stamps. They stick to the letter until they reach their destination."

So, this is an important part of how I help my clients to achieve their goals and live comfortable, resting assured that their future is in good hands...

How's Your Hygiene?

"My hygienist is producing around $1,200 per day and getting paid around 35% of that. We never have cancellations or no-shows, and they have most of my patients sold on a treatment plan before I even walk in the room." - Seymore Green, DDS

If your practice is like most others, you probably can't relate to doctor Seymore. In general hygiene programs are not functioning at optimal levels, and thus neither providing the collections for hygiene you need, nor supplying you with the referrals you should be getting out of them.

Hygiene is an under-used and sometimes misunderstood tool. A good hygiene program really has two aspects: the mechanical (utilization) and the clinical (professional).

Mechanical: According to Linda O'Grady and Valerie Williams of Advanced Hygiene Concepts hygiene appointment cancellations (one per day per hygienist) can cost you anywhere from $20,000 to $80,000 per year, depending on how many hygiene days you have in your office. This is pretty alarming, and a pretty good reason to give your hygiene department all of the attention it needs.

Another thing to consider, speaking of utilization, is how many hygiene days you actually need in your practice. O'Grady and Williams have come up with this simple formula:

(click image to enlarge)

This is based on a four day work week, four weeks of vacation and active patients being those seen in the last two years. This chart may seem optimistic, but it's possible!

Clinical: This is the aspect of your hygiene program that can really boost the profitability of your practice as a whole. Are your hygienists routinely probing pocket depths on each visit? Do they feel as though they need to do more than the “standard of care” during a normal prophylaxis because they finally got the patient in and have to do everything they can? Do they educate the patients during the appointment so that your treatment planning is better accepted? Are you diagnosing the periodontal health of your patients regardless of their insurance? If you answered no to any of these questions, your hygiene department can be doing more to help your practice.

One huge key to success in your hygiene program (as well as your practice) is patient education! If patients really know the ramifications of letting periodontal disease go untreated, they will be happy to accept (and pay for) the appropriate treatment they need.

So, don't let your hygiene program go by the wayside! Use it to its fullest potential and you will enjoy a lot of success in your practice!

Gather the Troops, continued

Reason #2... If you bring in a CPA too late, it can become a bookkeeping nightmare! Here's why...

Let's say you've just purchased a healthy dental practice. You found the practice through a broker, and went for it, without the help of a CPA or dental consultant. This is because you felt comfortable with your industry knowledge, and felt the price the practice broker put on the practice was fair.

You open a checking account for your new practice, start incurring some expenses, etc. You've even got some collections. So, now you've got a checking account with some activity. After operating this way for a while, you decide you need a CPA. Your new CPA suggests that it would be advisable to operate your practice as a corporation. After he/she explains why this is a good idea, you agree and you incorporate. This involves an attorney, articles of incorporation, stock certificates, etc. Meanwhile, you're still trying to run your practice.

Now, because you didn't talk to a CPA before, you need to open a different checking account for your new corporation, send new W-9's to all of your insurance companies, etc. You also need to start a new company file in Quicken. Then your CPA needs to straighten out two sets of books, decide where to draw the line on collections, expenses, etc. This is a huge hassle and involves a lot of $$ billable hours $$ for your new CPA.

So, again, if you're buying a dental or medical practice, or starting one from scratch, please get an attorney and a CPA involved early! They like billable hours, sure... but they would rather spend that time helping strengthen your practice, rather than cleaning up bookkeeping messes.

Double Tax on "Auto Deduction"

Most doctors love to have an automobile in their corporation or as part of their sole proprietorship. That's fine, but don't get too excited! It's not as easy as paying for gas, insurance, maintenance, repairs, etc. with your business checking account and writing the whole thing off. That wouldn't be right!

You can only deduct the business use of your auto. This doesn't mean you get to pick a number out of the air, like 80% or something. This means you are supposed to keep track of your business mileage versus personal use. You need to keep an AUTO LOG! While it may seem tedious to do so, it is one of the only sure fire ways to actually keep your auto expense deduction.

If the IRS decides to audit you, one of the easiest things to get you on is your auto expense... mostly because not very many people are able to substantiate the deductions they take.

If you are operating as a corporation, the non-business use of the auto should be included on your W-2 as taxable income! Don't like the idea of that? Try not putting any on your W-2. If the IRS comes in and finds you've got a corporate auto, using it personally, they will most likely reverse your entire auto deduction AND recognize the full amount as personal use and make you pay taxes on that amount. That sounds just about as good as double taxation.

If you are a dental or medical specialist, you may be able to justify more business use than a general practitioner. The more you use your auto to run business errands, do continuing education, travel from office to office, etc. the better off you are.

One thing that people always get wrong is commuting... this is NOT BUSINESS USE!

Well, that's enough doom and gloom for one day... Just be happy that you get to deduct any auto expense... most people don't! Have fun keeping track of those miles!

Gather the Troops

I've been working lately with a lot of dentists and physicians who are either purchasing a practice, or starting a scratch practice. I'm also working with some doctors who are combining their practices into one.

One crucial thing I've picked up from this is the need to "gather the troops" early. I realize that most doctors are aware that they need a good CPA, attorney, consultant, etc. to help them in a practice transition or start-up. The part they miss sometimes is the timing.

Bringing the CPA into the picture one week before opening the doors is not good practice. I'll give one good reason today, and fill you in on some more next time...

Reason #1. One important decision you will make in starting your practice is operating entity selection. Will you incorporate, or not (another hot topic for another day)? If so, will you be an S corporation, or a C corporation? This is an important decision that you should consult with your CPA and attorney about before diving in.

If your colleagues have already convinced you that you must be incorporated, you'll need to talk to your attorney about getting the articles of incorporation, etc. You'll need to talk to your CPA about making the S corporation election. This needs to be done within two and a half months of incorporating. Please don't make your CPA write an embarrassing letter to the IRS about how the client didn't know they only had 75 days, and there was a miscommunication, etc. Just the thought makes the hair on my neck stand on end!

Tune in next time for more reasons to gather the troops early...