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| Dental Practice Values Decreasing? |
Dental practices may be worth less in the future. Our aging population has been documented in the book "Boom Bust & Echo" by David Foot.
Baby Boomers are working towards "Freedom 55". This is not just a company slogan, it’s a mind-set. They do not intend to practice as long as the last generation and they have planned and budgeted more effectively.
Starting in 2002, many dentists will be turning 55. This will be the beginning of a departure never seen before.
Another group of dentists who will be selling at the same time are those who are now over 60. Many in this "mature" generation must continue to work. Most of these dentists had planned to retire by now but can’t afford to. According to Stephen Pollan in his book "Die Broke", a fifty year old today will live on the average to 95! Many have not saved enough !
Call any practice broker today and ask; "How many of your listings are retiring dentists?" The answer is sure to be:"Very few." Why is this? Have they all retired?
No. While I cannot predict if the retirement situation for a mature dentist will improve, that’s not the issue. Many think not, resulting in a reduced number of retiring dentists. This creates an oversupply of eager buyers resulting in a "Sellers" market and peak practice values.
As volume increases beyond 2002 practice values will slowly deteriorate. It becomes a "Buyers" market.
What should you do?
- Plan for the sale of your practice 2-5 years in advance,
- Find out what your practice is worth now and budget for the proceeds of sale in your financial plan,
- Consider any reasonable overhead reductions and keep current with new technology,
- Watch out for "Associate Buy-In" agreements because they may lead to complicated formulas (splitting patients) and eventual disappointment,
- Many practice sales include part time Associate Agreements for the previous owner,
- Selling your practice piece by piece, can be very complicated ,
- Keep your gross stable or increasing. Practices in any state of decline worry buyers and usually attract a lower sale price,
- As long as there are willing and able "arms length" buyers, who will pay 100% of the price up front and in cash, avoid sophisticated deals,
- the value of your practice is important, but many dentists can earn as much money by working another 2-5 years. Selling is a matter of choice, so don’t rush to sell just for the proceeds of the sale. Remember that you will be giving up regular income,
- Do not tell your staff or patients you’re thinking of selling,
- Cost-sharing with another dentist is an option, but be careful that you join with the right individual.
- If you have an Associate, or want to hire one, please have your agreement in writing!
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Most brokers have excellent sample documents or go to a lawyer experienced in dental matters.
If you are thinking of selling now or anytime in the next 5 years, start planning and ask lots of questions. I highly recommend you speak with someone who has just sold.
Quoting Timothy Brown, speaking to a packed house at the CDA last spring, "don’t sell, unless you’re sick, sick & tired or wealthy".
Related website: www.dentalsuccess.com
July 1998 article by Philip Kempler, DMD
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| Chart Count – How Many Patients Do You Have? |
The number of charts in your practice is a very important measurement of how busy you will be. The philosophy by which you choose to practise will determine the revenue generated from your patients. We’ve all seen practices with the same number of charts with vastly different gross billings. No one can dictate the clinical philosophy you wish to follow, but understand that the economic results of your choice will impact the value of your practice. What is an active patient? Misconceptions abound in defining an active chart. Before you can arrive at a chart count, determine the total number of regular recall patients first. If 225 days are worked at an average of 8 recall patients per day, the total number of recalls performed is 1800 per year. If your average recall frequency is twice per year then we have 900 patients. Every practice has patients that return once every 1 or 2 years for treatment, yet they do not return for regular recalls. These are definitely active patients and often require extensive work. After reviewing over 500 appraisals, the range of "active patients" is 66%-85% of annual recalls performed. We have a longer article concerning this topic and also how to conduct a chart audit, available. Please contact myself, John Wilson (johnwilson@roicorp.com) for copies.
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| The Million Dollar Practice – Myth or Reality? |
by Dr. Jim Brass
Nothing in dentistry bothers me as much as hearing so called practice management experts tell us we must have a ‘million dollar practice’ or we are not successful. I have had the "Million Dollar Practice", with an associate and a staff of seventeen. I was constantly run off my feet and went home every night feeling drained. I told myself I would never run a large practice again.
We as dentists are being taken in by the hype that is out there. Big is not necessarily better and a large gross does not mean that the net will increase. We have to learn to practice smarter, not harder. We have to examine our practices and keep expenses to a minimum.
In British Columbia the average dentist grosses approximately $140,000.00 per chair. I am grossing slightly over $250,000.00 per chair and I am not run off my feet as we have a small office. What about you? Is it time to re-evaluate your goals, determine what you want out of life and get with the program?
We have to set our own goals in life and I personally would rather be efficient, increase my net income and have the time to enjoy life rather than manage a mega clinic. As I’ve said before, "been there, done that" and life is definitely more fun this way.
Dr. Brass is in private practice in Comox, B.C. and lectures and consults on practice management. He can be reached at www.cearaseminars.com or 1-800-682-7277.
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| Don’t Forget To Renew Your Lease |
by Patrick Madaisky, LLB
Most dentists conduct their practices from leased office space. Most leases will contain one or more options for the tenant to renew the lease at the end of the initial term or any renewal term of the lease. These leases will generally contain very specific language as to how and when the option to renew must be exercised. For example, many leases provide that any notice of renewal must be in writing, and must be given at least 6 months prior to the end of the then current term of the lease. The lease will generally contain further provisions as to how the notice of renewal must be given. Failure to give notice in the precise manner set out in the lease may cause the tenant to lose the option to renew the lease. From a practical point of view, many landlords will overlook any technical faults in the renewal process, as they wish the tenants to continue under the lease. However, some landlords will use this as a technique to extract concessions from the tenant (i.e. increased rent). In a worst case scenario, a landlord may take the position that the option to renew is no longer valid, and will seek to terminate the lease at the end of the then current term. This can have a devastating effect on the tenant’s business. It may also lead to costly and time consuming litigation.
If your lease contains an option to renew, do not take anything for granted. Review your lease now to ensure that you are aware of the timeframe within which the notice of exercise must be given. Diarize this matter well in advance of the date, so that you have time to consider your coures of action. If you want to exercise your option to renew, make sure that it is exercised in the precise manner set out in your lease. You may wish to consult your lawyer to assist you to ensure that your option to renew is properly exercised.
Patrick C. Madaisky , LLB, a partner at the law firm of Alexander, Holburn, Beaudin & Lang specializing in providing legal assistance to dental professionals. He can be reached at 604-688-1351.
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| www.canaden.com – Dentistry’s E - Mail Network |
Great news! There is now a made in Canada discussion forum limited to those persons associated with the practice and business of dentistry in Canada. A multitude of topics are covered with much exchange of valuable technical knowledge. Some current topics have been concerning endo treated teeth, infection control, occlusion, dental politics, resin technology, radiology , insurance issues, difficult endos and much more. Many dentists are sending in requests during the day at the office and receiving helpful responses in a couple of hours. How do I subscribe? On the www.CANADEN.com website, visit the Discussion Groups page and choose the List you would like to join. Simply follow the on-screen instructions for subscribing. You will receive an automatic response from the Mailing List.
Remember , we as dentists own the mailing lists , therefore the direction and running of these lists are under the control of the membership. Remember to also join the BC list for made in B.C. discussions.
CANADEN dentists nationwide would like to thank ROI CORP for allowing us to post this message. Join up fellow dentists, it’s not only educational, it’s fun.
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| Investment Assets in Dental Corporations |
by Wendell Meeres C.A.
Incorporation provides dentists with many benefits including the ability to split income and defer tax by accumulating investment assets in a corporation. However, this can also cause problems.
Corporate Attribution - The rules in Section 74.4 of the Income Tax Act provide that a dentist might have an amount added to his/her income each year even though they may have not received any benefit from the company. These rules require that ALL of the following conditions be met:
- The dentist is a Canadian resident who holds preferred shares of the corporation or the corporation owes the dentist money; and,
- The market value of the investment assets ( including excess cash) adds up to more than 10% of the value of the corporation; and
- A family member, or a trust having a family member as a beneficiary, owns shares of the practice corporation and the family member is the practitioner’s spouse or minor child.
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Practice Sale – Most practice sales occur as a share sale in B.C. rather than as an asset sale. The objective in a share sale is for the seller to use their special $500,000 capital gains exemption to minimize or eliminate tax. This very effective strategy may not be available if investment assets have been accumulated in the practice corporation. While sometimes "last minute" fixes are available, in many cases, corrective action cannot be taken shortly before a practice sale.
Creditor Claims –legal counsel may also advise you that investment assets held in an operating company may be more easily subject to claims under lawsuits or by other creditors.
Possible Solutions – It will be necessary to monitor the accumulation of the assets in the corporation and consider removing excess assets. While the investment assets might be transferred to the dentist personally, use of a holding company may allow the continued deferral of personal tax.
Mr.Wendell Meeres, B. Comm., C.A., CFP is a tax practioner and partner with Martin Meeres, Chartered Accountants a firm specializing in providing tax and accounting services to dentists.Wendell can be reached at 604–683–3738.
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The Hazards of Wrongful Termination
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by Darcy Wray, LLB
Dentists are employers. Hygienists, assistants and receptionists are employees. Although this distinction may be blurred with the "team" approach to operating a dental practice, the dentist must not treat this relationship lightly. Employers have obligations to employees. These obligations may be especially onerous when a dentist dismisses a staff member, especially staff members who have long employment relationships with the dentist.
There is an underlying principal which arises out of the common law which states that, absent clear contractual provisions to the contrary, an employer who terminates the employment of an employee must give reasonable notice, or payment in lieu of notice. A written employment contract which limits the notice period required for termination is a good first defense against claims for wrongful dismissal. The notice provisions in the contract should be clear, unambiguous and in compliance with the Employment Standards Act, which sets out statutory minimum notice periods.
The British Columbia Supreme Court recently handed down judgment in respect of a claim involving a dentist and his former receptionist. The dentist did not have a contract with the receptionist limiting the notice period for termination, so the common law was applied:
M was a dental receptionist with a limited number of management duties. M had worked for Dr. S for approximately eleven years and had developed a close relationship with the dentist and his family. In 1995 Dr. S hired a consultant to evaluate his practice efficiency. The consultant prepared a report and Dr. S began to implement some of the recommendations. M viewed the report as a personal attack on her past management practices and reacted badly to the changes in office policy. Two days after an emotional meeting at the office, M attended the dentist’s house and handed him a letter of resignation. There was a long discussion between M and the Dr. S, during which Dr. S tried to calm M’s concerns about the transition, advising her that he would try to "work things out". Following the discussion, Dr. S thought M had resigned and announced the resignation to the staff. M sued for wrongful termination. The court held that there was no un-equivocal resignation and that M was wrongly dismissed. M was awarded 9 months salary and costs. This award was made notwithstanding that Dr. S acted entirely in good faith.
This case illustrates the significant liability which can be imposed upon a dentist, even when he or she tries to "do the right thing". Termination situations should be dealt with very carefully, especially when dealing with long-term employees.
Darcy L. Wray, LLB, a partner at the law firm of Taylor Wray,Business Lawyers, a firm having extensive experience in providing legal assistance to dental professionals. Mr Wray can be reached at 604-662-8373.
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Let us introduce ourselves to you!
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ROI Corporation was founded in 1974 by A.L.Roy Brown. Roy has worked in the dental industry for 50 years as a professional advisor to dentists. Roy’s son Tim joined the company five years ago. A family owned business with offices in Mississauga, Ottawa and Vancouver, ROI Corporation has appraised over 2000 practices and as licenced brokers, sold over 600 practices on the open market.
John Wilson practiced dentistry for 20 years in Timmins, Ontario.Skiing has been one of his loves since his teens and drew the family to Whistler. Impressed, John purchased a house here in 1987. With the encouragement of his wife, Sylvia, daughters Karina and Jannah and son David, John was persuaded to semi-retire and move to this wonderful community.
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Upcoming events
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Pacific Dental Conference Feb. 18-20. - Phone: 604-736-3781
Academy of General Dentistry Whistler Ski and CE Conference Feb. 22-26. - Phone: 1-800-933-1339
CDA Convention, Halifax, Nova Scotia August 5 – 8, 1999 - Phone: 1-800-267-6354
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