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.

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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.

Decision-making

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.

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

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!

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Topics: dental accounting, business of dentistry

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.

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Topics: dental tax, dental accounting, Tax Advisory

3 Ways Your Accountant Makes Tax Day EVEN WORSE

Posted by Kathy Collins on Mon, Apr 18, 2016

taxshockLet’s face it, a lot happens in life outside of our control. But tax uncertainty doesn’t have to be your tax reality. Just like the running of a dental practice is a unique animal within the health care industry, accounting practices for dentists should be too. And if your tax advisor doesn’t provide “dental-specific” accounting, surprises will remain unpleasant and erratic.

As financial and business advisors for dentists/specialists in more than 30 states, Four Quadrants defines a tax surprise as any tax refund or taxes owed over $10,000 in a given year. So if that’s happening to you something is broken.

By managing a client’s tax liability consistently throughout the year, surprises can be mitigated and even eliminated. Here are three ways your current tax advisor or accounting system is hurting your practice

1. Missing the mark on estimated taxes -
Most accountants calculate your 2015 estimated taxes based on your prior year profits. This works great for the Q1 payment, but most accountants almost always fail to evaluate business profitability throughout the year. How does this happen? Say, for instance you have a year of decent growth and a drop in expenses. 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.


2. Infrequent reconciliation of books 
-
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 even quarterly reconciliation just 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 until you have very little time to plan for it. How are you going to cobble together an additional $40,000 to cover a tax surprise from a situation that otherwise should be celebratory?

3. The detection of a problem late makes new problems appear where there were none -
As this snowball builds upon itself, you realize why so many people dread “April 15th.” Just as you pay for the mistakes of 2014, you will also have to pay the estimate for Q1 2015—the proverbial “double-whammy." How could an unexpected increase in revenue cause so much PAIN?
 

If these examples sound familiar you’re not alone. In a desperate attempt to avert the pain above, many of your colleagues hoard cash. In other instances they ride the peaks and valleys of thick and thin monthly income waves pinching the pennies just in case.
 

Read our guide: Dental Accounting 101

No matter who you are or what you produce, subjecting yourself, your employees, and your family to this cashflow roller coaster constricts your opportunity to build wealth long-term. The ultimate failure that results from bad tax planning is the inability to save enough for retirement consistently and we think that is an absolute tragedy that is often overlooked.

Planning to avoid tax surprises and calming tumultuous income waves is what we do. 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 accounting, dental CPA, Tax Advisory, tax time, IRS, tax surprise, tax refund

3 Ways To Deal With 2015 Taxes Now and Not at Tax Time

Posted by Brogan Baxter on Mon, Jun 29, 2015

By Kathy Collins, Four Quadrants CPAlookahead

Believe it or not, we’ve hit the middle of 2015! So do you feel like you’re at the high water mark? If you’re like most dental practitioners, it seems like all you’ve done so far this year is pay tax bills for 1st & 2nd quarter 2015 while shoring up any 2014 tax obligations. If you haven’t paid any tax bills yet this year then you definitely need to keep reading to avoid a very unpleasant surprise.

What was that line about taxes and death?

Anyway, chances are your business accounts are tighter on cash than you would like. The last thing you can afford is a large expense that comes out of nowhere. And when a dental practice isn’t prepared to handle its tax obligations properly, your tax bill could end up a lot heftier than you planned for.

Getting smacked again and again with a tax surprise doesn’t have to be a cost of doing business. Just ask our clients. While we will never make paying taxes pleasant, we can make the amount you pay predictable. This, in turn, opens up some new avenues for improving cash flow both in the practice and at home..

Here are three ways you can make the second half of 2015 perform better than the first:

1. Fix your practice structure
If the foundation upon which your practice’s finances are built is shaky, there’s a far greater chance of tax disaster. The corporate and income structures of the practice need to settle properly as the foundation before you build upon them. Establishing an S-corporation — instead of a sole proprietorship — allows you to maximize the amount of money you take in W2s, rather than distributions. Without taking these steps first, anything else you try to do will be a waste of time.

2. Put the proper systems in place
With a rock-solid foundation, you can now build a system to forecast financial expectations for the practice. The forecast should center around historical trends including changes expected on a yearly basis from season to season, and anticipated changes from improvements in logistics and practice management. If your practice slows down every year when school starts, or maybe hits the afterburners in the beginning of the year, plan for that in your tax payments.

Your system for accounting must be proactive, not reactive. This means account reconciliations should be done every month by your accountant, with the smallest number possible of uncertain or uncategorized transactions. The numbers should then be integrated into your business strategy and tax planning on a regular basis.

Regular tax estimates should be based upon financial forecast changes and the practice’s overhead. Using prior year tax liability is a recipe for disaster if it doesn’t represent what your practice is currently doing. For example, a large piece of equipment may have been purchased and written off last year but that may not reoccur in 2015. As a result, a huge tax surprise!

3. Advice Cohesion
Finally, your business management, accounting and tax advice need to have cohesion. In a vacuum, no one can make decisions that are right for your practice. They don’t have the whole picture. To build an intelligent strategy, you have to look at your finances from both sides. To make the right decisions about your taxes, your accountant needs information about your whole financial picture (both business & personal) as well as retirement savings strategies. We’ve yet to hear from a dentist that has had this in place in over a decade—are you in this boat?

This synergy will help you make more prudent decisions regarding hiring, purchases, handling of debt, changing fees – pretty much any decision that’s paralyzed you in the past. And putting these structures and systems in place will vastly reduce your chances of landing a $10,000+ tax bill at the end of 2015.
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Topics: dental tax, dental accounting, Tax Advisory

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

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

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 3 Pieces to Your Perfect Financial Plan

Posted by Jason Smith on Wed, Apr 30, 2014

When you graduated dental school and opened your own practice, you didn’t think it would be easy – obviously starting from scratch would be tough. But you weren’t prepared for just how tough it would be. You’re running a business, but you don’t have the tools you need to do it. You’re a dentist, not an accountant. And you didn’t get the business training that you need in your undergraduate or dental school curriculum. But you’re expected to have the skills of an entrepreneur and of a scientist. You’re lost.

What you need is a thorough and solid financial plan, which can guide you through the troubles of the present into the prosperity of the future. And that’s exactly what you’ll get from The 3 Pieces to Your Perfect Financial Plan. It’s Four Quadrants Advisory’s guide to getting the foundations of your finances in order, so you can concentrate on your patients rather than your balance sheets. Download it for free today and get started.

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

Is your dental practice ready for Four Quadrants Advisory?