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Surprised By Low Cash Flow And High Taxable Income?

Work with a dental CPA so that you don’t get caught in a cash flow pinch.

Over the years, I’ve experienced many instances where dental clients are surprised when they realize they have a lower cash flow, but high taxable income. What most clients don’t understand is that this is usually the result of taking substantial tax write-offs for equipment that are financed over several years.

Large tax write-offs are great, especially when you haven’t yet spent the cash. But it’s important for you to be prepared for the opposite: No tax expense, but cash is still being spent to pay down debt.

On an annual basis, one thing I do with all my dental clients is show cash flow calculations and projected taxable income calculations next to each other in an Excel spreadsheet. This immediately highlights the differences. I also find it valuable to show a 5 to 10 year comparison of depreciation expense to principal payments on debt. These two exercises help my clients understand where their money is going and helps them better strategize their next financial steps.

 

If you’re looking to maximize your effectiveness in managing these areas, reach out to a CPA who specializes in working with dental practices. They can help you evaluate your cash flow and taxable income and plan for the future. Email the Bright Dental CPAs at Rea & Associates to learn more.

Make Your Financial Statement Work For You

Best practices for formatting financial statements

Did you know that there’s no “right way” to format or present your practice’s financial statement? It’s true, there are several approaches that dentists can take when crafting a financial statement. What’s most important is that the statement is meaningful to you and is easy to understand and analyze.

That’s where many dentists find it helpful (and critical) to have a CPA who specializes in advising dental practices. It can be difficult for some dentists to determine what is most important to them on a financial statement. Oftentimes, dentists tend to have a financial statement that is backward looking. It tells you the history of your practice’s performance. A CPA focused on working with dentists can help you develop a financial statement that creates best practices discussions and enables you to look forward.

Financial Statement Reporting Possibilities 

Curious to know what are some commonly used items on dental practice financial statements? Here’s a quick list of some reporting possibilities:

  • Show only cash collections as revenue or show production with offsets for contract adjustments, write-offs, and changes in accounts receivable. The “offsets” essentially are changing the production accrual basis revenue to cash basis.
  • List the cost of goods sold, which could include dental supplies, lab expense and hygiene wages.
  • Show percentage of revenue for each expense.
  • Include an expected range or benchmark percentage in the expense description.
  • Group together common expenses, such as staff expenses, facility costs, doctor expenses, etc.

Creating Discussions To Further Develop And Build Your Practice

After you create a financial statement that suits your practice needs, you’ll have a document that can help you identify areas for improvement and areas that are performing well. Your dental CPA can help create discussions addressing these areas. Here are just some of the discussions that could come from formatting your financial statement in a way that works for your practice:

  • Trend analysis (for example: is your revenue stagnant or decreasing and are your staff expenses increasing?)
  • Employee benefits
  • Retirement plan strategies
  • Insurance coverages
  • Planning for future significant cash outlays/equipment purchases
  • Facility lease renewals
  • Collections on patient receivables
  • Marketing initiatives
  • Preparing to sell your practice

If you know that your financial statement could use a tune-up or a second set of eyes, don’t hesitate to contact your financial advisor for advice. Email the Bright Dental CPAs at Rea & Associates to learn more.

Should You Stay Or Should You Go?

Considerations For Dental Professionals Considering Office Relocation

Dental Office Relocation - Dental Practice Advisors

Is it time to move your dental practice to a larger space? Here are a few things to consider before you make the move.

Is your dental practice getting too big for its current location? Then an office move may be in order. But of course these things take time. It’s never easy for a business to just up and move at a moment’s notice. There are a ton of logistical considerations to address even before you start loading the moving truck. This is why you should consider the long-term potential of your chosen location.

  • Does the office get good traffic?
  • Is it easy to find?
  • Will your staff and patients be safe?

Once you are sure the space meets these essential characteristics, you can then assess the property’s other qualities.

Read Also: Office Relocation Made Easy – And Affordable

Choose The Right Office Location

Healthcare professionals need their office space to accommodate unique structural needs while providing a comforting atmosphere to patients. Not every location will be up to the challenge. A real estate broker who specializes in helping healthcare professionals can eliminate inadequate properties immediately – meaning you won’t have to waste your time walking through countless buildings that, for one reason or another, are unable to accommodate your practice. Instead, you will be free to serve your patients and manage your existing office responsibilities.

Finally, unless you are moving to a space that was already being used as a dentist office, you are likely going to have to pay for the space to be converted to fit your needs. Be sure to carefully consider the cost associated with remodeling a particular location and whether or not the move actually makes sense once the dust settles. Look to your financial advisor for help. Only after considering your practice’s financial stability, can you finally determine if relocating your dental practice is the right decision at this point in your career.

Reasons to stay put

If all of these considerations seem daunting or after crunching the numbers you and your team conclude that it’s not necessarily in your best interest to relocate your office at this time, you can still put your relationship with your real estate broker to good use.

Think about it, the last thing the owner of the property you are currently using wants is to have to go out and find a new tenant. From hiring their own real estate broker to market the property, negotiating terms of the new agreement and allowing any new tenant the time they need to build out the space, if you moved your practice elsewhere, they would likely be taking a pretty large financial hit. If you time it out right (about a year in advance), your real estate broker can help you negotiate a better deal on your lease. And the best part is that working with a real estate broker shouldn’t cost you a dime.

Assemble Your Team

Want to make your move as easy and stress-free as possible, assemble your team of professional advisors early to make sure you are armed and ready to make an offer if an opportunity presents itself. In addition to the usual players, your CPA, banker, lawyer, a real estate professional, etc. Contact the Bright Dental team at Rea & Associates and find out what you dental advisory team should look like and how each member should be able to help you grow your practice.

By Ryan Dumermuth, CPA, CFP (Mentor office)

Need help growing your dental practice?
These articles could give you some great ideas:

Revenue Growth Does Not Equal Practice Growth

Your Practice’s Free Valuation Could Come At A Hefty Price

Do You Need A Dental CPA When Buying A Dental Practice?

Office Relocation Made Easy – And Affordable

Dentist Office Relocation | Negotiation | Bright Dental CPAs

A common mistake many dental professionals make when they decide to relocate to a new office is that they can do it by themselves. And while it’s quite possible to serve your patients full time, manage your practice and facilitate property negotiations, you may be cheating yourself out of the best deal. Read on to learn why you should put a team together to manage your office relocation.

There are many reasons why you may want to move your dental practice to a new location, but if you want to be sure you are moving to the right location at the right price, consider looking to your business advisory team for guidance.

Want a better deal on a great office location? Call in the experts.

Your financial advisor is one of your best resources when it comes to painting a clear picture of your practice’s overall financial wellness. Their expertise will help you arrive at an accurate cash flow projection, make sense of any tax implications that are associated with the move and will help you determine if the space you are eyeing is financially realistic. But your financial advisor isn’t the only professional who should have a seat at the table during your relocation discussions. For even better results, consider working with somebody who makes it their job to know the various nuances of your local real estate market.

Read Also: Nine Questions To Ask When Purchasing A Dental Practice

A common mistake many dental professionals make when they decide to relocate to a new office is that they can do it by themselves. And while it’s quite possible to serve your patients full time, manage your practice and facilitate property negotiations, you may be cheating yourself out of the best deal. Rather than spend more on your relocation than necessary or letting your other daily responsibilities slip, a real estate broker will not  only manage the legwork associated with choosing your office’s future, they will make sure you get exactly what you are paying for and then some.

I recently spoke with Justin Fodor of Carr Healthcare Realty, a real estate brokerage firm that works exclusively with professionals in the healthcare industry, to find out about the benefits a dental professional might be missing out on when they choose not to work with an expert real estate broker.

Best Deal For The Dollar

Your real estate broker understands the art of negotiation and will work to secure terms that are favorable to you and your practice, regardless of whether you will be buying or leasing the property. For example, while you may be concerned about “ruffling feathers” where pricing is concerned, your real estate broker will be ready to negotiate. They have been through the song-and-dance many times, and they know that the “sticker price” is only the starting price.

Justin said sometimes the healthcare professionals he works with are unsure about bringing in a third party to negotiate. This, he said, should never be a concern.

“Landlords work with brokers all the time,” explained Justin. “In fact, they hire their own brokers. They expect you to bring one to the table as well.”

Your Ideal Location

Oftentimes, if a real estate brokerage firm doesn’t specialize in demographics itself, they will work with professionals who do. This information helps you identify the best office location for your unique needs. Whether you want to find out how many general dentists are in a certain area or whether an area has access to a specialty practice, utilizing demographic information helps optimize your office’s geography.

“We’ve worked with a lot of practices that are coming from larger office buildings. They aren’t really sure what type of space they should be looking for,” explained Justin. “We can help them decide the type of environment that’s right for them by taking into consideration foot traffic, visibility, population, and other demographics.”

A Head Start

“We work with dental professionals to maximize their deal as much as possible,” said Justin. “It takes time to move into an office, remodel and then get patients back through your doors.”

A broker, especially if they specialize in serving healthcare clients, can help you negotiate the time you need to stabilize your practice’s cash flow. Justin said it’s not uncommon for him to secure a 5-month build-out period and 3-4 months of rent-free office space. By that time, everything should be up and running again.

Work With A Team That Knows Your Business

If a new office location is in your practice’s future, email the Bright Dental CPAs at Rea & Associates. We can help you identify your options from a financial perspective and will work with your real estate broker to make sure you are able to secure the best deal for your dental practice.

By Ryan Dumermuth, CPA, CFP (Mentor office)

Are you looking for more great advice to help you plan your career in dentistry? Check out these articles:

What To Expect From Your Career In Dentistry
Dentistry: It’s Not All White Coats And Drills
What To Consider When Purchasing A Dental Practice

What To Expect From Your Career In Dentistry

Dental Career Planning - Dental CPA

Your school debt is almost paid, your practice is busy and, for all intents and purposes, successful, and you are now at a point in your career where you are beginning to build equity in your practice. This is truly a great moment for you as a professional and as a dental practitioner. But be forewarned. At this point in your career, you are likely making some serious money – which means you are probably itching to spend a little (or a lot) of it. This is the fork in the road that will determine much of your future happiness.

Owning a dental practice can be very rewarding as long as you remember that you’re entering an endurance race – not a sprint. So, if you’re looking for a “get rich quick” scenario, opening a dental practice is probably not for you. If you want a fulfilling career that, albeit challenging, can be incredibly fulfilling, read on.

Getting to know the four stages of a typical dental career will help you measure your own success and will help motivate you to make the best choices for your practice, especially during the first few years. And don’t forget to download The Business Side of Dentistry: Tips and Tools for Dentists for more insight into the dental profession.

The Dental Practice Career Cycle

  1. Slow And Steady Wins The Race

Owning a dental practice is just like owning any other small business. You must be mindful of all your new entrepreneurial responsibilities. Managing employees, establishing internal controls, negotiating with vendors and even generating a marketing plan are essential to running a productive and successful business. Unlike your friends who opted to pursue MBAs, your background in these disciplines is limited. It’s also likely that you will find yourself at an economic disadvantage because, unlike your business school cohorts, you have astronomical debt.

Read: Dentistry: It’s Not All White Coats and Drills

The American Student Dental Association states that, according to the American Dental Education Association, the average dental student graduates with upwards of $241,000 of student loan debt. This total has not only increased more than 66 percent in the last decade, it greatly exceeds the average student loan debt nationwide. Therefore, as nice as it would be to spend your paycheck on luxury items, avoid the temptation. Your long-term success will be measured by how well and how quickly you can pay down your debt. Get started as soon as possible. It will be worth it.

  1. Build A Solid Foundation With A Sound Financial Plan

Your school debt is almost paid, your practice is busy and, for all intents and purposes, successful, and you are now at a point in your career where you are beginning to build equity in your practice. This is truly a great moment for you as a professional and as a dental practitioner. But be forewarned. At this point in your career, you are likely making some serious money – which means you are probably itching to spend a little (or a lot) of it. This is the fork in the road that will determine much of your future happiness.

You can either choose to spend it on vacations, homes, cars and the like, or you can start developing saving habits that will set you up for later in life. Frankly, this is an optimal time to develop a financial plan and start putting a set amount of money into a retirement instrument every month. Whether it’s a stock portfolio or a 401(k), developing a steady financial plan is critical. That’s not to say that you can’t buy some really nice things along the way – just make sure you have a nice nest egg waiting for you when you are ready to start your retirement.

  1. Put The Pedal To The Metal

There comes a time, usually in your early to mid-50s, when the kids are through school, your business and student loans are paid off, you are paying for equipment upgrades from your cash flow and your financial plan is beginning to bear fruit. This is the point on your career timeline where you set your sights on what you want out of retirement and revise your plan to make sure it happens.

There are things to consider at this point in your life and there are tools to help you make informed decisions. At this stage, many dentists find themselves yearning for more control over their free time and less pressure at work. They aren’t yet ready to retire, but would love to slow down and smell some of the roses they’ve planted. Working with a business valuation or succession planning professional can help you streamline your future goals while ensuring that there will be no major surprises along the way.

  1. You’ve Worked Hard, It’s Now Time To Play Hard

It’s been a long, exciting road – but you wouldn’t have had it any other way. As we round the corner to stage four of your career as a dental practice owner, you can finally sit back and relax. If you took the time to plan ahead, your mind, body, spirit and bank account are ready. Now the only thing left to do is to pass the torch to a good, young dentist and take your leave. You’ve earned it.

Have questions? Email the Bright Dental CPAs at Rea & Associates for answers. And don’t forget to download your free copy of The Business Side of Dentistry: Tips and Tools for Dentists and get to know more about what you will encounter as a new dental practice owner.

By Ryan Dumermuth, CPA, CFP (Mentor office)

Related Articles

What To Consider When Purchasing A Dental Practice
Buying An Established Dental Practice? Master The Changeover
The Important Role Business Advisors Play For Dentists

Rea & Associates, Inc. | Bright Dental CPAs | 7201 Center St, Mentor, Ohio 44060-4858
phone + 440-266-0077