The Dentist's Network #5, Dental Practice Management, Orthodontic Practice Consulting, Team Building, Business Consulting, New Dental Practice Startup Consulting, Practice Appraisals, Transitions


	Loans vs. Leases Practice Data Back-up

Sally McKenzie, CEO
McKenzie Management
Printer Friendly Version

Loan or Lease?
Don’t get Stung by Hidden Fees

It’s a great time to be a dentist and an even better time to invest in dental equipment, thanks to Uncle Sam. The question today isn’t whether to buy but how. Should you take out a loan and purchase the equipment outright or should you lease it? Joe Flumian of HPSC, Inc. urges dentists to take a close look at both the tax advantages and the fees involved when considering a loan or a lease.

With a loan, the dentist borrows a sum of money for a specific amount of time and at a specific interest rate. The doctor owns the equipment purchased with this money and can take advantage of certain tax benefits. A lease is a financial agreement between two parties that allows one to use equipment that is owned by the other. It is similar to a fixed term rental. Ownership of the equipment remains with the lender, but the dentist has full, unrestricted use of it. At the end of the lease, the dentist has the option to purchase the equipment at the Fair Market Value or 10%, whichever is greater.

Certain tax benefits apply to either financial arrangement, notes Mr. Flumian. “With a lease, the doctor can deduct his monthly payment as an expense item, such as his rent payment. However, Internal Revenue Code Section 179 does not apply when equipment is leased. In addition, lease payments are taxed, which is something most doctors don’t realize.”

The provisions of Internal Revenue Code Section 179 allow a sole proprietor, partnership, or corporation to expense a portion of most new business equipment immediately, including computer software, in the year it is purchased and the balance depreciated over its useful life.

Tax-law changes over the past few years have further enhanced this benefit. After the 179 write off, under the Internal Revenue Code, 20% of the cost of the equipment may be deducted on your tax return the fist year the equipment is in service. In 2006, a dental practice can expense $108,000 in equipment up to an overall investment limit of $430,000. “In other words, you can either pay the taxes to the government or you could buy new equipment. If you can either help the government or help your practice, why not help your practice?” urges Mr. Flumian.

The tax advantages can be particularly beneficial for dentists that are looking at retiring in about five years and will want to sell their practice. New equipment will make the practice much more marketable, and the dentist will reap the tax benefits immediately. Next year, the write off for Section 179 will drop to $100,000. In 2008, unless Congress changes it, the write off will go down to $25,000.

With a loan, explains Mr. Flumian, the equipment is owned by the doctor and the doctor is allowed to depreciate the cost of the equipment over several years as well as take advantage of the Section 179 immediate tax write off. “Given the tax advantages, for most equipment purchases, a loan makes more sense, unless the doctor’s CPA advises him or her that it would be more beneficial for other tax reasons to pursue a lease, typically that would be a C-Corp type dentist.” The other case in which a lease may be more advantageous for a practice is when the office is purchasing computer equipment. “Computers become obsolete relatively quickly. Sometimes it makes more sense for a practice to lease computer equipment only because you may want to replace it in three –to-five years,” explains Mr. Flumian.

However, before you dash out and take out a loan from your local bank to update your operatories or a lease to replace your computers, be careful you don’t find yourself paying numerous hidden fees, notes Mr. Flumian. “Look at the fees attached to obtaining the loan or lease. There might be application fees, points to pay, insurance requirements. Some lenders require that you obtain life insurance in the amount of the loan or lease. That’s a surprise cost that many doctors don’t factor in. Usually, they only look at the rate and not all the other costs.”

In addition, consider what the lender wants for collateral. “A bank will always take your house, or place a second mortgage on it. Every lending institution will want a personal guaranty.” Take time to do a little comparison shopping of various lenders, particularly those that specialize in medical equipment financing.

For further information, Mr. Flumian can be reached at Joseph.Flumian@ge.com.

Sally McKenzie is CEO of The McKenzie Company, Inc. a nationwide dental management, practice development and educational consulting firm. Working “on-site” with dentists since 1980, McKenzie Management provides knowledge, guidance and personalized systems that have propelled thousands of general and specialty practices to realize their potential. Sally can be reached directly at 1.877.777.6151

Dr. Lorne Lavine
Dental Technology Consultants
Printer Friendly Version

Practice Data Back-up

As the modern dental practice continues to evolve, many dentists are aiming towards a “paperless” practice. I personally think that the term “paperless” isn’t really accurate as there will always be paper in the office. However, chartless is a realistic goal and we’ve set up many, many practices that no longer have a physical chart that they move from room to room.

However, as the data becomes digital, protecting that data is absolutely critical. What I unfortunately see in many practices is inadequate or no backup protocol for this crucial data. Offices we’ve worked with have lost 2-3 years of data. How would your practice recover from such a traumatic loss? Why find out?

If you talk to ten people in the IT (Information Technology) field, you’re going to get ten different opinions on how to do a proper backup. Rather than give you a long drawn-out explanation of how I design my backup, here are the important points:

There is no “right” or “wrong” way to do a backup. For me there are two absolutely critical parts to the backup design. First, you need to backup on a frequency that would minimize the amount of data you’d need to enter manually should you need to restore the data. For most offices, this is once/day, but for busy, large group practices, more frequent backups may be indicated. Secondly, and just as important, the backup must be taken offsite on a daily basis. Having a great backup at the office won’t do you any good if the computers are stolen or if the office burns down.

There are many programs that you can use to backup your data. Windows has a built-in program that, while rudimentary, can get the job done. My favorite is a $29 (it’s free if you use it at home!) program called Karen’s Replicator, which can allow you to customize the days and times of your backup. Certain dental programs (Eaglesoft, Dentrix Image) need special software to back up if you don’t want to manually “close” the database each night.

You must verify the backup on a regular basis. I recommend at least once/month, but once per week would be great if you have the time. How do you do this? Easily…just restore the data to another computer. For many dentists, they will install the programs on a home computer, load the backed-up data, and then run the program at home. Check to make sure the data is correct, that the schedule looks right, recent transactions are in there, etc. This is, in my opinion, the only true way to know if the data has been backed up successfully.

I’m not a huge fan of tapes. Why? Well, see #2 above. Nobody has a tape drive on their home computer so there’s no easy way to verify that tape. Secondly, the server is usually the only office computer with a tape drive, so if the server crashes, that tape would be just as useful as a paperweight. Finally, I find most tape backup software to be confusing and clunky.

I do like external USB drives, such as those from Maxtor, Western Digital, or Seagate. They are USB, so they can easily be used at home, are fast, secure, and have almost unlimited storage.

I suggest getting two drives with a folder on each for each day of the week. Swap the drives out daily. That way, you’ll end up with 10 days worth of data spread over two drives…that’s fine for almost any office.

Having redundant backup is always a great idea. Options to consider would be backing up to at least one workstation, a laptop, and/or using an online backup service. Choose that service wisely, as you’ll want one that can keep multiple days of data, can allow for quick restoration, and will protect the data well.

Every office that is computerized should take stock of their current backup regimen, verify the data, and take any steps necessary to prevent a disaster from happening.

Lorne Lavine, DMD is the Founder and President of Dental Technology Consultants. Dr. Lavine holds two prestigious certifications, the A+ Certified Technician designation and the Network+ Certified Professional. These designations demonstrate proficiency in computer repair, operating systems, network design and installation. Dental Technology Consultants provide dentists a full range of services relating to the implementation of technology. Dr. Lavine can be reached directly at 1.866.204.3398.

Interested in speaking to Dr. Lavine about your technology concerns? Email him at Drlavine@thedentistsnetwork.net

Interested in having Dr. Lavine speak to your dental society or study club? Click Here.

Loan or Lease? Don’t get Stung by Hidden Fees

Practice Data Back-up

Loan or Lease?
Don’t get Stung by Hidden Fees