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Growing the Practice

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.

New Dentist Conference, ADA annual meeting inspire new dentists, dental students

Westwood, Calif. — While many 2015 dental graduates are busy looking for or settling into practices, one of their fellow graduates is urging both them and dental students to mark some days in early November on their calendars.

Dr. Mendoza

Dr. Mendoza

The New Dentist Conference, which for the first time will coincide with the ADA annual meeting, which takes place in Washington, D.C. from Nov. 5-10. New dentists can participate in both meetings this year and experience all ADA 2015 has to offer, featuring high-level networking opportunities during Leadership Day; a new dentist reception at Penn Social; inspiration from keynote speaker Daymond John, entrepreneur and “Shark Tank” co-star; an exclusive, customized continuing education track featuring real-time interactive technology and more.

Dental students and new dentists alike should make every attempt to attend both events, said Dr. Kristopher Mendoza of the UCLA School of Dentistry Class of 2015.

He should know, considering that he is the immediate past president of the American Student Dental Association and has been an active participant in two past ADA annual meetings.

“It’s a great time to recharge and see what’s beyond dental school,” Dr. Mendoza said.

The 25-year-old dentist, who has just begun a three-year residency in dental anesthesiology at UCLA, said that while the advantages of attending the annual meeting are myriad, one in particular is especially useful for dental students and new dentists.

“One of the greatest benefits for students at the annual meeting is definitely networking with other dentists and students,” Dr. Mendoza said. “Everyone there is extremely helpful, helping the next generation of dentists. They want to see you succeed.”

New Dentist Conference 2015There are several reasons why connecting and interacting with students and more established dentists is important, Dr. Mendoza said. One is that dental students close to graduation and new dentists are seeking jobs, and he has found that some of the established dentists have looked at dentists to join their practices or even sell their practices to.

A second reason is that the ADA annual meeting exposes current and new students to a national community of dentists who provide perspective and inspiration. Attending dental school can place students in a bubble but going to a conference with hundreds of other people who had gone through the experience or were going through the experience invigorated him, he said.

“It was my break,” Dr. Mendoza said. “It helped keep me going. You’re not the only one going through it. It gave me a better outlook on the dental field.” It helped Dr. Mendoza because when he grew up in Fresno, California, he didn’t have any dentists in the family to relate to.

Dr. Mendoza gets asked frequently from younger dentists and dental students if they should join the ADA. “I would challenge them to explore all that being a member offers,” he said. “The value far exceeds the cost.”

Registration for ADA 2015 is open online at ADA.org/meeting.

For a list of courses planned, visit eventscribe.com/ADA/2015.

Search for #ADADC on Twitter and Facebook for more on the ADA annual meeting.

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.

Social media: Five rules of engagement

Does your practice maintain a website or social networking page?

Twitter_logo_blue           FB-f-Logo__blue_512If so, according to the ADA Center for Professional Success, the person who manages content—you or someone from your staff—should keep these five rules of engagement in mind:

  • Do not post copyrighted or trademarked content without permission from the content owner or a citation, as appropriate.
  • Do not disclose any of the practice’s confidential or proprietary information.
  • Do not post information about a patient, employee, or another individual, including a testimonial, photograph, radiograph, or even a name, without the appropriate written consent, authorization, waiver and release signed by the patient (or the patient’s guardian).
  • All postings on your social media sites should be monitored for compliance by a designated individual in your practice. Keep in mind that if your practice has a policy to monitor media sites and fails to do so (or fails to act on information discovered through monitoring), it could be exposed to liability. Inappropriate, derogatory, or disparaging postings should be removed at your discretion—err on the side of caution.
  • Maintain final approval on postings, even if you designate an employee to monitor and manage social media. Employees shouldn’t speak on the practice’s behalf unless you have authorized them to do so.

For more information on social media engagement, visit success.ADA.org.

10 steps to collaborating with pediatric medical providers

Looking to work with pediatric medical providers in your area?

Here are 10 steps to help you with your outreach effort, courtesy of the ADA’s Action for Dental Health, a nationwide, community-based movement aimed at ending the dental health crises facing America today.

Pediatric Dentistry

  • Step 1: Invite a pediatrician or family practice physician to lunch to discuss how you might collaborate to build an interdisciplinary approach to better health for the patients who frequent one or both of your offices. Discuss the patient’s seen and what their oral health needs are.
  • Step 2: Discuss patients ages newborn to five, who have not yet seen a dentist. Discover if your medical colleague discusses oral health questions/issues with the child’s parents or caregiver.
  • Step 3: Introduce the medical provider to oral health resources such as the American Academy of Pediatrics’ Chapter Advocacy Training on Oral Health.
  • Step 4: Discuss what it means to the oral health of a child to add a caries risk assessment, anticipatory guidance, placement of fluoride varnish as appropriate and a referral to a dentist by one year of age are routine part of a well-baby visit.
  • Step 5: Check with the state/local dental society and/or American Academy of Pediatrics chapter to see where similar collaborative oral health programs are working.
  • Step 6: Discuss successful programs that have demonstrated success in this area, such as North Carolina’s “Into the Mouth of Babe” (http://www.ncdhhs.gov/dph/oralhealth/partners/IMB.htm) program.
  • Step 7: Discuss how medical providers can be reimbursed for these services.
  • Step 8: Offer to present an in-service to the physician’s staff on the importance of good oral health for young children. Discuss why “baby teeth” are important and the dire consequences of rampant decay in youngsters.
  • Step 9: Discuss how you might engage others within their community to support your efforts. These groups might include senior citizens, Early Head Start and Head Start teachers, and pediatric residents within the local hospital.
  • Step 10: Share your success stories with the local dental and medical societies demonstrating the value of collaboration.

To read the full 10-step process, click here.

For more information about the ADA’s Action for Dental Health, visit ADA.org/action.

Part 3: Taking the leap to practice ownership? These ADA resources can help

Let me start off by saying that opening my own practice from scratch was one of the scariest moments in my life thus far. I knew I had a good portion of dental knowledge amassed over the last few years, but what did I know about running a business? I could sit down and talk to patients about decay and occlusal wear; however, could I sit down and talk to a team about the goals of the practice and how to achieve them? What about how much my fees would be for my services, and what insurances I should take? How would I go about preparing my office for HIPAA and OSHA protocols?

Dr. Sinclair

Dr. Sinclair

Many of these questions I later found out could be answered through various departments and locations through the ADA’s resources. In this article, I will be discussing several of those resources that can be huge assets when you decide to make the leap into practice ownership.

The ADA Catalog

Another benefit from the ADA I would like to discuss is pretty self-explanatory. What if I told you that before the practice doors even opened you had to make sure all HIPAA and OSHA guidelines were being followed, and if not, you could be subject to fines which could end up costing you tens of thousands of dollars? A few months before I opened my doors, I would have had a blank stare on my face.  Once again the ADA came to my rescue by having both HIPAA and OSHA compliance manuals readily available. The manuals gave me implementation protocols and procedures to make sure my office was up to date and compliant before anyone even stepped foot inside the door. The ADA Store is an excellent resource where you can find almost any must have item for your practice. Some examples include brochures for patient education, CDT code books updating the latest dental codes, and information regarding creating an internal marketing program. Many of the items are also customizable.

RELATED: Part 1 & Part 2

Starting out I mentioned that opening my practice was one of the scariest moments in my life, but I can also say that it has been one of the most rewarding. With the help of the ADA, I have created an environment that I, as well as my team members and patients, look forward to every day. I know that I will still have plenty of successes and failures along the road, but I look forward to sharing and celebrating these moments with all of you, my fellow colleagues.

This blog post, reprinted with minimal edits and permission, originally appeared in the Virginia Dental Association journal. Dr. Cappy Sinclair is a New Dentist Now guest blogger and a 2009 graduate of Virginia Commonwealth University. Dr. Sinclair currently serves on the Board of Trustees at the Academy of Cosmetic Dentistry, as member of 3M’s Council for Innovative Dentistry, and as an ambassador for the Dawson Academy. He started his own practice Coastal Cosmetic Dentistry 3 years ago from the ground up and is more than happy to share his success and failures with fellow new dentists. He is a member of the American Dental Association and the Virginia Dental Association. To contact Dr. Sinclair, email him csinclair@smilevabeach.com.

Job hunting? Searching for employees? Visit the ADA CareerCenter

The ADA CareerCenter is the official online job board of the ADA and is a great resource for searching dental career opportunities or for recruiting dental professionals.

Screen Shot 2015-05-01 at 10.37.32 AMAt careercenter.ADA.org, users can search or post job opportunities for dentists, oral surgeons, orthodontists and other dentistry related career opportunities.

Both job seekers and employers can benefi t from this resource. Those looking for a job can sign up for free on ADA CareerCenter to find dental profession jobs listed by location, company and job type; upload resumes; receive new job alerts via email; save and track jobs and apply online. Even more job opportunities can be found offl ine in the Journal of the American Dental Association’s classified pages.

Meanwhile, dental employers and recruiters can use ADA CareerCenter to choose from a wide array of online options to showcase open positions, including basic and featured job postings or Featured Employer upgraded accounts.

For more information, visit careercenter.ADA.org.

Part 1: Taking the leap to practice ownership? These ADA resources can help

Let me start off by saying that opening my own practice from scratch was one of the scariest moments in my life thus far. I knew I had a good portion of dental knowledge amassed over the last few years, but what did I know about running a business? I could sit down and talk to patients about decay and occlusal wear; however, could I sit down and talk to a team about the goals of the practice and how to achieve them? What about how much my fees would be for my services, and what insurances I should take? How would I go about preparing my office for HIPAA and OSHA protocols?

Dr. Sinclair

Dr. Sinclair

Many of these questions I later found out could be answered through various departments and locations through the ADA’s resources. In this article, I will be discussing several of those resources that can be huge assets when you decide to make the leap into practice ownership.

ADA Benefit Plan Analyzer 

Shortly after setting up my own practice, I was contacted by one of the local representatives of a dental benefit plan. They wanted to know which carriers I would be in network with and also inquired about participating with them.

Since I was just starting out my own practice without any patients, I knew that participating with insurance plans would provide me with an influx of patients. However, I wondered what it would cost me down the road. Just as a refresher, if I became a contracted provider with this insurance company, I would be held to their fee schedule and would only be allowed to charge a patient what they had deemed an appropriate fee. For example, let’s say if normally I were to charge $1,200 for a crown but the insurance company only allowed a charge of $800 for their patients; then I would be looking at a loss of $400 in profit without even picking up the hand-piece. Looking on the opposite spectrum I also had to consider that by becoming a participating provider I may have an increase in 25 new patients a month as opposed to 5 without participation.

This arises the question of how do you know when it makes sense financially to participate with an insurance company? Well, good news, the ADA has developed a benefit plan analyzer that gives you information to see if participation with a certain insurance company makes sense for your office. The program will actually sync with your current system and give you a rating from one to 100—100 being in the best interest and financially speaking for the dentist to participate with the plan. There is nothing worse than starting a practice participating with 10 or 15 insurance plans only to be busy but not productive. It can be a very tough road to recovery from there, which is why I recommend you take a look at this program to help you make those decisions from both a capacity and financial perspective.

This blog post, reprinted with minimal edits and permission, originally appeared in the Virginia Dental Association journal. Dr. Cappy Sinclair is a New Dentist Now guest blogger and a 2009 graduate of Virginia Commonwealth University. Dr. Sinclair currently serves on the Board of Trustees at the Academy of Cosmetic Dentistry, as member of 3M’s Council for Innovative Dentistry, and as an ambassador for the Dawson Academy. He started his own practice Coastal Cosmetic Dentistry 3 years ago from the ground up and is more than happy to share his success and failures with fellow new dentists. He is a member of the American Dental Association and the Virginia Dental Association. To contact Dr. Sinclair, email him csinclair@smilevabeach.com.

2015 ADA/Kellogg executive management program registration opens

New dentists and office management staff seeking to enhance their business experience and acumen with enhanced management skills and business principles can register by July 1 for the 2015 session of ADA/Kellogg Executive Management Program.

KelloggIn its 11th year, the executive-level program, organized in collaboration by the ADA and Northwestern University Kellogg School of Management, consists of specially designed curriculum for dentists to learn more about business management from one of the nation’s top-ranked management schools.

“Dental school and my orthodontic residency taught me the clinical skills I needed and I learned the necessities of running a practice over time, but I always felt like I was missing the business fundamentals that would that allow my practice to thrive,” said Dr. Spencer Pope, a 2014 graduate of the program and who has been in practice for 16 years.

“Unfortunately, you don’t know what you don’t know, and dentists tend to lack the business fundamentals that almost all other sectors of the economy utilize on a daily basis,” he added. “This program helps to level the curve and provide you with a knowledge base to go forward.”

Based on the core curriculum of incoming Kellogg Master of Business Administration students, the program addresses business strategy, organizational leadership, marketing, finance, accounting, economics, business analytics and operations. Kellogg professors teach all courses.

The 12.5-day program is held at Northwestern University’s Chicago campus, near the ADA headquarters. The 2015 sessions are set for Sept. 18-21, Oct. 23-26 and Nov. 13-17.

Registration fees are $16,750 for ADA members and $17,750 for nonmembers. Fee includes tuition, course materials and most meals. Tuition does not include travel and lodging. ADA members receive discounts on select Chicago hotels. Registrations are accepted on a first-come, first-served basis.

To register, visit ADA.org/Kellogg or contact Connie Paslaski at the ADA toll-free number at ext. 3541, or email ADAKEMP@ada.org.