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So you want to be a practice owner someday: Managing debt to ensure practice success

Editor’s note: This is the seventh and final article in a summer series of New Dentist Now blog posts on practice ownership from Wells Fargo Practice Finance, the practice lender endorsed by ADA Business Resources. To read other articles from the series, click here.

Wells FargoFor most dental professionals, incurring significant debt while completing dental school and acquiring a practice is an inevitable part of becoming successful. The trick is to recognize the types of debt so you can effectively evaluate where you stand – and manage your debt to your best advantage. It is common to think that you are better off financially if you eliminate your debt, which is true with regards to credit cards, auto loans, student loans or other debt that does not help to generate revenue. But there is such a thing as “positive debt” – debt that is used to invest in income-producing activity.

Some types of debt can overwhelm your success

Let’s say that after purchasing your dental practice, you are paying $5,856 per month to cover both business and personal debt, including an office remodel, auto loan, student loan and home mortgage, for a total loan balance of $450,000. Now assume you want to buy a new, advanced piece of equipment priced at $125,000 and the vendor is offering financing with payments of $2,610 per month. This would bring your combined monthly payments to $8,466.

Originial loan

Suppose this new payment wipes out any excess funds you were planning to put towards your retirement. You would now have to consider whether to wait to purchase the new equipment so that you do not jeopardize your retirement funding, cover the additional payment with increased production, or put off saving for retirement. The new equipment loan can therefore hamper your ability to save.

To avoid this kind of debt management crisis and ensure you’re effectively managing your debt situation, work with a Certified Financial Planner (CFP) to develop a broad financial picture of long-term personal and business goals. Be sure your plan includes an assets and liabilities spreadsheet, profit and loss statement, and a plan for large annual debt expenditures.

Working with your lender to create “positive” debt

A specialized dental lender can help transform a financial liability into “positive” debt that still allows you to accumulate security and wealth. This may be accomplished through a consolidated loan that minimizes interest and total payments.

Using the example above, assume your lender offers a consolidation loan for $225,000 to cover new equipment and remodeling, and a home equity loan with a somewhat longer term to cover your auto and student loans. The new loan reduces your total monthly payment to $6,891, for a savings of $3,001 a month.

Consolidated Loan

If you invest this difference monthly, you may eventually have a healthy fund for your retirement. Or, you can use this savings to reinvest in your practice, including:

  • Technology investment. You might use your new-found funds to leverage the purchase of advanced technology that allows you to expand your services and make your practice more competitive.
  • Enhanced marketing. Reinvesting your added cash in a well-thought-out marketing program can potentially lead to more patients and procedures for your practice. If well-planned and executed, your expanded marketing efforts should generate additional cash flow.
  •  Accelerated Debt Payoff.  Some doctors take advantage of lower interest rates to accelerate their debt reduction program and become a debt free practice more quickly.

By managing your debt situation through the use of long-term financial planning and, if necessary, loan consolidation with a specialized dental lender, you can move a long way towards building a successful practice that meets your ultimate goals.

¹Interest rates cited are indicative only. Actual interest rates depend on your creditworthiness.


So you want to be a practice owner someday: Building and managing your cash flow

Editor’s note: This is the sixth article in a summer series of New Dentist Now blog posts on practice ownership from Wells Fargo Practice Finance, the practice lender endorsed by ADA Business Resources. To read other articles from the series, click here.

Wells FargoYour dental practice is a valuable and beneficial investment that can be an important resource for generating cash flow. Simply defined, cash flow is the difference between your monthly revenue and monthly expenses. This is the figure that determines your net income, or the amount you will earn from running your business. Here are a number of ways to build and manage your monthly cash flow from Wells Fargo Practice Finance, the practice lender endorsed by ADA Business Resources.

Manage your financing term

The financing term, meaning the time over which your debt is payable, for your dental practice purchase or start-up may be more important than you imagined. A dental practice is a cash flow based business, and choosing financing that supports your cash flow can be critical to creating a sound financial future.

Most lenders or banks provide a maximum loan term of seven years, which may in fact allow enough cash flow to pay expenses and income while paying off your debt in a shorter period of time. However, if you could have a term that was almost 50 percent longer, such as a 10-year term, you would have a substantial increase in your monthly cash flow. For example, when you borrow $300,000, the difference between a seven-year note and a 10-year note is approximately $1,200 per month. If you opt for the 10-year term, the added savings to your annual cash flow would be approximately $14,400 per year! And, all of the interest you pay on the note can be used as a line item expense and written off against the revenue of the practice, along with the depreciation of the principal amount.*

Consolidate your debt

If you have existing debt that’s over five years old, another option for creating cash flow is a debt consolidation loan. By taking advantage of lower interest rates, you can lower your monthly loan payment and redirect your savings towards your dental practice. However, it would be wise to move quickly on this option as interest rates are poised to rise.

To qualify for debt consolidation financing, you will need to maintain an excellent personal credit profile and be able to demonstrate that your cash flow can support and meet a lender’s minimum standards for the level of financing for which you are applying.

Expand practice capabilities

On its face this may seem counterintuitive: How does taking on new debt to expand your practice help generate additional cash flow?  The key is to structure your expansion so it pays for your debt.

Adding square footage as well as new dental services generates both higher fees and increased patient flow.  While you may need to consider bringing in an associate to help manage increased patient flow, more overall production for your practice ultimately means greater cash flow. And if you are able to add specialty services while expanding your practice, you have doubled your opportunity to improve your income. The debt you incur to expand your practice can usually be paid for by the increased traffic flow and level of services – particularly if combined with a Section 179 tax deduction.*

Reinvest with a practice equity loan

If you have owned your practice for three or more years, you have equity that you can use to generate cash flow and reinvest in your business. Whether you need to purchase equipment, fund a partnership transition, or pay for education, tapping into your equity may give you the cash flow you need to work towards growing your business or securing your future. Some lenders offer practice equity loans up to $500,000 depending on the value of your practice, with terms up to 10 years.

*Consult your tax advisor and/or accountant for a statement of tax and accounting rules applicable to your particular situation and for all other tax and accounting advice.

3 months before opening checklist – part 1: Finance

In previous articles, I’ve covered some of the very first things you’ll do as a new dentist who is planning to open a new practice. These included forming a legal entity and then actually setting one up.

Rich McIver

Rich McIver

In this article we’re shifting gears and turning to the first of three articles covering some of the more practical steps you’ll need to take approximately three months before opening your practice, and some things you should consider when taking on these tasks. This article will focus on finance related tasks:

1. Bookkeeping:

It may seem like overkill to hire a bookkeeper (or if you’re doing it yourself, to buy Quickbooks and set up a file) months before you actually open, but a lot of your most important bookkeeping work is done in well before you actually open for business. That’s because you’re going to be making large equipment and fixtures purchases (that should be properly capitalized), and you’re going to be incurring initial expenses (that should be properly categorized into custom expense categories), among other considerations. Not setting up your account properly means that while you may be able to accurately file your taxes, you won’t have accurate financial reporting, which will become necessary as your practice grows.

My Advice:

The temptation for most new dentists is to try to do your own bookkeeping initially, or at a minimum to hold off on hiring a bookkeeper until after you open in order to save money. While the motive to save money early is smart, fight the temptation here and pay for a bookkeeper. I can virtually promise you, you will screw up your Quickbooks file by not setting up expense categories properly. And then when you do end up hiring a bookkeeper, they’ll have to manually backtrack to fix everything you did wrong, and end up charging you nearly as much as if they would have just handled it for you from the beginning. To the extent you can, find a bookkeeper that has experience with dentists, as they’ll know industry norms and can help guide you, and will know a lot of the suppliers already, so they’ll be fewer questions from your bookkeeper each month asking “what was this charge for?”

 2. Credit Card Processing:

This is something a lot of dentists forget to do until the week before they’re opening for business. Normally for existing businesses, switching credit card processors just takes a couple of weeks. But for new businesses, particularly where one of the owners has less than ideal credit, it can take a couple of months.  Given that not being able to accept credit or debit cards effectively means that the majority of your patients won’t be able to pay you, starting early is a good thing, and you can usually get them to waive any monthly fees until you’re actually ready to start accepting payments anyway.

My Advice:

Dentists generally fall into a pretty good risk category, so you can get pretty cheap rates even as a new business. But to get cheaper rates, in general, you will have to obtain service through an actual credit card processing company rather than your practice’s bank. When you do get quotes, unfortunately, credit card processing is priced so confusingly that it can be hard to compare offers across multiple providers. So, I recommend either using a third party negotiating service, or demanding that any offer be presented in the more transparent interchange plus pricing format.

3. Business Checking Account:

Getting a business checking account is very similar to a personal checking account, it’s quick and easy. That said, you still need to do it early, before you start incurring expenses. Otherwise the temptation will be for you to pay for things out of your personal accounts, which will complicate your taxes and accounting immensely down the road.

My Advice:

You can find still banks with no monthly fees, and you should consider that. But perhaps more important is finding a bank with a banker you can actually get a hold of, and who is competent enough to get things done for you. As a dentist, you won’t need much, but getting a wire sent out without having to go into a branch, a hold placed on a check via a two minute phone call, or getting a phone call from your banker in lieu of an overdraft fee, are, in my opinion, what separates a good bank from a bad one.

Conclusion:

These three items are each things are the sort of mundane details that you may overlook entirely when mapping out your new practice. They are, however, very important, and cannot be done last minute. As far as product recommendations go, it’s a good idea to ask around for recommendations from your colleagues. The ADA, and perhaps your state dental society, offers endorsed providers (check out ADA Business Resources) for some products and this is a good place to start.  For provider recommendation information in each of these items from me, contact me. In the next article in this series we’ll discuss three operational tasks that you should do three months prior to opening your practice.

Rich McIver is a New Dentist Now guest blogger and the founder of MerchantNegotiators.com, a company that helps businesses obtain cheaper and better credit card processing. He also assists his wife, Dr. Holly McIver at her orthodontic practice, Kingwood Orthodontics. You can follow him on Twitter and Google+.

So you want to be a practice owner someday: Planning for growth and expansion

Editor’s note: This is the fifth article in a summer series of New Dentist Now blog posts on practice ownership from Wells Fargo Practice Finance, the practice lender endorsed by ADA Business Resources. To read other articles from the series, click here.

Wells FargoMost new practice owners don’t open their first practice with thoughts of immediate growth in mind. Nevertheless, it’s critical to layout future plans early in your career so you are prepared when the time comes to expand. While there are some clear indicators that will tell you when it’s time to update, expand or relocate your office, getting ahead of the process so you are in control will make the process easier, and the outcome more rewarding.

There are three facets to growing your practice – increasing the number of patients you treat, increasing the types of services you provide, and expanding your physical space to accommodate these patients and services. Your plan for growth needs to address all three aspects, using the following guidelines.

Put your growth plan in writing

The first task in preparing for growth is to have a written plan that outlines your vision for your practice. For instance:

  • How large do you ultimately want your practice to be? Specify the number of patients, operatories and associates you envision for your practice, and the amount of revenue you would like to achieve over the next five years or so.
  • Outline how you will attract new patients. Will you use local advertising, internal marketing, promotional programs?
  • Can you manage this growth in place with your current office set-up or an expansion, or will you need to move your practice location?
  • What kind of financing will be required for a practice expansion or relocation? Is your financial profile robust enough to ensure you can fund future growth?

Putting these details in writing mentally prepares you to take all the necessary steps for making a smooth transition to a larger practice when your growth plans succeed.

Understand the growth indicators

How will you know when it’s time to expand to a larger practice? Some key growth indicators for triggering an expansion might be:

  • Your space is not adequately meeting patient demand, with appointments booked out for two or more weeks. Generally speaking, if you are at 85% of capacity in your current facility, it’s time to start thinking about expanding or relocating your office.
  • You are referring too many patients out for specialty services. This represents lost revenue that could be kept in-practice if you can add an associate who offers these services.
  • Your technology is not keeping up with the competition. If your equipment is clearly dated and incapable of delivering a high level of efficiency and performance, it’s time to expand your services with a technology upgrade.

Prepare for the impact

Remember that an increased patient load not only impacts your facility with potential overcrowding and traffic flow issues, but also your staff and operations.

  • Staff– Be sure you have capable staff that can continue to provide excellent service to your full patient base. Consider including part-time or temporary staff positions to maximize your cash flow and build flexibility into your payroll until your patient base stabilizes.
  • Support – Don’t forget that more patients means you will be making a greater demand on your dental laboratory. Make sure your laboratory can continue to provide the turnaround time you expect, and add an additional lab to your support team if necessary.
  • Dental tools – Your computer software should be able to absorb an increase in patients, but not necessarily your dental tools. Take an inventory of your equipment and determine how many units you need of each tool to service your existing patient base. Then determine how many new patients you have added or plan to add this year – say, an additional 15%. Multiply your current inventory by 15%  and this will tell you the equipment purchases you will need to include in your practice growth budget.

Once you have carefully outlined a plan for the growth of your practice, understood the key growth indicators, and primed your facility for increased traffic, you have taken some of the key steps in preparing for the success that is bound to come your way.

So you want to be a practice owner someday: Working with professional advisors

Editor’s note: This is the third article in a summer series of New Dentist Now blog posts on practice ownership. To read other articles from the series, click here.

Whether you’re buying or building a practice, you will need a team of reliable advisors to support and guide you through the process and create the outcomes you envision. You’ll want to surround yourself with people you trust to help meet your goals. Here’s an overview from Wells Fargo Practice Finance, the practice lender endorsed by ADA Business Resources, of the professionals who should make up your core team of advisors, the services they provide, and why they are important.

Wells FargoCORE TEAM OF ADVISORS:

Accountant

  • Develops tax projections, plans, and estimates
  • Prepares and files tax documents
  • Can help establish financial procedures and collections practices
  • Advises on tax and accounting implications of business and investment decisions
  • Impact: Your accountant protects your business by accurately tracking your income, expenditures and cash flow for tax filing purposes, and helping to ensure your business runs efficiently within budget.

Lender

  • Provides funds and resources for opening your practice
  • Services financing agreements
  • May offer useful tools and resources to help manage and grow your new practice
  • Impact: Your lender can make your practice investment possible by structuring a financing program that fits within your budget.

Practice Broker (Acquisition only)

  • Identifies practices available for sale
  • Can offer valuation and appraisal services
  • Works with attorney to provide sample agreement of sale
  • Helps negotiate the transaction, structure the transition, and coordinate financing
  • Impact: A practice broker can save you time and money by presenting qualified purchase options.

Attorney

  • Negotiates and drafts contracts, leases, and employment documents
  • Assists in forming business entity
  • Can provide legal advice on business and tax planning, estate planning and will preparation
  • Impact: Your attorney functions as your advocate, helping to ensure contracts and legal documents are prepared and executed both legally and in your best interest.

Insurance Broker

  • Evaluates existing coverage and recommends most effective protection

Impact: An insurance broker can help preserve your practice value by insuring you against loss.

ADDITIONAL TEAM MEMBERS FOR START-UP

If you’re building a start-up, you’ll need several additional advisors on your team to help manage the project.

General Contractor

  • Builds your facility according to your plans, and to suit your business and personal needs.
  • Recommends structural changes to optimize the practice’s functionality
  • Impact: Your general contractor can help protect your physical assets from structural and environmental damage, and can provide counsel and advice on transforming a new practice location to fulfill your vision.

   Equipment Supplier

  • Measures your selected location to evaluate whether it is suitable for a dental practice
  • Suggests possible office design layouts
  • Works with architect to develop structural drawings and mechanicals.
  • Helps you select and place equipment.
  • Impact: Your equipment supplier can help assure the appropriate selection and integration of equipment and technology in the practice.

Depending on the nature and scope of your project, you may also want to include any or all of these professionals on your practice start-up team:

  • Architect.
  • Interior designer.
  • Lease negotiator.
  • Local practitioner/mentor.
  • Marketing consultant.
  • Project manager. (Click here for more information about the benefits of adding a Project Manager to your team)

Benefits of a Practice Management Consultant

Another specialist who might prove valuable to your practice acquisition or start-up is the Practice Management Consultant. This type of advisor works with you and your team to help ensure your business systems and internal structure are properly positioned for full functionality, profitability and success. The Practice Management Consultant can help minimize the stress of transitioning to a new practice by identifying potential areas of improvement and working with you to develop a plan for change.

It’s neither necessary nor advisable to go it alone when purchasing or building a practice. Start putting together the right professional team for your situation, and you’ll soon find that your new practice is becoming a reality.


So you want to be a practice owner someday: Paths to ownership – Should you acquire or build?

Editor’s note: This is the second article in a summer series of New Dentist Now blog posts on practice ownership. To read other articles from the series, click here.

Congratulations on your decision to become a practice owner! You have many challenges and rewards ahead of you. One of your first tasks is to decide whether to acquire an existing dental practice, or start your own. The ideal choice for you depends on your personality, professional interests and circumstances, and will become increasingly clear as you explore each path to ownership. Below are some of the advantages and disadvantages of a practice acquisition versus start-up, according to Wells Fargo Practice Finance, the practice lender endorsed by ADA Business Resources.

Wells FargoPractice acquisition: Pros and cons

A practice acquisition can be an easier transition for new doctors as systems and cash flow are already in place. In a true turnkey situation, you could potentially start working on patients the same day you obtain the keys to the office. Benefits of acquiring a practice include:

  • Immediate source of production. A beneficial practice acquisition provides an established patient base and income flow, so you can immediately cover loan payments for the purchase while tweaking the details of the practice over time.
  • Ready staff of employees. If you can retain the employees currently in the practice, you will save hours of time in hiring and training hygienists and office staff and have a ready foundation for ongoing operations.
  • Support systems in place. An existing practice will have scheduling, patient tracking, and operational systems in place, saving you time in selecting and installing these types of support mechanisms.
  • Less reliant on marketing. Since you are purchasing a practice that already produces income, you are less dependent on aggressive marketing efforts to generate interest, commitment, and cash flow.
  • Easier loan approval. You may find it’s easier to attain a loan for a practice acquisition than a start-up, as the business has a proven track record upon which the lending company can base its decision.

However, acquisitions can also have their share of problems, which makes it especially important to conduct thorough due diligence. For example, you could inherit troublesome employees who require training or discipline, inefficient procedures or office systems that need to be overhauled, outdated equipment that should be replaced, or a dated facility that needs remodeling. You may also find that the type of dental services provided at the facility are not a true fit for your interests or specialty, requiring you to gradually transition to the offerings and services you prefer. It’s up to you to determine whether it’s worth your time and money to overcome these issues.

Practice start-up: The satisfaction of doing it yourself

Nothing beats the feeling of being in control of your circumstances, and this is the key benefit of the practice start-up:

  • Complete control. With a start-up, you have the ultimate degree of control in creating the professional environment you want.  From the facility itself to equipment, systems and employees, you’re in charge of deciding what works best for you.
  • Creative endeavor. You have a unique opportunity to express your professional and personal taste, unimpeded by dated equipment and facilities or the inheritance of someone else’s problems.
  • Set your own pace. Since you don’t have existing patients to serve, you can set the pace for your transition to ownership, continuing to work as an employee a couple of days a week if necessary while you gradually build your facility and practice.

Of course, start-ups come with their own brand of challenges and risks, such as:

  • Time consuming. Time you could be investing in patient relationships will be spent making numerous decisions about office design, equipment purchases, employee hiring, systems and protocols, and patient outreach. You will need to invest more time in growing the practice than with an acquisition, requiring excellent organizational skills.
  • Marketing-intensive. The success of your start-up will be dependent on your ability to sell your services, and will require a significant degree of planning and marketing skills to establish the business.
  • Location constraints. You will need to choose a location that can demographically support a new dental practice to ensure long-term success. This may limit your practice location options.
  • Loan limitations. Some loan companies may be more reluctant to lend funds for a practice start-up as there is no income history, existing equipment or property to use as collateral. This is particularly true for lenders who are not specialists in professional practice lending.

No matter which path you choose, it’s most important to ensure your choice fits your personal style, situation, and needs. This is the key to attaining professional success, personal satisfaction and enjoyment throughout your business career.

So you want to be a practice owner…someday: Solo or group practice, which is right for you?

Editor’s note: This is the first article in a summer series of New Dentist Now blog posts on practice ownership.

It can take significant introspection to determine whether you’re best suited for a solo practice where you run the show, or a group practice with two or more dentists taking direction from an individual or corporate owner.

Wells FargoIn general, the solo practice may offer more income potential – you do not have to share profits with partners, and you have greater control over your overhead. However, joining a group practice may give you greater stability with a more predictable salary and lifestyle, and more flexibility as work can continue to be performed when you are away from the office.

It’s up to you to determine which type of setting is most likely to fulfill your needs and expectations, as well as fit your personality type and interpersonal style. Take a look at the following list of key characteristics to see which one best describes you from Wells Fargo Practice Finance, the practice lender endorsed by ADA Business Resources.

Solo Practitioner

1)   Entrepreneurial. You crave the freedom to pursue your own clinical interests and are not afraid to work hard and take calculated risks. You look forward to having complete control over your practice and professional life.

2)   Highly organized. You enjoy the business side of dentistry including the administrative responsibilities of hiring and managing staff, selecting insurance, purchasing technology and marketing your practice.

3)   Strong decision maker. You can make tough decisions based on your own best interests and those of your patients, understanding that the ultimate success and growth of your practice is your responsibility.

4)   Visionary. You know where you want to go with your career, and have a good idea of how to get there. You prefer to be in charge of the quality of care, environment, customer service and operation of your practice.

5)   Good negotiator. You’re confident in your abilities to identify and hire professional team members to help you successfully locate, build, design, equip, staff and manage your practice.

Group Practitioner

1)   Team player. You thrive in a collegial setting where you can interact and learn from colleagues and ultimately achieve mentor status. You are comfortable taking direction from a corporate employer or group leader.

2)   Focused. You prefer to focus deeply on your area of expertise, honing your skills in a specific field of dental care, rather than juggling multiple responsibilities and administrative tasks.

3)   Well-balanced. You seek a predictable income and regular work hours in order to achieve stability and a healthy balance between career and family.

4)   Flexible. You can “roll with the punches” and adapt to management or structural changes that may occur in your work setting, such as the number of dentists with whom you will share the workload and the types of treatments you will offer.

5)   Ability to compromise. As in a good marriage, you understand when to push for your own needs and objectives, and when to compromise in order to preserve and grow the relationship.

Working for a period of time in a group setting can be beneficial for the new dentist, as you have the opportunity to learn how a practice is run before taking on this responsibility as a solo practitioner. However, with excellent clinical and organizational skills, you can succeed in a solo practice and enjoy the significant sense of achievement that such an endeavor can provide.


Take action to support student loan reform

2014 Dental Student Loan DebtContact your member of Congress and urge him or her to cosponsor the Student Loan Refinancing Act of 2015, H.R. 649.

The American Dental Education Association estimates that the average graduating dental student’s debt was over $247,000 in 2014.

H.R. 649 will allow borrowers, under the federal student loan program, to refinance their existing loans multiple times. If the current interest rates are below the rate they are paying, they can refinance their loans. This would assist new dentists in reducing their overall debt, thereby opening opportunities to practice in areas of need.

Fill out the form here.

What type of entity should a dentist consider selecting and why?

In my previous blog post, I explained why, as a new dentist you may wish to form a legal entity to run your practice instead of running it as a sole proprietorship. In this article, I’ll explain what type of entity you should consider forming, what tax elections you should consider making when forming that entity, how to actually do it, and how much it will cost.

Rich McIver

Rich McIver

What type of entity you should consider forming

There are a lot of options when selecting what type of legal entity you will operate your practice out of. There is a traditional corporation (denoted by “Inc.”), a professional corporation (“P.C.”), a limited liability company (“LLC”), a professional limited liability company (“PLLC”), a limited partnership (“L.P.”), a general partnership (“G.P.”), a limited liability partnership (“L.L.P.”), and in some states a limited liability limited partnership (“L.L.L.P.”), along with a number of other industry specific entity types.

When you form your entity, you need to select one of these types, each of which operates under a different set of laws and tax rules thus each of which has different advantages and disadvantages. Because of the different laws and tax rules, you are urged to consult with your personal attorney in the state in which you will be practicing before making a final decision on the type of entity to form.  Once you select one you’ll need to append it to the legal name of your practice (e.g. “Dallas Dentistry PLLC”).

Professional Corporation

A Professional Corporation (“P.C.”) is simply a corporation for professionals such as doctors, lawyers or dentists. It operates just like a corporation (“Inc.”) with a few differences that aren’t relevant to this discussion. P.C.s using an S-Corp election (discussed further below) were the original option for dentists who wanted to form an entity. The P.C. with an S-Corp election provided a liability shield, cleaner tax accounting, the ability to distinguish between a dentist’s income and the practice’s profits and thus pay less in Social Security (10.4 percent of self-employment income up to $117,000) and Medicare taxes (2.9 percent of self employment income uncapped) than under a sole proprietorship. Plus a number of other benefits. Unfortunately, because P.C.s are a derivative of corporations (“Inc.”) they also generally require more paperwork, formal annual meetings, and other administrative hassles that traditional corporations require.

Professional Limited Liability Company

Certain administrative and tax burdens associated with a traditional corporation (and thus P.C.s) led states to create a new type of entity, the Limited Liability Company (“LLC”), and in its professional form the PLLC. A professional limited liability company (“PLLC”) is simply an LLC for businesses involving professional services. The benefit of a PLLC is that it generally has less burdensome administrative requirements than a P.C. This lower administrative burden made PLLC’s very attractive for dental practices (except in a few states, most notably California, where LLC’s cannot be used to practice medicine) . The downside of a PLLC relative to a P.C., however, was that a dentist’s Medicare and self-employment tax liability couldn’t be capped at his or her self-employment income, but instead was based on the overall profitability of the practice. This meant that dentists under a PLLC might be paying an extra 2.9-13.3 percent in self-employment taxes.

Professional Limited Liability Company With S-Corp Election

Obviously a combo of these two entity types, the P.C. with its caps on self-employment taxes, and the PLLC with its low administrative hassles, could be advantageous. Thankfully, that is possible with the PLLC with an S-Corp election.

States now almost universally allow PLLC’s to elect to be treated as P.C. or S-Corp’s for tax purposes (again, notably not in California). So, in effect, they are treated as an LLC from a corporate perspective, but when it comes to taxes they’re an S-Corp. This means that a dentist who forms their entity as a PLLC with an S-Corp election gets the benefit of lower administrative legal hassles, with the self-employment tax savings of a corporation. As such, this has become the default answer for many dentists when considering what type of entity to form.  However, as noted above, a dentist would be wise to consult with his or her personal attorney in the state in which he or she will be practicing before making a final decision on the type of entity to form.

How to Form an Entity

Now that you’ve selected the type of entity, you need to decide where to form it. For many dentists, the right answer is usually the state that you will practice in. That’s because if your state is reasonably business friendly, the advantages you can get elsewhere may be outweighed by the convenience and cost savings of not having to hire an out of state agent. But, there are valid reasons for deciding otherwise, so take your time and consider all the factors, perhaps after discussions with your personal attorney. (http://www.nolo.com/legal-encyclopedia/where-form-your-llc.html).

Once you’ve selected a state, actually forming an entity is really easy. For some states you need to first contact your licensing board and get documentation proving you’re a licensed dentist.  Then, just visit your state’s secretary of state’s website (find your state’s here)  to find the forms, download them, complete them and send them in. In many states the application can be completed all online, and in total it’ll take you about 5 minutes. The cost of forming an entity depends on the state, with some as cheap as $45 and others as expensive as $800 (for a state by state cost breakdown read this). You can pay via check, or in some states via credit card online. Note: In a few states, like New York, there is an additional publication requirement to complete formation which can cost up to an additional $1,600.

Once you’ve completed the application, the Secretary of State’s office will review it, and assuming it’s completed correctly, send you a stamped copy in the mail (or increasingly online). With that stamped copy, your entity now formally exists, and you can start doing things like obtaining a bank account, credit card, signing contracts with vendors, etc. all in the company’s name.

In the next article we’ll discuss some of the first vendors and service providers you’ll need to contract with to begin your practice.

For information on ADA legal resources, click here.

Rich McIver is a New Dentist Now guest blogger. He graduated from the University of Notre Dame in 2005 and obtained his law degree at the University of Chicago Law School in 2008. After graduating law school, Rich founded and managed three tech startups that were each acquired through private equity, private sales and a merger, respectively. In 2010, he founded and managed a Houston-based plaintiffs law firm which he sold via a buyout in 2014. In 2013, he and his wife, Holly McIver, an ADA member dentist, founded Kingwood Orthodontics, where he continues to manage back-office operations. His current project is running Merchant Negotiators, a Web startup that reviews credit card processors. Rich provides practical actionable advice for new dentists based on his experience starting and building successful businesses.

Disclaimer: The purpose of this article is to promote awareness of legal and other issues that may affect dentists and dental practices, and is not intended to provide either legal or professional advice. Dentists are urged to consult directly with a properly qualified professional or with an attorney admitted to practice in their jurisdiction for appropriate legal or professional advice.

Rich McIver is a New Dentist Now guest blogger. He graduated from the University of Notre Dame in 2005 and obtained his law degree at the University of Chicago Law School in 2008. After graduating law school, Rich founded and managed three tech startups that were each acquired through private equity, private sales and a merger, respectively. In 2010, he founded and managed a Houston-based plaintiffs law firm which he sold via a buyout in 2014. In 2013, he and his wife, Holly McIver, an ADA member dentist, founded Kingwood Orthodontics, where he continues to manage back-office operations. His current project is running Merchant Negotiators, a Web startup based in Houston. Rich provides practical actionable advice for new dentists based on his experience starting and building successful businesses.

How to contract with third-party payers

Contracting with third-party payers can prove complicated but with some diligence and attention, new dentists can feel confident they were thorough in their decision.

Patients are two and a half times more likely to visit the dentist if they have dental benefits. Nearly 187 million Americans were covered by some form of dental benefit in 2012, according to a report from the National Association of Dental Plans and the Delta Dental Plans Association.

In 2013, a typical dental practice had nearly 72 percent of its patients with some form of a dental benefit, making it challenging for dentists to decide whether to participate in a network or not. On average, dentists participate in five and a half managed care plans.

Here are some steps the ADA recommends new dentists take when beginning the process of contracting with a dental benefits company:

• Figure out the volume of patients you expect to see and whether the fees proposed by the third-party payer work for you. The ADA Benefit Plan Analyzer allows dentists to run “what if” scenarios that will illustrate the financial impact to their practice. It’s available on the ADA Center for Professional Success website at Success.ADA.org.

• Carefully review the contract between you and the thirdparty payer. A contract is a legal document and by signing it, you are making promises that you must keep.

• Consult with your personal attorney before signing. The ADA Contract Analysis Service is also an option. Members may submit a contract to their state or local dental societies, who will forward it to the service, which provides a plain language explanation of contract terms of each agreement analyzed. The service does not provide legal advice or recommend whether a contract should or should not be signed.

• Determine whether the contract presented includes terms such as an all affiliated carriers clause, most favored nation clause or hold harmless agreement. Also pay attention to the carrier’s processing policies, which may or may not appear in the contract.

• Review the plan’s website and provider participation manuals carefully. Understand how changes to these will be communicated to you and your rights when changes are made. If you still have questions, talk to a representative from the plan to clarify.

The ADA Center for Professional Success has a series of videos that will help dentists understand how third-party payers interface with dental offices. Click here, to watch the tutorials.