Tuesday, September 27, 2011

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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Monday, September 19, 2011

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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Tuesday, September 6, 2011

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.


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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Thursday, September 1, 2011

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

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