VIDEO: 3 Questions We Ask Every Prospective Client

Posted by Kathy Collins on Fri, Jun 12, 2015

Every important relationship starts with a conversation.

We like to start a conversation by asking questions that allow both a prospect and Four Quadrants determine where they are in their dental practice.

The dentist discusses the issues they’re facing, how they’ve tried to solve them, and what has or hasn’t worked. We use that to determine whether or not the practice is ready for our brand of help. If so, we move on to the next step together. 

If not, we offer baseline materials to help get the practice to the right starting point.

Click the play button on the video below to discover the Three Questions We Ask Every Prospective Client. . .  

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

3 Ways To Minimize Your Practice's Growing Overhead

Posted by Mathew Ryan on Thu, May 14, 2015

By Mathew Ryan
Financial Planner and Analyst
Four Quadrants Advisory

“Apple Pie” is a phrase that rolls off our lips with a smile.

bizstatschart

How about “Meat Pie”? Not so smiley?

Change the adjective, change a lot!

“Overhead” isn’t such a bad word until you place the word “high” before it. After all, overhead is the operating expense of the enterprise that provides a living for you, your staff and their families – you gotta spend money to make money. But high overhead can undermine your practice by squashing cash flow and ruining plans for a transition or retirement.

So when does overhead go from controllable to destructive? And how can you keep from crossing that threshold in the first place? These are two questions we grapple with on behalf of our clients every day. And keeping it in check is central to what we do. We define that line as 60%

If you just gulped silently to yourself, it’s OK, you’re not alone.

Read the Guide: Financial Planning for Dentists

Dentistry is one of the five most expensive startup businesses in the United States, according to Inc. Magazine. Controlling overhead has gotten much more difficult with additional write-offs from insurance companies and their increasing control in a practice. Many of the clients we worked with arrived initially with an overhead above 75 and 80% or higher.

The causes of high overhead must be identified as early as possible or else a dentist will carry that overhead number over their heads like a dark cloud for the rest of their career. So here are three keys to bringing that overhead down from the stratosphere and into a lockbox.

1. Upgrade to comprehensive “dental” chart of accounts
2. Accurate reporting by month-end of the following month
3. Forensic analysis to make quick and timely decisions

With overhead BELOW 60% a new formula emerges: the lower your overhead the higher your cash flow; the higher your cash flow the better your income; the more you make, the more your practice is worth . . . I think you can see where this is going.

From a planning standpoint, the lower your overhead is, the wealthier you are and the healthier your practice is. What is your overhead currently? What have you done to lower it? Let us know by contacting us directly.

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5 Things You Can Do Right Now to Get Your Taxes In Shape for NEXT Year

Posted by Kathy Collins on Wed, Apr 29, 2015

By Kathy Collins, CPA,
Four Quadrants Advisory

yikescalc

April 15 was only two weeks ago. And let me guess . . . it wasn’t the highlight of your Spring?

If you run a dental practice, preparing for this day always seems to be crammed with equal parts uncertainty and anxiety.

But Tax Time is no longer a day our clients fear. We customize an actual plan for each of them so they can avoid an unexpected tax bill or tax refund that wreaks havoc on bank account stability and retirement savings balances.

Read the Guide: Financial Planning for Dentists

So let’s get your retirement back on track by implementing 5 proven strategies to make 2015 your smoothest - and most predictable - year ever.

1. Convert your company to an S-Corporation - 

This structure will allow for better cash flow and more predictability (no more bank account roller coaster games) when a compensation structure is planned properly.

WHY DO THIS? — Although taxes still need to be managed in an S-Corp., this is a huge step toward reducing the dreary year-end tax surprises because more taxes are spread throughout the year with a consistent paycheck. 


2. Hire a dental-specific accountant 
This is not a CPA that has “some” dental clients, this is a CPA that has “exclusively” dental clients. By being a specialist, and knowing dental terminology, they can develop a dental-specific chart of accounts (i.e. list of expenses) and be aware of financial issues that are unique to dentistry.  
WHY DO THIS? — The frequent, consistent numbers will allow your CPA to communicate great ideas and proactive advice.

3. Develop an appropriate safety net -
Having the money to pay a tax surprise makes the sting of the surprise slightly less painful, but having structures in place to ensure this happens is harder than you think. You need to be disciplined and be a numbers-hawk consistently. We show you the calculations that go into establishing your minimum practice cash reserve.
WHY DO THIS? — This balance will float up and down against the ideal as overhead fluctuates, so be sure to take your income in a predictable manner. This makes it easier on the cash flow and bank balances and is more predictable to manage.

4. Devise a more cash flow-friendly income structure - 
Most tax advisors suggest you take home most of the cash reserve or stab in the dark at where you should set income. Structuring income this way often results in huge quarterly tax payments or sporadic, lumpy distributions—neither of which are friendly on your personal or business bank account.
WHY DO THIS? — It may not be sexy, but boring, predictable bank accounts are where it’s at folks. And we hear more sleep at night from less stress does wonders for the complexion!

5. Re-evaluate your retirement plan -  
Not all 401Ks are created equal, and you should learn how to identify whether yours is outstanding or mediocre. We recommend a fee-only investment environment, free of commissions that can penalize a proactive involvement.

WHY DO THIS? — By adding a generous match and allowing a profit share component you’ll be shocked at how much retirement savings can accumulate without the complication and expense of other “sophisticated” retirement plans. Additionally, you’ll get the benefit of being able to shelter money from Uncle Sam via tax savings with a great retirement plan structure.
 


Ultimately it’s our goal for all of our clients to stabilize their practice income so they can save $100,000 or more each year for retirement. 
For more information, download our success kit or contact us today by filling out the form below!


 

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Topics: dental tax, dental accounting, dental CPA, Tax Advisory, IRS, tax surprise, S-Corporation, cash flow, fee-only investing, cash reserve

5 Items To Consider When Planning Your Dental Practice Transition

Posted by Brogan Baxter on Tue, Mar 3, 2015


One of the biggest trends in dentistry today is the logjam that’s been created from many baby boomers still practicing dentistry. The number of dentists per 100,000 people grew from 59.8 in 2008 to 62.0 in 2011*.

The trickledown effect that this glut of practices needing to be transitioned is creating is changing the face of dental market today. Unknown to most, the issues from too many dentists holding onto their practice is only worsening the dental market in general by allowing for opportunities of corporate dental companies to take a larger hold of the market by acquiring practices on the cheap that couldn’t be transitioned otherwise due to lack of in strategy and/or buyers.

Further compounding this issue, many anxious new dentists coming out of school cannot locate a suitable, appropriately priced practice so they seek the structure and safety of the corporate practices, even though their long-term goal is to eventually own their own practice.

Read the Guide: Financial Planning for Dentists

As a result, this growing hold of the corporate movement in dentistry is pressuring the solo practitioner into taking more insurances, but that’s another article for another time. So how can you prevent this trend from continuing to happen and reverse them altogether?

The short answer is better transition planning, but let me expound on this idea more to help add clarity to this issue. Each dental transition should be as unique as your practice is—there is no one single way that is best for a dental transition. Anyone that tells you otherwise is dead wrong. It is not a square peg, round hole situation, but there is a great deal of planning that is needed in order for it to be done correctly. Here are 5 things you need to look at in your practice prior to your implementing your custom transition process.

  1. Timeframe—this seemingly simple idea can dramatically sway, if not even dictate, the type of transition you can implement in your practice. According to a 2010 survey done by the ADA, dentists under 40 plan to retire at age 61, however when dentists over age 40 were asked the same question, the average drifted up to 67**. That example is a microcosm of what we see on a daily basis of our firm. Once dentists really start thinking about what it actually takes to retire and what must happen before getting to the point of a transition, they realize a great deal of planning needs to go into a proper transition strategy and some smaller practitioners just give up altogether and close the doors. We like to tell everyone to do it the right way, you will need to start laying out the plan 10 years in advance. If you’re inside your 10-year window, your options are becoming limited with each passing day.
  2. Ideal type and logistics of your transition—a statistic I’ve seen in numerous venues over the years is that 75% of associates do not turn into partners and whenever I speak and mention that statistic, the crowd typically says it should be higher. Regardless, we think that is a real travesty and that things could be much improved with better planning. Be sure to ask yourself: “what type of transition to I envision for myself?” Basically there are 3 types of transitions: #1—A tiered transition—this is where portions of the practice are sold over a period of time (i.e. 50% now and the second 50% in 4-8 years, etc). #2—A “walkaway sell”—this is when the heir apparent is brought in, the transition done, and the host dentist leaves all occurring within a 12 month period typically. #3—A combination transition—this is basically a combination of the previous two options. Monetarily, the tiered option mentioned above will net you the most for your retirement, but most cannot afford this type of transition, wait too long to plan for it, or simply do not have the personality for it, but if this is done correctly, the goodwill of your sticking around will pay dividends for the transition value. Whichever type of transition you plan, you’ll want to consider what both you and the associate are looking for. The associate needs some guarantees on the front end (i.e. salary, contract, a strategy up-front for the transition, etc)—handshake deals are not okay when dealing with transitions, so that cannot be part of your plan. There needs to be specifics and it needs to be written down. Once the associate needs are covered, you need to make sure your concerns are dealt with appropriately (i.e. price, when you stop working, making sure your patients are taken care of, etc). Make sure you mention your ideal way to unwind from the practice—are you a “cold turkey” or a “phasing-out” kind of person? Whichever it is, I will give you this one bit of advice: make sure you have a plan on what you want to do once you are retired. Whether that is philanthropy, family, hobbies, etc, one of the worst mistakes I’ve seen in my 12 years of experience is a dentist retiring without having a plan to fill their time. Also, while you’re thinking about this question, you’ll want to have a pre-determined plan on the real estate if you own your practice location…that has to be part of the deal and considered as part of your transition plan.
  3. Business model—once you have a timeframe and a general idea of the logistics and type of transition plan you want to implement, you’ll need to make sure your business model can accommodate your ideal scenario. One of the first items to consider with your practice is your production level. If you produce $600k, your practice is too small and you can’t afford an associate for a transition. There is not any one dollar amount that translates into bringing in an associate, but it is an amalgamation of multiple different factors: production, overhead, schedule, etc. Another consideration is the location size as well. Typically for an appropriately producing practice, having at least 6 total operatories is ideal—this would allow both dentists to work out of 2 chairs each plus have hygiene running at least 2 chairs. Well before the business model portion of the evaluation process and ideally during the Timeline section above, you’ll want to objectively identify if your practice is “transition ready” or if you need to prepare the practice to be able to sell it. No different than when you are having a baby and preparing the nursery, you need to make sure that your practice is ready to accommodate an associate. If you don’t have digital, get it—it’s not cheap, but many associates will look right past your opportunity if you don’t have it. Having a practice that is ready to walk into from an associate’s standpoint will allow you to command a higher price for your practice because it is more transition-ready. This is exceedingly important for dentists in rural locations as most younger dentists are looking to stay in suburbia as opposed to a more rural location. It also signals to the associate that you are dead serious about your transition and want to make sure they are comfortable when they come in. There is a happy medium to this however because it is not necessary to have all new equipment in your practice. Generally speaking, in your 50s you should only be adding equipment that is necessary to transition and/or are critical to your daily production levels.
  4. Overhead—this is one of the most misunderstood and often overlooked portions of a transition based on my experience. Though this really goes under the Business Model section above, it merits its own discussion. The overhead value will make or break your transition plans because overhead is inversely related to your cashflow and cashflow is the #1 determining factor in a formal appraisal of a dental practice value. The lower your overhead, the higher the income you make from the practice—and the more you make, the more your practice will be worth. From a planning standpoint, the lower your overhead is, the easier it will be able bring in an associate at an appropriate salary without cannabalizing your income while also lowering your relative risk to bring them into your practice. As a host dentist, you have to offer some sort of a base salary to compete for the top talent available because your competition is and those associates need some sort of guaranteed income to deal with their six figure student loan debt. To help offset the cost of bringing in an associate to be a partner, look at expanding your schedule and spreading your costs over a 5-day workweek. To have 2 dentists in a practice and not be open 5 days is not an efficient use of your business model. To compensate for this, stagger your schedule so you work one day by yourself, they work at least a day or two alone, and have the other days be the ones where you work together.
  5. Personal monetary stability—if you covered the first four items above, you’ll already be way ahead of the curve when it comes to your transition, but all of this is for naught if you can’t afford to retire, so considering your personal retirement situation is a huge factor in this as well. A statistic was real was released by the ADA a few years back stating that 96% of dentists under save for retirement to support their current lifestyle. It doesn’t have to be that way because you still have control over that as you plan for your retirement. If you think you’ll be hitting the lottery with your transition, I’m sorry to inform you that you will not. An appropriately-priced practice typically sells for 60-70% of the previous year’s revenues, so unless you live in geographically desirable area like Hilton Head, you won’t get much above that without gouging the associate. Also remember too that the price you sell for (as well as how it is allocated for tax purposes) will dictate how the transition is taxed. At a minimum, you’ll be looking at 15% and as high as 45% all in to be paid to Uncle Sam so pay close attention to ideally structuring the deal as an stock sell if you are selling or an asset sell if you are buying. Most importantly, don’t sweat the small stuff if the cashflow works for both sides and you really like the transition plan in place. After all, cashflow does trump everything and unfortunately, I’ve seen too many transitions blow up on something as meaningless as a percent of classification applied to goodwill.

They say that negotiation brings out the worst in people, but if you haven’t saved enough to retire comfortably, it will be even worse and the new owner will absolutely pick up on it which can jeopardize the deal altogether. Treat the transition as icing on the cake to supplement what you have already saved and make sure you start saving way more now so you don’t have to hold out of top dollar and ultimately have the practice decline in the process.

If you’re not on pace to hit your retirement now, you need to start looking in that mirror and start figuring it out with your team of advisors. Though it is loosening up now, this is what has happened over the last 7 years as 2008’s performance in the market led to most portfolios to be cut in half. Focus on saving more and taking less risk in the market so you don’t repeat these mistakes. If you can implement these 5 ideas in your practice transition planning it should be able to put you well ahead of the game and allow you to transition on your terms. Keep in mind, this is a transition not a transaction and you’ve worked too hard to create your livelihood to haphazardly hurry into a poorly designed transition.

*M. Vujiic and B. Munson. Despite Economic Recovery, Dentist Earnings Remain Flat. American Dental Association Health Policy Institute, Research Brief. October 2013.
**2010 Survey on Retirement and Investment. American Dental Association. www.ada.org. August 2010.

Brogan Baxter is the Chief Operating Officer and senior analyst at Four Quadrants Advisory Companies, a national accounting, financial planning, and advisory firm with only dentists as clients. They are the only dental advisory firm in the nation with a money back guarantee on their services. To learn more or put your current team to the test, contact Brian Wilson at 877.720.6213 or bwilson@4quadrant.com.


 

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Topics: Practice Transition

How Do You Control Your Practice's Overhead?

Posted by Jason Smith on Sun, Jun 29, 2014

equipmentMany 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.

TRANSCRIPT:

Hi, I’m Jason Smith, founder and CEO of Four Quadrants Advisory. We turn dentists like you into multimillionaires.

One of the worst habitual offenders in dentistry today is poor overhead. But it isn’t just the dentist’s fault. Inc. Magazine said dentistry as a whole is one of the five most expensive startup companies in the United States. So controlling overhead has gotten harder and harder, plus additional writeoffs with PPOs and insurance companies as they are today. We find, though, if overhead isn’t corrected at an early age in the dentist’s career, that they will carry that overhead for the rest of their career. So in other words, I’m saying if we find a dentist that is 37 years old that has 75% overhead, more than likely they’re going to be running 70 to 75% overhead when they’re 55, and that will lead to a non-stop problem in becoming financially free.

A great overhead percentage in general dentistry should be under 60%. 6-8 years into practicing we have to buy more equipment, we have to reinvest, and we’re running out of space. So if we’re still running high overhead, and then we need to expand our space and take on more debt, then it becomes a perpetual problem that you’re never going to get out of. And if you’re not debt free 8-10 years from retirement, you’re going to have very hard times with saving, and you’re going to have very hard times doing the proper practice transition, because any practice that is debt-laden is a practice that nobody else wants to buy.

This is just a glimpse into the multimillion dollar secret for dentists.

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Topics: dental advisor, dental financial planning, Financial Planning, business of dentistry

The Top 1% Club: Saving for the Perfect Retirement

Posted by Jason Smith on Sun, Jun 22, 2014

oneIt’s hard to be proactive when you’re surrounded by the problems of the present. When cash is tight now, and production isn’t giving you the results you expect, that’s what you focus on. You try to fix now before you think about tomorrow. But if that’s your approach, by the time you’re ready to think about tomorrow it will be here. And it’ll be too late.

You have to save for retirement now, and if you want to retire comfortably and happily, you should be saving a lot. According to the ADA, only four percent of dentists will be able to retire by age 65 – mostly due to poor savings and tax planning. In fact, dentists are only saving, on average, $23,000 a year. But if you’re producing $1 million a year or more, you’re anything but average. You’re the best of the best, even if your results aren’t showing it.

You can do better than that. You deserve better than that.

Only a select few are able to reach the $100,000-a-year barrier. In fact, only the top 1% of dentists nationwide are doing it. We’ve never seen anyone crack $65,000 a year in savings, aside from our own clients. It’s an elite club, made up of dentists who have the ambition and discipline to master their finances and build a bright future for themselves. And you can join them.

If you’re producing at a high level already, you can get to that $100,000-a-year level. You can get control of your cash flow, reduce overhead, fix your tax structure, and free up the money you need to build your tomorrow while still living the life you want to live today. We guarantee that in just a year you’ll have 50% more annual savings for retirement – or you won’t pay us. You can do it all, with our help.

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Topics: dental advisor, dental retirement, dental financial planning, Financial Planning, Tax Advisory

Producing More Won’t Lead to Your Retirement

Posted by Jason Smith on Tue, Jun 17, 2014

jason_smithOne of the biggest misconceptions in dentistry is that the only way for you to achieve your financial goals is by producing more. But piling on more work isn’t always the best answer – and can do more harm than good.

What’s the real problem? Consistency – or a lack thereof. Watch the video to learn more about how the multimillion dollar secret for dentists can be your secret, too.

TRANSCRIPT:

Hi, I'm Jason Smith, founder and CEO of Four Quadrants Advisory. We turn dentists like you into multi-millionaires.

One of the biggest financial pressures and misnomers in dentistry today is feeling like you have to produce your way out in order to achieve financial freedom. We have clients across the country and the one thing they all have in common is they’re not saving as much as they would like for retirement, and they have a lot of month-to-month financial pressures in their practice because of lack of consistency in cash flow. They’re tired of looking at their bank accounts every 2 to 3 days online to see if there's enough money to pay payroll, and they’re tired of getting calls from home asking for another check in the form of a distribution to pay their bills. And a lot of the ups and downs and lack of consistency and the lack of efficiencies are what lead to ultimately not being able to be proactive with saving enough on a monthly basis and taking the pressure off.

Regardless of where your production is, if you’re not on a roadmap that builds cash all the time it's going to lead to a career in dentistry unfortunately where you wonder why you’re 53 years old and don't have enough money for retirement. The American Dental Association says we save $23,000 a year for retirement as the average dentist, and you should be saving well over $100,000 for retirement. And if we can first put the tools in place to save on a monthly basis in our practices and at home, we can become more efficient and we can get you on a financial road to save more for retirement.

This is just a glimpse into the multi-million dollar secret for dentists.

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Topics: dental advisor, dental retirement, Financial Planning, business of dentistry

Growing to Serve You Better

Posted by Brogan Baxter on Tue, Jun 10, 2014

FQA_Email_Stat2Four Quadrants Advisory has undergone a lot of changes recently, and all for the better. In the last two years, we've grown from a staff of three to eight full-time professionals filling roles from prospecting and sales to accounting to strategy and management. And with our growing team, we now have more and more hours to put into helping our clients grow their practices and build the retirement they dream of.

It’s not just that we have more employees at our disposal. We’re bringing in people with experience – people who have spent years and years working in finance, building up businesses and dental practices to be stronger, bigger, more profitable, and more efficiently-run.

That includes people like:

Kathy Collins, CPA

Bryce Woodyard, CPA

Mathew Ryan, Financial Planner and Analyst

Brian Wilson, Sales

Jason Wager, Sales

Ryan McLaughlin, Accountant

We’ve always been confident in our ability to help successful dentists turn their practices into wealth-building machines. We’ve always been confident that our advice will lead dentists to be able to retire earlier and more comfortably than they could otherwise. We’ve always been confident that we can help dentists transition their practices to their successors, while preserving their legacies and helping them profit.

But we’ve never been in a better position to do all that than right now. We’ve never done it better. And we’re certainly not finished growing. We’re excited about today, and even more excited about tomorrow. If you think you and your practice are ready to take the next step, let us know. Because we are.

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Topics: dental advisor, business of dentistry

VIDEO: Dr. Thomas – From Anxiety to the Top 1% Club in a Year

Posted by Jason Smith on Mon, May 26, 2014

When Dr. Ryan Thomas first acquired his practice, he and his wife Martha weren’t prepared for the new stresses that would enter their lives. After searching for someone  who could help them get back on track, Ryan found us – and it was a perfect fit.

Now they’re more comfortable, less stressed, and getting back to the things they value like spending time together. And with our holistic approach to their finances, the Thomases are already in our Top 1% Club – and it’s only the first year of many we’ll be working together.
Anytime you have that type of a vision going into something, you can be much more effective at what you do. It’s nothing short of amazing.
Find out more about the Thomases, where they started, and where they are today in this video, and see if Four Quadrants Advisory can do for you what we’ve done for them.

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Topics: dental advisor, Practice Transition, dental financial planning, dental accounting, Financial Planning, business of dentistry, Tax Advisory

The Tax Implications of Starting a Dental Practice Transition

Posted by Kathy Collins on Fri, May 9, 2014

tax2The decision to begin the process of transitioning your practice into the hands of your successor is a tough one, of course. It’s been the center of your life for years, and even if you’re totally ready to ride off into the sunset of retirement, it can be tough. If you don’t have your financials in order before you start the process, it can be torture. That includes your taxes.

The way your practice is structured as a business will have a major impact on your tax obligations after selling. There’s a significant difference between what you’ll owe after selling a C-corporation and what you’d own from selling a sole proprietorship, for example. And that all needs to be taken into account before making the sale.

There are two ways to sell your practice – by selling a partnership interest or stock, or by selling off the practice’s assets. Generally you as the seller will prefer the first option, as it carries with it a capital gain treatment of 15-20%. The buyer, on the other hand, will prefer a sale of assets, because then they will reap the benefits of depreciation. If it is not pre-determined by the transition structure in place, you can negotiate with your buyer, and find a level of price and sale type that suits you both the best.

You’ll also need to negotiate the method of financing your buyer will use. In the event that they cannot or prefer not to go through a bank, it’s possible they could pay through seller financing – that is, essentially you would hold a note on the purchase price as negotiated, loan the money to the buyer, and they would pay you back over time. You get the benefit of keeping the bank out as a middleman, and won’t have to recognize the gain from the sale all at once. The flip side to this option, however, is that you lose the time value of money of getting that money to work for you in the market. There are times when seller-financing is ideal, but for the most part, it is not the first choice by anyone because it muddies the relationship between partners.

But when negotiating price, remember this – you won’t be keeping all of the money paid, no matter what. Even if the bank’s not involved, it’s income and you will be taxed for it. So don’t start eyeing that yacht or Lamborghini until the whole procedure is complete – including your tax liability.

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Topics: dental advisor, Practice Transition, dental retirement, dental tax, Tax Advisory