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The Beacon-Podcasting for Dentists

The Beacon, sponsored by OmniStar Financial Group, provides Business Strategies, Tactics and Insight for Clinical Practices. Our goal is simple; provide actionable knowledge and insight curated from the industries top performers to illuminate blind spots and accelerate your practice growth. If you are ready to add rocket fuel to your practice, tune in here!

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"Fake News" for Dentists: Section 179 (EP12)

“Fake News” for Dentists: Section 179With the year-end approaching we will soon be turning our attention to holiday celebrations and festivities; Thanksgiving, Christmas, New Years and Section 179 Deductions!If you are a small business owner, especially a dentist, you will be visited by equipment sales professionals, especially at year-end, who tout the incredible tax savings one can accrue by using Section 179. With those two words, “tax deduction”, dentists become easy prey for the dental equipment sales rep, and many times make large capital purchases for their tax benefits alone.In this podcast, we are going to spend some time learning more about Section 179, and illuminate several Blindspots the sales rep is sure to leave out.Section 179 is a part of the Internal Revenue Tax Code which allows small businesses to take an accelerated tax write-off in the year of purchase for equipment which would otherwise be depreciated, or expensed over time. Most of the equipment in a dental practice qualifies, and under the right conditions, it can be a great tool to reduce your tax liability while improving and upgrading the technology in your practice. There are many pundits out there preaching the benefits of Section 179 as an incentive for Doctors to save on their taxes. Admittedly, there is a time and a place where we would agree; however, there are some Section 179 pitfalls practice owners need to be aware of and consider when making that determination.Let’s take some time to go down the “rabbit hole” and learn some rules to be aware of when considering Section 179.Rule 1: Only your Tax Professional knows best.There are so many nuances and details of Section 179 that it is essential for you to consult with your Tax Professional prior to pulling the trigger on this. Projections and planning for your current year as well as future years is critical. Many times it is in the future years where the potential problems with Section 179 become apparent. Only your Accountant knows for sure if electing the Section 179 Deduction is beneficial to you.Rule 2: Your equipment sales rep is NOT your Tax Professional.In all the excitement of the year-end sales frenzy, your equipment sales rep will most likely illustrate the maximum one-year “tax savings” for you with a quick spreadsheet calculation. I wish this were that easy, but it’s not. As my accountant likes to tell me repeatedly…”It depends, David!”“It depends, David”Maurice, my AccountantBuyer beware here…this calculation is an estimate only and should have the disclaimer, “for illustrative purposes only!”Without a comprehensive understanding of the doctor’s financial situation and tax bracket, an equipment sales rep does not have sufficient information to determine the amount of money a doctor will save. You as the doctor must consult with your tax advisor before making a large purchase.Remember Rule 1: Only your Tax Professional Knows Best!“Knowing the name of something doesn’t mean you understand it.”Richard FeynmanRule 3: Knowing the name of something doesn’t mean you understand it.It seems at year-end everyone is talking about “Section 179 Write-Off”, or “Section 179 Deduction”. At this time of year, this is the most common question our consulting firm is asked, “Can I use the 179 Write Off?”, or “How much more equipment can I buy to save taxes?” So, just because someone espouses this term does not mean they know or understand it! You can hear it called a “write-off”, a “deduction”, an “accelerated expensing”, or even an “accelerated depreciation”. So many terms, but so little time!So which is it? An expense? A deduction? A Write-off? A depreciation?How exactly does Section 179 reduce your taxes?If you don’t know, listen here.To understand how Section 179 reduces your taxes we must appreciate, in basic terms, how your financial statements work and how they are interrelated; the Balance Sheet, the Income Statement or P&L, and the Statement of Cash Flows.First, Capital Equipment purchases are classified as Assets and appear on your Balance Sheet, completely avoiding your Income Statement. The Income Statement shows your Revenue and all the expenses incurred to generate that revenue, not your assets.Capital Equipment is Expensed in the Income Statement through the process of Depreciation. Depreciation is a complex accounting topic best delegated to your Accountant. As the business owner, you should understand that the Depreciation expense accounts for the loss in economic value, over time, of an asset. This loss is the result of wear and tear, consumption, the effects of time, as well as obsolescence. This Depreciation expense is a NON-Cash expense, as no cash is exchanged here, i.e. no check is written. Think of it as an accounting entry or “adjustment”. Be aware there are several methods Accountants can use to depreciate assets. As a result, it is acceptable to calculate depreciation for taxes differently from how depreciation is recorded for accounting purposes.So, say you purchased that new Cone Beam Scanner for $100,000 and your accountant recommended a 5-year depreciation schedule to match your 5-year bank loan. Assuming the equipment will be fully depreciated to a book value of zero, your depreciation would be $20,000 per year.This $20,000 shows up on your Income Statement as a Depreciation Expense, thus reducing your Net Income by $20,000.Remember, your Net Income is linked to your Balance Sheet through the Retained Earnings section. This $20,000 depreciation expense effectively lowers your Retained Earnings by the same $20,000. Since most dental Corporations are Pass-Through Entities and not subject to taxation, your $100,000 Cone Beam Scanner, depreciated at $20,000 per year has effectively reduced your Taxable Income by $20,000 and at a 35% tax rate saves you $7000 in taxes each year.So what does Section 179 do? It allows you to take an accelerated depreciation and fully deduct the entire expense of the equipment in the year of purchase. Please note there are restrictions and limitations to all tax codes, consult your Tax Professional for all those details.In our Cone Beam example, depreciating the entire $100,000 purchase reduces your Net Income and effectively your Taxable Income by $100,000, saving up to $35,000 in taxes.Remember, and the key point here, your mileage may vary, as may your tax savings. Only your accountant knows for sure if Section 179 is beneficial to you. Remember Rule 1: Only your Tax Professional Knows Best.To further complicate Section 179 there is also something called Bonus Depreciation; kinda like a “cousin” to Section 179. Bonus Depreciation also allows for a 100% depreciation of qualified assets. Simply stated, Section 179 provides greater flexibility than just bonus depreciation alone. With Bonus Depreciation, you can create a tax loss, but with Section 179, you can only bring the taxable income down to $0. As you can quickly appreciate, the entire discussion of depreciation, Section 179 and Bonus Depreciation, along with the many other depreciation methods can get very technical and complex, well beyond my expertise. Certainly, well beyond the expertise of a Dental Equipment Sales Professional. While it is important for you to understand depreciation and how it affects your financial statements, I recommend that you save yourself some time and leave depreciation calculations to the accounting experts.“Depreciation Selections, Schedules and Calculations are NOT for do-it-yourselfer’s!”Dr. David DarabAt this juncture, I can’t resist reviewing for you, the effect a Capital Expenditure has on your financial statements…Let’s take a look!When you purchase a $100,000 ConeBeam machine with the financing you add $100,000 to your Cash Asset on your Balance sheet and create a $100,000 Loan Liability. Remember, your Balance Sheet must Balance; Assets must equal Liabilities plus Owner’s EquityWhen purchased, the $100,000 cash from the loan is converted into a $100,000 equipment asset on the balance sheet.Your monthly loan payment of about $1800 (4.5% over 5 years) breaks down into principal payment of approximately $1700 and an interest payment of about $100. The principle payment appears on your Statement of Cash Flow while your interest payment appears on your Income or Profit and Loss Statement as an Interest expense. We already mentioned the depreciation expense will appear on the Income Statement too.There you have it. If you need a refresher on the key financial statements please go back and listen to my podcast series on each one! It will get you up to speed on how to talk finance, the language of business. After listening to my series, rest assured, you will know more about business and financial statements than 98% of your colleagues, guaranteed!Rule 4: You should never be in a hurry to buy equipment!Section 179 is available to you year-round, not just in the closing days of the year. It is not a time-limited offer valid in December only!There is no special Tax Magic for Section 179 at year-end. Ideally, you should be carefully planning your major capital expenditures throughout the year, not rushing at the last closing moments of the year to get the equipment installed. The rush and panic are created because, in order to qualify for the Section 179 Deduction, the equipment must be purchased and put into service by December 31!So, please feel free to purchase your needed equipment throughout the year, not just in December, and still take advantage of Section 179 Depreciation while enjoying using your new technology.Rule 5: You get the maximum deduction with or without Section 179.It is important to realize that all Capital Equipment will be fully depreciated per the depreciation schedule chosen by your accountant. Section 179 does not allow for any additional depreciation. Section 179 just takes all the depreciation in one year, no more, no less. No special magic or secret sauce.Listen on for potential traps and blindspots though, it is never as simple as the salesperson makes it out to be.Rule 6: You Still Have to Pay for the Equipment!Write off, deduction, expensing all sound wonderful, but none of these verbs reduce the cost of your equipment. You must still pay for it.After all the high fives and celebrating over your massive Section 179 year-end deduction that just saved you lots of money on your taxes, you are left with the reality of paying on your banknote for the next 5 years or so.In future years, you have now completely lost the depreciation expense and deduction on your income statement, since you took all of your depreciation in the year of purchase by electing Section 179. Many call this the Section 179 “tax trap” that “catches” you in future years. You are now left with the reality of higher net income, higher personal taxes along with loan repayments for your equipment purchase. This potential “double whammy” repeats during the period of your loan repayments.This is a huge blind spot and potential pitfall when Section 179 is elected.Follow me here…You load up on equipment, pay with debt and expense it all through Section 179. You are happy to owe so little in taxes, the equipment rep is happy, and your CPA looks like a genius.But…, and there is always a “but”…In future years you now have less cash because you are now paying on your debt service, and without any deductions, remember you elected Section179, you now have a higher taxable income and the corresponding tax bill that further reduces your cash!Rule 7: If you fail to plan, you plan to fail.With all the year-end excitement and frenzy is sounds like a great idea to be able to write everything off, but doing so may not result in all the tax savings claimed. In deciding whether to elect Section 179 or Bonus Depreciation, doctors need to think about what future earnings are expected. One might want to save some deductions to offset future income when earnings and taxes could be higher.As with any tax decision, you cannot look at the current year with blinders on. Before making a decision to take the Section179 deduction, it’s important that you and your accountant discuss not only this year’s tax implications but also the impact it will have on future years as well. Ask your accountant if the refund I get this year is at the expense of next year. Don’t fall for the Section 179 Tax Trap! You have just been warned.Rule 8: Never buy a tax deductionYour goal to pay as much tax as you can! Yes, let me repeat that paying taxes is ok, in fact paying more taxes is even better. Paying more taxes means you must have more income as well. We here at OmniStar believe that maximizing and growing your income is the key to growing your wealth and becoming financially independent. Minimizing taxes is not a strategy that will grow your wealth or help you become financially independent.Spending your cash to buy a tax deduction never creates wealth. Your deduction reduces your taxable income by the amount of your expense. This is identical to buying something on sale. If your marginal tax rate is 35%, then you get everything the practice buys at 35% off. The kicker is, any many forget, you still have to pay for the 65%. Said another way, would you spend $1000 to save $350? Understand that simple question along with the answer and you are well on your way to creating wealth.So, time to sum things up here.We have learned that Section 179 has no special powers or magic, it simply allows you to fully depreciate your capital equipment in the year of purchase. As with all Internal Revenue Tax Code, there are rules, limitations, and restrictions that apply. Listeners are urged to consult a qualified Tax Professional for guidance here. Your sales rep is not equipped to provide you such guidance. Planning for future years is critical so the timing of your depreciation expense aligns with your future income growth. Such planning can help you avoid the Section 179 tax trap where Fantom Income, and its associated tax bill, is created when your depreciation expense was used up in the prior year by electing Section 179. This is a double whammy with higher taxes along with debt service on your equipment loans, creating negative cash flow.Also, avoid the year-end rush and frenzy, budget and buy your capital equipment and start using it anytime during the year; Section 179 is available to you year-round.Remember, Section 179 only accelerates depreciation, it does not allow any additional write-offs, deductions or depreciation.And finally, never buy a tax deduction. If you need the equipment to better your patient care, then, by all means, purchase it, but buying it solely for its tax deduction is a wealth destroying strategy.We hope that this information has created a few “Ah-Ha” moments, or stimulated some additional questions you can direct to your advisers. Hopefully, you now have a better understanding of what Section 179 is, and more importantly, what it is not!We welcome your questions here at OmniStar Financial. Our Team is experienced and will help find answers to your questions regarding Capital Equipment Budgeting. We welcome the chance to help you grow your practice and improve your profitability. Our contact information can be found on our website [OmniStarfinancial.com]. You will also find a link there to sign up for our newsletter.Be sure to check our show notes too.Please share this podcast if you found it helpful, and leave a review on iTunes too. We welcome your feedback and suggestions for future podcast episodes. You can always find me, your host, David Darab, at my twitter handle, @ddarab.Thank you so very much for tuning in and listening. We are very grateful for your time and attention and so very pleased to have you in our audience.And now for the required Legal Disclaimer:David Darab, DDS, MS, MBA REFERENCES:Section 179 Information for Businesses | Section179.Orghttps://www.section179.org 2019 Section 179 Tax Deduction Calculator | Section179.Orghttps://www.section179.org/section_179_calculator/

21mins

20 Nov 2019

Rank #1

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Aspen Dental Opens In Walgreens, a Strategic Opportunity or the Beginning of the End, Part I (EP04)

Welcome and Happy New Year! The big news in dentistry is the announcement of Aspen Dental-branded Offices opening in 2 Walgreens located in Florida. This collaboration, brings together Walgreens, a leader in understanding the intersection of retail and health care, and Aspen Dental, a brand that has made dental care affordable and accessible to millions of patients for more than 20 years.” The announcement of the Aspen/Walgreens partnership will serve as an example for the experts to repeat the rhetoric that the solo dental practitioner is a lone wolf and dying breed and that the dentistry of the future will be delivered through a DSO corporate structure with an employee dentist, rather than an owner dentist. It has already been predicted that since physician practices have followed this trend, dentistry will too. I wish to use this podcast episode as an opportunity to dig little deeper and maybe go down some rabbit holes to say, like Mark Twain said, “The news of my death has been greatly exaggerated!” I believe there is an exciting future for dentists and dentistry. Yes, the future will look different from the present, but a dentist with an entrepreneurial mindset directed at continuously creating value for the patient will always be welcome in the market. The data presented here is gleaned from the ADA Health Policy Institute analysis of Distribution of Dentists, along with CMS, the Center for Medicare and Medicaid Service. There are 2 distinct areas which are important here; Utilization by the consumer, and Practice Ownership. The ADA research shows that dental care utilization patterns are changing dramatically in the United States. Over the past decade, important trends were identified. One, the pattern of dental care utilization was very different for adults compared to children. The percent of adults with a dental visit in the last 12 months decreased from a peak of 41 percent in 2003 to 37 percent in 2010. For children, this increased from 42 percent in 2000 to 46 percent in 2003 and roughly held steady through 2010. Stated alternatively, in 2010 63% of adults did not go to the dentist, compared to 54% of children who did not seek routine dental care. Two, trends were different based on income. Utilization declined for middle-income adults from 38 percent in 2003 to 34 percent in 2010, and for higher income adults from 54 percent in 2003 to 51 percent in 2010. Again, that means for middle-income adults, 66% did not seek care, while 49% of higher income adults did not seek care. The main driver of the decline in utilization among adults and the increase in utilization among children is shifting dental benefits. Basically, more and more children are covered by some form of dental benefits (mainly Medicaid), while more and more adults are finding themselves uninsured for dental care. The Landmark Healthcare Legislation, the Patient Protection and Affordable Care Act, will expand dental benefits for children. Pediatric dental benefits are one of 10 essential health benefits mandated by the law. The ADA's analysis estimates that up to 8.7 million children will gain extensive dental benefits because of health reform. About one-third of these children will gain Medicaid coverage, and two-thirds will receive private dental coverage. For adults, however, nothing in the Act will reverse the current decline in dental benefits coverage and utilization. The third trend is the aging of the population. Dental care use among those 65 and older is holding steady. On a per-patient basis, this age group also spends the most on dental care—$796 in 2010, a large portion of it out of pocket. Per-patient spending levels for seniors also are on the rise. Given that there will be a lot more people in this age group as the U.S. population ages, seniors are going to become an important driver of the dental care economy. That’s very important so let’s say it again….. SENIORS ARE GOING TO BECOME AN IMPORTANT DRIVER OF THE DENTAL CARE ECONOMY! Digging a little deeper, for seniors the biggest barriers to care are: Cost, no teeth, fear, inconvenient location or time, trouble finding a dentist, as well as no perceived need are the greatest barriers. Let's change gears and look at Practice ownership, which has shown similar changes. Overall, 80% of dentists in private practice are owners, according to the data. This is considerably higher than the rate among physicians which is now less than half. But the more interesting aspect is the trends over time. Practice ownership rates in dentistry are declining slowly and steadily. They are declining for almost every age group. Male dentists are seeing declining ownership rates, although for female dentists there has been no change. These data indicate that the decline in practice ownership rates in dentistry is not being driven solely by the “de-aging” and “feminization” of the dentist workforce. Older male dentists are also less likely to own a practice. Among physicians, the decline in practice ownership is much more pronounced from 61% to 47%. The greatest changes for dentistry are in the younger age group (<35) along with the 35 to 44 age group. There is a multitude of theories; for example, rising student debt, the emergence of “corporate” dentistry, shifting work-life balance preferences to name a few. Questions that this data can not answer include: Are recent young graduates joining established practices at a greater rate? Are they joining DSO’s or Corporate Practices? Do these same dentists transition into ownership roles as they mature in their practice career? Are group practices on the rise or decline? Dentists hold the belief that practice ownership is highly coveted. Physicians, on the other hand, are under the thumb of large hospital groups, insurers, and the immense bureaucracy of the government payers principally Medicare, and are therefore less likely to work for themselves because of this. Dentists see dentistry as an attractive alternative to medicine, allowing them to essentially be their bosses. The ability to own their practices is one of the top 3 factors attracting dentists to dentistry, and most dental school graduates intend to work in private practice. All else being equal, owner dentists earn more, although overall career satisfaction differences are not clear-cut. Whatever one’s perspective on the trend of declining ownership, it is important to understand this will continue, or so the experts say. Exactly when (and even if) most dentists will eventually be employed up for debate. For example, if the trend continues, the 50% threshold will be reached in 2090, the ADA estimate. This is quite a prediction made with only a few data points. The trend that more and more dentists will be employed is not up for debate. Experts with different views on this issue agree that the trend will continue. Let's dig deeper here with some additional data from the ADA Health Policy Institute, and you can decide for yourself how big this tsunami is! Wait times for dental appointments have been increasing since 2012 and are at 7 days for a new patient and 5.4 for an existing patient. Regarding Busyness, 37% of dentist said patient volume went up, 43% stayed the same and only 21% declined. Dentist's net income is on the rise for the past three years, but not at pre-Great Recession Levels, interestingly specialists net income is going down. With regard to ownership: 8.3% of dentists were affiliated with a DSO in 2018 vs 7.4% in 2016, a 0.9% difference, hard a seismic shift. The differences are even less when looking at Dental Offices VS Dentists with only 2.8% of dental office participating in DSO’s. 91.6% of dentists were non-DSO affiliated, with 97.2% of practices non-DSO affiliated. When asked about receiving dental care in a retail setting, only 11% of respondents were very interested with 61% not interested. That is timely information considering the Aspen Dental/Walgreens announcement. Practice management is one of the areas today’s new graduates feel least prepared for, and the dental care environment is about to get a lot more complex. There will be more competition for patients, and increased pressure to do more with less if reimbursement continues to decline and demand for dental care remains sluggish. An emerging emphasis on quality and value will spur changes in the care delivery model. For physicians, big health reforms like the health maintenance organization movement in the 1990s and the Affordable Care Act accelerated trends away from practice ownership; 72% of physicians were practice owners in 1988, now less than half, 47% are practice owners. Dentistry has been insulated from a lot of this, but that could change. The Affordable Care Act has led to modest increases in medical and dental coordination. Other potential game changers, like adding a dental benefit to Medicare or shifting the payment model to reward outcomes, the ADA says, would accelerate the trend away from practice ownership. These are all some big “what if’s!!” The coverage for “Teeth and Gums” have never been a benefit of Medicare. Let’s dig deeper here: CMS tells us that in 2017 Health Care Expenditures were 3.5 trillion dollars, 17.9% of GDP. Physician and Clinical Services were 20% of that at $694 Billion dollars. By comparison, Dental Services were 4% at $129.1 billion. That’s a 5 fold difference! Also significant is that there are about 950,000 physicians compared to 195,000 dentists. A nearly 5 fold difference again. I would hypothesize that the Market and Industry Forces that affect the nearly $700 billion dollar Physician and Clinical services industry will be different than those that influence the much smaller $129.1 billion dollars dental industry. No one knows for sure, but it does point out that dentistry is not identical to medicine and maybe, just maybe will not succumb to the same trends. In a nutshell, a lot more finance, data, marketing, and managerial expertise is going to be needed to run a successful dental practice. Will dental schools attempt to cram a mini–MBA into an already stretched dental school curriculum? Will dentists increasingly pursue training to improve managerial and organizational leadership skills? Or will we increasingly see the separation of clinical and management functions, with fewer dentists engaged in the business side, leaving that to people with MBA degrees? The ADA is convinced it will be primarily the latter. To this last statement, I would disagree. More on the business aspects in the next Episode, Part II. Take away points to ponder for change are: The Utilization of dental care is changing. The delivery setting of care is also changing. The payment method of dental care is changing. With Healthcare Reform, a large potential market, especially children has been created. Seniors are going to become an important driver of the dental care economy. Cost, no teeth, fear, inconvenient location or time, trouble finding a dentist, as well as no perceived need are the greatest barriers. Corporate dentistry as well identified under-severed market segments and has created offerings to meet these needs. 63% of adults do not see a dentist, that is a huge market of potential patients. Your job is to make the “non-dental patient” into a patient in your practice. If we can do that there is plenty of care we call can deliver. You can start by addressing the barriers in point #5; cost, fear, convenience, time, no teeth, no perceived value. There is no canned, boiler-plate solution, each practice is different, with different market and challenges. To be continued….. So that wraps things up for this Podcast. We hope that this information has created an “Ah Ha” moment, or stimulated some additional questions you can direct to your advisors and tax professionals. We welcome your inquiry here too at OmniStar Financial. Our contact information can be found on our website OmniStarfinancial.com. You will also find a link to sign up for our newsletter. Please share this podcast if you found it helpful, and leave a review on iTunes too. We welcome your feedback and suggestions for future podcast sessions. Thank you so very much for tuning in and listening. We are very grateful for your time and attention. Happy New Year! We wish you an amazing start to your 2019! references: https://success.ada.org/en/practice-management/dental-practice-success/spring-2014/shifts-in-utilization> https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/downloads/highlights.pdf> https://www.aegisdentalnetwork.com/news/2018/12/17/new-aspe-dental-office-opens-in-collaboration-with-walgreens> https://www.ada.org/en/science-research/health-policy-institute/publications/infographics> https://www.physicianleaders.org/>

20mins

7 Jan 2019

Rank #2

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Meaningful Conversations with Patients (EP13)

Successful treatment planning begins with meaningful patient conversation. Learn how to ask the right questions and watch your profits rise.

16mins

14 Dec 2019

Rank #3

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Aspen Dental Opens in Walgreens; Part II, Become the CEO of YOU! (EP05)

This Podcast is a continuation of the previous Podcast on the announcement of Aspen Dental opening locations in 2 Walgreens located in Florida. Please turn-in to that episode for those details. Briefly, in that episode, I reviewed data provided by the ADA which illustrated the changes occurring in dentistry, both in regard to 1) utilization, and 2) practice ownership. I also shared some distinct differences between dentistry and medicine, as it is proposed that as Medicine goes so goes Dentistry. Medicine is 5 times the size of dentistry, both in the number of providers as well as total expenditures. To equate them is an oversimplification of market forces. My takeaway points from that episode were the following: 1. The Utilization of dental care is changing. 2. The delivery setting of care is also changing as is the payment method. 3. Seniors are going to become an important driver of the dental care economy. 4. Cost, no teeth, fear, inconvenient location or time, trouble finding a dentist, as well as no perceived need are the greatest barriers. 5. Corporate dentistry as identified under-severed market segments and has created offerings to meet these needs. 6. 63% of adults do not see a dentist, that is a huge market of potential patients. 7. Your job is to make the “non-dental patient” into a patient in your practice. If we can do that there is plenty of care we call can deliver. 8. You can start by addressing the barriers in point #5; cost, fear, convenience, time, no teeth, no perceived value. 9. There is no canned, boiler-plate solution, each practice is different, with different markets and challenges. Finally, I disagreed with the following statement by the ADA: ... a lot more finance, data, marketing, and managerial expertise is going to be needed to run a successful dental practice. Will dental schools attempt to cram a mini–MBA into an already stretched dental school curriculum? Will dentists increasingly pursue training to improve managerial and organizational leadership skills? Or will we increasingly see the separation of clinical and management functions, with fewer dentists engaged in the business side, leaving that to people with MBA degrees? The ADA is convinced it will be primarily the latter. I will use this podcast episode to expand on this. A few years ago I was told by a friend and faculty member of a dental school, that his students didn't need to know anything about business because they are all going into corporate dentistry. This perspective was repeated again recently at a local dental society meeting I attended. Students should not feel they are ill-prepared to enter professional practice before they even start practice, or that their choices are limited. This, my friends, colleagues and listeners, we can not allow this to happen. Let's not make this into a self-fulling prophecy by ignoring the need for basic business skills in dental practice. Basic Business skills, well taught, will enable a greater standard of care to be delivered to each and every patient we serve. I am a dentist and oral surgeon who went back to school after nearly 25 years in practice to complete my MBA, so I can speak to this with some degree of expertise. Dentists are well capable of learning basic managerial and organizational skills needed to run their practices, an MBA is not required! It is dangerous for any organization to be overly influenced by a group think mentality. Effective organizations have a Devil's Advocate to guard against such. The Devil’s Advocate task is to bring forth alternative ideas even if they are unpopular, unliked, or in opposition to the powers that be. It is important that they are heard and considered. Dentists completely relinquishing all ownership and business functions to a Management Organization, ie, DSO is a rather extreme solution, especially when solutions exist that others practitioners have figured out. That’s why there are Business Coaches, Consultants, and Advisers as well as resources at the ADA to help educate practitioners about business practices. A Net Present Value Analysis reveals that over a 30-year dental career the difference in earnings between an owner dentist vs an employee dentist can be several million dollars. Do not freely and readily give up your greatest asset, your license! DSO's along with other Corporate Entities have done their financial analysis homework and know this, that is why they are capable of offering young dentists lucrative financial arrangements. They do this because they can! They know dentistry can be highly profitable so they can offer exceptional financial incentives. Remember, they haven't spent 8 years or longer in school to acquire the education and skills needed to gain a dental license, but you did!! Be aware of how financially valuable your license is, and never forget it! It is the greatest financial asset you have! It is also the greatest barrier to market entry! Without a license one is incapable of diagnosing, treating and then billing for services. An executive can not bill even one cent of revenue, yet can end up with even more financial incentives than the dentist working chair-side in the clinic. This just doesn’t seem right…just saying! A recent article in Healthcare Finance reports that the salaries of hospital executives nearly doubled, while physicians saw more modest increases. Between 2005 and 2015, average CEO compensation jumped from $1.6 million to $3.1 Million, an increase of 93 percent. Healthcare professionals saw 10 to 20% increases on average. Is this a good trend?? You be the judge and draw your own conclusion. I only hope this doesn’t for-tell similar disparities for dentists and dental practices as well. Comparing ourselves to medicine, the very best hospitals have Physicians as their CEO's, not Business Executives. Two of the nations best hospital systems, The Mayo Clinic, and The Cleveland Clinic have highly skilled Physician CEO's. And in fact, have been physician lead since their inception over a century ago! I believe there is a lesson there for all of us. Those that know best for the patient should be in charge. I love the quote by Dr. Toby Cosgrove, the past Cleveland Clinic CEO, who wisely and accurately states: "... it's easier to teach a doctor about business than it is to teach an MBA about medicine…” He couldn’t be more right!! An effective CEO or Practice owner does not need to know all the answers, nor should he!! The critical skill for an effective CEO is to be observant, ask the difficult questions and surround himself with a highly knowledgeable C-Suite of executives or consultants who can find those answers. Dentist leaders are uniquely qualified to bridge the gap between business and clinical practice. Because only they can see both sides, they can help their practices and organizations take outstanding care of their patients, while deploying resources and assets wisely. Remember our Tag Line to this podcast...... "It's not what you don't know that will hurt you, it's what you know for sure that just ain't so that will!” attributed to Will Rogers I am also reminded of the old saying, “he who pays the piper picks the tune!” He who controls the assets has the final say, always! You should be aware that there are other organization structures in addition to DSO's that enable one to maintain ownership and control while providing an experienced business team. The solo practitioner can create strategic alliances with a highly trusted team of coaches, consultants and advisers to provide the critical business knowledge necessary to guide your practice. Beyond the solo practice is a group practice. As the number of providers and locations increase a dedicated and professional administrative team can be better supported as well as afforded. Growing one's practice through a merger or acquisition of smaller, solo practices is a great tactic. These practices typically are owned by senior practitioners who have, over time, allowed their practices to contract by working fewer and fewer days. Acquiring these practices is a great win-win for both sides as the acquiring practice achieves growth at a very reasonable cost, and the selling practice has achieved a transition plan. Another alternative to DSO's is IPA's, no not the beer! IPA is an Independent Practice Association. In this structure, each practice in the Association remains independent. Practitioners join together within a legal structure that creates a management layer above all the practices. This management team, who represents a sizable number of practices, can better negotiate vendor contracts, insurance contracts, HR management, IT support as well as numerous other business functions. This entity may become more common in the future. Finally, one can seek out numerous educational opportunities to become more business savvy. Online classes, seminars, and books are just a few. The ADA has lots of practice management resources as well as webinars to provide excellent business and practice management education. The ADA Kellogg Executive Management Program in addition to the ADA Executive Program in Dental Practice Management is two more comprehensive programs offered to members. Please be sure to check them out. Consider the American Association for Physician Leadership too! It is how I began my formal business and leadership training. Dentists are welcome! The online courses are exceptional and highly relevant to practice. So to summarize our Take Home Points to Ponder are: 1. The delivery of dental care is changing. 2. Corporate along with Retail settings will continue to evolve. 3. The news of the demise of private practice, I believe is premature. 4. A dental license is your most valuable financial asset, it is extremely hard to obtain, only about 195,000 exist in the US. 5. Dentists know what is best for their patient, as such should be the ones in charge. 6. Dentists are well capable of managing their practices. 7. Consultants, Group practices as well as IPA's can help offload complex management functions. 8. Business knowledge, at a basic level, is readily attainable by everyone. Finally, If you are unsure how to accomplish any of these tasks, or don't know where to find such a team please reach out to us here at OmniStar Financial for guidance, we are experts in this! So that wraps things up for this Podcast. We hope that this information has created an “Ah Ha” moment, or stimulated some additional questions you can direct to your advisers. We welcome your inquiry here too at OmniStar Financial. Our contact information can be found on our website OmniStarfinancial.com . You will also find a link to sign up for our newsletter. Please share this podcast if you found it helpful, and leave a review on iTunes too. We welcome your feedback and suggestions for future podcast sessions. Thank you so very much for tuning in and listening. We are very grateful for your time and attention. references: https://doi.org/10.1016/j.adaj.2017.06.017 Practice Ownership is Declining, Sept 2017 JADA. https://success.ada.org/en/practice-management/dental-practice-success/spring-2014/shifts-in-utilization https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/downloads/highlights.pdf https://www.aegisdentalnetwork.com/news/2018/12/17/new-aspe-dental-office-opens-in-collaboration-with-walgreens https://www.ada.org/en/science-research/health-policy-institute/publications/infographics https://www.physicianleaders.org/ https://www.ada.org/en/publications/ada-news/2015-archive/may/2015-ada-kellogg-executive-management-program-registration-opens https://pmcertificate.success.ada.org/ https://www.healthcarefinancenews.com/news/salaries-hospital-executives-nearly-doubled-while-physicians-see-more-modest-increases?mkt_tok=eyJpIjoiTlRrNE1HTmxZbUkyWlRBMiIsInQiOiI2V3RPcE1FK1hDc2hSVkdBNkgyVVp1MkJHUHMwVkU0ZDlzRlcybGFyQWNWbEtSblhHZEttQUxvaX...

16mins

21 Jan 2019

Rank #4

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Raising Your Fees Without Fear (EP14)

We are focusing on one of the most sensitive subjects of the dental practice. That’s right, fees.  Do you routinely raise your fees? If you are like many dentists we encounter, the answer is no. Yet, keeping fees set at one rate for too long ultimately increases your overhead ratio and takes a bite out of profits. This is a controversial subject and one that is quite emotional for practice owners. Despite what many patients believe, dentists rarely feel comfortable about raising their fees. Patients also don’t realize how much overhead is required to operate a top-notch practice – and costs rise every year. Nevertheless, most practice owners are fearful of driving patients out the door if they raise their fees. This tendency to is seen every year, even in the face of a deteriorating bottom line. Now, I know this may be difficult to believe, but all is not lost.  Did you know that patients tend to focus on relationship, experience, and atmosphere, long before they focus on price?  Let’s dive in to this blind-spot and discover the right way to raise fees. We know this phenomenon among dentists is real – a fear that if they increase their fees, their patients will scram – inferring their services are too expensive. I also find it interesting that many dentists will frequently struggle financially despite having left their fees at the same level for several years. If you are thinking “this sounds familiar, you aren’t alone.  As a business owner, I recognize this emotionally driven decision – right or wrong it is a naturally occurring emotion.  But, let’s try to look at this without as much emotion and consider fee optimization as a business decision. Anything short of this is pushing you into the “Dental Practice Fee Catch-Up” game.Much like Vegas, you rarely win…Let me give you some frame of reference here.  30 or so years ago, a dentist could expect overhead to be in the range of 45 percent. Today, that average is closer to 75 percent. That means an average practice can expect a net return, or profit, to be 25 percent, or maybe less. Net income for dentists has been cut in half as a percentage of doing business. And believe me, that creates consternation among many practice owners and they are constantly looking for viable solutions? Digging a little deeper into this perceived conundrum, Dentists bought into the insurance programs in the early 1970s - agreeing to accept approved fees. If you are a participating provider, your fees are controlled by the insurance company while overhead continues to rise with inflation. Step back a minute and ask yourself a question – does it make sense for a dentist to treat patients from certain insurance plans while worrying about the associated costs? The short answer is no.  I am not saying you should not be conscious of costs, but many providers find themselves barely breaking even depending on their model and the insurance companies with which they are contracted.  So, what is the takeaway on this? Maybe it’s time for a PPO analysis and some serious discussion about what makes the most sense for your practice. Which insurances are best for you and, more importantly, which one’s are not. You know, keeping fees low in hopes of being more competitive and avoiding patient attrition is a subject that evokes fear in dentists.  Every year we see the emotional struggle among every kind of dentist, regardless of their business model.  This universal trend often leads to unintended consequences.  Think about it, new equipment, staff salary increases, cost of living, and insurance adjustments are just a few of the things tugging away at your bottom line. Oh, and don’t forget about what it can do to the value of your practice – potential buyers will be advised to negotiate this threat since they will likely lose a significant part of that loyal patient base when fees are adjusted to market rates. This is another blind spot – and it is often missed.  That’s right, the new owner is handcuffed from normalizing dental practice fees. If they increase their fees too quickly, they may face a legitimate mass exodus of patients.Just like going to the dentist, patients fear the worst but they know it must be done if they want a healthier smile and body. What they ultimately discover is their trip to the dentist was not nearly as painful as they expected.  Dentists face the same (self-inflicted) dilemma – they know fees need to go up, but they fear the pain of losing patients, and upsetting those who have been long-time supporters.  This analogy goes a step further – waiting only exacerbates the problem. The cost of services is a natural part of doing business. Every business, not just dentists, must evaluate costs and compare them to expense – hence the profit & loss statement.  But it goes beyond a simple P&L that might present a temporarily great picture.In other words, is the picture sustainable and will it provide everything you are trying to accomplish – professionally and personally.  Whether you are selling clothes or crowns, consumers expect fees to increase over time, and the success of your business depends on your willingness to make equitable and necessary adjustments. Moreover, small adjustments when delivered with exceptional service and dentistry are unlikely to cause any disruption. It also helps when your staff is on board – so be sure you help them with a plausible and honest explanation should patients ask about increased costs.  So, with that perspective, how can you overcome Your Fear of Raising Fees?Let me ask you a question.Did you increase your fees 2% to 3% every year for the last 5 years? If so, you were keeping up with the national dentistry market regarding fee schedules. If not, you fell behind by as much as 15% over those five years.First, let’s agree that cost of living rises every year.  Therefore, fees should be adjusted every 12 months. I know, you are probably thinking this logic doesn’t concur my current way of doing business, but hold on, work with me as we begin to illuminate this blind spot.  If for no other reason, cost of living goes up every year and that increases your cost of doing business.  If you haven’t done a fee analysis in the past 12 months, you owe it to yourself to have your fees carefully analyzed to get a better idea of where you stand.  Now, when to raise your fees is a personal decision - you can decide which time of year works best for you.  Our clients make adjustments at the beginning of each calendar year. So, if you chose to have your fees analyzed, here is what we believe must be included:Comparing your fees to those in your area – if you are the lowest, that is a sure sign you need to adjust.Comparing your financial goals with practice performance – this one is rarely included. Yet, our firm believes it must be part of the equation. After all, your future depends on the performance of your business. This process is not complicated but usually requires a trained eye and someone who has the ability to tie everything together in one report.  That’s the hard part, not to mention interpretation of the results. Nevertheless, if this can be accomplished, why are so many dentists afraid to do it? Well, we think it is based on two reasons.  The first, you must know your numbers.  Many dentists unwittingly assume that if money is in the bank, the practice is doing fine. Nothing could be further from the truth.If you don’t know the basics, everything else is intuitive – leading to a lot of wrong decisions.  For example, what does it really cost you to diagnose, prepare, and deliver a single crown? What is your overhead cost per hour? Is your chart of accounts designed for dentistry? Are you including personal autos, continuing education in Cancun, or paying $160,000 cash for a piece of equipment in overhead analysis?  It all matters and even the most subtle mistakes can lead to unforced errors. To properly figure overhead per hour, you need to amortize an item over its life and use that monthly figure. This figure could be in the $250 per hour range, or more.  Share it with your team. Why? Let’s look at an example: compare your overhead to produce a crown to your collection amount for that patient. Will you be surprised at what you find? If the result is below your minimum margin, why continue on this path?  If your team is unaware, how can they possibly appreciate your desire for more production when all they see is your new car in the parking lot? Of course, not that you have involved the team, this is your time to educate and coach those who are in the trenches with you.  Your vision and mission must be known by your support system and, they must believe it.Now, if you are aware of your numbers and believe they present an acceptable picture without any compromise, then proceed with our admiration. On the other hand, If you feel like you not reaching your goals and compensation is not commensurate with your skills, experience and sacrifice, do something about it now.The second reason, well, is mostly psychological – the human mind is adept at yielding to certain perceived pressures. Let’s talk about a few of the most commons reasons we hear:Dentists face the reality of “I hate going to the dentist” – a criticism that has been heard from the beginning.  Today, that complaint is not as widespread due to modern techniques and high-touch practices that provide spa-like experiences.  Nevertheless, dentists remain fearful of “not being liked” and “creating pain for the patient”.  So, here is the bottom line - unless you practice for free your fees are too high in the eyes of the patient.  In other words, patients will complain at any price. Unless, of course, they perceive value!Everyone wants a good deal (perception) and they don’t want to shop (convenience). The next most popular reason is fear of Losing Patients – nearly every dentist I meet worries about bringing in new patients and losing patients. This is logical for most business owners.  But people rarely take time to price shop for dental services and most people don’t want to change. Remember, this takes effort. Instead, most patients make their choice based on dentists who accept their insurance plan, a personal recommendation, or the convenience of location.Best of all, they will stay with their provider if they perceive value and enjoy a comfortable, caring environment.Let’s break this down.  What we find to be most important to patients is comfort, knowledge, experience, environment and relationship.  All of these patient requirements come at a cost.  Suffice it to say, you can’t be the cheapest dentist in town if you expect to provide what the patient wants – a choice must be made here. Our final point - we live in a world of likes.  Dentists are not immune to this craving of acceptance.  Think about it, you work in a profession where it’s not unusual to hear a patient tell the dentist “I hate coming to see you.” Instead of trying to buy approval by ignoring fee adjustments, focus on delivering a superior experience, one that changes the patient’s perception of the dentist.  Think about it, if you can master the art of exceeding their expectations and delivering your expertise in a stress-free environment, why would they leave?  Whatever you do, don’t undervalue your services based on a misconception that patients will somehow like you more – it just ain’t so…The fact is, more emotions are tied up in fee structures than most would like to admit, yet it’s a function of the business process.  At this point, I hope you are at least considering this “business decision” and asking the question, what Should You Charge?Every practice is different so using a standardized fee model should be avoided.  If you need help with determining how best to reach the right set of fees for your practice, our experts can get you in the right direction.  Specific questions must be answered regardless of your location or practice model. Your next question may be What are other offices charging? – in general, we recommend starting with your usual and customary fees in the 80th percentile, adjusted for your market. Now, this is where experience can help you avoid unforced errors.  For example, our team carefully reviews many resources to develop our fee schedules for each practice.  Then, code by code, we assess how your fees compare to similar practices in your market. But we don’t stop there – we compare this to your current fees and provide expert guidance on properly aligning your fees to your goals – personally and professionally. Another factor in determining fees is the amount each procedure costs you? – Materials, staff salaries, time spent; you must understand the margin associated for each procedure. Let’s say there is a lab you prefer to use for crowns, but they charge a premium. You may think they’re worth it and you are likely right, but your fee should reflect that premium expense.What is your time worth? – Dentists are notorious for undervaluing their time. You need to know what your time is worth by the hour. If you’re top in your field in full-mouth restorative dentistry and spend typically 3-4 hours or more with a single patient, what do you have to charge to make a single filling worth your time?And finally, we come back to Insurance – if you are in-network, assessing how this affects your revenue is a critical part of getting adjusting your fees.  Moving your usual and customary fees higher is solid first step in persuading insurance companies to raise reimbursements and without a regular fee evaluation, you are not likely to see the difference between your standard fee and the allowed amount. Watching this difference is the perfect key performance indicator to show how much it costs to be in-network.  Keep in mind, insured patients are not affected with fee adjustments and your uninsured patients, on the other hand, will help close the gap created by negotiated reimbursements with the insurance companies.    If you are thoroughly perplexed and find yourself wondering “should I be in-network or fee for service”, don’t worry.  We frequently asked to perform analysis that provides clear direction in a very unclear environment.  Depending on your practice model and goals, getting in or out of the PPO game is a strategic move that many dentists fail to make. In the end, your fee schedules can have lasting results – good and bad.  You want to land on a fee that accurately reflects costs and profit margin and is consistent with your market.

25mins

21 Jan 2020

Rank #5

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"Cracking the Code!", Deconstructing your Financial Statements, Balance Sheet Basics (EP07)

“If you don’t know your numbers you don’t know your business !!” Marcus Lemonis, from the popular TV series The Profit. Welcome, you’re here at The Beacon, so glad you found us! Prepare to have your Blind Spots Illuminated! Hello and welcome to our series on “Cracking the Code”, or alternatively, “Deciphering Your Practice’s Financial Statements”. We will spend the next 3 Podcasts reviewing, deconstructing and dissecting the 3 financial statements you should be reviewing at least monthly; the balance sheet, the income statement (P&L) and the statement of cash flows. If you are like most doctors, financial statements are that “Stack of Stuff” your accountant sends you every month, but you tend to ignore! You may take a peek at a few areas you understand, Income, revenue, expenses, and of course profit, it all looks ok so not wanting to throw it out you add it to the constantly growing stack of stuff you know is important and will get to one day, but that one day never seems to come!! You secretly may be intimidated by these reports, but are too busy, proud or embarrassed to ask for help understanding them. I believe this is why so many dentists simply delegate this task to their accountant/CPA. That’s a dangerous handoff. You, as the business owner, should have a basic understanding of these reports, expert knowledge is not required. Just enough knowledge so you can speak the language of business and ask questions to your accountant, CPA or financial advisors regarding what’s in these reports. In this manner, you and your team together can improve your business and financial results. No matter where you work in your organization, you’ll do your job better if you understand basic financial concepts. You’ll be a more effective contributor to your company’s efforts to make money and grow the business. You, as the doctor, are in the very best position to understand what resources and assets must be acquired to deliver exceptional care. Ensuring an excellent financial return on those assets just makes good business sense. If you are not receiving an above market return on your business investments then it is a better idea to take that cash out as a salary and invest it differently. I have a promise for you before we start… I PROMISE, I will never mention debits and/or credits, no general ledger or trial balances. Those terms may conjure up fear and dread from your undergrad accounting class! The math is here is easy too; addition, subtraction and if we get fancy we might use division to calculate a ratio. But Why again is this important? “Accounting, accounting, accounting. Know your numbers.” -Tilman J. Fertitta, CEO of Landry’s Inc. and host of The Billion Dollar Buyer. Warren Buffett says, “Accounting is the language of Business.” If you can’t speak the language how do you know how your business is doing? It appears that “knowing your numbers” is a recurring theme! Consider the following questions… Do you know the difference between profit and cash? Do you have enough cash to make payroll? How profitable are the services you provide? I will address all of these. In addition, I’ll help you… Make sense of the three key financial statements. Gauge your company’s financial health. Weigh costs and benefits before committing resources. Understand why the Profit shown on your P&L never equals the cash in your bank account? The Secret Stash is that cash is hiding in your Balance Sheet. You won’t become an expert, but you will have a better understanding of the language and financial reporting framework. Remember, your banker and lending institutions are very interested in these financial reports along with the financial strength of your practice. If they are interested, you should be too! Consider this also important if you are preparing for a practice transition; adding an associate or selling your practice. Strengthening your financial position can result in the best valuation for your practice, and who doesn’t want that!! The fact is that Finance and Accounting, like other business disciplines, are as much of an art as they are a science. There are many estimates and assumptions contained within your financial statements. Accounting and finance are not reality, they are a reflection of reality. One does not always know how precisely to allocate costs, nor does one know exactly how long a piece of equipment will last, hence how rapidly to depreciate it. Is a Cost considered a Capital Expenditure, or an operating expense? This choice has an immediate effect on the bottom line and your profitability. Before we dive in a little background is important You should appreciate how these reports are generated by your accountant. Every financial transaction in your practice, ie; purchase invoice, canceled check and bank statement is analyzed, categorized and entered into your ledger. In most practices, the common point of data entry is your PMS along with Quickbooks. Inside of Quickbooks are numerous categories termed a “Chart of Accounts”. It is from your chart of accounts that your financial reports will be generated. It is critical that your Chart of Accounts are properly organized and categorized! The default mode in Quickbooks is rarely adequate. The old saying..Garbage in Garbage out, holds very true here! In most practices, our very first step is to reorganize and recategorize the Chart of Accounts so we can get the financial data we are looking for. Without this, your financial statements will be utterly useless to you other than for tax purposes. Please call us here at OmniStar if you have questions about this. It is important to recognize your accountant’s perspective and responsibilities when financial statements are prepared. The financial crisis combined with the Enron and WorldCom accounting scandals ushered in a new era of rules to ensure the accuracy of financial reports, these standards are called GAAP, for Generally Accepted Accounting Principles. GAAP was designed to stop billion-dollar corporations from deceiving and defrauding investors and shareholders. Prior to GAAP, “Creative accounting” and “cooking the books” was not uncommon. The fall of Enron, WorldCom resulted from “cooked books” and caused the complete and immediate demise of one of the worlds largest accounting firms, Author Anderson, who was the auditor of these firms. GAAP sets the accounting standards and rules for reporting financial results, very similar to our standard of care in clinical practice. GAAP has 2 benefits; GAAP ensures consistency over time. GAAP enables comparison between practices and firms. GAAP has rules your accountants must follow, some of these rules are: -assets are priced at their historical cost, ie what you paid for it, not what it MAYBE worth today. -Conservatism, accountants will only record a number they know is accurate, accountants do not estimate nor guess at costs nor values. -Consistency. once a company has established an accounting method it must continue with that each year. Publicly traded firms along with larger organizations are required to have their Financial Statements Audited by an independent accountant called an auditor. For our practices, that degree of scrutiny is not required. Our accountants prepare a “Compilation of Financial Statements," the report clearly states the statements were not audited if you read the cover letter carefully. You should also be aware of what accounting system your practice is using to assemble your financial reports. The two different accounting systems are; Accrual and Cash. Accrual Accounting is required by GAAP thus required in publicly traded firms as well as larger firms and practices with more complex economic transactions. The object of accrual-basis accounting is to match revenue and expenses in the period that they are earned and incurred. The cash flow from these transactions occurs at a different time. This system provides more accuracy when reporting the financial position and performance of a firm. In the Cash Basis of Accounting revenues and expenses are recognized only when “cash” is received by or paid out by the practice. Most small to medium practices, like the ones listening here, are well served with a Modified Cash-Basis Accounting system. In this system, the only non-cash economic events recorded on the books is the purchase of equipment and the depreciation expense of that equipment. Patient receivables would not be reported on the financial statements, since they are not cash, but would be recorded internally for collection purposes within your PMS. A Modified Cash-Basis Accounting systems provide the necessary information to comply with the IRS and file taxes. In addition, bankers and lenders will accept these reports for loan applications. Remember we talked about Accounting having estimates and approximations. Some of these biggest distortions can occur on the balance sheet. So let’s dig in. A balance sheet, also called a “statement of financial position”, represents a Scorecard of the financial health of your business at a single point in time. The BALANCE SHEET starts with the FUNDAMENTAL ACCOUNTING EQUATION; ASSETS = LIABILITIES + OWNER’S EQUITY OR WHAT YOU OWN = WHAT YOU OWE + OWNER’S EQUITY Consider the BALANCE SHEET like a sheet of paper divided in the middle. On the left side are Assets and on the right side are Liabilities at the top and Owner’s Equity at the bottom. The summation of the left side (Assets) must equal the summation of the right side (Liabilities + Owner’s Equity). Thus, the Balance Sheet Balances. Lets start with Assets ASSETS are WHAT YOU OWN; cash, receivables, inventory, prepaid expenses, Property, Plant and Equipment, Land, and Goodwill. ASSETS are considered CURRENT or NON-CURRENT - These are listed in decreasing order of liquidity with the most liquid “cash like” assets at the top and the least liquid like land and Goodwill at the bottom. CURRENT ASSETS are those that will be utilized within a year. cash Accounts receivables remember, in a Modified Cash Basis of Accounting Receivables are not cash, so not reported on the Balance Sheet. The PMS will have these amounts and aging. prepaid expenses inventory SIDE NOTE HERE: all of your inventory costs money and is created at the expense of CASH. One quick Pearl is to decrease your inventory to increase your CASH! When you look in your supply area, instead of seeing box and boxes of stuff, imaging dollar bills…it’s the same thing!!! Would you rather have your dollars, or would you prefer to give them to your suppliers? The buy 10 and get one free is a tactic used by suppliers to get you to buy more, which uses your cash. I propose you have much better uses for your cash then it sitting on your shelves! The worlds largest firms use “just in time” inventory control, so should you! NON-CURRENT or LONG TERM ASSETS are those that will NOT be turned into cash within the next year. Property, Plant and Equipment is listed at historical COST, NOT MARKET VALUE Less ACCUMULATE DEPRECIATION This is one section where the Art of Finance appears. For example- Increase the depreciation of an asset from 3 to 6 years results in a 50% smaller charge on the Income Statement, Less Accumulated Depreciation on the Balance Sheet, a higher figure for PPE, and thus more Assets. By the Fundamental Equation of Accounting, more assets translate into more Retained Earnings! ANOTHER ACCOUNTING RULE: * DEPRECIATION IS ALWAYS A NON-CASH EXPENSE! Goodwill Now to the Top Right side of the Balance Sheet, LIABILITIES LIABILITIES are WHAT YOU OWE; accounts payable, accrued expenses, payroll, bank loans, notes and lines of credit. These are also considered CURRENT, or NON-CURRENT CURRENT: those payable within the next year accounts payable - what you owe your vendors. current portion of LT debt accrued expenses- payroll and taxes - your employees don’t send you an invoice, they just expect to be paid, as does Uncle Sam with taxes. deferred revenue NON-CURRENT or LONG TERM Assets are those due in over a year. loans, debt, lines of credit And finally, the bottom right side of the Balance Sheet, OWNER’s EQUITY OWNER’s EQUITY: STOCK- monies contributed by investors or owners. RETAINED EARNINGS or ACCUMULATED EARNINGS are the accumulation of PROFIT or LOSSES left in the business. for our world of dental practices this is where bonuses and dividends accumulate. the practice entity would not retain these profits but rather pass them onto the owners as either salary or dividends depending on the legal structure of the practice thus avoiding double taxation at both the corporate and personal levels. SIDE NOTE HERE: Consider profitability like your “Grade” in a course, you work hard in a class over a time period, a semester, and at the end of the semester you get a grade. Equity is more like your “GPA”, it reflects your cumulative performance, but only at one point in time. So, that’s the Anatomy of a Balance Sheet dissected section by section. How does it work?? Why is it important?? Well as the name implies: THE BALANCE SHEET MUST BALANCE FIRST…..A BALANCE SHEET RULE: AT LEAST 2 THINGS MUST CHANGE ON A BALANCE SHEET…This is called Double Entry Accounting! Let’s try some transactions and see how this works and how easy it is! By doing these exercises you will begin to think and talk the language of business and finance and understand the “double edge” sword to each and every financial transaction! Our goal in any business is to GROW your EQUITY or RETAINED EARNINGS We purchase a new Digital Pano at $30,000 with bank financing. So, we add an asset on the left side of +$30,000, so something must change on the right side, either a liability or Owner’s Equity. In this case, we add +30,000 of liability, the bank loan, and the Balance Sheet Balances. Say we paid $5000 of cash and financed $25,000. The asset still goes up to $30,000, asset cash goes down $5000 and the liability is now only $25,000 Tada…the balance sheet balances yet again. You all Getting it??!! Let’s Buy $4000 supplies with cash. An asset, Supplies goes up by $4000 and another asset, Cash goes down by $4000…the Balance Sheet Balances. No change in Liability or Equity How about Buy $4000 supplies with credit. An asset, supplies, goes up by $4000 and a liability, accounts payable, goes up by $4000…the Balance Sheet Balances. You will learn when we review the Income Statement, or P&L, that your profitability or “Bottom Line” is connected to the Balance sheet through the Owner’s Equity Section. All profitability increases owners equity. That’s really important so let’s say it again… ALL PROFITABILITY INCREASES the OWNERS EQUITY portion of the balance sheet!!! This concept is critical and links your Income Statement / P&L to your Balance Sheet! So as we just learned 2 things, at least, must change on a balance sheet if Owner’s Equity Increases. Either an asset increases or a liability decreases, or a combination of those. Herein lies the answer to the nagging issue of why my practice is profitable but lacks cash! Look closely at all of your asset categories, your cash may have disappeared there; buying supplies, equipment or technology, or paying down liabilities, bank loans, and debt. This works in reverse too…accelerate the depreciation of your equipment (ie section 179) which reduces the VALUE of that ASSET, and correspondingly reduces your Owners Equity side of the balance sheet too. Finally, the “profit” you have achieved is equity and not cash, remember that…Profit does not equal cash! We will talk about that when we dissect the Income Statement. SUMMARY: reviewed basic accounting principles GAAP Accrual vs Cash Basis of Accounting Fundamental Accounting Equation, ASSETS = LIABILITIES + OWNER’s EQUITY 2 Things on the Balance Sheet must change with every transaction Income Statement and Balance Sheet are connected through the OWNERs EQUITY Portion. So that wraps things up for this Podcast.  Hopefully, you have a better understanding of the mechanics of the balance sheet. We hope that this information has created a few “Ah Ha” moments, or stimulated some additional questions you can direct to your advisers.  We welcome your inquiry here too at OmniStar Financial.  Our contact information can be found on our website OmniStarfinancial.com.  You will also find a link to sign up for our newsletter.  Please share this podcast if you found it helpful, and leave a review on iTunes too.  We welcome your feedback and suggestions for future podcast sessions.  You can always find me, your host, David Darab, at my twitter handle, @ddarab. Thank you so very much for tuning in and listening.  We are very grateful for your time and attention and so very pleased to have you in our audience. REFERENCES: https://www.amazon.com/Financial-Intelligence-Revised-Managers-Knowing/dp/1422144119/ref=sr_1_4?keywords=financial+statements&qid=1553527149&s=gateway&sr=8-4 https://www.amazon.com/gp/product/0648424006/ref=ppx_yo_dt_b_asin_title_o03_s00?ie=UTF8&psc=1

27mins

26 Mar 2019

Rank #6

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Expenses or Profits, Which Will You Choose? (EP03)

Expenses or Profit, Which is will you choose? The answer should be easy! As with all things financial, one must dig beneath the surface of your financial statements for the facts as well as to evaluate the impact of these recommendations on your year-end. Many times practice advisors are accountants whose emphasis is on minimizing taxes and finding deductions, not finance. In the corporate world, there is a considerable difference between a CFO, Chief Financial Officer, and a CPA. Accountants and CPA’s emphasize the historical, transactional and tax implications of an entity, while a CFO’s aim is to manage assets to grow profits, share price and dividends for stockholders. Please know, there is Nothing wrong or incorrect with this, both are critically necessary for accurate decision making, but it is important to understand their perspective so one can be aware of possible bias and blindspot. The blindspot is that all of these tactics are directed at the Income Statement, increasing expenses and reducing net income. Most of you listening to this PodCast have entities organized as either a sole proprietorships, PLLC, PA or Professional corporations, hence all the taxation flows or passes through to the owners, the entity pays no tax! The net effect of accelerating expenses and depreciation is to reduce your income , plain and simple! With a lower income comes a lower tax bill!! PERIOD!!

12mins

26 Dec 2018

Rank #7

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The 3 Profits of the Income Statement, Do you know them? (EP08)

THE 3 PROFITS of the INCOME STATEMENT…do you know them? Yes, understanding Financial Statements is an essential business skill. In this Podcast we continue our deconstruction, decoding and deciphering of the key financial statements. Last episode we dug into the Balance Sheet. I hope you found that episode insightful. If you haven’t heard it yet no worries, check it out when we finish here! This Episode is about the INCOME STATEMENT. The Income Statement goes by many other names and aliases, Profit and Loss Statement, the P&L, Revenue Statement, Statement of Financial Performance, Earnings Statement or Statement of Earnings, Operating Statement, or Statement of Operations…geeezzzz, enough already, if one name wasn’t hard enough to remember. I’ll stick with calling it an Income Statement, but my lenders and banker’s always ask me for our P&L. Of all the financial statements this is the one you are probably most aware of and check because is contains one number everyone wants to know…. THE BOTTOM LINE or NET PROFIT. This number is the easiest to locate, because it’s at the bottom line of the Income Statement. You probably dash there when the reports arrive, eager to see how the practice did. Hopefully you don’t find a number bracketed by parentheses signifying a loss. What’s up with that? That doesn’t make any sense, how can one have negative money? You know there is money in the bank account because you just checked! You say to yourself I never understood those dagnabnett accounting reports and financial statements any way and carry on with business as usual. If there is a BOTTOM LINE, there must be a TOP LINE…correct you are! And a MIDDLE too! So let’s starting deconstructing the INCOME STATEMENT! An Income Statement contains three sections: TOP LINE: shows you your total REVENUE or SALES SIDE BAR here, when business folks talk of TOP LINE GROW, that’s secret code for sales growth, plain and simple. MIDDLE SECTION: reveals your COSTS and EXPENSES broken down by category. BOTTOM LINE: shows your NET PROFIT or LOSS; which is REVENUE - EXPENSES. It’s that simple, and as we learned in the Balance Sheet Podcast, it’s the NET PROFIT that connects the INCOME STATEMENT to the BALANCE SHEET since it is added to the RETAINED EARNINGS section of the BALANCE SHEET. An income statement is much like a report card. It is always calculated over a given time period, typically one month. Understanding this, we can better see that the income statement affects the balance sheet much like how an individual grade affects your GPA. The RETAINED EARNINGS section of the balance sheet accumulates all of the profits or losses in the business. This is a critically important point to highlight and understand for it is how the BALANCE SHEET and INCOME STATEMENT are connected. So, back to the most important feature of the INCOME Statement, the calculation of PROFIT! Your MISSION, should you choose to accept it, is to Learn what all the line items on the income statement are, and how to manage them. With this knowledge you will know how to improve and contribute to the profitability of your firm. The income statement measures how profitable your products or services are when everything is added up! Remember, the bottom line Profit number is always an estimate, since estimates and assumptions sneak into some of the line items of the income statement. Just as important is the fact that PROFITS are NOT CASH! You can’t spend PROFIT, you can only spend CASH. We will look in greater detail at CASH in the next podcast on the STATEMENT of CASH FLOWS. Overtime, in a well run and managed firm, PROFITS will turn into CASH! Let’s deconstruct our INCOME STATEMENT a little further. We will start at the top line of the income statement - REVENUE or SALES. A critical element here is when is REVENUE RECOGNIZED or RECORDED. For listeners that are using a Modified Cash Basis Accounting System, then this is easy…your REVENUE is the total Payment from all sources, typically patients and insurance and is RECOGNIZED only when payments are received! For other firms and publicly traded companies that are required to follow GAAP accounting rules, REVENUE RECOGNITION can be more challenging. Let’s keep it simple for our purposes and say that a company can record a sale, or recognize revenue, only when it delivers a product or service to a customer. This is an area where accountants have great discretion and latitude, and where estimates and distortions can sneak in. For Revenue to be recognized it must have been EARNED, either a product shipped, or service work performed. The next section of the INCOME STATEMENT, the Middle Section details all your COSTS and EXPENSES. EXPENSES are divided into 2 distinct categories: Cost of Good Sold (COGS), or Cost of Services (COS) and Operating Expenses, also referred to as Sales, General, and Administrative Expenses (S,G&A), or just G & A for General and Administrative. The COGS or COS includes all the costs directly involved in producing a product or delivering a service. Typically this includes the wages of employees making a product or delivering a service and the materials or supplies used. This distinction between COGS/COS and OPERATION EXPENSES also serves as a dividing line on the income statement. You may hear executives and managers talking about ABOVE THE LINE and BELOW THE LINE. Well, this is where the line is! ABOVE THE LINE there are only 2 items, REVENUE and COGS or COS this is the GROSS MARGIN you hear “Mr. Wonderful” asking about on Shark Tank, or Marcus Lemonis preaching about on The Profit. BELOW THE LINE, we will learn next, are OPERATING EXPENSES, INTEREST, and TAXES. Why is this distinction important? Well, the items ABOVE THE LINE tend to vary more in the short term so attract more attention from managers. So, if an EXPENSE is NOT a COGS or COS then it is an OPERATING EXPENSE and appears BELOW THE LINE. These OPERATING EXPENSES are NOT directly related to making a product or delivering a service. OPERATING EXPENSES are often referred to as OVERHEAD and includes such items as rent, utilities, telephone, internet, advertising, marketing, IT, etc. Buried in OPERATING EXPENSES is DEPRECIATION and AMORTIZATION. This is an area of great confusion so let’s take a closer look at this. The first point to remember is that DEPRECIATION is treated like an EXPENSE, so can dramatically affect the PROFIT on an INCOME STATEMENT. Plain and simple, DEPRECIATION is the “expensing” of a physical asset over its useful life. AMORTIZATION is the same as DEPRECIATION but applies to INTANGIBLE ASSETS like GOODWILL. There is considerable latitude and methods for how one can depreciate ASSETS, consultation with your ACCOUNTANT is critical here. Remember too that even for the same firm, DEPRECIATION can be calculated differently for TAX accounting vs. GAAP accounting. I won’t bore you with the details here, just appreciate that DEPRECIATION can be calculated in many different ways! DEPRECIATION is the best example of what we call a NON-CASH Expense! So, what’s up with that? This is one of the most confusing and misunderstood areas of your financial statements, but critical for you to understand. The key to unlocking this confusing concept is to remember that the CASH for the asset has already been paid out! The vehicle or piece of CAPITAL EQUIPMENT was paid for at the time it was acquired, but the total expense was not recorded in that month. Instead, the expense is divided, or allocated, over its useful life….a little at a time, month by month! That’s DEPRECIATION. Again, it is important to understand there are many ways to calculate the depreciation expense. The method chosen can have a profound impact on your PROFITS reported on the INCOME STATEMENT. KEY POINT HERE! Good financial managers will match the use of an asset, or its depreciation, with the revenue it is bringing in. If the depreciation exceeds its revenue then this asset is creating a loss, if revenue exceeds its depreciation , the asset is returning a profit, a goal we should be striving for. Next, let’s look at the 3 profits; Gross Profit, Operating Profit and Net Profit. GROSS PROFIT is REVENUE minus COGS or COS , and is a key number. It tells us about the profitability of your product or service. If profitability is not achieved here it is unlikely that your business will survive long. GROSS PROFIT must be enough to cover OPERATING EXPENSES, TAXES, FINANCING and of course NET PROFIT. So what is a healthy Gross Profit? How much is enough? This will vary considerably by industry and from one company to another even in the same industry. Having metrics and reports that allow you to follow year-to-year trends will help you identify whether your profit is heading up or headed down. If Gross Profit is decreasing one needs to ask why. Are your COGS or COS rising? Is Revenue decreasing due to lower fees, discounts, or lower insurance fee schedules? Understanding why helps managers determine where to focus their attention. OPERATING PROFIT is GROSS PROFIT minus OPERATING EXPENSES, including DEPRECIATION and AMORTIZATION. This is also know by the odd acronym EBIT (pronounced EE-Bit). This stands for EARNINGS before INTEREST and TAXES. Why are interest and taxes not included you may ask? OPERATING PROFIT is the PROFIT a firm makes from running the business. Taxes don’t contribute to how well you run your business. And interest expense depends on how the firm is financed, i.e., with debt or equity which is termed its CAPITAL STRUCTURE. EBIT is a closely watched metric since it is a good gauze of how well a firm is being managed. Another metric is EBITDA (EE-bid-dah), which is Earning before interest, Taxes, Depreciation and amortization. This is thought to be a better measure of a firm’s operating efficiency since it ignores NON-CASH Charges like depreciation and amortization altogether. We have just reviewed the bias and distortions that can be introduced calculating depreciation, so with EBITDA it is ignored. Finally we have arrived at the BOTTOM LINE, or NET PROFIT, which is what’s left over after everything is subtracted, COGS/COS, operating expense, non-cash expenses, interest, and taxes. This is the same number used to calculate EPS, earnings per share, and the PRICE/EARNINGS ratio used on WALL STREET. Finally, if the INCOME STATEMENT calculates our PROFIT, then it is logical to ask how can we MAXIMIZE OUR PROFIT? That’s a great question. My friend, Jason Andrews in his new book, STARK NAKED NUMBERS, provides us a great and quick analysis of this topic. Quick side bar here, Jason is a Chartered Accountant, who like me, is passionate about business owners extracting value from their financial statement data. You can find his book on Amazon and I will include a link in the show notes for you. I receive no royalties from this endorsement. Please check out his fresh perspective on accounting and finance. Jason identifies several financial levers which one can use to increase profitability; the SALES LEVER; either increase sales volume or increase price, and the COST LEVER; reduce DIRECT and/or INDIRECT COSTS. It is surprising the impact on profitability a 10% change in these levers has on NET PROFIT…listed from greatest impact to least impact and the % change are; Sales Lever, Increase price 10% increases net profit 53%. Direct Cost, decrease 10% increase net profit 37%. Operating Cost, decrease 10% increase net profit 26%. Sales Lever, Increase Sales 10% only increases net profit 16%. So the fastest and easiest way to increase your BOTTOM LINE is to INCREASE YOUR PRICES/FEES. Creating more business, or increasing sales, has the least effect. Let’s wrap this PodCast up with some useful take away points. Only When REVENUE from Services exceeds EXPENSES can profit be achieved. Buying gadgets, gizmos, latest and greatest equipment, a new office, the list can go on and on are all irrelevant, EXCEPT if the gadgets, gizmos, latest and greatest equipment and new office creates GREATER REVENUE, or LOWER EXPENSES. This is also called VALUE CREATION when the PRICE a customer is willing to pay is greater than the COST to make the product or deliver the service. VALUE, like PROFIT, can only be achieved when products are sold and services delivered. The #1 GOAL of any BUSINESS is to CONTINUOUSLY CREATE VALUE for their CUSTOMERS! The hardest part is the CONTINUOUS and CONSTANT need to always be CREATING VALUE! ACCELERATING DEPRECIATION, as in SECTION 179 depreciation we are all familiar with, creates a LARGE DEPRECIATION EXPENSE that reduces your PROFITS, NET INCOME and RETAINED EARNINGS. This is a TAX STRATEGY plain and simple and points out the difference between TAX ACCOUNTING and MANAGERIAL ACCOUNTING. Planning for this DEPRECIATION should be done every time capital equipment is acquired, NOT AT THE VERY END OF THE YEAR at the encouragement of highly motivated SALES PERSONAL. OVERHEAD PERCENTAGE is a metric that dentists can not stop talking about and comparing! As you see from the above discussion, there is no OVERHEAD LINE ITEM on an INCOME STATEMENT. OPERATION EXPENSES come close but what items do you include or exclude? There are as many variations in calculations as there are people calculating it. For me it is a non-precise metric that can be distorted. A better metric to monitor and tract overtime is GROSS PROFIT and OPERATING EXPENSES as a PERCENT OF GROSS PROFIT. Whatever metric for overhead you choose, it becomes more powerful when tracked and compared overtime. PROFITS are not CASH. A profitable firm can run out of cash and a cash rich firm can non-profitable. So that wraps things up for this Podcast.  Hopefully you have a better understanding of the mechanics of the INCOME STATEMENT. We hope that this information has created a few “Ah Ha” moments, or stimulated some additional questions you can direct to your advisers or accountants.  We welcome your inquiry here too at OmniStar Financial.  Our contact information can be found at our website OmniStarfinancial.com  .  You will also find a link to sign up for our newsletter.  Please share this podcast if you found it helpful, and leave a review on iTunes too.  We welcome your feed back and suggestions for future podcast sessions.  You can always find me, your host, david darab, at my twitter handle, @ddarab. Thank you so very much for tuning in and listening.  We are very grateful for your time and attention and so very pleased to have you in our audience. REFERENCES: Financial Intelligence, Revised Edition: A Manager’s Guide to Knowing What the Numbers Really Mean: Karen Berman, Joe Knight, John Case: 8601406238220: Amazon.com: Gateway Stark Naked Numbers: Uncover Your Financials, Unlock Your Cash, and Unleash Your Profits: Mr Jason Frederick Andrew: 9780648424000: Amazon.com: Books

20mins

7 May 2019

Rank #8

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Succession Success for Your Practice (EP15)

You have been thinking, it might be time. You have enjoyed a wonderful career in dentistry, have grown and nurtured an exceptional practice with wonderful patients. You have invested heavily in CE, for your clinical and business skills along with staff development and training. You would like to share what you have learned with a young doctor and begin to consider transitioning your practice, but you still love what you do. You are not sure though. Should you consider an associate so you can work a few days less every week? The associate can work your old schedule, you say. But wait, do you have enough room in your office for two doctors to be treating patients at the same time, you have never done that. You think I can expand and add an operatory, maybe…possibly? Or, expand our hours, with a staggered schedule? What is the staff going to say?! How about another hygiene room too, our patients are waiting way too long to get into hygiene! Whoa, not so fast partner…Can I afford all of this? How much is my practice worth? Should I consider selling my building too, or lease it back to the new dentist? When will I be ready to completely retire? Will my staff be ready to accept a new doctor and all of these changes? I have so many questions I don’t know even know where to begin. Do any of these thoughts, questions or ideas sound familiar? If they do then you are in the right place. Our Team here at OmniStar Financial are experts in all of these areas and can find the answers you need to feel confident with your decision so you can take action. In this podcast, we will review some of these topics to get you thinking and planning for your future. We like to say… > “If you are starting to think about a practice transition, then you are already three years behind. Today’s not to early to start planning!” > OmniStar Financial Group I am nearly 35 years into my career and am now receiving more calls and having more conversations with my classmates who are beginning to think about or have already begun the process of transitioning their practice. I thought this podcast would be a great asset to have so I can share some talking points and get everyone thinking about what their transition might look like or could involve. To begin with, there are as many ways to transition a practice as there are dentists and practices to transition. There is no one way, no “cookie-cutter” way, no best or ideal way to accomplish such a monumental task. There is, however, one way that works best for you and your practice. Our challenge is to find that path with you. Our process here at OmniStar is very personal, methodical and hands-on for every dentist. We first start by identifying the wishes, goals, and desires of the dentist we are consulting with. These are all very different and unique for each doctor and their practice. Some may want to sell their practice and turn over their keys immediately, others may think of slowing down gradually over the next 3- 5 years with an associate taking a greater and greater role in the practice. We spend time educating the doctor about the process, steps and timing of key events necessary to prepare a practice for a successful transition. It can be a daunting and stressful time for the dentist as the practice he or she grew and nurtured for decades now comes under close scrutiny by others, especially the potential buyer's adviser(s) who will undertake a detailed examination of all financial aspects of the practice. We believe providing facts and filling in all the details and steps necessary can take away a lot of the worry and anxiety. Preparing the doctor and practice is critical here. This begins by examining the accounting systems, services, and reports that are being generated on a monthly basis. Many practices which have been operating successfully for decades can become complacent with record-keeping along with their bookkeeping. When these systems and records are closely examined by independent consultants they can be found inadequate, falling short of industry best practices. Deficiencies, inadequacies along with inconsistencies are never a good thing for a potential buyer’s advisors to find. In many closely held dental practices, quasi-business expenses sneak into the practice financials over time. A quasi-business expense would be something that benefits the doctor and other family members that are employees too. These additions or omissions can distort the financial picture of the practice and are sure to be pointed out and questioned by the purchaser’s consultants. Things like expensive CE, automobiles, rent payments (charging too much, or not enough), retirement plan contributions to name just a few are some of the more common areas we see. Other areas in practices that get overlooked, or undermanaged, include the Accounts Receivables as well as the depreciation schedule and assets. We observe that accounts receivable can accumulate in a practice with the good intention of eventually collecting the monies owed. Excessive and very old receivables adversely distort the financial health of the practice. Exceeding old accounts should be examined and a determination made as to the likely collectability of the monies owed. Non-productive accounts should be written off, or turned over to a collection agency. This write-off should be documented in the patient's ledger and used in future financial decision making should the patient ever return for treatment. > “There is no better predictor of future patient behavior as past behavior.” > Dr. David Darab Depreciation schedules and old “mothballed" equipment can also accumulate over years and years. This distorts the Balance Sheet, especially the Asset section, and ultimately the calculations used to determine practice value. Almost as exciting as watching paint dry, perusing and updating the depreciation schedule should be undertaken to “clean up” your financials. Equipment that is no longer in service, or has already been disposed of should be removed from the schedule and the asset adjustment made. Quasi-business items like automobiles, photography equipment and artwork that are used exclusively by or for the benefit of the doctor owner should also be identified and accounted for. Remember, your associate or purchaser is buying a business, your business. You and your advisors should do everything possible to present an accurate picture of your financials, assets as well as cash flows. Regardless of what you think, have heard, or read in throw away journals, your cash flow is King, and represents a critical asset in practice valuation. Practices with well established and written business systems and protocols along with consistent and strong cash flows and profitability have greater value to a purchaser and bring premium sales price compared to one where systems, cash, and profits are lacking. Other assets that need evaluation and possible updating include the practice equipment, technology, software, and web presence. Consider the following questions…how would you answer them? Is the practice completely digital? What kinds of imaging systems are used? Is there a digital workflow? What about the Practice Management Software? Is it current? Are the billing systems efficient? Is it a Fee for service practice? Is the fee schedule used by the practice current? Has the fee schedule been analyzed and benchmarked? What is the insurance profile or mix? Does the practice have a website that is current? Is it SEO Optimized? Does it rank at the top of a web search? Does it have over 60 5-Star patient reviews? Yes, lots of questions, and at times more questions than we have answers, at least initially. How about a few more questions… What does your workweek look like? What days and hours do you work? Have you been slowing your schedule down a bit? Or Driving Strong until the end? Are you accepting new patients? Do you see children? What is the demographic profile of your patient population? Do you have a wide range of ages? Or has your practice matured with you and now it mostly mature adults? What is your wait time for a new patient visit? Is it possible you have become highly selective with your new patients because you are so busy and can? Well, if you are considering an associate you will soon have several more “mouths to feed”, literally; an associate dentist along with his assistant(s) and hygienist. These additional employees will place immediate strain on your cash flow and profitability, do you have sufficient new patients entering your practice to maintain this new higher cash flow? Maybe you need to change some of your processes and systems in order to attract more new patients. Developing some basic social media marketing on Facebook, Instagram and Twitter might be in order to help jump-start and leverage the energy around a new associate. Maybe you haven’t thought about all these details before and that’s ok! That’s why we are here, to illuminate these potential blind spots for you! We take a “deep dive” into all of these areas looking for deficiencies and make recommendations to bring them up to current standards of accounting and reporting as well as best practices. Although we are not accountants or CPA’s, OmniStar has excellent Accounting Firms in its stable of Consultants and Strategic Partners. This also includes attorneys, bankers, practice appraisers, web designer and any other specialist needed in the process of Practice Preparation, Valuation and Transition. Once the doctor's succession plan is sketched out the question next turns to the practice building and real estate. Should one sell the practice and building at the same time, or continue leasing the building to the new dentist. These are great questions requiring a detailed and systematic approach to Wealth Management. Our Team at OmniStar uses a multistep process beginning with an evaluation of the dentist’s assets including Investments, Real Estate, and Practice. This is followed by a detailed analysis of cash flow, insurance, Asset allocation, savings plan, tax strategies, pension plans, and risk tolerance. Following this evaluation and analysis, actionable strategies are detailed and then implemented. Monitoring and optimization of the strategies follow as results are tracked and progress towards one's goals are achieved. As this analysis is completed new goals are identified and the process repeats itself in a constant cycle. With each iteration of this cycle, practice efficiency is improved, results are obtained and new goals identified which allow for continuous improvement. In almost every practice we consult with, blindspots are encountered and processes identified that can be improved through face-to-face team training and coaching which OmniStar provides to the doctor and staff. Remember it is never too soon to start “getting your house in order” when considering a practice transition. It is much better to be prepared early, than risk not being prepared when an unexpected opportunity knocks at your door. You want to be prepared to accurately answer the multitude of questions that will be forthcoming from both the acquiring or associate dentist as well as their advisor. (s) This brings up a very important point to remember; you do not always have precise control of the timing of your transition. Opportunities may appear earlier or later than planned or anticipated. Remembering this and being flexible can still enable the transition and transaction to work for the benefit of all parties. OmniStar can use its financial modeling to examine multiple “what if” scenarios to help you decide what path to follow. And finally…With all sales, especially that of practice, the Tax Man Cometh. Structuring the transaction so the tax consequences are minimized for both the buyer and seller is paramount for all! Remember too, throughout this process... > “It’s not the deal, but the people in the deal that makes a difference.” > Dr. David Darab We are approaching the end of this Podcast now, hopefully, I have been able to shine some light on a few blindspots in your practice and outline an action plan to get you and your practice in top shape and ready for any opportunity that presents. From my perspective your practice is supported by 3 Foundational Systems that must always be monitored, analyzed and optimized to maintain a successful and growing practice: 1. Finance- all things relating to and dealing with money; financial statements, accounting, banking, fee schedules, financial policy for patients along with insurance plans and networks. 2. Property, Building, and Equipment- all physical assets you can put your hands on; building, location, dental equipment and supplies, computer workstations and servers, technology and imaging systems. 3. Business, Software, and Human Capital- all things personnel and patients interact with; practice management software, EMR, insurance billing and collections, web site and patient portal, online reviews, practice systems, policies and Standard Operating Procedures. Keeping all three of these areas optimized is necessary to achieve operational efficiency and the highest level of profitability. Remember, If you need help here, or in any other way with your practice please reach-out to us here at OmniStar. There you have it! I hope that this information has created a few “Ah-Ha” moments, or stimulated some additional questions you can direct to your advisers. Hopefully, you now have a better understanding of the many puzzle pieces that must come together for a successful practice transition. We welcome your questions here at OmniStar Financial. Our Team is highly experienced and will help find answers to your questions. We welcome the chance to help you optimize and grow your practice and your profitability. Our contact information can be found on our website [OmniStarfinancial.com](http://omnistarfinancial.com). You will also find a link there to sign up for our newsletter. Be sure to check our show notes too. Please share this podcast if you found it helpful, and leave a review on iTunes too. We welcome your feedback and suggestions for future podcast episodes. You can always find me, your host, David Darab, at my twitter handle, @ddarab. Thank you so very much for tuning in and listening. We are very grateful for your time and attention and so very pleased to have you in our audience.

20mins

29 Jan 2020

Rank #9

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Got Likes, Tweets and Follows...then You don't have Jack for Strategy! (EP06)

Today there is a new Strategy framework that is growing in popularity called Blue Ocean Strategy. I wish to introduce some of its Ideas here. This is an improved alternative to the intense industry competition and rivalry of Red Oceans. Blue Ocean Strategies emphasize Creating Not Competing, Creating New Market Space and Not Competing in the existing space. Again, Create don’t Compete. Value Innovation is the Cornerstone of Blue Ocean Strategy. Value innovation reduces Cost by Eliminating and Reducing factors not needed or desired by customers, while simultaneously raising customer value by creating elements the industry has never offered. This combines what previously had been considered impossible; lowering cost and improving value. In the old strategy framework, great value could be created only by adding more features with more cost. If one desired to be the low-cost provider, features had to be removed so costs could be cut. Consider what follows to be a Primer on Blue Ocean Strategy. The listener is directed to 2 books that outlines well this Framework, the first is Blue Ocean Strategy and the newest edition, Blue Ocean Shift. I would rank these book as essential reading, you will not be disappointed, I promise! The Blue Ocean website has volumes of information and examples too. We have already introduced Value Innovation as the Cornerstone of Blue Ocean Strategy. Value Innovation lowers cost by eliminating and reducing non-essential factors while simultaneously raising and creating new ones the industry has not offered. This is best visualized by drawing a Strategy Canvas, one of the first steps in the Blue Ocean Journey. A strategy canvas shows : 1. the strategic profile of an industry by depicting the current competing factors and possible future factors. For example in dentistry competing factors could include, price, convenience, location, office environment, services offered, availability of appts, payment options, technology, insurance plans accepted, cosmetic dentistry, future factors might include a treatment guarantee, treatment outcome data, along with Comprehensive Multidisciplinary Team Treatment 2. Next, the strategic profile of current and potential competitors are charted, helping to identify which of the competing factors they invest in. Potential Competitors could include Corporate or Large Group Practice, Single Family Dental Practice along with a High Touch Esthetic and Cosmetic Practice. If you perform specialty procedures then other specialists could be competitors. 3. Finally, A To-Be Strategy Canvas is created which shows which key resources you will focus on to create a value curve that diverges from your competitor's offerings. A compelling tagline is then created that distills this strategy into words that can capture people’s imagination. Another revealing exercise is the 4 Actions Framework, the hallmarks here are Eliminate, Reduce, Raise and Create. *Eliminate- for these factors taken for granted, that create no value should be eliminated- I don’t have a good example of these, maybe you can think of one do! *Reduce- here, one seeks to reduce pain points which the industry ignores- multiple forms to fill out, wait times for appts. *Raise- means just that, raising or improving above industry stand- payment options, insurance plans, comprehensive services, expanded hours, the predictability of tx, *Create- creating factors never offered before- treatment guarantee/warranty, treatment outcome data, Multidisciplinary Team Tx that freely shares patient information, a mobile portal, virtual consults. The Four Actions Framework eliminates factors that do not add value for buyers, reduces factors that have been overdesigned, raises factors that are highly valued by buyers and creates new factors that had previously never been considered or offered. The Blue Ocean Framework will also cause you to look at yourself, your practice and your markets differently. Other ideas to consider and questions to ponder, the answers to which are important to unlocking the greatest value for your patient/customers. 1. Why don’t patients choose you or your practice? If they leave did they trade up or trade down and why? 2. Who are your customers? Who are your stakeholders? We immediately think of the patient, but one must think much differently. For many patients it is their employer who has purchased their insurance, could also be a parent or grandparent helping a family member. The front office staff of your specialist offices can function as both customers, receiving referrals, as well as a source or supplier of new patients for your practice. 3. What if you shifted your focus from just the patient to some of these other groups? Could unique value radically different from that presently offered be created? Think of the possibilities! 4. Do you Provide a Total Solution for your patient/customer? The simplest way to do this is to think about what happens to your patient before, during and after your service. The more of a one-stop, bundled service you can provide, the greater the convince and hence the greater the value to your customer. Maybe you should provide the products you recommend in your office and eliminate your patient having to shop for them. Compliance will more than likely do up! 5. Solve your customer's major pain points. Understand what they are! Every pain point is an opportunity to unlock hidden value and create new demand. These pain points are the reasons why customers are dissatisfied and buyers refuse to participate. In the blue ocean shift process, pain points are blatant opportunities to change the playing field fast. 6. Think across time trends. What trends have a high probability of impacting your practice, are irreversible and are evolving in a clear trajectory? Certainly, Corporate Dentistry is one trend, digital dentistry is another. How will these trends impact you? Given this, how can you open up unprecedented customer utility? 3 Factors of Good Strategy include 1. FOCUS 2. DIVERGENCE- value curves stand apart 3. COMPELLING TAG LINE- clear and truthful message Finally, avoid Red Oceans which includes; 1. Conventional thinking. 2. Focusing on being the best. 3. Focusing on the same buyer group. 4. Defining the scope of service offerings similarly. 5. And Focusing on current competitive threats. https://www.blueoceanstrategy.com/ https://www.isc.hbs.edu/about-michael-porter/Pages/default.aspx

24mins

20 Feb 2019

Rank #10