Posted by Brogan Baxter on Tue, Feb 11, 2020


If your CPA doesn’t provide dental-specific accounting, by managing tax liability throughout the year, painful tax surprises will arise.

If you're a dental practice owner, tax uncertainty doesn't have to be your tax reality. Bad tax planning also means you won't save money consistently.


A tax surprise is any tax refund or taxes owed over $10,000 in a given year. If this is happening to you, something is broken and your current tax advisor or accounting system is hurting your practice.  

    Most accountants calculate your current estimated taxes based on your prior year profits. This works great for the Q1 payment, but most accountants also fail to evaluate business profitability throughout the year. What happens if you have decent growth and a drop in expenses in a given year?

    In a practice that collects $1 million a year your practice's net profit can easily swing more than $100,000. This translates into a $40,000 surprise your accountant didn’t detect.

    Most dentists are lucky to meet with their accountant once or twice a year. And when they typically have the “tax-planning meeting” late in the year, much of the opportunity to spot and avoid tax surprises has passed. A semi-annual or quarterly reconciliation won’t cut it.

    Outdated numbers lead to a lack of monitoring. This lack of monitoring means your accountant didn’t catch the $100,000 in profit. Instead of celebrating this growth, you now have little time to put together an additional $40,000 to cover a tax surprise. 
    An unexpected increase in profit means new taxes to worry about. Your accountant didn’t identify this problem and now new problems arise. Just as you pay for the mistakes of last year, you will also have to pay the estimate for Q1 this year—the proverbial “double-whammy” of tax season.   


Many dentists deal and accept poor tax planning, but don’t realize how it keeps them from consistently saving enough money for retirement.  

  • In a desperate attempt to cover tax surprises, many owners hoard cash in advance as they prepare for the worst.  

  • Others just ride the peaks and valleys of thick and thin monthly income waves. They’ll cut THEIR OWN PAY to cover expenses or run the practice accounts thin and this is damaging to everyone. These are cashflow rollercoasters you, your employees and your family should not be subjected to. 


At Four Quadrants Advisory, we plan to avoid tax surprises and calm tumultuous cashflow waves.   

  • No matter who you are or what you produce, your focus should be to build long-term wealth.  
  • Our goal for every client is to help them save $100,000 or more each year for retirement by stabilizing their practice income and getting in front of any major expense—like tax surprises.   

Interested in learning more? Book your free 30-minute strategy session

Read More

Topics: dental accounting, dental CPA, Tax Advisory, tax time, IRS, tax surprise, tax refund

The Anatomy of Tax Surprises and How to Avoid Them

Posted by Kathy Collins on Tue, Apr 11, 2017

By Kathy Collins
CPA, Four Quadrants Advisory 

We’ve talked a lot in this space about the good, the bad and the ugly of taxes for the Dental enterprise. But then there’s the ugliest – the one many of you have experienced in one form or another and one of the most hated experiences in Dentistry – the dreaded tax surprise.

As an accounting, financial, and business advisory firm for dentists and specialists in more than 30 states, Four Quadrants defines a tax surprise as any tax refund or tax owed over $10,000 in a given year.

Everyone already knew that if you owed a decent amount of money, it was a surprise, but a big refund? It’s just as much of a mistake, but certainly easier to stomach. So if either of these are happening to you, something is broken.

Once you get the dreaded call (likely occurring between December-April 14th), your options are pretty limited. Sure, there are payment plans available from the IRS, but one way or the other you’re going to end up having to pay that full amount immediately.

The way to avoid or, at least, mitigate those tax surprises is to plan for them by managing the tax liability consistently throughout the year. And unless you have an accountant versed in the nuances of Dental practice operations, change will be needed. But trust me, it won’t be as painful as getting another bill from the IRS for five figures.

Read our guide: Dental Accounting 101

Begin this journey by asking some specific questions: Is it a ‘one-timer,’ like an expensive new piece of equipment or a sharp drop in overhead that caused the surprise? Or is it a deeper, consistent problem in your accounting systems that you need to solve by coming up with specific policies and procedures?

If it’s simply from a one-time windfall, there’s a relatively easy fix with the right help. You need better communication with your accountant to make sure they know what you have coming in and going out monthly, and can more accurately assess what your tax obligations are going to be earlier as opposed to later. We suggest a minimum of four tax projections per year to stay on top of this—and that very rarely ever happens.

yikes.jpgIf the surprise is more consistently prevalent, the relationship between you, your bookkeeper, and your CPA is in bad shape and will need to change because your current system is broken. Going forward, you need to make sure your entire tax and financial team are on the same page, with the same goal – keeping your tax situation under control on a monthly basis.

If your bookkeeping and financial analysis are more than two months behind, it’s not all that helpful for you. You need to update accurate numbers on a frequent basis. They need to lead to quarterly tax estimates that are delivered promptly each quarter, not an estimate every six months or once per year.

Ideally, an estimate that takes into consideration current practice trends, past trends, and realistic expectations for the remainder of the year should yield a much more reasonable, customized estimate.

If you’ve experienced one or more of these tax surprises in the last five years, you’re not alone. Tax surprises and poor communication are the status quo for most dentists before they come to our firm. But that doesn’t mean you have to continue to accept it for your practice. Make the changes you need to make to be sure your tax bill will be regular, predictable, and easy for you to handle.

Your sanity will thank you.

If you have struggled with tax surprises, or would like insights on how you can avoid the next one, contact us directly at (877) 720-6213 or send us an e-mail so we can determine together the best place to begin.

Read More

Topics: dental tax, Tax Advisory, IRS, tax surprise

When is a Dental CFO a Necessity for Your Practice?

Posted by Jason Smith on Wed, Mar 1, 2017

yikes.jpgby Jason Smith
President, Founder, Four Quadrants Advisory

From the outside, it looks like your practice is doing really well. You’re making money, likely $300,000 a year or maybe even more. You’ve reinvested in the practice and grown it well, with new patients joining you regularly. To keep it going, you’ve spent on marketing, and maybe even on a practice management firm to help get the little things right, like improving patient care and internal training.

But you know better. There’s trouble behind the scenes. You’ve experienced a lot of pain. Your cash flow is tight, both for your practice and at home, and it’s keeping you up at night. Not to mention the worry that tax surprises could hurt your cash flow even more. Add in the pains of growth, like adding new staff, and it all might be getting to be too much.

Feeling these pains is a signal that you need a dental CFO for your practice. A good outsourced CFO can take your practice’s overall financial state from “a mild disaster” to “everything you could ever dream of.” Once you understand what a CFO can do for you, it’d be a mistake not to have one.

Read our guide: Dental Accounting 101

A CFO gives you flexibility and security. You’ll know your cash flow for two months ahead of time, and have the ability to deal with things like changes in payroll and emergencies. You won’t have to check your bank account daily and be surprised at what you see – or terrified that you won’t have the cash to deal with what’s coming. Your cash flow at home will finally be consistent so you can begin to build your personal accounts.

You’ll be free of the fear of tax surprises. No more $60,000 bills from the IRS that you weren’t expecting – meaning you can concentrate on growth rather than fixing holes in your budget. And with the intelligent planning a CFO gives you, you don’t have to be paralyzed by every financial decision that comes across your desk. You’ll have a team backing you, to figure out if that new procedure or equipment is really right for your practice’s specific situation today.

All of that revolutionizes your financial situation. You’ll save more for retirement – double or triple what you were before – and all of this comes without substantial changes in your lifestyle, either at work or at home. You won’t have to change the way you work, you won’t have to bring in loads of new patients. Simply fixing what’s wrong with your current finances – and trust me, there are problems in there – will totally change your situation, and your practice will start to give you what you’d always imagined.

If you’re making money but your financial situation is still awful, it’s confusing, frightening, and paralyzing. A dental CFO fixes all of that. If your practice is in a place where it’s ready for this kind of help, you can’t afford not to take it. There’s no other sustainable way to get to the next level. It’s more important than marketing, it’s more important than new equipment, it’s more important than hiring a dental practice management firm. It’s simply the best investment that you can make in your practice, your career, and your family.

New Call-to-Action

Read More

Topics: dental financial planning, dental accounting, Financial Planning, Tax Advisory

5 Common Ways Dentists Make Cash Flow Mistakes

Posted by Brogan Baxter on Wed, Feb 22, 2017

cashflowDentists aren’t usually business or financial gurus, and because of that they can run into a lot of problems when it comes to their finances. One of the main sources of these troubles is poor management of cash flow.

Read the Guide: Financial Planning for Dentists

But if you don’t know what to look for, how can you know what to fix? Here are five common hurdles dentists have to clear to get their cash flow situations in order.

Corporate and income structure

Choosing the right corporate structure and income schedule for yourself and your practice is crucial, and can help solve a lot of other cash problems. Operating as an S-corporation is most ideal, because it allows a dentist to take some income in a W-2, with taxes withheld every paycheck while remaining the business’s owner.

But an accountant might recommend a sole proprietorship to minimize tax responsibilities. This can slow your retirement savings – you can’t match as frequently on income from distributions, which is 100% of your income in a sole proprietorship. You’ll lose a lot of money from failing to look at the big picture.

Debt structuring

Dentists are naturally debt-averse, which sounds a lot better than it is. They’re likely to cut a check for a large purchase rather than financing, and when a piece of equipment costs upwards of $30,000, that could completely deplete your checking account.

It’s absolutely critical to make sure you have a baseline level of cash on hand in your accounts at all times to deal with surprise expenses, and that’s impossible if you pay for equipment and other planned expenses all at once. It may seem stressful to have debt to deal with, but it’s a lot less stressful than having a tax bill you can’t pay because of that shiny new x-ray machine.

Tax payments

The way you pay your taxes is intertwined with how your business is structured. Taxes are automatically pulled from your W-2 earnings in every paycheck, but not from money a dentist takes as a distribution. Practices that are run as sole proprietorships and as S-corps both need to make extra tax payments to cover the amount owed from distribution payments. But if 100% of your income in a sole proprietorship is coming from distributions, then 100% of your taxes need to be paid this way. And those bills can get big.

Since an S-corp allows you to be paid in W-2 income as well, that means that only a fraction of your income tax is your complete responsibility via quarterly tax payments. To an accountant, that may seem more complicated – after all, it’s two tax returns that need to be filed. But for the dentist, it ensures cash flow stability.

Quarterly tax payments fluctuate as your practice does. If you’re growing and the accountant doesn’t take that into consideration, it could mean that at year end, you haven’t paid enough taxes on your distribution income, and you could be hit with a surprise $80-100k payment. With the S-corp, with less of your taxes paid this way, even if there’s a surprise payment it won’t hurt nearly as much.

Overhead issues

An established dentist, one who’s been in charge of a practice for 8-10 years, should be running at around 55-60% overhead. In my time at Four Quadrants I’ve seen practices where the overhead level is closer to 90% or even 95%. That’s just preposterous. If your overhead is that high, something is horribly wrong with the way your practice is being run.

In a million-dollar practice, for every 1% drop in your overhead, that’s around $10,000 in savings that you can take home. Paying less improves your cash flow and puts more of your money where it should be – your bank account.


Think about the decisions you make in your practice. How many involve spending $30,000? Probably around one or two a year. How many involve spending $5,000? That’s probably more like one or two a month. Each one doesn’t seem big, but they add up fast – especially if you make the wrong choice.

When you make decisions about things like smaller equipment purchases, raises to employees, or fee increases, it helps to have someone on the outside to advise you. At Four Quadrants we have a “5K Rule” for our clients – if something’s going to cost you $5,000 or more, whether in your practice or in your personal life, ask us about it. We’ll look at the big picture and help you decide if it’s worth it, if now is the right time, and if there’s a strategy to help pay for it easier.

New Call-to-Action

Read More

Topics: dental tax, dental financial planning, dental accounting, Financial Planning, Tax Advisory

INFOGRAPHIC: 8 Sources of High Overhead In A Dental Practice

Posted by Mike Magan on Tue, Feb 21, 2017

Many dental practices have poor overhead, but that's not all on the dentists themselves. Practices cost a lot to start, and with dentistry becoming more and more expensive, once you get off to a bad start, it can be hard to rein overhead back in.
A recent Inc. article stated dentistry as a whole is one of the five most expensive types of startup companies in the United States. But if you can make it work, a dental enterprise can also become the sixth most profitable, according to Entrepreneur.
One major barrier to building a profitable practice and, for that matter, a dream retirement is overhead. Controlling it has gotten harder and harder thanks to the additional writeoffs with PPOs and insurance companies. We find, though, that if overhead isn’t corrected early on in the dentist’s career, they will carry that overhead with them until the end.
So let's try to de-fang the overhead monster by looking at a real-world scenario: If we find a dentist that is 37 years old and has 75% overhead. More than likely they’re going to be running 70% to 75% overhead when they’re 55. If that dentist wants to become financially free in the next 5 or 10 years, 75% overhead is devouring your ability to live in the present and keep adding to that savings for retirement.

A great overhead percentage in general dentistry should be under 60% because you'll always have to buy more equipment, reinvest in the practice, and pay for space. If the dentist is not debt free 8-10 years before retirement, they will have a very difficult saving and creating a practice that looks good for purchase. Why? Because any practice that is debt-laden is a practice that nobody else wants to buy - at least for the price you were hoping for.
We developed the infographic below to peer into the common causes of high overhead that virtually all dentists face. 

If you collect at least $750,000 annually, you may be in the perfect position to take your practice to the next level. LET'S TALK TODAY! Fill out the form at the very bottom of this page or contact Casey Hiers at 765-532-5562 or via e-mail
Read More

Topics: cash flow, overhead

3 Ways to Grow Your Dental Practice the Right Way

Posted by Brogan Baxter on Wed, Feb 8, 2017

By Brogan Baxter
Chief Operating Officer, Senior Analyst
Four Quadrants Advisory

Early on, nothing comes easy.

You have to scratch and claw for the first five new patients. Then you bend over backward to earn the next 10. the effort required to get those first 15 customers is enough to crush a person's spirit.moneytree

But you keep carrying on because Dental practices grow slowly day by day, month by month. You gain three patients and lose one; then you lose two, gain one. If you look back over a year, however, you may have 50 or even 150 new patients. “That’s no small feat,” you say. “There really is no such thing as an overnight success.”

But during periods of growth the Dentist should ask what’s fueling it - instincts such as “grow or die?” Many Dentists grow their practice just because they want more production. But why? Because you want to make more money?

Here’s a little-known fact: increasing production can actually cause you to make less money. That’s because in a rush to earn more, overhead skyrockets and you can be stuck with slightly more income and a lot more money going out the door.

Here are three ingredients we make sure our clients — brand new and longtime ones— include as part of a “smart growth” instead of “fast growth” strategy:

1. Increase your production and maintain your overhead
2. Maintain production and reduce your overhead
3. Increase your production and reduce overhead

Don't Be Afraid to Ask for Help
To grow your income, you need a good financial team on your side. You need quickly-reported numbers, you need to have a pulse on your finances and you need a quick interpretation of your situation. If a negative trend begins, you need to know so you can act fast to counteract it.

Is overhead popping up five months in a row? Know fast, so you can nip it in the bud. In fact, his applies both to your production and to your overhead. You need solid numbers on both no later than the end of next month, and the numbers need to be reconciled and analyzed by your accountant. To identify trends, compare them to the same month last year and also to the past few months of this year. That way you can see in real time what’s happening in your practice’s financials, and whether it’s a seasonal effect or something new.

Even if you grow intelligently, you can still run into issues. For example, you might get a good news/bad news call from your accountant: “Good news! You made a lot more money this year than we were expecting! The bad news is that means your tax bill ius headed into the five figures.” Without timely and frequent tax estimates, you can end up with a nasty tax surprise at the end of the year. And that will certainly put a damper on your booming business.

When managed poorly, growth will actually hurt your Dental practice and cash flow. But when you do it right, growing your practice will do nothing short of change your life.

Visit our “how we help you” page to view quick stories of how we helped ACTUAL clients. (No actors here, we knew you could tell the difference).

If you think you need a better plan than you have now, and sooner rather than later, contact us today!

Read More

Topics: dental accounting, business of dentistry

Who's Stealing From You?  8 Ways To Protect Yourself

Posted by Brogan Baxter on Fri, Feb 3, 2017

By Brogan BaxterIs Someone Stealing From You?
Chief Operating Officer, Senior Analyst
Four Quadrants Advisory

Think of five Dentists or Specialists you know pretty well.

Three of them have been or will be victims of some form of embezzlement at some point in their career. This crime knows no bounds – unsuspecting General Dentists and Specialists, Solo Practitioners, group practices, Dentists in small towns and those practicing in urban areas are all at risk.

That means you’re at risk too. 

Dental Practices are juicy targets for fraudsters because those leading them don’t have a business degree and are so busy seeing patients the can't constantly monitor the situation sufficiently enough.

According to a 2007 study by the American Dental Association, the Dentist’s system of controls (day-end balancing, review of software audit logs, fraud found by the Dentist’s accountant, etc.) lead to the discovery a paltry 19% of the time. So that means someone discovered the remaining 81% by accident.

But the best ways to prevent theft in your dental office may seem counter-intuitive. Instead of implementing new layers of control (and therefore complexity), we recommend tightening the way you manage your office every day.

To start with, remove any opportunity to embezzle.

Simple? Yes. Effective? Absolutely!

Not only will this reduce the risk of fraud, it will also improve other areas of your practice such as cash flow and the reduction of tax surprises, while also making you more aware of your practice's financial stability. Stopping someone hell-bent on stealing from an attempt to do just that may be impossible, but catching them before they damage your livelihood is not.

What if you think someone is already stealing from you? Again, we recommend thinking counter-intuitively. Knee-jerk reactions many times just lead to a sore leg. But to be blunt: DO NOT call the police. DO NOT confront the person your think is the perpetrator.

A bad move has the potential to make your situation far worse, especially if the person you suspect isn’t the thief after all. If you waste time targeting the wrong person, that gives the actual thief time to destroy evidence.

While no one has taken advantage of our clients while we were working for them, some of our clients have come to us as victims of previous embezzlement schemes. While each case was vastly different, there was one thing that rang true in each case: the embezzlement action was always larger, wider and occurred far longer than the Dentist ever thought possible.

If you suspect a theft is taking place, the best thing you can do is preserve evidence, conduct a quiet investigation and NEVER confront the thief without backup.

There are several things that must be done to improve the outcome of a situation that is going to be messy no matter how you look at it. Prosperident, the world’s largest dental embezzlement investigation firm, reccomends taking the following steps if you suspect someone is ripping you off:

  1. Continue to act normally and avoid behaving unusually. Conduct your investigation in a way that does not disclose suspicions.

  2. The Dentist must be extremely guarded about discussing suspicions with colleagues, staff members, etc. And what about that one special, most trusted employee? Statistics show that individual is the MOST likely to be the perpetrator.

  3. Don’t fire anyone until you've gathered the evidence. The amount the employee may steal from you in the relatively short time it will take to complete an investigation pales in comparison to the cost of a wrongful termination lawsuit.

  4. Obtain professional advice. Embezzlement investigations are not a “DIY” project! You may not know what to look for and will likely need the quiet assistance of staff who might be friends of the suspect.

  5. Preserve evidence. Your company’s computers contain a cornucopia of information that will be needed to confirm the embezzlement, quantify losses, prepare an insurance claim, proceed with prosecution, etc. However, this information is volatile and can be deliberately erased or overwritten.

  6. Do not dramatically change financial protocols. Looking to make changes without being able to explain the rationale will certainly be seen through by a thief.

  7. Do not report the incident to police until you have gathered all the evidence. It serves no purpose to do this early, and may limit your options in dealing with a thief.

  8. Do not contact insurance companies. If a theft involves obtaining extra funds from insurance companies, the insurance company may have recourse against the dentist for amounts misappropriated.

As I stated earlier, the best defense against fraud is to focus on procedures that improve your practice’s financial stability. Find out what could be wrong, and put yourself on the road to fix it. Download the free Success Kit today and get started.

How does your practice stack up? Click Here to take our quick, comprehensive financial review so we can discuss this with you in more detail.

Read More

Topics: business of dentistry, stealing, fraud

Don’t Let Tax Surprises Ruin Your Cash Flow

Posted by Four Quadrants Advisory on Wed, Aug 10, 2016

cakeby Jason Smith
President, Founder, Four Quadrants Advisory

My family knows better than to ever throw a surprise birthday party for me. I don’t like surprises and I don’t like the unexpected. I tend to arrive early to appointments, I over-prepare for most things, and I want to know what I’m getting into with everything I take on. Imagine you walked into your kitchen on a cool, winter evening after work and surprise! – your friends and family are there to greet you. Instead of a cake with candles on it, though, there’s a slightly different surprise waiting for you. A great big surprise tax bill.

You can’t put candles to this one, as much as you might like to. “Good news! Your dental practice revenues are up and overhead is steady or down. Bad news, though. We didn’t make tax adjustments along the way. Surprise!”

I’m sure most dentists don’t like surprises any more than I do, so we thought we’d share a simple technique that our clients and our CPA partners appreciate. A lot of CPAs specializing in dentistry stay on top of this, but frankly most don’t. Each fiscal quarter, we analyze a combination of revenue growth and overhead to determine which clients are likely to need tax withholding adjustments. For example, for those clients with revenue up and overhead down for the quarter by a combination of 10% on the upside, we’ll notify their CPA to make adjustments as necessary.

This has actually been an interesting barometer for the health of our clients’ practices across the board. In the third quarter of 2009, for example, we only had 15 clients that required withholding adjustments. The next year we had 28. We took this to be an indicator that we might be coming out of the deepest of the economic doldrums of 2010, particularly after looking at December numbers for most.

Read our guide: Dental Accounting 101

Our CPA partners like the added eyeballs on the P&L and appreciate having a second line of defense. This technique is one of many that make it a lot easier to save what is necessary to satisfy a well-crafted financial plan. A combination of really good analytics and communication between your advisors can keep your planning smooth. If all your advisors aren’t working together to champion great cash flow and savings, it’s tough to stay on goal.

Does this technique reduce your overall tax burden? No. Does it add anything to your retirement nest egg? Not really. Will it prevent you from clutching your chest from shock when you stumble into your “end-of-the-year Tax Surprise Party”? No doubt about it.

New Call-to-action
Read More

Topics: dental tax, dental accounting, Tax Advisory

How Much Should Dentists Pay Themselves?

Posted by Four Quadrants Advisory on Thu, May 19, 2016

atmby Jason Smith
President, Founder, Four Quadrants Advisory

Do you wonder if you are taking too much salary, or not enough? Have you ever had to delay your paycheck a couple of weeks because cash was tight at your dental practice and you thought a large insurance deposit might drop in a few days? Are you hoarding cash because you fear an autumn tax surprise?

Rather than throw a number at a dartboard or guess at what your income should be, take a balanced approach to maintaining practice cash while still bringing a fair amount of money home for personal use. First, figure out how much overhead is necessary to fund 45 to 60 days of payables in the practice. That range will vary for each practice a little bit, based on the business model and certain trends.

Let’s say we have determined that your overhead for 45 days is approximately $100,000. That’s how much cash you want in the practice at all times – your minimum practice cash reserve. This balance will float up and down against the ideal. Remember, overhead fluctuates – so pay attention to the monthly averages on your bank statement and how they relate to your monthly overhead. Now, you can identify trends in this reserve balance, allowing you and your advisors to take action on the spot, taking distribution withdrawals in a predictable manner, putting taxes and savings in the right buckets, or adjusting salary.

Sample: Monthly Practice Cash Management

Practice Profit & Loss

Actual    September –  2011   

Actual      October –     2011   

Actual    November –  2011   

 Total Income 




 Officer Salary




 Total Expenses




 Net Income




 Overhead %




 +/- 2010 overhead  72.35%




 +/- target overhead    66.00%

 - 0.31%



 Practice Biz Checking – balance goal ($100k)  




 % +/- bank over prior

 - 7.7%



If your cash balance is significantly lower than what your unique practice reserve should be, here are a few options: 1) decrease your salary, 2) start strategically cutting overhead within the practice, or 3) a combination of both. Overhead changes will not happen quickly and typically, you can’t “produce your way out of it.” If your CPA utilizes a custom, dental Chart of Accounts in your bookkeeping software, you can begin a forensic examination of expenses and develop strategies to chip away at unnecessary spending.

Moreover, if you take it one step further and utilize cloud technology – allowing both you and your CPA to access bookkeeping software simultaneously in a secure environment – you can work on the overhead together, in real time. This is great because it lets you discuss all the sub-categories of your expenses and determine where to start making precision cuts – half percentage point here, another half point there.

If you know how much cash you need on hand at all times, and how much you’re paying on a regular basis, it’s simple to figure out how much money you should be taking home. And you might even be able to give yourself a raise.

New Call-to-Action

Read More

Topics: dental financial planning, Financial Planning

5 Actions Dentists Should Take To Build A Retirement That Supports Their Lifestyle

Posted by Mathew Ryan on Mon, Feb 15, 2016

By Mat Ryan,
Financial Planner and Analyst, Four Quadrants Advisory

If you’re a successful Dentist, you should be able to retire with several million in savings, so you can continue the standard of living you have now. Unfortunately, most Dentists aren’t doing that according to an American Dental Association study. 

It concluded that the average income expected by the Dentist at retirement of 49% of current income – or $127,000 expected per year. We think this is a travesty!401KIRA_Egg.jpg

To put it bluntly: if you have at least $750,000 in collections each year, you don’t have an excuse: you should be saving more. You will need to have set aside $8 to $10 million for retirement in order to maintain the lifestyle you're living now. After all, why should you take a step back once you finally reach retirement?

Here are 5 actions you need to take this year to create a retirement that will support your current lifestyle:

1. Put the right savings plan in place
There are savings strategies that work well for some but are not adequate for Dentists. A Simple IRA doesn’t provide the kind of flexibility that a 401K or profit share plan does if you can afford to have one. If you do have one of these, discipline yourself to make regular contributions by setting up an automated paycheck deferral into your retirement account to fund it to the maximum amount by year’s end. And your spouse should be on the practice’s payroll as a front-office employee to maximize the amount of money you can contribute to the practice retirement plan.

To make sure you have more money available to save, you still have to think beyond even these savings instruments. For instance, do you have a $5,000 loan payment that’s about to end? Make a plan for what happens to that budgeted payment once it’s not going toward your loan anymore. You should re-invest it or put it into savings.

2. Skip budgeting - it's overrated
It’s complicated and time-consuming to plan a budget, and let’s face it, are you actually going to stick to it? The better strategy is to live within your means, save proactively, and try to increase the amount you save every year. And you need to invest that saved money properly. We recommend to every client a low-cost, no-commission environment; ideally fee-only one.

3. Run your practice efficiently 
There are two factors to balance to make your practice as efficient as possible. The first is your production. Why not set a goal to surpass last year’s revenue, and then sustainably grow from there?

The other is your overhead level: if it’s above 65% it’s killing your cash flow, and, as a result, your income and savings stream. For every 10% you lower your overhead drops, that means you bring in 10 cents more for every dollar you collect. So if you’re collecting $900,000 a year and you lower your overhead 10 percent, that’s $90,000 more to add to the bottom line.

4. Don't "Sweat the Small Stuff" especially regarding bank accounts
Balance (pun intended) is the key. By watching your cash reserves at home and work each month, you will find it easier to deal with unexpected expenses on both fronts. Remember what I just said about budgeting: live within your means, know how much you need and make sure you have enough at all times.

But too much is also unhealthy. If you have money just sitting in a bank account, it’s not working for you. Once you surpass the level of cash you need to have an adequate safety-net (we recommend 1-1.5 times the amount of monthly expenses) put that excess cash to work! If it’s in your practice account, take it home. If it’s at home, invest it.

5. Keep the cash flowing
This can be difficult given the unexpected challenges that confront dental practice owners such as yourself. But every business owner faces them. The key is responding to these curve balls in a way that doesn’t crunch your cash flow.

You might be so debt-averse that you pay for a new piece of equipment in cash. Inadequate tax management could lead to a big surprise and, therefore, IRS bill at tax time. Maybe your practice hit a slow patch last June and July. No matter the issue, your response must be educated to minimize the number of crunches you have to handle.

Ironically we recommend our clients “sweat the small stuff” because if you are managing details and stay on top of problems when they’re small, the bigger issues will either never materialize or be far less traumatic. Attention to detail will make your practice profitable over the long term, and will put you in a position to have that $10 million retirement – or at least more than you are on pace for now.

What's your plan for retireing the way you want to. If you don't have one, or would like us to review it, you can contact us directly at (877) 720-6213 or send us an e-mail so we can determine together the best place to begin.

Read More

Topics: dental retirement