The
42 Professional
Advisory For Dental Professionals
IN THIS ISSUE COPING WITH A LARGE PATIENT BASE Graham Tuck H.B.A C.A
TRICKS AND MORTAR: THE NEW REALTY LEASING ECONOMY Ian Toms B.Sc. (Hons)
LEGAL ASPECTS OF APPRAISALS David E. Rosenthal BA., LL.B.
YOUR FAMILY’S FINANCIAL SECURITY Mark McNulty BA, CFP, CIM
HOW MUCH DO YOU REALLY NEED? THE LONG TERM DISABILITY DEBATE Dr. Ian Wexler
THE LARGE MULTI-PROVIDER DENTAL PRACTICE: THE EVOLUTION OF AN EMERGING TREND Dr. Ron Weintraub
5 W’S IN BUYING A DENTAL PRACTICE David Chong Yen CFP, CA
plus ADVICE IN CHANGING TIMES NOTES FROM THE EDITOR
VOL. 42 : NOVEMBER, 2009
The Professional Advisory
VO L. 42 : NOV EMBER 2 009
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 eld. 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.
Advice in Changing Times RALPH CRAWFORD BA., DMD Over the past several years I have been privileged, along with ten other volunteer Fellows of the American College of Dentistry (ACD), to participate in the University of British Columbia’s Faculty of Dentistry’s Professionalism and Community Service (PACS) program for dental students. The PACS program features community-based dental education as an experiential learning pedagogy that fosters “a sense of social awareness and global responsibility and promotes the value of a civil and sustainable society”. Our role as older - mostly retired - ACD dentists is to provide somewhat of a background of “been there, done that” during three seminar-like sessions dealing mostly with dental ethics. Believe me, it is quite an experience. Imagine you are now retired after 30, 40, 50 years of practice and you are with eight dental students discussing certain ethical and practice management scenarios over a four hour time period and one of the students looks at you and asks, “Did anything like that ever happen to you and how did you handle it?” In most instances dentist/patient relationships haven’t changed very much. Dentists are still dentists providing a health service and patients are still human beings with varying expectations. Where there is an extreme difference is in the area of the “business” of dentistry. How much it has changed in the last 50 years. Example, I can’t recall one graduate of the early 1960s buying a dental practice. They just picked an area where they would like to practice, opened an office and the patients streamed in. In my case I was asked by an established dentist to join him in practice and knowing his reputation was pleased to do so. There was no written agreement and the deal was 70/30. I got the 70 per cent! And apart from an insurance representative, I can’t recall a single “business expert”
available to give advice. With the tremendous changes and complexities in conducting today’s dental practice how fortunate that the new graduate - and any dentist - has the opportunity to seek expert advice. This particular issue of The Professional Advisory is a perfect example. Take buying a practice. David Chong Yen lays it all out in the 5 W’s in Buying a Dental Practice. And who would buy a dental practice today without an appraisal? In his article Legal Aspects of Appraisals David Rosenthal makes it clear of the risks without a proper appraisal. Leasing office space is integral to many practices and Ian Toms brings it right up to line with today’s reality: The New Realty Leasing Economy. The Canadian Dental Service Plans Inc. (CDSPI) is 50 years old this year. Imagine the changes. In How Much Do You Really Need? The Long Term Disability Debate, Ian Wexler outlines the importance of protecting oneself and family in the event of accident or illness. And if you are fortunate enough to have too many patients Graham Tuck has the answers by Coping With A Large Patient Base utilizing associates and restorative hygienists. Change: Ron Weintraub makes it clear in his opening sentence, “Change is an obvious part of life, and dental practices are not insulated from the changes we see”. He then takes us through the emerging trend of The Large Multi-Provider Dental Practice. Whatever - 50 years ago, 40 years ago, today - one fact of life is foremost. It’s Your Family’s Financial Security says Mark McNulty who points out that the secret of financial security is to plan primarily on a micro economic basis rather than on a macro economic basis. It is the rare individual who wants to stand still in the status quo but with all the alterations and additions in today’s practice of dentistry how fortunate we are to have a roster of experts available to provide Advice In Changing Times. PA
crawford@dccnet.com
The Professional Advisory
VO L. 42 : NOV EMBER 2009
Coping With a Large Patient Base GRAHAM TUCK H.B.A., C.A. www. ppsales.com
When a dentist has a large patient base, it can be very logical to hire an associate or a restorative hygienist to increase productivity to better care for the patients. Let’s look at these two alternatives. Associates In most situations, associates doing general dentistry are remunerated 40 per cent for the procedures they perform. The concept of a recent graduate as an associate is to improve their skills and speed with a mentor. The long term objective of the associate is generally to have their own practice. When I discuss the role of an associate this is the group to which I am referring.
Ideally, the associate can buy into or purchase outright the practice in which they are working. This doesn’t always work out and the associate leaves to get more experience with another practitioner or to purchase their own practice. Generally, the timetable of the associate and the principal dentist are not the same. The associate usually wants ownership before the principal dentist wishes to sell. Also, there is a risk that the associate will take patients with them when they leave, even with a sound associate agreement including a reasonable restrictive covenant, this can
happen. It certainly helps to have a dental lawyer draft this agreement. Remuneration to associates varies within some practices to reflect the special circumstances within the practice. If an associate is brought into the practice to have some high-end procedures kept in-house, the remuneration can be higher such as 50 per cent. If the associate is a specialist the rate can jump to 60 or 75 per cent. Generally at 75 per cent the specialist brings their own chairside assistant. As stated above, it is not their primary objective to enhance your practice - it is to gain experience. Restorative hygienists We have recently completed a number of valuations where a restorative hygienist was engaged. Generally, the dentists were pleased with the assistance of their restorative hygienist. It takes a lot more planning by the team to keep the restorative hygienist productive as compared to scheduling an associate dentist. Restorative hygienists are paid on an hourly basis and their salary continues even if they are not productive. Their salaries tend to range from $50 to $60 per hour which would equate to an associate dentist producing $150 per hour. Both the associate and the restorative hygienist would have their own dental assistant. A definite advantage of a restorative hygienist is that they do not leave and take patients with them. The difficulty of the restorative hygienist is to employ one in whom you have confidence to follow you and complete the restoration with the quality of dentistry that meets your standards. There will be an investment of your time at the beginning to monitor and train the restorative hygienist to meet your standards and to give you confidence to turn your patients over to them to complete the treatment. Recently, I valued a practice where the owner of the practice had a restorative hygienist for the associate and the associate paid the wages of the hygienist by deducting the hygienist’s salary from the associate’s gross fees and the principal dentist paid 40 per cent on the net billings. I am not convinced this would be as satisfactory as hiring two associate dentists. I had another situation where the principal
The Professional Advisory
dentist employed two restorative hygienists for himself. When all the analysis was done this was not really productive as he only achieved a 50 per cent efficiency from the two restorative hygienists. Better to have one fully employed and save the second restorative hygienist’s salary. I have also talked to several dentists who tried to utilize a restorative hygienist but gave up as they could not get the results that they wanted. Summary: having a large patient base is great but it
VO L. 42 : NOV EMBER 2009
creates its own problems and requires more administration time. Associates and restorative hygienists solve some of your problems but they also bring new challenges. PA
Graham Tuck, H.B.A., C.A. is the broker/owner of Professional Practice Sales (Ontario) Ltd., which specializes in the valuation and sales of dental practices. He can be reached at (905) 472-6000 or 1-888-777-8825 or e-mail at: grtuck@rogers.com
Legal Aspects of Appraisals DAVID ROSENTHAL BA., LL.B. When a client contacts me regarding the sale or purchase of a dental practice, one of the first questions I ask is whether there is an appraisal of the practice. In the majority of cases there is. Typically the seller will have his or her dental practice valued by a licensed appraiser. The appraisal is an excellent starting point to determine the price of the practice and an extremely helpful document to both sellers and purchasers. The appraisal is quite lengthy and contains all sorts of information about the practice. It will show the value of the equipment, leasehold improvements, inventory and supplies and the goodwill. It should refer to the financial information including billings, the number of active recall patients, staff information, premises lease, and many other items. Appraisals are usually based on asset valuations. However most purchases and sales of dental practices are by way of share sale, not assets. There are important differences between sales of shares versus sales of assets, including tax treatment for both sellers and purchasers. Therefore, whether selling or purchasing a dental practice, it is critical to speak with your tax advisors to determine the best approach to the transaction. The appraisal is only a starting point. The appraisal will allocate the value of the practice among
the various assets. In negotiating the purchase price of the practice a purchaser may wish to change that allocation to make the tax treatment more acceptable. The seller should provide the appraisal to the potential purchaser for review. The purchaser needs to consider the following questions: Is the appraisal reasonably current? Did an experienced valuator of dental practices prepare the appraisal? Does that valuator have a reputation for valuing conservatively or aggressively? If a seller hires an appraiser to prepare an appraisal, then that valuation was prepared solely for the seller’s benefit. This is an important fact that purchasers may overlook. The appraiser’s responsibility is to the seller, not to the purchaser. Therefore a purchaser must review the appraisal with caution, keeping in mind that it was prepared for the seller and was based primarily on information given to the appraiser by the seller. Even though the appraiser may know the appraisal is being prepared in anticipation of a practice sale, the appraiser has no direct obligation to a purchaser. Therefore, a purchaser cannot rely on the appraisal without making his or her own investigation. The legally binding document between the seller and purchaser is the purchase and sale agreement. That agreement should provide for time for a purchaser (and the purchaser’s professional advisors) to conduct his or her due diligence examination of the practice, including a review and audit of the patient charts and fees, review of the financial information and to confirm the dental equipment, computer hardware and software and other assets work properly. It is essential the purchaser complete a thorough due diligence
The Professional Advisory
review early in the process. Purchasers who do not conduct proper due diligence of a practice are putting their investment in jeopardy. If there is important information to a purchaser in the appraisal, that information must be included in the purchase and sale agreement since any fact not specifically contained in that legal agreement is not legally binding on the seller. What if there is no appraisal of the practice? In my judgment both the seller and the purchaser are taking a big risk if they rely solely on their own view of the value of the practice. There are many items that a professional valuator will consider and provide in an appraisal that may not even occur to a seller or
VO L. 42 : NOV EMBER 2009
purchaser. While I have reviewed many appraisals, I do not provide clients with my view whether the values are appropriate are not. I am not qualified to provide such an opinion, and I suspect most dentists are not either. The best advice is to retain independent professional advisors who are qualified to provide you with proper opinions as to valuations. PA David Rosenthal is a senior lawyer with Spiegel Rosenthal Professional Corporation 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) 865-0736; or fax to (416) 203-8592; or e-mail to david@drlaw.ca.
Your Family’s Financial Security MARK McNULTY BA, CFP, CIM www. mcnultycentre.com
Did you know that over half of all five per cent daily swings in the stock market occurred in 2008? My advice - get used to it. Volatile times like these have become an inevitable part of all our lives, both now and in the future. What goes up will come down. Such tremendous volatility is problematic when it comes to planning and organizing your life. None of us can predict the future, so these economic events can wreak havoc with your planning. What’s a person to do? There is a great deal of advice out there. A dentist told me recently that while he has always been “targeted” by various types of financial advisors, the level of cold calls and mailings he is now receiving is unprecedented. As always, it is my opinion that you will not find a good solution in any product, stock market sector or scheme. There is only one good answer, only one course of action that’s available to us to ensure our family’s financial security. That course of action is planning so that you and your family will be secure
financially no matter what. At first, this statement may seem like one of those that is easy to say but difficult to put into practice. It isn’t. We have been working with clients and doing this successfully for decades. The secret is to plan primarily on a micro economic basis rather than on a macro economic basis. On a micro level, we are dealing with factors which are largely within your control. This includes areas such as your practice, your income tax planning, the risk in your retirement portfolio, your cash flow management, etc. Even goal planning is an area you control - for example determining your retirement date. A client decided recently to postpone his retirement and the sale of his practice, even though everything over the past ten years had gone according to his financial independence plan. Our client decided to put his plans on hold because unfortunately his daughter and son-in-law had both recently lost their jobs. They each had post-graduate degrees and had the makings of amazing careers abroad. Now they have young children and no income, so they may need help. The important thing for our client is that he has the flexibility to make a decision such as putting off his transition for the time being because the last decade was planned and implemented on a micro economic basis. So how do you integrate this broader “family
The Professional Advisory
safety net” into your financial independence plan? Of course, that depends on your situation. Our client has achieved financial independence so he has begun to set aside an emergency fund in his hygiene corporation of which his daughter is a shareholder. If his daughter and son-in-law do wind up needing help, he can provide it to them in a tax-efficient manner as dividends from the hygiene corporation, while still maintaining control of the funds. Another client, who is already retired, has started to gift some money to her children - small amounts, $20,000 for each of the two. We were able to tell her exactly how much she would have to reduce her lifestyle costs at this time in order to free up this money, and she is happy with the result. Another
VO L. 42 : NOV EMBER 2 009
family has helped out one of their children, but made special provisions in their will to equalize the amount with their other three children. My point is that we all need to insulate ourselves and our family’s financial security from macro economic events. It is never too late to institute a sound plan that is based on micro economic factors, things that are in your control. PA Mr. Mark McNulty BA, CFP, CIM, is a Financial Advisor with Raymond James Ltd., Independent Financial Services - Member CIPF. He may be contacted at 905-470-6222ext 209 or mark.mcnulty@raymondjames. ca. The views of the author do not necessarily reect those of Raymond James. This article is for information only. Securities are offered through Raymond James Ltd., member CIPF. Financial planning and insurance are offered through Raymond James Financial Planning Ltd., which is not a member CIPF.
How Much Do You Really Need? The Long Term Disability Debate limited from performing duties related to your regular occupation(s) - can be more than just dentistry - AND you are under the care of a physician. Readers should know that definitions vary, and that they would be wise to read the wording in their policy contract DR. IAN WEXLER or certificate (in the case of an association plan) in www.protect-ins.com order to determine exactly what type of disability My firm, Protect Insurance, currently has over“twenty” and circumstances determine how and when your clients who are on long term disability claim. One benefits kick in. comment that I have never heard from any of these How Is The Maximum Benefit Determined? claimants or from dozens more that we have assisted Long term disability benefits are NOT meant to over the years is “the insurance company is paying me replace all of your income. In fact, only a percentage of more money than I need!” So the question becomes, your “after tax” income is replaceable…in the general “Just how much long term disability insurance should range of 60-80 per cent! Also, the more you earn, the you have?” less you qualify for in long term disability benefits as a percentage of your total income. For example, How Does It Work? Long term disability is generally referred to as “income a dentist earning $100,000 annually (income after replacement insurance.” The purpose of this extremely expenses and before taxes) is allowed to purchase important coverage is to do just that…replace your about $5,500 per month in long term disability income, partially or totally, in the event of a qualifying benefits, while a dentist who earns $500,000 is only disability. A qualifying disability is one where you are allowed to purchase approximately $14,600 per
The Professional Advisory
month in benefits. In other words, the higher your income, the less you are able to replace. It is highly advisable that you ensure that your insurance advisor, as well as your accountant understands how to calculate your “insurable income.” This includes your Professional Corporation salary, income splitting, practice “profit”, and potentially other income sources. Failure to understand this calculation can mean that you are significantly underinsured! Each insurance company establishes their own guidelines to show the total amount of long term disability benefits you qualify for at various incomes. These tables vary from company to company. In other words, insurance companies offer different levels of coverage for the same level of income. What may be surprising is how large these variations can be. Benefit amounts for the same income can be a few thousand dollars or more depending on which insurance company’s plan you have. For example, one plan may allow a maximum of $20,000 per month in long term disability benefits, while another will allow $24,500. If you are unaware of this, this could result in an annual loss of more than $50,000 in income that your family might need! How Much Do You Really Need? Many dentists falsely believe that in the event of a long term disability, they will be able to change their lifestyle. I often hear, “I don’t need that much coverage, my family will move to a smaller home if we have to,” or “We can always take our kids out of private school and not take as many vacations,” or “I will have more than enough money if I have to sell my practice.” Others will say, “It’s too costly and I just don’t need it!” The harsh reality in having managed so many claims is that:
VO L. 42 : NOV EMB ER 2009
• It is extremely difficult, aside from the impact of the disability itself, to downsize your home and lifestyle; • Often, expenses go up, in terms of needing special care or requiring home renovations; • Even if “you” are willing to make financial concessions, it is extremely difficult to expect your spouse and kids to do the same; • Often, other family members, such as elderly parents, rely on you for financial support; • If you go on claim, many are unaware that you can no longer make an RRSP contribution since you no longer have any earned income. Keeping Up With Your Income and Lifestyle Most dentists should have a rider on their long term disability policy that allows them to increase their monthly benefit amount as their income increases, without having to prove it medically. These riders are generally called “Future Insurance Options” or “Future Earning Protector Options.” My advice to all readers is to take advantage of these options. It is one of the most important things you can do to ensure that you and your family will be “OK” financially in the event of a devastating accident or illness. PA
Dr. Ian Wexler is Canada’s leading authority on insurance issues for dentists. He is the President of Protect Insurance Agencies Inc. in Toronto which provides specialized expertise in life, disability, critical illness, long term care, annuities, and other insurance products and services to professionals, executives, and business owners across Ontario. He can be reached for questions or other enquiries at (416) 391-3764 or drwex@ protect-ins.com
The Professional Advisory
VO L. 42 : NOV EMBER 2 009
Tricks and Mortar: The New Realty Leasing Economy IAN D. TOMS B.Sc. (Hons) www. iantoms.com
Over the past several years institutional investors have taken advantage of cheap financing to buy commercial realty, counting on rental yield and capital growth to cover financing costs, which worked when rents were rising and vacancy was low. Now cheap financing has dried up, rents have dropped and vacancy rates have increased, leaving landlords struggling to achieve a positive return on investment. According to the The Economist (August 1, 2009), this is a global phenomenon. In Budapest vacancy rates have surged to 15 per cent; in Prague they have doubled to about 10 per cent; in Manhattan office space vacancy rates climbed to 11.2 per cent in the first half of 2009, while rents have dropped 16 per cent over the past year. Rents in Moscow have dropped by 63 per cent for the 12 month period ended June 2009. Singapore’s rents dropped by more than half between June 2008 and June 2009. Rental rates in Mumbai and Singapore are down 40 per cent and 32 per cent respectively. In the U.S. commercial property prices dropped by 7.6 per cent in May 2009 alone, leaving them 35 per cent below their peak in October 2007. Commercial realty economics in the GTA (Greater Toronto Area) is following the global trend. According to the Toronto Real Estate Board, the number of feet of space leased July 2009 compared to July 2008 declined by a staggering 70.8 per cent and commercial rents declined 19.8 per cent! So why are existing tenants rents increasing? Because sophisticated landlords will find ways to force existing tenants to cover their losses! Landlords who bought realty a number of years ago are under significant pressure to extract increased rent from remaining tenants to achieve their investment objectives - despite the market conditions. And they
are accomplishing their objectives by the following means: Sophisticated landlords and leasing managers. The days when a simple negotiation, face to face, between a part time landlord and tenant are gone. Typical landlords are now using the services of well educated, professional leasing managers whose services are paid for through additional rent. These professionals will manipulate lease terms and conditions and use sharp negotiation strategies to accomplish their objectives. Premises re-measurement. In many leases (likely including yours), landlord has the ability to change the area measurement criterion on which the rent calculation is based from time to time, resulting in a corresponding rent increase. Imagine your rent increasing 30 per cent because landlord re-interpreted the lease. It’s that simple! “Padding” additional rent. Descriptions of additional rent inclusions and exclusions often permit “convenient interpretations” enabling landlord to include inappropriate costs. Carefully negotiated lists of permitted and excluded costs have limited value without tenants ability to review source documents and challenge items. Tenants share of the total additional rent cost for a development is often incorrectly administered by landlords with the net effect that in total, the collective tenant community pays more than 100 per cent of the costs. Even when a landlord is caught “padding” additional rent, expensive and time consuming litigation is often required to enforce the provision. Charging for formerly free services. Leases which do not include a description of parking, storage, or signage facilities and charges are an open invitation for landlord to announce a new cost schedule. After all, what recourse would tenant have if, for example, parking charges increased by $1000 per month? New lease. Lease forms common 10, 15 and 20 years ago were generally more tenant friendly and less complex than contemporary lease forms. Given significant pressure to increase rent, landlords will jump at any chance to impose a new lease which will likely cost tenant significant money. Missing a lease term renewal option expiration date is an invitation
The Professional Advisory
VO L. 42 : NOV EMB ER 2009
to enter into a new, expensive and less favourable lease term expiry, you will have the leverage position form. required to adjust your rent to current market In this economic environment, you can be sure conditions. landlord is doing his homework. Make sure you do Most importantly, level the playing field. Consult yours. with or retain a professional who understands the 1. Understand your lease, especially area measurement current realty market and lease mechanisms. PA criterion, additional rent provisions, and term dates. 2. Check every additional rent statement against lease terms. 3. C h e c k a n y r e n t i n c r e a s e a g a i n s t l e a s e terms, especially increases related to premises Mr. Toms has been creating and preserving realty leasehold value for re-measurement. tenants and landlords since 1986 and can be reached at (705) 7434. Administer your renewal options properly. If you 1220, by e-mail at iantoms@pipcom.com, or through his web site at: approach your landlord at the correct time prior to www.iantoms.com
The Large Multi-Provider Dental Practice: The Evolution of An Emerging Trend DR. RON WEINTRAUB www.innovativepracticesolutions.ca
Change is an obvious part of life, and dental practices are not insulated from the changes we see. Evidenced in Ontario is the burgeoning development of large dental facilities. Gaining an understanding of the evolution of the emerging trend of large multi-provider dental practices gives us insight into how to implement our services in a commitment to providing patients the best of which we are capable. Understanding what defines a multi-provider practice is paramount to making a commitment. This type of practice consists of two to eight dental providers and a number of hygiene practitioners. The phenomenon probably had its genesis 15-20 years ago when a group of “early adopters” thought the benefit of group
practice outweighed the attendant complication of “associateships” and the more evolved “partnerships.” To examine this innovative approach to providing dental services, like-minded practitioners in Toronto started a study club. Interest accelerated as some entrepreneurial types emerged who felt that the success they achieved as solo practitioners could be enhanced by extending management expertise to more than one venue. By extending hours of operation, they believed they could grow the patient base large enough to engage more practitioners in-house while maintaining the warm personal culture that prevailed in their original practices. Factors That Predispose the Growth of Group Practices In deciding if a multi-group practice would work for you, it’s important to look at the factors that predispose its growth. New generations of dental graduates who are
The Professional Advisory
confident of their business acumen look at the “big picture.” They look to the future of dental care, listen carefully to experienced advice, and are willing to make changes to the current paradigm to benefit in the long term. Another positive factor is a heightened appreciation of benefits of practicing in a professional, collegial atmosphere with the ability to confer and interact with peers on patient care. In addition to personal and academic benefits, spreading high fixed costs associated with dental facilities over multiple providers is an effective cost control. The demand of having an extremely large patient base such as frequently occurs outside large urban centres does not allow a single practitioner to treat all patients of record. Some practices report having more than five to ten thousand patients although the Ontario Dental Association recommends one practitioner and three and one-half days of hygiene to service properly 1200 active patients. Having more in active recare makes it difficult to provide comprehensive care. Overly large rosters could result in unnecessary referrals to specialists based on access to time rather than to the degree of difficulty. Therefore, a multi-group configuration would benefit this type of practice. Technology Demands The trend towards high tech exposure in dentistry results in patients’ emerging perception that the modern dental office should be able to provide many of the technological amenities of a hospital in order to be current and progressive. They sometimes erroneously equate the quality of care with the degree of technology available rather than the result of the commitment and integrity of practitioners. For example, digital radiography is now rapidly becoming the standard of care. Panoramic radiography including 3-D, to facilitate implant placement, is in many general practitioners offices, and CAD/CAM crown and bridge procedures are common. On the business side of the practice, we see more examples: enhanced comprehensive computer systems now manage recare and treatment coordinator services satisfy an increasing patient demand for treatment information. Finally, a group practice affords the luxury of professionals to focus on procedures at which they are most proficient and they enjoy and to refer in-house to other members of the clinical team. Ideally, a group practice could lead to a higher level of patient care, provide autonomy for the practitioner, afford “state
VO L. 42 : NOV EMBER 2 009
of the art technology,” and offer outstanding human resources in a cost effective model. Pitfalls of Multi-Provider and/or Multi-Location Practice Many pitfalls of multi-providers or multi-location practices exist. Among the challenges are offsite professional leadership, attracting philosophically aligned co-practitioners with complimentary skill sets, not properly defining areas of responsibility, and operating several independent practices beneath one roof under the guise of a group practice. An unwillingness to compensate for highly skilled administrative staff to add value to the practice also poses a barrier to success. I would be remiss if I neglected to call attention to the need for adequate legal and management consultation for issues of team and systems that could possibly predispose such a practice to failure. Finally, the possibility of increased complexity of transitioning these large valuable entities is a reality.
An unwillingness to compensate for highly skilled administrative staff to add value to the practice also poses a barrier to success. In profiling those interested in a multi-group practice, the segment of dentists who aspire to total decisionmaking autonomy should rule out considering this model. The thin stream of early adopter trendsetters characterizes another segment of our profession who view the model positively. This leaves the vast majority who are comfortable observing results of initiatives and choosing those aspects that are most suitable for them. Finally, the third segment is content with the status quo and probably does not want to accept change. Therefore, the appropriateness of embracing the emerging trend of multi-group practices is a personal, psychological, and business decision. PA Ron Weintraub is a founding partner with the Bayview Village & Downtown Dental Associates and brings over thirty-ve 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 beneted from his insight. As owner of 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) 470-6222 Ext. 221 or drronips@rogers.com.
The Professional Advisory
VO L. 42 : NOV EMB ER 2009
5 W’s in Buying a Dental Practice
DAVID CHONG YEN CFP, CA www. dcy.ca
Buying a dental practice is likely one of the most expensive purchases you will ever make. Knowing what to do in advance will reduce your stress during the entire process. Below is a practical guide for buying a general dental practice. Where should I buy? • Location/Location/Location: Determine the population of the area and the number of dentists serving these patients. Consider that a dentist usually needs more than 1300 active patients to be gainfully employed. Identify any major employers of the area. Consider identifying which top five employers appear in the patient charts you review. Are these employers stable or facing bankruptcy? Who do I consult? • Brokers: Call/visit one of the dental practice brokers and find out what is available in the area of your interest. Obtain the appraisal report of the practice that interests you. Ask your accountant, banker and lawyer to review the appraisal. • Advisers: select your team of advisers i.e., lawyer, accountant, insurance agent, financial planner and banker etc., at the early stage of the process. Members of your team should be intimately involved with the dental industry. What to look for in a dental practice? • Determine the demographics of the patients including age, insurance, and whether they are inactive/active (recurring patient). Does buyer speak the language of the vendor’s patients? • Untapped revenue: Is there a hygiene program in place?
• Fees/Collection policy: Is the current dentist collecting the co-payment? What fee guide is being used? • Years practice in existence: Has practice changed hands recently? If yes, what are the reasons? • Royal College of Dental Surgeons of Ontario (RCDSO) standing: Has the practitioner ever been sanctioned, reprimanded or suspended by the College? You can obtain this information from the RCDSO website. • Intention of practitioner: Determine why the vendor is selling. Retirement, sickness or opening up new practice in the immediate area? Dental representatives are a great source for this type of information; also, if someone graduated 10 years ago and, claims they are retiring, I would be skeptical. • Associate: Any associate(s) currently working at the practice and reason why they are not interested in acquiring the business. • Buying assets vs. shares: Buyers prefer buying assets as they will enjoy a greater tax write off. Sellers prefer selling shares as they enjoy the life time capital gains exemption, i.e., pay less taxes when they sell. Sometimes a compromise is what is required to make the deal transpire. In a vendor’s market, there might not be much room for negotiation. • Buying assets vs. shares: What is your tax exposure in a share purchase? How much are the extra costs in acquiring assets? If you buy shares and the tax department audits a period prior to you becoming the owner, you, the buyer, could be responsible for the amount owing to the tax department. • Percentage of ownership: Is practitioner selling 100 per cent now or gradually over the years? If the sale is in chunks, how do you protect yourself? How best should you structure the purchase? • Hours of operation: Does that fit your personal goals?
The Professional Advisory
VO L. 42 : NOV EMBER 2009
Why is a chart count necessary? but not limited to removal of all conditions including financing and the chart count. • Number of active patients: Determine the number • Review the non competition/non solicitation of patients required to keep your business afloat. A chart audit should provide more insight. clause of an associate agreement you have signed. The goodwill which includes the patient charts Having a team of advisors who know the dental usually comprises 70 per cent or more of the industry intimately and a game plan will make this a purchase price. smooth and exciting process. PA • During the chart audit consider the Privacy Act issues (Piepida). Discuss this issue with your advisor prior to the audit. • Determine what type of work is being referred David Chong Yen, CFP, CA, of DCY Professional Corporation Chartered out. Could you do some of this work? Accountants, has completed the CICA In-Depth Tax Courses and has been When should I tender notice to leave my current advising dentists for decades. Additional information can be obtained by phone (416) 510-8888, fax (416) 510-2699, or e-mail david@dcy.ca. associateship? www.dcy.ca. This article is intended to present tax saving and planning • Not until you have “secured” the deal including ideas and is not intended to replace professional advice.
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”.