Lease Term Renewals Revisited Managing Short Notice Appointment Changes and/or No Shows (Part 2) Selling Your Practice - Different Tax Angles To Consider Visual Presentation of Your Practice Are You Vulnerable? The US $ and You Insurance Texas Holdem: It Takes Both Luck and Skill
The
Professional
Advisory For Healthcare Professionals
Lease Term Renewals Revisited IAN TOMS B.Sc. (Hons) 2 Managing Short Notice Appointment Changes and/or No Shows (Part 2) DR. RON WEINTRAUB 3 Selling Your Practice - Different Tax Angles To Consider DAVID CHONG YEN CFP, CA 1
Visual Presentation of Your Practice GRAHAM R. TUCK H.B.A. C.A. 5 Are You Vulnerable? BARRY A. SPIEGEL LL.M., Q.C 6 The US $ and You BARRY R. McNULTY CFP, RFP, CIM, FCSI 7 Insurance Texas Holdem: It Takes Both Luck and Skill 4
Dr. IAN WEXLER
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Lease Term Renewals Revisited IAN TOMS
B.Sc. (Hons)
A leasing manager lamented to me that he wished all tenants renewed their leases as easily as dental tenants. The manager chuckled as he described a recent dental practice lease term renewal. He met with a dental tenant at a local coffee shop who, after a brief discourse, shrugged, turned white, and quietly accepted the manager’s initial renewal proposal even though the proposed rent was a 25 per cent increase and there were no other changes to the lease! The manager was surprised that the tenant didn’t attempt to negotiate even one element of the tenancy!
When your lease term comes up for renewal, know that in almost every case:
Let’s think for a moment about what happened to this tenant.
1. what your lease says with respect to the renewal; 2. what the current local realty rental market is like; 3. what your leverage position(s) are, and how to use them.
The leasing manager confided in me that he had deliberately inflated the proposed renewal term rent value to leave himself some room for negotiation. Because the tenant didn’t even attempt to negotiate the rent, he overpaid by almost $25,000.00 over the next five years of the term! The tenant didn’t attempt to introduce any other elements - even though he had no further renewal terms following this one! Assuming that the tenant did care about his lease terms and conditions, either he didn’t know they were negotiable, or he didn’t know how to approach the renewal. The bottom line? This tenant had absolutely no idea what he was doing, and paid a heavy price for his ignorance!
1. the rent is negotiable; 2. besides rent there is room to amend lease terms and conditions such as additional renewal terms and covenant; 3. the landlord expects the tenant to negotiate the terms and conditions of the renewal term. You must always approach a lease term renewal knowing and understanding the implications of:
If you are not certain about all of these key issues, then you must retain an experienced professional to complete the renewal negotiation on your behalf. Properly completed, your rental savings will be more than professional fees. Ian D. Toms, B.Sc. (Hons), acts as a tenant advocate on behalf of select retail and professional tenant clients primarily in the Greater Toronto Area. Mr. Toms is a real estate sales representative representing Professional Practice Sales (Ontario) Ltd. Mr. Toms was a multi-unit retail tenant and landlord for over 10 years and has since spent several years as a realty lease consultant. He can be reached toll free at (877) 216-1013, or by e-mail at iantoms@pipcom.com.
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Managing Short Notice Appointment Changes and/or No Shows (Part 2) Dr. RON WEINTRAUB Part 1 discussed how to prevent short notice appointment changes and/or no shows in your practice schedule. Even with your very best efforts, your patients will occasionally need to change appointments at the last minute. It is important to respond effectively to: • maintain good relationships with your patients • manage the negative effect on your schedule • prevent future recurrence If someone calls to change a scheduled appointment on short notice: 1. BE EMPATHETIC - never chastise a patient This is one of the critical moments in our relationships with our patients that can cause a patient to leave your dental practice. Hearing the standard “We require 48 hours notice for cancellations” is not what someone wants to hear if they are already distressed with something else in their life - i.e., illness, work related problem, car trouble, etc. Try to determine the reason - “Oh no! I’m really sorry to hear that! Is everything alright?” 2. PROBLEM SOLVE Once you have listened to their reason for needing to change the appointment on short notice, offer them a possible solution. Some examples: No Child Care: “Is it possible to bring the little ones with you just for this time?” No Transportation: “Can we send a cab for you?” Illness: “If you feeling too unwell to be here, I want you to stay home. But if you are worried about us, we wear gloves and masks so we are well protected.” Of course, all solutions must be within reason, i.e., you may not want your staff to care for six young children during a two hour restorative appointment and a $50
cab fare each way may not make economic sense for a hygiene appointment. 3. TO RESCHEDULE OR NOT RESCHEDULE If someone is distressed or preoccupied with the issue that is preventing them from being at their appointment, it may not be the best time to reschedule. Let them know you will contact them in a few days and make a notation so as not to forget. It may be better to say, “Take care of ___________. Let me call you in a few days and see how things are and I will be happy to find you another time.” Otherwise, when rescheduling, try to find a time that has the least possibility to conflict with other events in their schedule and don’t offer too many options. “Would you like tomorrow at 11 a.m., 3:30 p.m., or 4:30 p.m.” only serves to reinforce that your schedule is flexible and doesn’t discourage them from changing short notice again. 4. FEES Charging a fee for short notice changes or missed appointments is an option. However, it should be part of an overall practice protocol rather than arbitrary or punitive. Set your fee per unit of time (a different fee for the dentist and the hygienist) and ensure patients are aware of it. This gives them an option when prioritizing in a time crunch. Ron Weintraub is a founding partner with the Bayview Village & Downtown Dental Associates and brings to the Professional Advisory, over thirty years of knowledge and experience in the practice of general dentistry. Large companies such as Patterson Dental, Ash Temple Ltd. & the former Canadian Dental Co. have all sought his particular brand of expertise. Ron has been known to offer insight in the areas of practice enhancement. As a consultant to Innovative Practice Solutions, Ron can be found advising dentists on practice purchases, sales, location evaluations, associate buy-ins, and practice mergers. Dr. Weintraub can be contacted at (416) 224-1775 or admin@bvdental.com.
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Selling Your Practice Different Tax Angles To Consider DAVID CHONG YEN CFP, CA The first issue to address when selling your practice is identifying what you are putting up for sale. If assets, are they the assets of the unincorporated practice or those of the corporation? If shares, are they shares of the Professional Corporation or shares of the hygiene service corporation? The distinction can make considerable difference in the after tax dollars left in your pocket.
Selling assets of your practice or your corporation normally results in higher taxes meaning less cash in your pocket. Why? Because all those tax deductions you have claimed on the assets in the previous years may now be taxed as regular income - unlike a capital gain where only 50 per cent is taxed. Regular income may still enjoy the low corporate tax rate (assuming these assets are in a corporation and that the corporation’s
income does not exceed the threshold amount). In addition, any capital gain realized will be taxed as well.
What are the other advantages and disadvantages of selling shares?
What are other advantages and disadvantages of selling assets?
Advantages: • It may be less complicated as you do not have to identify/account for all the assets in your practice or corporation, especially goodwill.
Advantages: • No extra legal and accounting fees in setting up a corporation prior to the sale. • If you use a corporation, you may continue using it for investment purposes and income split with your family, assuming there are investment assets that are not being sold with the business assets. • If you use a corporation, you the shareholder may be entitled to receive a tax-free dividend from the corporation. Disadvantages: • You are responsible and liable for collecting and remitting any applicable GST/PST due on the sale. This means Canada Revenue Agency can assess you for any unpaid taxes on the sales.
• You would avoid the need to charge and collect GST/ PST, which does not apply on the sale of shares. Disadvantages: • You have to incur legal and accounting fees to set up the corporation • Your selling price may have to be reduced to compensate the purchaser for a lower tax write off in the future. Summary: When selling your practice, you will have to choose between having you or a corporation sell the assets, or whether you sell the shares of the corporation.
• If you use a corporation, you may have to incur extra legal and accounting fees to dissolve the corporation should you decide not to continue the corporation.
Understanding what you are selling is important as it has legal and tax implications. More importantly, it affects the true after tax amount you receive. Work closely with your lawyer and accountant to ensure all aspects are in order.
On the other hand, selling shares may be ideal if you are eligible to use your $500,000 capital gains exemption to shelter some or all of the gain from the sale of the shares. If you are able to use your exemption, then your potential tax savings could be as much as $116,000. Your accountant can guide you through and plan ahead for such exemption.
David Chong Yen, CFP, CA with an international firm background and more than twenty-four years of experience, advises healthcare professionals and owner-managers. Additional information can be obtained by phone (416) 510-8888, fax (416) 510-2699, or E-mail david@dcy.ca. This article is intended to present tax saving and tax planning ideas and is not intended to replace professional advice.
Generally speaking you will likely have more money in your pocket if you sell shares.
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Visual Presentation of Your Practice GRAHAM R. TUCK
H.B.A. C.A.
How does your practice look? Many practitioners have had their practice with no significant change monthto-month and year-to-year - and it does get old and tired. If your leasehold improvements are 20 years old without any major refurbishing you probably fall into this category. This article is written on the basis of presentation of your practice being for sale but it also applies to your every day operation of the practice. Colours, layout and design continually change and after a number of years one has to give consideration to what others see when looking at your practice for the first time. Does your office have the sliding window between the waiting room and the receptionist? This is a dated look. Do you remember the oranges, browns and purples of the 1970’s? These colours are not in today. Older design, layout and colours will probably
make the purchaser wonder if contemporary dentistry is being done in the practice. Today’s look is open and inviting. In the 1970’s and the first part of the 1980’s many practices were closed to new patients. Today, very few practices are closed to new patients and the practice should reflect this new openness. Investing in your practice is important. Put your money where it will get maximum impact. Take pictures of your office; look at the pictures to see what others will see. This may seem ridiculous but the concept is to really see your office. If your facility is old and tired, hire a qualified dental designer to reinvigorate your practice. This will probably involve some minor structural design and colour changes. And making your sterilization area a focal point, rather than hidden in a backroom, is a good design feature.
We recently completed a valuation in which the hygiene operatory had a broken up floor and three different paint colours on one wall due to moving x-ray wall mounts. When this was mentioned to the dentist, he not only had the floor rebuilt and tiled but also had his entire practice repainted. What a difference! The practice looked cared for and the landlord paid for a portion of the renovations. We went back, took new pictures and now have an accepted offer on the practice. First impressions are important, as the purchaser has
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to think about working in this location well into the future. I believe updating also brings a new vitality to the practice. You the dentist, your staff and of course the patients, will enjoy being in a fresh newly remodeled surrounding. Remember dentistry is perception. How are you perceived? Graham Tuck, H.B.A., C.A., is the broker/owner of Professional Practice Sales (Ontario) Ltd., which specializes in the valuation and sale of dental practices. He can be reached at (905) 472-6000 or 1 (888) 777-8825 or by e-mail at: grtuck@rogers.com
Are You Vulnerable? BARRY A. SPIEGEL
LL.M., Q.C
Recently, a dentist client called me. Sitting beside the dentist in his office was an auditor from the Canada Revenue Agency (CRA), formerly Revenue Canada. He was there to pick up a cheque for more than $20,000. The dentist, to his great surprise and consternation, had been assessed on the basis that his dental hygienist was not an independent self-employed individual under a contract for services, but was, in fact, an employee of the dentist. The auditor was right, and my client was obliged to pay the assessment. The purpose of this article is to alert you to potential tax issues arising from your present and future relationship with your dental hygienist(s). This is not a new problem, but the CRA now seems to be cracking down on those dentists who incorrectly treat their hygienists as selfemployed. The rules are reasonably clear and are set out in pamphlets published by the CRA. To determine into which category your dental hygienist fits, one must analyze the terms and conditions of the relationship based on four major factors: 1. Control. Generally, an employer controls (or has the right to control) the way the work is done and the methods used. The person is considered to have control (and is an employer) if he/she has the right to hire or fire, determines the remuneration and decides on the time, place and manner in which the work is to be done. In short, the payer exercises control if he/she has the right to decide where, when and how the work will be done. If your dental hygienist works only for you, and no other dentist, you may have a problem. 2. Ownership of Tools. An employer generally supplies the tools and equipment required by the employee, and covers the costs of repair or replacement. In a business relationship, the self-employed person generally supplies his/her own equipment and tools and covers the costs related to their use.
3. Profit/Loss. An employer normally assumes the risk of loss and covers office expenses, wages and benefits. A self-employed person covers operating costs and may make a profit or incur a loss. 4. Integration. If the answer is not clear from the above three factors, you must analyze the last factor, which is the question of whether the worker is really in business for himself/herself? Many of you have long standing relationships with your dental hygienists, with or without a formal legal contract. If the nature of your relationship is unclear or simply wrong, then steps should be taken to clarify or rectify the situation before it is too late and you find an auditor from CRA on your doorstep. The problem exists both for you and for the dental hygienists who may be improperly filing income tax returns and claiming benefits they are not entitled to. The problem is easily dealt with for a new hygienist by having a formal written agreement in place before work commences. However, you cannot unilaterally coerce a staff member to change an existing agreement. You can, however, seek your lawyer or accountant’s advice and encourage the staff member to do the same. If the agreement attempts to create a relationship not warranted by the facts, then it is in both parties’ interests to make the necessary changes. When you apply these tests to the relationship between a principal dentist and an associate dentist, do you see a potential similar problem? I do, and recommend you review and make necessary changes to your existing agreements in order to protect yourself. Barry Spiegel is a senior lawyer whose practice is devoted to corporate, commercial and business law, with special emphasis on advising and consulting for the dental profession. He can be reached at (416) 8650330; or fax to (416) 363-8451; or e-mail to barry@spieglaw.com.
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The US $ and You BARRY R. McNULTY
CFP, RFP, CIM, FCSI
I’m sure like everyone, you are very much aware of the spectacular decline in the US dollar to its Canadian counterpart. But that’s not the whole story. The US dollar is down against important major world currencies as well. A key question on many investors’ minds today is what the future holds for the US dollar. Will it continue its decline, stabilize, or could it even regain some of its former ground? Declines in currency such as this are typically not good for the world economy. Higher inflation and recession are just two possible results of a continued decline. It is my strong belief that there is no one who can consistently predict the future in today’s complex global economy. On the other hand, one can’t ignore some key facts. The US dollar has declined against major currencies for some very good reasons. Although no one has a crystal ball to predict the future direction of the US dollar, you still may want to think about how you can insulate yourself against the more serious implications of a continued decline in what for many decades has been the leading currency in the world. How would you go about that? What can you do about it?
Start with the basics. Are your investment assets properly diversified? By properly, I mean the portfolio should be strategically structured in a way that takes into account important personal factors such as your goals and objectives, risk tolerances, time horizon, and constraints. In my view, this type of diversification is one of the best proactive tools a dental professional has available for managing the risk/reward relationship of the investment world. For further information on this topic, you may want to read the book “Risk is Still a Four Letter Word” by George Hartman. Next, I would recommend you consult with your investment advisor. What strategies does he or she have in mind to help mitigate the impact of a decline in the US dollar on your portfolio? In general terms I would expect your advisor might counsel: i. For the fixed income component of your portfolio, emphasize variable maturities from one to five years; ii. For the international component of your portfolio, consider assets which are denominated in currencies that could be expected to rise as an offset to a decline in the US buck;
iii. When investing in US equities, emphasize a portfolio of select, individual stocks which are expected to outperform the markets as a whole as opposed to buying a mutual fund or the index; iv. Don’t ignore tangibles such as real estate or precious metals; v. Keep cash and near cash assets in CDN $.
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Finally, I emphasize as a foundation for your ongoing investment strategies, a return of your capital as opposed to a return on your capital. Good Luck! Mr. Barry R. McNulty CFP, FMA, CIM, FCSI is an investment advisor with Raymond James Ltd., Independent Financial Services. Member CIPF. The opinions expressed by the author are not necessarily those of Raymond James Ltd. He may be contacted at 905-470-6222ext 216 or barry.mcnulty@raymondjames.ca.
Insurance Texas Holdem: It Takes Both Luck and Skill DR. IAN WEXLER
If you have ever played Texas Holdem or watched it on TV, the game seems easy. In reality, it’s a game of odds, skill, and luck…in other words, a game of risk, just like insurance. As in Texas Holdem, many dentists are willing to take financial risk without knowing for sure whether they have the best hand. The only way you or your family may unfortunately find out is during a claim or after a substantial financial outlay. Stacking the Deck in Your Favor… Know Your Broker 1. For long term disability coverage, do not be lured into thinking that one “private” plan or insurance company is greatly superior to another. A number of brokers would like you to believe this is the case. There are some differences in wording, definitions, and riders but all major private guaranteed noncancellable plans are excellent. 2. Service can be just as or even more important than the insurance contract itself. This includes everything from annual reviews, to the handling of claims, the size and capabilities of the broker’s administrative staff and additional value-added services. 3. Get options and comparisons. Often the underlying incentive in recommending and selling a particular insurance product is the broker commission. Some companies pay the broker twice as much as others for selling their products. If your broker is pushing the insurance plans from only one carrier for all of your life and disability insurance needs, it behooves you to find out why. 4. Different insurance brokers cannot sell the same plan to you for less cost. 5. Beware of brokers who portray themselves as experts in all types of insurance (e.g., disability, life, healthcare, group) and even financial planning. Most brokers sell less than a few disability policies a year and have never handled a claim. Conversely, many focus on permanent life insurance plans because of the commissions and the less tedious underwriting process. Knowing your broker’s experience can make
a big difference ensuring that you have the most appropriate and cost effective insurance portfolio. Improving Your Odds 1. Understand that the products and services sold through CDSPI(Canadian Dental Service Plans Inc.) are not the same as individual plans sold through private independent insurance brokers. 2. Knowledgeable accountants can be excellent guides in choosing the right amount, type, and structure of insurance coverage, as well as help you understand certain tax implications. On the other hand, those with little knowledge can have a detrimental affect on your insurance portfolio. 3. Never look at cost alone in determining which insurance plan is best. A number of factors are extremely important in choosing the right plan. Among them are renewal rates, guarantees, wording, definitions, riders, and service. Know When To Foldem 1. Be leery of replacing older policies without a comparison of what you are replacing them with. 2. Beware of “too good to be true” insurance schemes. Currently, a popular scheme involves throwing significant funds into an insurance “black box” (an over funded Universal Life policy held within a corporate entity) hoping to wind up with hundreds of thousands of tax-free income at retirement. Before going “all-in” with this plan, learn all your options in the form of alternative interest assumptions, cost and options with different insurance companies, and future guarantees. Most of all, get an educated opinion from a qualified financial advisor. Dr. Ian Wexler is Canada’s leading authority on insurance issues for dentists. He is the President of Protect-a-dent and Protect Insurance Agencies Inc. in Toronto which provides life, disability, critical illness, and healthcare insurance products and services to professionals, executives, and business owners across Ontario. He can be reached at (416) 391-3764 or drwex@protect-ins.com
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Please address your questions to: The Professional Advisory for Healthcare Professionals 308-7050 Woodbine Avenue, Markham, Ontario L3R 4G3 T. (905) 470-6222 F. (905) 475-4082 info@theprofessionaladvisory.com
Q After reading Dr. Wexler’s last insurance article, I asked my insurance broker if I should be concerned, as I have incorporated my practice since obtaining my business overhead expense coverage. He said that I shouldn’t worry about it and it would not affect me at claim time. I am still unsure what to do?
A Unfortunately, following publication of the article, more than a few brokers have given similar responses. Since the article, I obtained “in writing” responses from all of the major carriers on behalf of my clients should they ever incur a claim and require proper back up. The head of Great West Life and Canada Life’s claim department has written to me directly that if a claim occurs and proper policy changes are not in place, change of owner/beneficiary forms will need to be completed at claim time before the claim is processed and paid. Therefore, my office has taken and recommends a proactive approach to make certain these changes are made so that any justifiable Business Overhead or Disability Buy-Out claim is processed in a timely manner. At the same time, current claim representatives from RBC (Unum-Provident) and Manulife (Maritime) have indicated that they will honour claims despite any changes to the practice/corporate structure. The bottom line…it is recommended that you ensure that your broker has everything in writing to assist you should you ever incur a claim. IW Q What is the maximum deposit one can make to an RRSP this year? A The answer to this inquiry really depends on what year you are talking about. The maximum contribution level for 2004 is $15,500. If you are making your contribution now for 2005 however that maximum would be $16,500. This figure is supposed to go up to $18,000 for 2006. For 2007 and beyond the maximum amount is to be indexed by the average industrial wage percentage increases.
By way of additional comment I would point out that it is always better to make your contributions in advance for the year coming as opposed to making a contribution in January or February for the year past. The reason is simple. When you make your RRSP deposit in advance the funds compound tax free for a longer period of time. Often investors think that this benefit would not be material. Let me give you an example of what I mean. Assume, for ease of calculation, that you had 20 more years of contribution capability and that the contribution amount was a constant $15,500. Also assume the monies were invested 5% on average over the years. If you made the deposits in arrears, for the year past, the accumulation during this period would be $512,522. By changing the timing of your deposit so that it is made in advance for year coming the total accumulation grows to $538,148. So, depending on whether or not you have the money available, given other planning priorities, make your contribution in advance. With very little effort you can enhance performance. Good Luck. Q How much can a skilled professional save a tenant at lease term renewal time? What other benefits can be provided by retaining a skilled professional to complete the term renewal on a tenant’s behalf? A The typical range of term renewal savings is $.50 to $4.00 per square foot, for each year of the term. For a 1200 square foot practice this translates to $3,000 to $24,000 over a five year term. Note that the savings will be greater than the fees. In addition to saving the tenant time, aggravation, and anxiety, a properly negotiated term renewal can amend such issues as covenant, exclusivity, parking, use, additional renewal options, and options to expand - to name a few.
The views expressed in any article are those of the author alone. They should not be acted upon without the advice of your “professional advisors”.