The Dentist's Network #75

Bruce Bryen, CPA.
Managing Partner
The Snyder Group, LLC
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Buying a Dental Practice: What is the Actual Cost? Part 1

From a buyer’s perspective, the purchase price of a dental practice is not always what one may think. The money paid for the acquisition is only the beginning of the determination of what the actual cost is. It is easy to think in terms of an interest charge being added to the purchase price as an additional cost, but there are other ingredients to consider when paying the amount agreed upon and the determination of how those funds are reflected on the books of a buyer. An issue in an acquisition that is typically not addressed is the “after tax cost” that the purchaser pays, and how that charge can increase the purchase price. The actual cost to a buyer is the amount the buyer pays after reporting his or her income, paying the tax on that income and then paying the lender back for the funds used to acquire the dental practice.

Example of the After Tax Cost
Let’s illustrate the cost of a dental practice to a buyer using after tax dollars and see what the amount becomes once an agreement on the purchase price has been determined. We’ll use a purchase price of $500,000. The buyer can arrange financing for the acquisition and typically the seller will attempt to insist on the sale being allocated as a capital gain. This usually provides the most favorable tax treatment for a seller. As with most tax matters, when one side to a transaction has the most benefit, the other side will have the least favorable tax treatment. That is the case in this scenario. When a seller receives capital gains treatment, the best a buyer can normally hope to achieve is to write off the cost of the acquisition over a fifteen year period, if the allocation of the sales price is mostly to goodwill. This usually represents about seventy five percent of most dental practice sales allocations. It can be worse if the sales price is attributed to a non-deductible item, such as the stock of a corporation where there is no deduction. In our example, we will assume a ten year term loan.

Description of the Flow of Funds
Here is how the funds flow to the buyer using the hypothetical sale price of $500,000 and the ten year term loan. If the term loan is less than ten years, the buyer’s cash flow position is worse because the taxes are higher over the shorter term loan. On average, $50,000 per year will be amortized against the loan of $500,000 for each of the ten years that the loan is in effect. The loan principle reduction is NOT tax deductible, similar to the mortgage principle paid on a home. Of course in most cases, the interest is deductible. Of the $500,000 purchase price, $375,000 (goodwill of 75% x $500,000 price) is written off over fifteen years at the rate of $25,000 per year. That means that ($50,000 mortgage principle minus $25,000 deductible amortization) $25,000 per year is the amount subject to tax. With a federal and state tax rate in states such as New Jersey close to 50%, that means that an additional cost is incurred of $12,500 ($25,000 x 50% tax rate) per year for ten years which is added to the $500,000 purchase price so that the actual cost in this acquisition becomes $500,000 plus $125,000 or a total of $625,000 over the first ten year loan term. Remember that this is a best case scenario for an acquisition. Things can get worse if the sale price of the dental practice is based on items that are not deductible at all.

Can money be saved by a buyer?
There are methods of acquisition that will allow a buyer to reduce the actual cost of a dental practice purchase. The ability to assume debt and to reduce the price is one approach to lessening the actual cost. The reduction of the purchase price by offering incentives to the seller that can be written off more quickly by the buyer will reduce the price. The use of qualified deferred and non compensation plans is another method whereby the buyer can save and reduce the actual cost of the purchase.

What are some details used in reducing the actual cost?
In the second part of this article, which will be published next month, some details will be given to assist in reducing the actual cost of an acquisition.

Bruce Bryen, CPA has successfully assisted dentists with their personal and financial matters for more than thirty years. As a partner in The Snyder Group, he delivers creative and prudent financial strategies to help dentists build and protect wealth at every stage of their careers. His extensive expertise includes financing, debt restructuring, retirement planning and tax advising to help dentists keep more of what they earn. Bruce is also experienced in providing litigation support services and has testified on numerous occasions as an expert witness.

If you would like additional help or are interested in having Bruce Bryen speak to your dental society or study club, he can be reached at bruce@thedentistsnetwork.net or at 1-800-988-5674.

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Louis Malcmacher
DDS MAGD
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What Goes Around Comes Around

From time to time we all need to review our dental practices as to the services we are offering, and to think about changes and improvements in those same services. Dental technology and materials have certainly changed over the past 30 years, and they continue to change. What was true a few years ago can now be completely different in the advent of new materials that have been introduced into the marketplace. This is certainly true in the entire arena of no and minimal preparation veneers. There have recently been some major advancements that are very exciting.

A few short years ago, Lumineers by Den Mat Holdings LLC exploded into the marketplace with direct consumer advertising about a product that had been around for about 25 years. This once again popularized the concept of no preparation veneers, and had consumers knocking on dentists’ doors. There was a backlash in the dental community with many dental laboratories then saying that no preparation was no good and did not work. Certainly, it seems that the truth has changed because it is now hard to find a dental laboratory that does not offer some kind of no/minimal preparation veneer. You now have a whole myriad of no preparation veneer options, including Glidewell’s Vivaneers, Arrowhead’s Razor Thin Veneers, and many others.

The biggest complaints about no preparation veneers were that they were too bulky and too opaque. The patient may have been satisfied with the esthetics, but the dentist wasn’t thrilled with the opacity or the bulkiness of the veneers. While it is true that when the patient is satisfied, the case can be considered successful, we also need to feel good about what we are providing the patient. Sometimes these problems would be related to the dentist’s improper case selection, and other times it is the laboratory’s use of the wrong kind of porcelain for this technique. A no/minimal preparation veneer is a specialized veneer technique, thereby requiring specialized porcelain. To be successful, you need porcelain that can be fabricated very thin, yet still be strong enough to withstand the pressures of being seated on the tooth. A veneer can be made .3 mm thin with many types of porcelain, but as many dentists have experienced, when the laboratory is using the same porcelain that they use for crown and bridge, they hear this annoying breakage sound as they seat the veneer. Indeed, I’ve had some thin veneers from laboratories using the wrong porcelain break in the shipping box!

There have now been dental laboratories that have developed more specialized types of porcelain that are thinner and stronger than ever before, specifically for this technique. Aurum Ceramic Laboratories, which is a preferred laboratory at LVI, has been known for their high esthetic quality. They now use one of the most beautiful porcelains ever developed specifically just for the no/minimal preparation technique. Aurum’s Cristal Veneers have been a wonderful addition to a dentists’ armamentarium in the no/minimal preparation veneer category. You can now have these veneers made with high-level esthetics never seen before in this category. This has been a major advancement in no preparation veneers that will highly satisfy the esthetic demands of the patient and also the dentist.

From the practice management side of no/minimal preparation veneers, certainly the economy has made us all take a step back in some of these esthetic services. The big advantage with no/minimal preparation veneers is that there is much less time involvement, they can be more reasonably priced than other veneers, and it is minimally invasive. In addition, it is wise to package together other esthetic services with a veneer case. We routinely include bleaching and some Botox and dermal filler therapy in the total case price to achieve maximum facial esthetics surrounding our veneers.

With the advancements of new materials and techniques, these veneers are more easily accepted by patients because of their conservative nature. With the advent of esthetic porcelains designed just for this technique, no/minimal preparation veneers are here to stay, and they should be a part of every dentist’s armamentarium.

Dr. Louis Malcmacher is a practicing general dentist in Bay Village, Ohio, an internationally known lecturer, dental consultant and author, and consultant to the Council on Dental Practice of the ADA. Interested in knowing more about how to truly enjoy dentistry? Click here.

Interested in having Dr. Malcmacher speak to your dental society or study club? Click here. To reach Dr. Malcmacher, email him at DrMalcmacher@thedentistsnetwork.net or call 1.800.952.0521.

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Dr. Lorne Lavine
Dental Technology Consultants
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Remote Access

There is little doubt that dentists find their professional lives very busy in the modern world. With the advent of many new technology systems, there is more and more information that needs to be processed on a daily basis. While many of these systems were designed to make our lives easier and more efficient, the truth of the matter is that dentists are working long hours to accomplish their goals.

Many dentists will take at least one day off during the week or during the weekend. Unfortunately, pain doesn’t take time off and dentists will often need to access their office computer systems from home or some other location. Thankfully, there are a number of systems and programs in place that can allow offices to access their data from remote locations.

If you have high speed Internet access at home, then there are a number of software options available. While you certainly can use dial-up, the graphic nature of practice management software would make this process painfully slow.

The one that most people are familiar with is PC Anywhere. While this program has been around a long time, it’s not one of my favorites as it only allows you to access one computer at the office and I find it a bit clunky to use. The software costs about $200 but one of the main advantages is that you can transfer files from one location to the other.

Another good option is Remote Desktop. If you use Windows XP or Vista Professional at the office (it doesn’t work with XP Home as the “host” computer), then you can log into the system with this built-in software. This is a true remote desktop situation; you work on the remote or host computer as if you were right in front of it, and can use the mouse and keyboard normally. Since the software comes with the operating system, you can’t beat the price. The main downside is that when you connect, it blanks out the screen of the person who is using the computer at that location. So you can’t, for example, use Remote Desktop and have the local user watch what you are doing. This is not an issue for after-hours remote access, of course.

Personal Digital Assistants (PDAs) and Smartphones are very popular in our society. Recognizing this, most of the better dental practice management programs offer a module to allow the practice to take information home with them. This is the ideal situation for offices that don’t have high speed Internet at home and just need the basic information. There are, however, a few limitations. The practice management programs will integrate with either a Windows Mobile device or a Palm, but not both. Meaning, if you already use one of these and your software doesn’t support it, you’ll need to buy another one. Also, due to the much smaller memory capacity of these devices, the amount of information you can bring with you is often minimal. It may be limited to just that day’s callbacks, or a few days of your schedule. It won’t have a list of all patients, for example, with medical history and progress notes.

VNC is another excellent program for remote access. Some versions are free, but the ones with better security and passwords are not. There are many variations of VNC, I like RealVNC.

To use any of the above programs, you’ll need two things: an open port on your router, and a fixed Internet address (called the IP address) for the office computer. You can pay extra to get a static IP address, although they cost more. You’re better off with a dynamic IP address and a free service, such as No-IP which allows you to associate a name you choose with the IP address. If opening ports and IP addresses sounds like too much work, then try a service like LogMeIn.com, which is easy to set up and has a version that is free.

Through use of PDAs and remote access, dentists can easily have access to critical information that they may need after the office is closed.

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 provides dentists a full range of services relating to the implementation of technology.

Interested in having Dr. Lavine speak to your dental society or study club? Click here. Dr. Lavine can be reached at drlavine@thedentistsnetwork.net.

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