Proactive vs. Reactive CPA: Finding the Right Partner for Your Practice

Announcer:
Hello everyone. Welcome to the Millionaire Dentist Podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry finances and business practices to help you become the millionaire dentist you deserve to be. Please be advised, we do speak with an honest tongue and may not be safe for work.

Jarrod Bridgeman:
Hello, and welcome to the Millionaire Dentist. I am your host Jarrod Bridgeman. Casey Hiers is out traveling. He's been a busy little boy, a busy little beaver, as they say around these parts. So instead, I've brought in two very special guests. They're both on our accounting team. I've got Steve Levy, who is a JD and a CPA, and I've got Brodie Hough, who is a CPA. I remembered this time, bro.

Brodie Hough:
You did.

Jarrod Bridgeman:
I did. It doesn't look like it's pronounced that way when you write it out.

Brodie Hough:
No, it definitely does not. I got all through my childhood. Oh, Hough? Yeah, it was never Hough.

Jarrod Bridgeman:
Years past, Casey and I have had several conversations that involved what a proactive CPA versus a reactive CPA is, and we've done it from our top level understanding of that situation. I wanted to bring you guys in to discuss with me what an actual proactive CPA is and what that means, especially within our firm. Steve, you've been here for quite some time. I know you're still a young fellow.

Steve Levy:
Yes.

Jarrod Bridgeman:
Do you mind taking me down that path of what a proactive CPA is, especially for people who have maybe just had the same CPA for 10 years and don't know the difference?

Steve Levy:
Yeah. So just first wanted to do a step back and just talk about the definition of proactive versus reactive. So according to Oxford, so proactive is-

Jarrod Bridgeman:
This is the start of a bad wedding speech.

Steve Levy:
So proactive is creating or controlling a situation by causing something to happen, rather than responding to it after it has happened. So an example is be proactive in identifying and preventing potential problems. So that's proactive. Reactive has a few different definitions. First one is showing a response to stimulus, which that really doesn't apply here. So we've got pupils are reactive to light, which I just got poked in the eye, so my pupils aren't as reactive to light right now. But it still doesn't apply. The second one is having a tendency to react chemically, which that doesn't apply as much either. The example, nitrogen dioxide is highly reactive gas. No, not quite applicable here.

Jarrod Bridgeman:
So you don't have reactive gas?

Steve Levy:
Not at the moment.

Jarrod Bridgeman:
Okay.

Steve Levy:
The third one is acting in response to a situation, rather than creating or controlling it. So a proactive rather than a reactive approach. And that's what we're trying to avoid in being proactive in our service.

Jarrod Bridgeman:
Got you. So breaking that down in terms of what a person could expect from a CPA who was proactive versus the kind of service you may get from a more reactionary CPA.

Brodie Hough:
Oh, yeah. For sure. And I think that's one of the tougher things to see for someone being... For a potential new client for any CPA or CPA firm, that's tough for them to see through the weeds, I guess, as they're upselling them on all the stuff they do and all that jazz. But I think a lot of stuff, I mean, you can look to the recent history of what has happened just within this last year with the major bill that we got passed. I mean, we already talked about this actually a couple weeks ago. Yeah.
And you see a difference in that aspect, where proactive CPAs are going out, they already know what the main topics are that are being changed or being talked about, even as it goes through all the layers of government and everything. That's just one prime example of them being on top of it going, "Oh, this has been taken out of the bill. This has been added to the bill." You can see the adjustments being made as our good old politicians are working on adjusting it.

Jarrod Bridgeman:
Can you say, maybe, and with the reactive one, someone using a CPA like that may be more used to the situation of, I'm on my phone, I'm just kind of messing around on my newsfeed, and I see an article that maybe a state law has changed, and so I have to reach out to my CPA to be like, "Hey, does this affect me at all?" And it's almost like you have to bring it to their attention, instead of the other way around.

Brodie Hough:
No. Yeah, 100%. I think that's a great example of where you are leading to, where we sat down here actually a couple weeks ago and we brought the information to you. We weren't waiting for our clients to ask us, "What is this bill going to do to us? How's it going to affect our taxes, and so on and so forth, our whole situation, our business?" It's, we're bringing that out to the forefront, and we're already putting that into the process of how we do our tax analysis, and so on and so forth, how we do our monthly financial and bookkeeping aspects.
We're making those small adjustments ahead of time instead of letting the client bringing that to us. So I think that's a perfect example. I mean, there's just the amount of care that a proactive... Not saying a reactive CPA doesn't have care for their clients. That's what I'm not trying to allude to. But it's just, you're just showing that. You're putting your money where your mouth is, I guess, so much, and being the proactiveness, and able to help your clients in that way.

Jarrod Bridgeman:
And really focus on, I would say, the customer service again, as opposed to maybe the upselling.

Brodie Hough:
Correct. Yeah, 100%. I think that's something that even accounting students nowadays don't see as much, is the, "Oh, yeah. I'm good at numbers. I'm going to be an accountant." Yeah, that helps. Not going to lie, that does help. But it's not everything. The customer service aspect, that is what makes a great CPA/accountant, compared to a good one, for sure.

Jarrod Bridgeman:
Steve, how does it help a dental practice or a client, someone who's working with a proactive CPA, how does that help them?

Steve Levy:
It's kind of a timing thing here. When we have a proactive CPA, you're seeing things on the go, you're deep in the trenches and able to identify things as they go. Reactive, on the other hand, it might be too late to act on something. Because the year is closed, you can't do anything strategically for taxes or whatnot to help it. It's closed. It's a done year. But while the year is open, say they're buying an asset, how are we going to structure this? There's different ways to plan the best tax situation or whatever situation before it's too late.

Jarrod Bridgeman:
Working ahead, instead of trying to cram the night before taxes are due?

Steve Levy:
Exactly. Yeah. That's why you see a lot of-

Jarrod Bridgeman:
Don't get me wrong. That helped me in college, cramming at the last minute. But I can see for taxes, maybe not so much.

Steve Levy:
Right. And we all see folks that are selling equipment to dental practices. "Hey, it's end of the year. Get it in now," which we hate because if they need it, they need it. We don't want them to buy it for a tax savings. We're already monitoring their tax situation and optimizing it throughout the year, and that's really the best situation there, to get that optimal situation while it's still time, versus, "Oh, too late. Well, can't help you. Too bad."

Jarrod Bridgeman:
I wanted to ask both of you guys, how often do you find yourselves surprised by, let's say we have a new client in the transition process of becoming one of our clients, how surprised have you found yourselves at times seeing the level of substandard care that they had before they came to us?

Brodie Hough:
No. I mean, yeah. I mean, Kevin Rowan, who's been on the podcast before, is our main guy that does the onboarding and bringing on new clients and everything, but he obviously has us look at stuff throughout every client that comes on board too, to have another set of eyes on it.
But overall, it's overwhelmingly surprising how many little things within the CPA world are very basic, but they're cut and dry tax incentives that are there, that are very on the right side of the wall. You're not pushing any buttons, taking advantage of these either credits, deductions, whatever it is, and they're just missed. And this can result in 10's of thousands of dollars in extra savings on the tax side.
And it's just simple stuff like that. Taking advantage of some accelerated appreciation in a way. That's just one example that is commonly missed. And there's multiple other scenarios too, but it's just the lack of care is very surprising sometimes. And it's not everyone that's like that. There are good other CPAs obviously out there. But like you said, it's surprisingly how overwhelmingly lack of detail there is in some of these-

Jarrod Bridgeman:
Attention for care.

Brodie Hough:
Yes. And that just shows you there are the bad ones, the good ones, and the great ones. I mean, there's a reason-

Jarrod Bridgeman:
And where do you fall?

Brodie Hough:
Hopefully great.

Jarrod Bridgeman:
No, yeah.

Steve Levy:
And to go on that point, that's where you see the proactive versus reactive. On the reactive, that's usually where you'll see maybe those issues.

Jarrod Bridgeman:
Is that where you start seeing shareholder loans start popping onto places?

Steve Levy:
Yeah, exactly. That's where like, "Oh, we're going to try to skirt the rules a little and pop it into a shareholder loan or a receivable, so we can bury it." And that's what we hate. Obviously, first, it's illegal. And secondly is just, it's a red flag, all sorts of things. So that's where planning and proactivity can avoid all that, so you don't have to panic when it's time to report your tax return.

Jarrod Bridgeman:
Right. Guys, with... It's mid-August right now, coming up near September. And that's when I think the next quarterly estimate is due, how does the process of working on the quarterly estimates for clients really fit into that model of being a proactive CPA?

Brodie Hough:
No, I think that's something that's very unique here in our quarterly estimate process that we go through on our side is how proactive we are with everything. We're reaching out to clients, one to get any of their outside income that we do not have direct connection to, which is not much. It's more like a W-2 pay that's outside the realm of the practice, or something along those lines. I mean, there's investment activity we usually have in-house, so that's not a big deal. But any other various, the spouse has her own business, or his or her own business, it's up to them to provide us that information if we don't already take care of those books as well.

Jarrod Bridgeman:
Maybe the spouse has an Etsy store or something.

Brodie Hough:
Yes, exactly. So there's plenty of examples like that, that we just ask for that data. But overall, in the whole realm of the quarterly estimates, we're very proactive and we're looking at the whole picture for the whole year. And we're pretty much taking historical data, current year-to-date data, and what we estimate from the planning side of things here within the firm for the rest of the year.

Jarrod Bridgeman:
So you're not just grabbing whatever happened last year and just throwing that out there?

Brodie Hough:
Correct. We have a very advanced model that brings all this together, and we're pretty much populating a fake tax return with all the data we have and what expected data we have for the rest of the future of the year, and going to that next level to customize your quarterly payment to maximize to where you're not overpaid, one, or way underpaid, and then you have a huge tax bill, which I think is, again, going back to that proactive reactive, you see that a lot.
And that difference, that's another very common difference, is where all of a sudden you had a great year, the CPA hasn't been talking to you at all, and then they file your tax return, and boom, you owe five plus digits of taxes because you just had a great year. And a lot of our dentists have their business income passed through, the way we have them set up, to the individual return, and that ultimately can create huge tax bills, because you're paying your business through your personal tax return, ultimately. So that can create those $10,000-plus tax owed, just because.

Jarrod Bridgeman:
Yep. And just imagine that reoccurring year after year, because it's not getting fixed.

Brodie Hough:
Correct. And that's a huge stress to the client that doesn't need to be there. Yes, ultimately, those taxes are owed and they need to be paid, but if we're paying them throughout the quarter and having the planning team and us on the background helping you best way to fund that and all that jazz, it makes it a lot easier.

Jarrod Bridgeman:
And making sure you're not overpaying, because then you'll be able to use that funds for other purposes, whether it's giving yourself a raise, doing a payout, or investing, whatever the case may be.

Brodie Hough:
I think, again, that's a huge difference, is the knobs we can start turning once a proactive CPA gets into the picture and starts doing all the right things in the background.

Jarrod Bridgeman:
And making the system work for you in a completely legal way, nothing shady about it.

Brodie Hough:
It's a multiplier. It's just exponential growth over your whole career, ultimately.

Jarrod Bridgeman:
Steve, when are quarterly estimates due in September? Do you know the date for that?

Steve Levy:
So September 15th is when it's due.

Jarrod Bridgeman:
Right before autumn starts.

Steve Levy:
Yeah.

Jarrod Bridgeman:
Okay. Okay.

Steve Levy:
And then, the final one is January 15th. Some states want you to pay theirs before the end of the year. There's some weird states on that. But then it's a nice long period between the third and the fourth. But the third is coming up, and we're going to start ramping up on that.

Jarrod Bridgeman:
Steve, what are some other ways that our firm can be proactive?

Steve Levy:
Yeah. So on the accounting side, the estimates are certainly one thing. On the planning side, they have a mid-year meeting with the clients to discuss various things, financial, anything that's going on in their lives. And then, obviously, we have our annual meeting. And also what's great is we don't nickel and dime when they're contacting us.

Jarrod Bridgeman:
Right. Right.

Steve Levy:
And that gives-

Jarrod Bridgeman:
We don't charge like we're lawyers.

Brodie Hough:
Right. Absolutely. Or other accountants.

Steve Levy:
Exactly. So we certainly encourage folks to contact us with anything and not have that fear. And that helps us get that knowledge and be proactive from the knowledge we get.

Jarrod Bridgeman:
Right. And coming from the client side of things, being over-communicative is not a bad thing.

Steve Levy:
Oh, yeah. We want it all. We certainly want it.

Jarrod Bridgeman:
We'll let you know if we don't need that in particular, but we'd rather know than not know.

Brodie Hough:
Oh, we'd rather have that, 100%.

Jarrod Bridgeman:
Yep.

Steve Levy:
So there's a nice sharing of the information between the planning and the accounting team. And those more frequent touches with the client than just, once a year, "Here are your taxes." And that's really important overall.

Jarrod Bridgeman:
And the fact that we will adjust and change things up depending upon what the client is wanting to do, their end game, for them as well.

Steve Levy:
Yeah, certainly. There's a lot of adapting, and suggestions, and maybe some pushback even, like, "Maybe this isn't a good idea." And that's the-

Jarrod Bridgeman:
Should I buy this McLaren?

Steve Levy:
Yeah. Maybe that's going to hinder your retirement just a little bit.

Jarrod Bridgeman:
You might be able to sleep in that car. That's fine.

Steve Levy:
There's your retirement vehicle.

Brodie Hough:
Yeah, there you go.

Jarrod Bridgeman:
Well, guys, thank you so much for stopping by. Steve, are you going to be performing anywhere anytime soon, that our listeners that are local can come see you?

Steve Levy:
I'm actually going to be starting a stand-up class in Carmel, where starting September, once a week, we're going to learn about stand-up comedy, and then put on a show in October.

Jarrod Bridgeman:
What's the first step? Is it standing up?

Steve Levy:
I guess so. No sit-down comedy here.

Jarrod Bridgeman:
I love it. I love it. I love it.

Brodie Hough:
I can do that part.

Steve Levy:
Don't show up, because it's probably not going to be good.

Jarrod Bridgeman:
I'm going to come heckle right away. Day one.

Steve Levy:
Fantastic.

Jarrod Bridgeman:
Well, guys, thanks again for stopping by. Folks, if you're listening to this... And you should be. Otherwise, I'm talking to nobody. I'm in a vacuum here and I'm depressed. Listen. What we need to do is, if you have not registered and you're in one of the cities we're going to be visiting soon, go online and register. You can either go to fourquadrantsadvisory.com/events, or check us out on eventbrite.com.
We're going to be in Nashville, Tennessee, Knoxville, Tennessee. We're going to be in Virginia Beach and Richmond, Virginia, Grand Rapids, Michigan, Madison, Wisconsin, and Milwaukee all in the next two months. So come out, get a bourbon tasting, get some food, but also learn the importance of the business side of dentistry and how keeping that side of it as clean as your clinical side can make a huge difference. Casey and his team will be out and about. And you might even see me out there with the camera snapping some pics and trying to get some free food. So guys, thank you so much once again.

Steve Levy:
Thanks.

Brodie Hough:
Thank you, dude.

Announcer:
That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you, the listener, for tuning in. The Millionaire Dentist Podcast is brought to you by FourQuadrants Advisory to see if they might be a good fit for you and your practice, go on over to fourquadrantsadvisory.com, and see why year after year, they retain over 95% of their clients. Thank you again for joining us, and we'll see you next time.