Notes From the Editor: The Capacity to Think RALPH CRAWFORD BA., DMD (Editor)
The Offer to Lease IAN TOMS B.Sc. (Hons)
Successful Practice DR. RON WEINTRAUB
Should Someone Else Be the Owner of Your Office? DAVID CHONG YEN CFP, CA
Purchasers: Expect to Pay More for a Practice Because of Lower Professional Corporation Tax Rates GRAHAM R. TUCK H.B.A. C.A
Some Problems With Practice Names and Advertising BARRY SPIEGEL LL.M., Q.C
Transition Planning is Your Treatment Plan for the Future BARRY R. McNULTY CFP, RFP, CIM, FCSI.
Bank Loans - How to Bulletproof Your Liability DR. IAN WEXLER
The
Professional
Advisory For Dental Professionals
The Professional Advisory consists of a group of seven independent professionals who provide services to the dental profession, each of who specializes in a different field. They have gathered to keep each other informed of the latest developments relating to the profession, and to produce this publication which is designed to provide expert information and advice solely for dentists and their advisors.
Notes from the Editor: The Capacity to Think RALPH CRAWFORD
BA., DMD (Editor)
Ayn Rand (1905-1982) the famed philosopher and novelist once stated that wealth is the product of man’s capacity to think. The contents within the following pages literally abound with Rand’s truism. Perusing carefully through each presentation has the power to reward our dental readers with much wealth - not dollar wealth alone - but wealth in peace of mind and freedom in spirit.
Reflecting back on Rand’s wealth, what would you think if a devastating illness or disability suddenly deprived you of what wealth your years of practice had accumulated? Ian Wexler, with first-hand personal experience - so often the very best kind - outlines the various insurance options on How to Bulletproof Your Liability.
Ian Toms’ “do’s and don’ts” in The Offer to Lease, outlines how each slip you make can cost you many thousands of dollars. And if leasing an office isn’t your choice David Chong Yen provides in detail the advantages and disadvantages of some of the options for ownership of your own property. In the 1950s Albert Einstein said the hardest thing in the world to understand is the income tax and there’s no doubt whatever that it’s much harder to understand in 2006. But Graham Tuck makes it easier for both vendor and purchaser of practices to comprehend the intricacies of all those taxation percentages when dealing with Professional Corporation Tax Rates.
The business of dentistry has never been easy and the complexities of today’s taxation, regulations, leasing, insurance, etc. are not making it any better. How do you then measure success? Ron Weintraub summarizes success concisely to include personal values, freedom from stress, formulating relationships, profit and an opportunity to provide the best dentistry possible. And Barry McNulty sums it up and reminds us that success, wealth, transition and all we value dearly for the rest of our lives - is for naught if we put off until tomorrow what you should be done today.
Juliet, more than 400 years ago, had little difficulty answering her own question What’s in a name? She made reference to a rose smelling just as sweet with any name. Well Mr. Shakespeare, it’s not that simple anymore. Today, just any name won’t necessarily work and readers can be thankful that Barry Spiegel leads us through all the challenges of naming when he poses Some Problems with Practice Names and Advertising.
Ayn Rand was surely right. Reflect on it carefully. Wealth, any kind of wealth is surely the product of the capacity to think.
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crawford@dccnet.com
The Offer to Lease IAN TOMS
B.Sc. (Hons)
An offer to lease is a very detailed and specialized agreement summarizing all the fundamental terms and conditions of a tenancy that will eventually be set in a lease. Make no mistake, the offer to lease negotiation is a very important business negotiation commonly describing payments by a dental practice to a landlord for as much as $2,000,000 to $3,000,000 over the course of a tenancy. Never again during the entire tenancy will you have a
stronger bargaining position than during the offer to lease negotiation. You only get one chance to negotiate all the fundamental terms and conditions of your tenancy. Do it right! Retaining a qualified specialist will provide you with immediate professional attention, resulting in: • lower occupancy cost, • long term occupancy protection, • minimal chair time disruption, and • less confusion and stress.
Do not attempt to negotiate an offer to lease yourself, either with or without a coach. What you don’t know can and will hurt you. And be alert; most landlords are very experienced and sophisticated. Each slip you make will cost you many thousands of dollars or add to long-term discomfort throughout your tenancy. Do not attempt to negotiate an offer to lease through a realtor who is not a specialized lease consultant, or one who accepts a commission by the landlord. Someone paid a commission by the landlord will not properly represent your interests as tenant. Do not attempt to negotiate an offer to lease through a lawyer. An offer to lease is a business negotiation, not a legal argument. Reserve legal counsel for a legal review of the offer, not for advise concerning the realty market nor for specialized advise regarding the practical terms and conditions of either your tenancy or any lease document.
Do not attempt to negotiate an offer to lease through an accountant. Most accountants are not trained, qualified, or licensed through the Realty and Business Brokers Act to negotiate any form of realty agreement, including an offer to lease. Very few accountants know the realty market, or have the practical experience or training to be considered lease consulting specialists. Retain a professional lease consulting specialist with superior practical experience, academic training, and skill. A properly licensed and qualified specialist can provide you with a comfortable and protected tenancy - and save you hundreds of thousands of dollars over the course of your career. Based on more than 20 years business experience Mr. 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. and can be reached at (705) 743-1120, or by e-mail at iantoms@pipcom.com
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Successful Practice DR. RON WEINTRAUB
What makes a practice successful? How do I know if my practice is successful? Does everyone have the same definition of a successful practice? At Innovative Practice Solutions (IPS), we struggle with the idea of how to define a successful practice for our clients. What is a successful practice? A generic description of a successful practice is one that satisfies the aspirations, needs, and desires of the owner/operator. Using this broad definition tells us such a simplistic explanation could produce dissimilar views and might look very different to a variety of dentists. From whose point of view?
From whose point of view are we defining a successful practice? Doctor, staff, and patient perceptions have commonalities and uniqueness. Today, we look at a successful practice from the doctor’s viewpoint. What are the criteria? In their evaluation of a successful practice, dentists often vocalize criteria according to their personal value system. Some believe having an excessive number of patients makes their practice successful. A few of our solo practitioner-clients proudly present active patient counts of over 2500 and refer to it as their chief bellwether of success. You may think, “I wish I had this problem,” but too many patients can be almost as much of an impediment to reaching realistic goals as
too few patients. Another often-stated decisive factor for a successful practice is fulfilling professional duties in a happy, relatively stress-free environment. By treating patients in the manner our training provided, many find satisfaction. One of the major reasons for entering dentistry is to help people in a very specific health field. Becoming a businessperson became important only with the increasing complexities of running the practice. Other crucial criteria for some dentists are the combined personal and professional relationships they have with the patients and staff of the practice. Some of our clients have treated up to four generations of the same family for over 40 years and have achieved tremendous satisfaction from the trust, affection, and esteem that these families have for them. A stable, supportive staff also plays a role in the dentist’s well being. Good staff relationships provide continuity for patients and loyalty for the dentist. Some practioners gauge their success by how well their practice generates profit. This gives them a feeling of security as well as access to lifestyle choices they and their families greatly value. To an extent, we all need to keep our eye on the bottom line to remain a viable entity; however, the degree of emphasis reflects the practitioner’s perception of success. Others believe the pinnacle of success lies in providing the very best dentistry of which they are capable without
compromise. Still others rely on status within their peer group, to determine their success. For example, by having other practitioners defer to their opinion, by mentoring associates, and by gaining recognition as expert in a certain phase of dentistry gives satisfaction.
Although defining a successful practice is somewhat personal, elements of success often overlap. By articulating our personal needs and objectives, we take the first step necessary to insure we end up with the kind of practice that satisfies our personal definition of a successful practice.
In summary, a successful practice according to professionals can include their personal values, work in a stress-free environment, the development of personal and professional relationships, a practice that generates profit, and an opportunity to provide the very best dentistry possible. It can also consist of the selfesteem gained from professional recognition.
Ron Weintraub is a founding partner with the Bayview Village & Downtown Dental Associates and brings over thirty-five years of knowledge and experience in the practice of general dentistry to the Professional Advisory. Large companies such as Patterson Dental, Ash Temple Ltd, Henry Schein Arcona, & the former Canadian Dental Co. have benefited from his insight. As a consultant to Innovative Practice Solutions, Ron advises dentists on practice enhancement, practice purchases, sales, location evaluations, associate buy-ins, and business mergers. Dr. Weintraub can be contacted at (905) 4706222 Ext. 221 or drronips@rogers.com.
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Should Someone Else Be the Owner of Your Office? DAVID CHONG YEN CFP, CA
Other Individuals Advantages: 1. No GST payable at time of purchase if the purchaser has registered for GST; 2. Creditor proof - the property is not under your name and therefore even if you get sued, the creditor is not in a position to touch the property; 3. Possible to finance the purchase with cheaper tax Who should be the owner of your property? Here are dollars than yours. some options: Disadvantages: 1. You (the dental professional) assuming that you 1. GST is payable on the monthly rent and property do not have a professional corporation or a hygiene/ taxes; technical corporation 2. Filing GST returns requires more administrative work. 2. Your spouse, significant other or your parents 3. Your professional ccorporation and/or hygiene/technical Professional, Hygiene/Technical Corporations Advantages: corporation 1. Finance the purchase with cheap tax dollars (81.38 4. A separate corporation per cent); What are the advantages and disadvantages of each of 2. No rent payable and no GST payable on the monthly these options? rent. Individual (Dental Professional) Disadvantages: Advantages: 1. GST must be paid for the purchase at the time of 1. No rent payable and no GST payable on the monthly closing and is not refundable - it simply becomes part of rent; the total real property cost; 2. The property becomes part of your retirement nest 2. If you sell the shares of your corporation, the property egg. will be sold as well if you did not transfer it out of the corporation prior to the sale. Disadvantages: 1. Generally, GST must be paid on the purchase at A Separate Corporation (Holding company) the time of closing and it is not refundable - it simply Advantages: becomes part of the total real property cost; 1. No GST payable at time of purchase if the purchaser 2. Not creditor proofed (i.e., if you ever get sued, the has registered for GST; creditor may seize the property); 2. Creditor proof - the property is not under your name 3. Finance the purchase with your personal after tax and therefore even if you get sued, the creditor is not in dollars (53.6 per cent) a position to touch the property. Buying your own dental office can be a great investment. There is no need to renegotiate with your landlord periodically on the terms of the lease. You will enjoy the growth of the real property that could very well become part of your retirement assets. And with the one per cent GST reduction effective July 2006, the cost to acquire the property will be slightly reduced.
Disadvantages: 1. Finance the purchase with the corporate after tax dollars (51 per cent); 2. GST is payable on the monthly rent and property taxes; 3. Filing GST returns requires more administrative work. Typically, it is more beneficial to take advantage of the cheap tax dollars to finance the purchase by using a professional, hygiene or technical corporation as the
purchaser. However, everyone’s financial goals and situations are different and therefore it is advisable to consult your financial advisor to make an informed decision. David Chong Yen, CFP, CA with an international firm background and more than twenty-five 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 advise.
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Purchasers: Expect to Pay More for a Practice Because of Lower Professional Corporation Tax Rates GRAHAM R. TUCK H.B.A. C.A Reality today is that purchasers are incorporating when buying a practice. The tax rates for the first $300,000 (and by the new Federal budget $400,000 in 2007) net income after payments to the all doctors for their remuneration, is only about 19%. This means there is about 81 cents on the dollar left over to pay the loan to purchase the practice. In the past, we used personal tax rates to calculate this excess earning capacity and often there would only be 60% or less left over to pay for the loan.
Does this mean that practices are less affordable? No, the practice value in general should still be equal to five or six times the net income after tax. Due to the taxes being lower with the Professional Corporation Tax Rate the purchaser will have more money remaining to pay for the practice.
What does this mean to the Vendor? Your practice will be worth more. It would not be unreasonable to have a 33% increase on the “Goodwill” component of the value. Some practices with conservative dentistry The new Federal budget also proposed a reduction in the could be worth even more. Federal Professional Corporation tax rate from 13.2% You do not have to incorporate to take advantage of this to 11.5% in 2008. In 2009, a further reduction proposes lower tax rate but it may be advantageous to do - talk to to reduce the Federal tax to 11%. The provincial rate is your accountant. scheduled to remain at 5.5%. If you are incorporated you can sell assets or shares. All our valuations, using the 2005 financial statements, The sale of shares may be very tax advantageous for are now being valued using the new Professional you even when the value will be lower - again, consult Corporation Tax rates. This generally means that the your accountant, as your situation is unique to yourself. “Goodwill” value of the practice will go up. The extent of the new increased goodwill value will reflect very What does this mean to the Purchaser? You must strongly on the number of recall and active patients. incorporate to purchase a practice. If you do not The more patients, the higher the value will increase. incorporate, your personal tax rate will not allow you to All the additional value will go to “Goodwill” as the afford the purchase of a practice. “Equipment”, “Leasehold Improvements” and “Supplies” What is going to happen in the future? It appears that are set values. The total assets do not become more taxes are going to drop and your practice will become valuable because the practice makes more net income more valuable, although most of the gain is already in after taxes. place with the current lower tax rate for Professional The most positive impact will be noticed in practices Corporations. with a lower billing per patient, which in turn has produced a low net income. The least impact will be on practices with a high billing per patient and a low overhead as there Graham Tuck, H.B.A., C.A. is the broker/owner of Professional Practice Sales (Ontario) Ltd., which specializes in the valuation and sales is a limit on the value of a chart - few charts with high of dental practices. He can be reached at (905) 472-6000 or 1-888billings per chart is a high risk for most purchasers. 777-8825 or e-mail at: grtuck@rogers.com
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Some Problems With Practice Names and Advertising BARRY A. SPIEGEL
LL.M., Q.C
Originally, as the Royal College of Dental Surgeons of Ontario’s Practice Name Advisory of May 2000 points out, dentists were required to practice using only their personal names as registered with the College. However, with the changes to the relevant regulations under the Dentistry Act, 1991, members are now permitted to “name” their practices, but must first comply with two pieces of legislation. They must file the name under the Business Names Act of Ontario, which, generally speaking, states that no individual, partnership or corporation shall carry on business or identify the business to the public under a name other than his, her or its own name unless the name is registered. They must also register that name with the College by filing a Practice Names Registration Application Form. However, filing the application with the College does not mean that the name will be approved, and therein lies the source for this article. If the practice name you have chosen is “reasonably referable to and describes the location of the practice”, the regulations state that the approval of the Executive Committee is not required since a name makes it easier for the public to identify a particular office. However, any other name does require the blessing of the Executive Committee. The College will not approve a name that refers to any area of dental treatment other than the recognized specialties and also will not approve a name containing an adjective if that adjective (1) may be potentially misleading, (2) is not verifiable by the facts, (3) makes comparisons to other practices suggesting uniqueness or superiority, and/or (4) is likely to create expectations of favourable results or appeals to the public’s fears. The Names Advisory lists some of the adjectives which will be frowned on, such as “best”, “gentle”, “painless” and the like, and it is hard to take issue with most of their examples. The problem, as I see it, is that the rules that have been established for Practice Names are not exhaustive, do not fully parallel the College’s Advisory for Professional Advertising, do not include all the abuses that can and are taking place, and, in their present form are precluding certain “innocent” adjectives from being utilized. What abuses you say? Well, in the first place the Advisory does not attempt to deal with trademarks or “taglines” which frequently contain words, phrases or pictures that run totally counter to the evil which the College is trying to prevent, and which, in effect, are used informally as Practice Names. So we may see trade mark logos in advertisements, on stationary or
on office building signs with beautiful smiles and words like “perfection” or even some of the adjectives that are specifically forbidden in the Advisory. I look in the yellow pages and cringe at some of the wording of the advertisements. Another abuse is the use of “coined” words that one would think, should not cause a problem - except where they are intended to convey a concept that the Advisory prohibits. Trying to use coined words such as “Jentle” or “Paneless” (cleverly composed by me for this article) are examples that obviously would and should be prohibited in a Practice Name and yet they, or even “Gentle” or “Painless” are used with impunity in an advertisement. I wish that space and the laws of libel would permit me to illustrate some of the more outrageous examples of coined abuses. The Practice Advisory dealing with Professional Advertising is more general in nature and while prohibiting claims of uniqueness, superiority, unjustified expectations etc. (similar to the Practice Names Advisory) the prohibition on adjectives is not detailed and is open to abuse.
I wish that space and the laws of libel would permit me to illustrate some of the more outrageous examples of coined abuses. This article is not to be taken as a criticism of those at the College who are trying their best to work with the legislative rules and tools given to them. It is intended as criticism of the legislation and the Practice Advisories, which should either be broadened, improved and coordinated to accomplish the intended goals and capture all of the offences, or abandoned altogether. The target should be for the members of the dental profession to be able to cooperate with the College to enforce reasonable rules for both practice names and advertising. My understanding from discussions with the College is that they are aware of the problem and intend to deal with it shortly. 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) 865-0330; or fax to (416) 203-8592; or e-mail to barry@spieglaw.com.
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Transition Planning is Your Treatment Plan for the Future BARRY R. McNULTY
CFP, RFP, CIM, FCSI
I’m sure you have all heard the old adage, “Don’t put off until tomorrow what you should do today”. Earlier this year I had an interesting referral whose circumstances brought this saying vividly to mind. To me, the event illustrates an important point I would like to share with you. Here’s the background. Dr. John has been married to his wife Freda (not their real names) for almost 40 years. They have a good marriage. During that time they raised and educated three children, built a very nice practice, and generally enjoyed all that life has to offer. They now have five grand children with another on the way. On the surface things appear pretty good. John enjoys his practice. He works four days a week and has a very efficient full-time hygienist. There are no associates in the practice. He has a great team who, with one exception, have been with him for a long period of time. The office is located in a thriving urban area. Freda, who is active in the practice handling the bookkeeping and administration, owns the building in which they are located. It’s a converted home. A review of their financial statements tells you that they have a productive, well run practice. Expenses are under control and profitability is good. John is not professionally incorporated and has neither a technical services or hygiene company. The practice has never been formally valued. Whenever I meet with a new client, my intention is to gather as much insight into their financial health as possible. So in addition to the practice details mentioned above, I can relate to you that John and Freda are 66 and 65 respectively. Both are in good health but John is finding that he feels more and more tired at the end
of the day. They own their own home that was recently completely renovated. They financed this renovation, by the way, with a secured line of credit. Their RRSPs are significant, but John’s is much larger than Freda’s a fact that will have future tax-planning consequences. There is no debt owing on the practice or the building in which it’s housed. Nor is there any other debt, with the exception of the line of credit for the renovation, which is substantial. There is little in the way of other assets. John and Freda feel they are ready for retirement. Unfortunately they have left things too late. While they do have their RRSPs, the practice and the building, this is not sufficient to support the lifestyle to which they are accustomed. To make a long story short, analysis indicates they will have no other option but to significantly reduce their lifestyle. While John and Freda are a little older than most to start addressing their transition, I find it not uncommon for dental families to have delayed this type of important planning too long. In my 25 plus years of working with dentists, I have seen far too many cases like John and Freda’s. Experience uniquely qualifies me to advise you - and I can’t say this strongly enough - transition planning is not something you can put off or delay! It’s your treatment plan for the future. The sooner you start to formally plan for your transition, the better the chance you will be happy with the result. 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.
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Bank Loans - How to Bulletproof Your Liability DR. IAN WEXLER When I was forced into leaving dentistry after developing an illness twelve years ago, I had a bank loan for over $250,000. Except for purchasing life insurance, no one ever told me that I could be insured for the loan in the event an unforeseen disability struck. What happened next was financially devastating. The bank called my loan and I had to take the entire practice sale proceeds to pay back the bank.
I have had the pleasure of lecturing to bankers from several of the major banks over the years, and what I have found is very few of them understand how to minimize the bank’s risk in the event of death or disability. Unfortunately, bankers receive very little guidance in this area. Depending on the bank, some bankers will not approve or issue the loan without first ensuring the insurance issue is finalized. Others will issue the loan
while the insurance application is still in underwriting. I have found that some bankers only insist that some form of life insurance be in place, while others demand that disability coverage - in a broad and nonspecific sense - be obtained at the same time in order to secure the loan. In general, everyone should know their best options. Options for life insurance 1. Plans offered by the bank • The bank is the sole beneficiary • Premiums stay the same despite the fact the loan and death benefit reduces over time • Almost always more expensive than private plans • Coverage is cancelable • Coverage IS NOT portable (i.e., you can’t transfer the insurance if you switch the loan to another bank) 2. Plans offered privately • Almost always less costly • Client owns the plan and determines the beneficiary • Any amounts above and beyond the loan remaining at death go to a named beneficiary • Client has the option of reducing the benefit amount over time in line with the loan • Client can transfer the loan between banks • No risk of the plan being cancelled • Client can make changes to the plan or cancel when they want • Plans can be renewable and convertible and kept for private use after the loan is paid off Options in the event of a disability 1. Business overhead expense insurance This coverage pays fixed practice expenses in the
Q A &
event of disability including loan principal and interest. A few tips to remember: • Make sure the plan pays BOTH loan principal and interest. Private plans do this for example, while the plan offered through The Canadian Dentists’ Insurance Program does not. • Make sure your plan does not stop payment of justifiable fixed expenses, such as loan payments, in the event your practice is sold. 2. Critical illness insurance This coverage, sometimes offered by the bank, pays a lump sum tax-free benefit 30 days after the diagnosis of a qualifying illness. 3. Unique insurance products that pay a lump sum benefit after a one-year plus elimination or waiting period when the disability is career ending. A few final words… 1. Never assign your long term disability coverage or your business overhead expense coverage to the bank; 2. Make sure your insurance advisor knows exactly what the bank requires in order for you to secure the loan in the quickest manner possible; 3. If you think that you do not need life or disability insurance for a loan, think again. Not having these coverages could devastate both your practice and your family. I know this from my own personal experience. 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
Please address your questions to: The Professional Advisory for Dental Professionals 308-7050 Woodbine Avenue, Markham, Ontario L3R 4G3 T. (905) 470-6222 F. (905) 475-4082 info@theprofessionaladvisory.com
Q Should I be dealing with a close friend, a patient, or a family member for my disability or life insurance planning?
A Both of these types of coverages are far too important to choose an advisor whose primary qualification is being a patient, close friend, or family member. The answer depends on a number of factors. These include: 1. What is their level of experience and knowledge?
2. Does this individual have a number of clients from your profession or just a few? 3. Is this individual “truly” independent in terms of representing and selling plans from a number of insurance companies, or is ALL of your coverage from one company? 4. Has this individual handled many claims and if so, what is their process? 5. Do you really want this person knowing your in-depth financial information?
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”.