The
Professional
Advisory For Dental Professionals
Issue
50 VOL. 50 : JUNE 2011
The
Professional
Advisory For Dental Professionals
Volume 50
Notes From The Editor: Good Information to Make Decisions DR. RALPH CRAWFORD
Celebrating Dr. Ralph Crawford DR. ALDO BOCCIA
Your Golden Document - The Shareholders Agreement DAVID E. ROSENTHAL BA., LL.B.
2001-2011: How Did Your Portfolio Do? MARK MCNULTY BA, CFP, CIM
A Decade of Change in the Insurance World for Dentists: The Good and the Bad DR. IAN WEXLER
Look Back To Your Lease Future IAN TOMS B.SC. HONS
Building A Winning Dental Team DR. RON WEINTRAUB
Why Me? DAVID CHONG YEN CFP, CA
The Past, The Present and the Future GRAHAM TUCK H.B.A C.A AND DAVID LIND
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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. 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”.
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Good Information to Make Decisions RALPH CRAWFORD BA., DMD This particular issue of The Professional Advisory (PA) marks a special celebration and milestone. It is publication number 50 since the series was first launched ten years ago in May 2001. Certainly the dental profession has seen change over the past 10 years. As always with time, there are certain improvements to treatment modalities, there are up and down swings in economics and specifically in this modern era the changes in communication techniques have bordered on awesome. And how about the “seismic” political change in the recent federal election! On the other hand, some things don’t change and that’s a good thing. In reading the introductory comments in PA Volume #1 we can only be impressed with the purpose and rational back in 2001 to launch yet another publication within the busy healthcare publication sector. To quote from ten years ago: As we see it, the primary objective of the Professional Advisory is to interpret with our specific expertise, the impact of this complex world and distill that information down to how it relates to you in both a professional and personal sense. It is a fact that you need good information to make good decisions! And another great sign that you need good information to make good decisions is that the source of that information hasn’t changed from the seven professional offices that made it all happen in the first place. Congratulations to each and every contributor for your years of wisdom, advice and guidance in providing good information. And it continues to this very day. Ian Toms provides great information as he asks us to Look Back to Your Lease Future in order to incite awareness of the rent and tenancy obligations due to a variety of changes. Ian Wexler with his Decade of Change in the Insurance World reflects on how some
of the significant insurance issues - good and bad - have impacted on Ontario dentists over the last decade. Ron Weintraub’s good information on Building a Winning Dental Team revolves around a task not to be taken lightly. Rather, a successful team is vital to the outcomes we anticipate today and for the next decade. Portfolios, portfolios, portfolios: who hasn’t questioned how they performed in the past ten years. Mark McNulty’s good information in his 2001-2011 How Did Your Portfolio Do? provides the tools you have at your disposal that should be used to monitor your situation. Graham Tuck and David Lind in their Past, Present and Future take a look back over the past ten years and note the changes in buying and selling practices. Their good information that leads to good decisions remains unchanged: “Run your practice as efficiently as you can and focus on your patient base and the value of the practice will take care of itself ”. David Rosenthal, in reflecting back on the many changes the dental profession has undergone over the past ten years, points out that Your Golden Document - The Shareholders Agreement is one of the most dramatic of changes and follows through with good information to make good decisions. Why Me? you ask when your name comes up for a Revenue Canada audit. David Chong Yen clearly outlines the many common adjustments or areas which CRA would likely review when “it’s your turn”. Yes, ten years certainly goes by quickly in our busy changing world but the past 50 Professional Advisory publications have remained relatively unchanged. Unchanged because its primary objective has never changed: to interpret with its specific expertise the impact of this complex world - because it’s a fact that you need good information to make good decisions. PA
crawford@dccnet.com
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Celebrating Dr. Ralph Crawford ALDO D. BOCCIA DDS I would like to commend The Professional Advisory for both appointing Dr. Ralph Crawford as editor in 2004 and choosing to celebrate his career in this special 50th issue. Those of us who have had the pleasure of working with Ralph know his passion and dedication to the Art and Science of Dentistry. Dr. Crawford graduated with honours from the Faculty of Dentistry at the University of Manitoba in 1964 - at the age of 36. He practiced dentistry in Winnipeg for over 25 years, (limiting his practice to removable prosthodontics in the later years) throughout which he also taught part-time at the Universtity of Manitoba Faculty of Dentistry. Over the course of years he taught in the Departments of Practice Management, Endodontics, Ethics and Jurisprudence, Removable Prosthodontics and Geriatric Dentistry. A member of the American Society of Geriatric Dentistry (ASGD) since the early 1980s Ralph served on the ASGD Board from 1986 to 1993. In 1993 I joined the Board of the ASGD on Ralph’s recommendation and quickly found out what big shoes I had to fill. Ralph was one of the most respected members of the Board. He was also one of the first North American dentists who lectured on Elder Abuse. In 1999 Ralph was the first Canadian dentist to be awarded a Life Membership in the American Society of Geriatric Dentistry. Always active in dental association affairs Ralph was the first graduate from the Faculty of Dentistry at the University of Manitoba (founded in 1958) to serve as president of the Manitoba Dental Association (1976) and the Canadian Dental Association (1985) and is the only dentist in Canada to hold honourary membership in both organizations. The Manitoba 2
Dental Association has honoured Ralph on three occasions with their highest awards: the President’s Award of Merit in 1975 and 1978 and the Hall of Fame Award in 2003. Ralph Crawford also served on the board of directors of the National Dental Examination Board of Canada (NDEB) in the 1980s and was an NDEB clinical examiner for almost ten years. He is a Fellow of the International College of Dentists, the American College of Dentists, the Pierre Fauchard Society and the Academy of Dentistry International. He is also an Honourary Fellow of the Royal College of Dentists of Canada. In 1989 he retired from active practice and began an entire new career as editor of the Journal of the Canadian Dental Association. In 1992 Ralph and Olga sold their Winnipeg home - which by then was an empty nest and moved to Ottawa to be closer to Journal activities at the Canadian Dental Association (CDA) headquarters. Laying down the CDA editor’s pen in 1997 Ralph and Olga moved to British Columbia where Ralph continues his interest in dental publishing. To help celebrate the centenary of the Canadian Dental Association 19022002, and to highlight the contributions of the dental profession over the past 100 years, Ralph wrote a series of four page articles that appeared in each issue of the Journal throughout 2002. Through the cooperative efforts of the Dentistry Canada Fund and the Canadian Dental Association the articles were bound into a book, The Canadian Dental Association 1902-2002 - A Century of Service. Since their marraige in 1952, Ralph and his wife Olga, have had a long-time appreciation of antiques and “things old” with particular interest in dental artifacts and memorabilia. They have established small dental museums at the Faculty of Dentistry in Winnipeg and at the national headquarters of the Canadian Dental Association in Ottawa. In 1997 through the co-operation and encouragement of the Dentistry Canada Fund - the charitable foundation of the dental profession in Canada - a formal historic exhibit, the Dentistry Canada Museum, was established in a grand old ten-room Victorian type home in dowtown
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Ottawa. The Crawfords donated their entire 45-year old collection of hundreds of artifacts depicting dentistry’s rich tradition. In May 2003 Ralph and Olga established a permanent dental exhibit at the Arnprior & District Museum in Arnprior, Ontario and in 2005 they set up a display of dental laboratory artifacts in the offices of the College of Dental Technicians of British Columbia. In May 2003 Ralph and Olga Crawford were awarded the first Dentistry Canada Fund Service Award for their years of support of the principles and goals of dentistry’s most outstanding charity and for their interest in the preservation of the dental profession’s proud history. With the closing down of the Dentistry Canada Fund in 2008 the entire Museum collection was put into storage. Fortunately,
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in 2010 with the generous invitation of the Health Care Museum at Kingston, Ontario, and with the cooperation of the Canadian Dental Association the entire Museum collection was moved to Kingston where it assumed the name, The Dr. Ralph and Mrs. Olga Crawford Canadian Dental Collection. A worthy recognition for a lifetime of collections. Ralph and Olga are the proud parents of Patrick and Aileen. Patrick, married to Donna Giberson, is a pharmacist in Charlottetown, PEI. Speech pathologist Aileen and husband Rodney Stuart live in Vancouver and presented Ralph and Olga with their first grandchild, Julian, in August 2006. Thank you Ralph for your past and ongoing contributions to the Art and Science of Dentistry. PA
Dr. Aldo Boccia, an Alumnus of Distinction of the University of Toronto, has been a practicing dentist in Toronto for 37 years. He has served as president of several dental organizations including The American Society of Geriatric Dentistry and was Chief of Dentistry at St. Joseph’s Health Centre for 15 years. He has served on numerous committees at the Faculty of Dentistry, various hospitals and the Ontario Dental Association. Currently Dr. Boccia is a member of the editorial board of the Oral Health Journal. 3
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Your Golden Document The Shareholders Agreement DAVID ROSENTHAL BA., LL.B. Ten years ago, seven independent professionals who provide services to the dental profession formed The Professional Advisory (PA) to keep each other informed of the latest developments relating to the dental profession. They then extended that notion and determined to educate dentists and their advisors regarding the continuing evolution of the dental profession by producing this publication. Now it is ten years later and this is PA’s 50th edition. As anniversaries go, this is the golden one. That is a remarkable milestone. Over the past ten years the dental profession has undergone many changes. The most dramatic change from a legal and business perspective is the laws now permit a dentist’s family members to be non-voting shareholders of the dentist’s professional corporation (PC). A “family member” means a dentist’s spouse, child or parent. A “spouse” is defined as someone to whom the dentist is married or with whom the dentist is living in a conjugal relationship. However, note that only the dentist’s parents but not in-laws or grandchildren qualify as family members. Creating the proper share structure for your PC is a critical step and your tax and legal advisors will assist you in that process. We know your spouse, children and parents can own non-voting shares. But that is only the first and easiest step. Other attributes that may be considered with owning non-voting shares are: • do the shares participate in the profits only and/or in the PC’s growth • what priority do the shares have against other classes of PC shares for dividends or distribution when winding up or selling the PC shares • do the shares have a fixed value • are there redemption or retraction rights 4
• how many different classes of non-voting shares should be issued For maximum flexibility, generally speaking, each family member should have a different class of shares. Each dentist and his/her family will have different needs, so issuing shares to family members needs to be planned carefully.
If family members receive shares that are not redeemable by the PC, it is absolutely essential to have a shareholders agreement. Your dental practice is your livelihood. It is critical that you the dentist, and not your family members, have absolute control of the practice at all times. A properly drafted shareholders agreement is your golden document that will protect you and your dental practice. You might be surprised to learn that non-voting shares have voting rights under the Business Corporations Act (Ontario) in certain cases. In some circumstances shareholders of each class are entitled to vote separately as a class, whether or not that class of shares carry the right to vote. Imagine the scenario where you do not have a shareholders agreement and you want or need to reorganize your PC share structure, but your rebellious family member will not agree. This can be dealt with in the shareholders agreement by family members giving a power of attorney to the dentist relating specifically to the PC shares.
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You might be surprised to learn that nonvoting shares have voting rights under the Business Corporations Act (Ontario) in certain cases. In some circumstances shareholders of each class are entitled to vote separately as a class, whether or not that class of shares carry the right to vote.
At some point in your career you will sell your practice, whether by asset sale or a sale of all the PC shares. The dentist must be able to ensure that all the PC shares or assets will be sold, whether or not the other shareholders (your family members) wish to sell or agree on the sale price. The shareholders agreement should provide the dentist with the right to ‘drag along’ the other shareholders on the sale of the practice. Consider other events such as death of a family member or divorce or separation from your spouse. Those events are stressful enough. The shareholders agreement should specify what happens to the family member’s shares. For example, the shares might be redeemed by the PC or purchased by the dentist. The shareholders agreement should deal with how those shares are going to be valued and the terms of payment.
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It may be appropriate for your family members to obtain independent legal advice before signing a shareholders agreement. The dentist must remain in control of the PC regardless of changing circumstances. Follow the gold standard. A properly drafted shareholders agreement will ensure this. The ideal time to complete the shareholders agreement is at the beginning of the process when the shares are being issued to family members. The rules permitting family members to own shares of your PC present significant tax planning opportunities and potentially substantial tax savings for you and your family. However, the laws are complex. Proceed carefully and with the benefit of golden professional advice. 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.
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2001-2011: How Did Your Portfolio Do? MARK McNULTY BA, CFP, CIM www.yournumber.ca
How many of your colleagues know how their portfolios performed over the past ten years? Most dentists don’t know this. The first edition of The Professional Advisory came out in May of 2001. Since then, the average balanced portfolio is up 61.03% (as measured by the Financial Post Balanced Index which is 10% cash, 40% bonds and 50% equities). Is your portfolio up over 60%? If you don’t know how you’re doing, how can you decide whether a change should be made? What’s worse is that there is so much more that should be monitored than just investment performance, such as: • How is your performance relative to Your Number™ - the level your savings need to reach for you to achieve your dream retirement? • What is your real return - after inflation erodes purchasing power? • What is your return after-tax? • How does your performance compare to the market as a whole? Are you doing better or worse? We recently met with a 45-year-old dentist and spouse who have been clients since the end of 2004. We were operating on the assumption that when it came to retirement planning, a conservative return assumption would be 3% over inflation. In reviewing the return of the portfolio since they became clients, the return over inflation had only been 2.54%. Why does inflation matter? If we are running a projection for 47 years (the mortality of the client) as we are doing in this case, the cost of a movie and popcorn in 2011 versus this cost in 2050 will be dramatically different. That is why your portfolio return doesn’t matter - the return over the “cost of living” increase is what matters. 6
Average Returns If you have 100 years of annual investment performance, you will find that returns are all over the map. However, if you had to make a guess about next year’s performance, the guess that would have the best chance of being correct would be the average of the 100 years. For this reason, although this has been a volatile market, we did not try to target returns we did not get. We simply used the investment returns the client achieved since 2005, 2.5% over inflation. Here’s what happened. In previous years, we told the client Your Number™ is $3,332,897. The new number (accounting for 2.5% real return instead of 3%) is $3,671,548. This is an increase in required savings over the next five years of almost $340,000! How do you eat an elephant? One bite at a time. The $340,000 in extra savings that needed to occur broke down to an extra $68,000 per year. While this might seem like a lot to the rest of us, for this client it was doable.
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In Conclusion What gets monitored gets improved. Not only do most dentists not know what their return was for the past ten years, they also can’t answer the more important questions. Here are the tools you have at your disposal that should be used to monitor your situation. 1. How is your performance relative to Your Number™ - the level your savings need to reach for you to achieve your dream retirement? • Once you have established the amount you need to have in total savings to finance your ideal retirement, the only thing that matters when it comes to financial management is reaching that target. The stock market will fluctuate. Inflation will be a factor. Neither changes the fact that to achieve your goal you need to reach a dollar amount. 2. What is your real return - after inflation erodes purchasing power? • At the risk of repeating myself - if we are running a projection over many years (the mortality of the client), the cost of goods in 2011 versus their cost in the future will be dramatically different. That is why your portfolio return doesn’t matter - the return
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over the “cost of living” increase is what matters. 3. What is your return after-tax? • You have alternatives now. When you earn investment income in your professional corporation, it will usually be taxed at 50%. This is not the case when it is in the right class of investments. Structure your investment income properly and you can even improve the amount of money you take out of the corporation, as well as the income you earn within the corporation. 4. How does your performance compare to the market as a whole? Are you doing better or worse? • If your portfolio is up 10% what does that mean? Well, if the rest of the market is up 20% you did poorly. If the benchmark is only up 5% you did great. Know your benchmark! If you work with an advisor, they should be able to provide this information. If the news is bad, then the main question is can you rectify the performance. Don’t blame your advisor for stock market declines. Blame your advisor for not figuring out what has to happen for you to achieve your number - despite stock market volatility! PA
Mr. Mark McNulty BA, CFP, CIM, is a nancial advisor with Raymond James Ltd., Independent Financial Services - Member Canadian Investor Protection Fund. This article is for information only. Its opinions are those of the author, not necessarily those of Raymond James Ltd. He may be contacted at 905-470-6222ext 209 or mark.mcnulty@raymondjames.ca.
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A Decade of Change in the Insurance World for Dentists: The Good and the Bad DR. IAN WEXLER www.protect-ins.com
How time flies! It is hard to believe that The Professional Advisory was launched ten years ago. In keeping with the spirit of our 50th anniversary issue, I wanted to reflect back on “the good and the bad” of what I feel are some of the more significant insurance issues that have impacted Ontario dentists over the last decade. 1. Using your Professional Corporation for insurance planning With more and more dentists forming Professional Corporations, insurance planning now exists to save premiums, and utilize the PC for additional wealth and tax planning. The good news: With the right insurance advice and planning, dentists can save on life insurance premiums, and accumulate significant funds for retirement inside their PC. The bad news: 1. Your insurance advisor must be well educated in this area and educate you with regard to all risks and exit strategies. Your accountant must be involved in all major decisions. 2. Some use this strategy as a ploy to sell you insurance you do not need. 2 . Att ack of the 1st year dental student s Over the last several years, it has become common place for certain insurance brokers to target brand new dental students within the first month or two in order to sell them insurance coverage. To make matters worse, these brokers pressure students to buy coverage before they have their next annual check-up or travel abroad to instill the fear of being refused coverage! The good news: Many students don’t fall for this aggressive ploy, and wait until they are ready to buy coverage. 8
The bad news: Many do not know any better and sign up with these brokers after receiving additional pressure. 3. The introduction of long term care This coverage, which provides benefits to those who require home or institutionalized care after a certain age is a welcome product for many with a certain family history, or who have not saved enough for retirement. The good news: A number of older dentists are considering some form of this valuable coverage. The bad news: Many insurance advisors are unfamiliar with these plans, and most do not offer it. 4. Insurance and financial firms who claim to cure every tax and retirement problem you have via expensive universal or whole life A week does not go by without a dentist telling me about an advisor or the latest financial seminar they have attended that promises financial freedom or a cycle of wealth with low taxes and little to no risk. The good news: none. The bad news: 1.This strategy works for very few who fulfill very specific criteria. 2. Rarely are dentists told the downsides, risks, and exit strategies. 3. Dentists looking for easy answers are sitting ducks who will, years from now, realize that they have spent tens or hundreds of thousands of dollars on poor financial planning. 5. Being told that you MUST have critical illness insurance (CI) The reality, in my opinion, is that critical illness coverage is a discretionary purchase for most dentists, and NOT a replacement for long term disability coverage (LTD). The good news: 1. CI can have a significant financial impact at claim time for those who need it. The bad news: 1. It is frequently over-sold, and often sold to replace more important conventional LTD. 2. Unscrupulous advisors use the critical illness sale as “the thin edge of the wedge” to sell you expensive permanent life insurance plans (yielding high commissions).
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With more and more dentists forming Professional Corporations, insurance planning now exists to save premiums, and utilize the PC for additional wealth and tax planning.
6. More stringent underwriting Over recent years most insurance companies are taking a closer look at your travel history and plans, what sports you partake in, and ask more details about your general health. The good news: Exclusions relating to these issues are not as tough or restrictive as many think. The bad news: 1. Many insurance advisors use this issue as a scare tactic to sell you coverage NOW. 2. Most insurance advisors avoid offering living benefit plans to their clients because of this issue. 3. Applicants may fail to answer the application questions accurately which could have a detrimental impact at claim time. 7. Continued changes to plans offered through CDSPI Life, long term disability, office overhead and other plans offered through CDSPI continue to see changes to plan benefits and premiums...with no future guarantees! The good news: Those who qualify health-wise can switch to guaranteed private plans. The bad news: 1. Association plans, benefits and premiums can, and most likely will continue to change over time. 2. Those who fail to qualify medically, may not be able to switch to a guaranteed plan. 3. 13 per-
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cent HST continues to apply which many dentists do not consider. 8. Higher life insurance premiums After plummeting for years, life insurance premiums have recently begun to spring higher. The good news: 1. Depending on the type of coverage, amount, and other variables, premiums are currently still reasonable. 2. Dentists can still purchase guaranteed premium life coverage where the cost is guaranteed and/or never changes. The bad news: 1. Premiums will probably go higher at some point in the future. 9. Greater insurance education on the part of the Professional Advisory Over the last ten years, it has been my honour and pleasure to contribute to this outstanding educational publication whose editor and professional contributors, I feel, have no equal in the dental world in Ontario. Many dentists over the years have told me how much they respect our content, professionalism, and commitment to providing the highest level of practice, financial, and legal information they have seen anywhere. Thank you to all of our readers! I wish you all the very best of happiness, excellent health, and success in the future! Here is to the next 10 years! PA
Dr. Ian Wexler is a leading authority on insurance issues for dentists. He is the founder and President of Protect Insurance Agencies Inc. in Toronto which provides specialized expertise in life, disability, critical illness, long term care, and other insurance products and services to over 800 dentists across Ontario for the past 16 years. He can be reached for questions or other enquiries at (416) 3913764 or drwex@protect-ins.com. 9
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Look Back to Your Lease Future IAN D. TOMS B.Sc. (Hons) www. iantoms.com
To respond to change we need to recognize it, since “those who cannot remember the past are condemned to repeat it”. To understand how to manage future lease affairs, consider what’s happened in the premises leasing environment over the past 10 years. Rent and tenancy obligations have increased due to legislative changes. • The Real Estate and Business Brokers Act (2002) has significantly improved the level of training and accountability of real estate professionals who now typically hold at least an undergraduate degree and complete extensive post graduate training at the Ontario College of Real Estate during a two year articling period. Commercial realty and tenancy negotiation has become a very sophisticated and specialized field. • Progressive environmental legislation now affects the design, construction and operation of commercial buildings, in turn increasing the cost of new construction and ongoing additional rent costs. Rent has increased in response to increased operating costs. Rent and tenancy obligations have increased due to economic changes. • Base and additional rental rates for office and retail space have increased dramatically over the past 10 years, despite the 2008 economic slowdown, with many tenants experiencing rate increases averaging 5 to 8 per cent per year. • Canadian commercial real estate has proven to be a great long term investment, providing comparatively strong return rates in the context of a globally recognized safe and stable bank and government system. Therefore demand for real estate by large domestic and foreign investors has 10
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increased commercial real estate purchase cost which in turn has increased rent. • The Canadian consumer price index rose by 21.6 per cent between 2000 and 2010, or an average of 2.16 per cent per year. In order to simply maintain the same bottom line, tenants total sales and occupancy costs have had to follow this trend, which simply has not happened. • 10 years ago many new practices were being built in new strip plazas located in the “green and growing” leading edge of urban sprawl. Development focus shifted following the 2008 slowdown to “infill” redevelopment projects which replace existing properties in areas which have been developed for decades (example Yonge St. & Sheppard Ave.). Whereas new plaza clinics attract relocating and young family patients, clinics located in redeveloped properties compete with existing clinics for new patients. • Interest rates have dropped almost 5 per cent over the past 10 years which has prompted institutional investors to invest in real estate which has increased demand for commercial real estate and increased pressure on rent. • As of July 1, 2010 rent increased by 8 per cent because tenants now pay provincial sales tax on rent as a component of HST. • The 2008 recession reduced consumer demand for oral healthcare and treatment. As practice volume dropped, pressure on operators increased to reduce operating overhead including rent. • Demand for leased space increased to peak in 2008. There was no space for lease in some markets at that time. The economic slowdown reduced demand and increased supply of space. Base rental rates have remained at the 2008 high water mark, but additional rent has continued to increase significantly. Rent and tenancy obligations have increased due to
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changes in technology. • Rented space is now measured according to a “new” standard. Chances are you are now paying more rent simply because you are paying on area which doesn’t really exist. • Lease forms have been significantly affected by computers and the internet. Typical leases are now compilations of powerful clauses based on collective landlord experience, written on letter sized paper, and circulated by email, compared to the legal sized documents drafted by one person and circulated by surface mail in the past. Rent and tenancy obligations have increased due to sophisticated landlords. • York University and University of Victoria offer undergraduate degrees in real estate. The Ontario College of Real Estate offers licensing courses, certificates, and required continuing education credits. Landlords typically employ very sophisticated leasing managers with combinations of undergraduate and graduate training in real estate and economics or business administration, adjusting the scope of negotiation well beyond the reach of a typical tenant or an unspecialized representative. • Typical institutional leases are now very comprehensive and sophisticated, and are governed by policy instead of common sense resulting in minimal negotiating latitude. Measure how much the change over the past 10 years costs you for one month by subtracting the monthly rent you paid 10 years ago from this months rent. How much of this cost would you have saved over the past 10 years if you had retained a professional to represent your position back then? If this trend continues, how much will your rent increase over the next 10 years? Do not repeat past mistakes. It’s you who need to respond to change. Level the playing field by retaining professional representation. PA
Mr. Toms has been creating and preserving realty leasehold value since 1986 and can be reached at (705) 743-1220, by e-mail at iantoms@pipcom.com, or through his web site at: www.iantoms.com. 11
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Building a Winning Dental Team DR. RON WEINTRAUB www.innovativepracticesolutions.ca
One of the strongest trends observed in the evolution of providing dental services over the past ten years is the expansion of a team approach. A dental team comprises a skillful, empathetic group leader as the principal dentist(s) and a hygiene component with exemplary clinical and communication skills. Complementing them is a crucially vital administrative grouping. The clinical support staff and the administrative grouping are too often underestimated or undervalued despite the enormous effect they have on the success of the practice. Pursuing excellence in all facets of a dental office is a desired goal. Becoming evident recently is that our existing, and perhaps more importantly, our potential patients evaluate the complete package of the care they receive in our office. For instance, anecdotal evidence often reveals that when people are asked where they receive their dentistry, many answer,“At Dentistry on...”, rather than “At Dr. Wonderful’s” office. Such a comment indicates that even though patients recognize the dentist as a crucial, indispensible component of their dental care, they value all the ancillary efforts to which they are exposed. Assembling a Winning Team Requires Preparation A winning team does not simply appear. In an effort to maximize optimal results, several principles are helpful in enhancing our existing team or in attracting talent. Foremost in engaging a high calibre team is by clearly articulating and documenting our office philosophy in an effort to give team members the opportunity to fulfill its objectives within their particular role. Gaining popularity is writing detailed job descriptions for all positions within the environment as the next principle to follow. Using the descriptions to review
existing team members before replacing and recruiting outside personnel is prudent. There is, after all, significant value in staff retention if the incumbent is amenable to change for improvement. Once job descriptions are firm, we can carefully evaluate incumbents’ fulfillment of their responsibilities. A word of advice: Job descriptions should be drawn solely based on needs of the specific position, rather than the preferences and strengths of the incumbent. Should we observe any deficiencies in the incumbent, a more recent practice is to consider outside objective and experienced consultants who can train these individuals, if necessary, in order to remediate shortcomings. If not, we often say, “The bend in the road is the end of the road for those who don’t make the turn.”
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Job descriptions should be drawn solely based on needs of the specific position, rather than the preferences and strengths of the incumbent.
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Should we need to seek new employees, we frequently look at candidates’ experience first. Oftentimes, however, the role of prior experience is over emphasized. For example, consider a candidate who has been a long standing, although a mediocre functionary, not trained in updated methodology. It’s beneficial to attract people who have previously been associated with successful offices; an office you may even aspire to emulate. Fundamental to a successful search is to check references, doctor to doctor, in an effort to avoid biased feedback from co-workers.
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Another scenario is sometimes excellent candidates who have not worked in a dental environment possess outstanding customer service skills and a high degree of adaptability. A candidate with transferrable skills can be moulded to perform exactly as the job description prescribes. In such cases, it might be worthwhile training fresh as opposed to working around stale-dated skills of an incumbent. Adding New Players to the Team Through Recruitment A variety of methods to attract excellent people is available. Among them, some are as simple as the practice of placing ads in local newspapers. More recently, using the myriad of online strategies has been gaining momentum. Another suggestion, often productive, is involving dental supply representatives in the search. More difficult than choosing a method to recruit staff, however, is refining the list of potential candidates. After applications are carefully screened, we need to draw up a short list for personal interviews. The interview process is the next step. Historically, the key to success in choosing the best qualified candidates for the positions is having specified criteria for interviewees so that members of the interview committee know what to look for and how to evaluate each candidate. No less is true today. The interview group should include not only the dentist, but also include at least one other team member from the same department as the potential candidate and the office coordinator, if he/she exists.
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Considering the Needs of Complex Dental Environments As a modern dental environment becomes more complex, certain roles evolve as central to the efficacy of the office. In such cases, it is worrisome when these valuable employees have to be replaced. The two main roles to consider are long standing office managers and successful treatment coordinators. These positions, if understood and executed properly, become indispensible to a smooth running, patient-friendly office. They allow clinicians to focus on providing quality patient-centred care. The impending loss of either one has to be taken seriously. Replacement in such cases may warrant another level of recruitment activity sometimes called executive recruitment and training initiative. Challenging staff transition lends to considering the possibility of an engagement of an outside source to find qualified candidates, evaluate current job descriptions, and enhance their parameters. Following such recruitment, the successful applicant should be thoroughly trained in-house to assume the role allowing the office to move forward without costly glitches. Organizing a winning dental team in a contemporary dental practice is not cobbling a few people together to fill available positions. Rather, it is a task not to be taken lightly. To realize our practices’ true potential, building a successful team is vital to the outcomes we anticipate for the next decade. 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.
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Why Me? DAVID CHONG YEN CFP, CA www. dcy.ca
Every year, the Canada Revenue Agency (CRA) selects certain taxpayers (individuals, trusts, and corporations) for a full audit or a partial audit/review, such as a payroll audit, for one year or a couple of years. The chance of being selected for the audit has nothing to do with whether you file the return on paper, or electronically. However, if you are delinquent in your payroll account, the risk that you will be audited is much higher. According to the CRA, there are four common ways in which they select files for audits: 1. Computer-generated lists (i.e., random). 2. Audit projects (i.e., specific group of persons; for example, self employed vs. employee for hygienists). 3. Leads (i.e., neighbors or ex-spouse tipping CRA). 4. Secondary files (i.e., resulting from another audit). In addition to CRA’s four common ways of selecting files, your file could also be pulled for claiming unreasonable expenses. The CRA has up to three years from the date of your Notice of Assessment to audit you and/or your corporation. After this time period, the CRA could audit you only if they believe you have committed some kind of fraud in filing the tax returns or you have signed a waiver letter (i.e., a letter allowing the CRA to audit you beyond the three year period). If your tax returns are selected for an audit, the CRA auditor normally calls you or your representative (i.e., accountant) or sends a letter requesting certain information for specific taxation years. This letter usually tells you if it is a detailed audit or just a partial review. As a rule you have 30 days to reply or set up an appointment with the auditor. There is no point procrastinating – if you have a problem meeting the deadline, it is important to phone the CRA and ask for an extension. The CRA normally doesn’t have any problem granting an extension. One way to reduce your stress level during the audit is to inform your 14
accountant of the audit immediately and have your accountant deal directly with the auditor. This way, you will ensure a smoother process and a better result. To avoid any surprise adjustments, you should be aware of the common adjustments or areas in which CRA would likely review. The following are a few areas often reviewed: Company automobile: If your corporation owns or leases a car and you are driving it for personal use as well as for business, you will have to include a taxable benefit amount on your personal tax return or T4. The percentage of personal use is always a contentious issue. Proper documentation (for example, keeping a log book) of all your travel is of utmost importance.
Automobile expenses: Individuals using a personal car for business purposes can either receive a tax-free car allowance (based on business kilometers travelled) from his/her own corporation or claim car expenses if you are self employed. All kilometers travelled must be reasonable and properly documented by a log book. Receipts for all car expenses must be kept if you are claiming car expenses. Proper planning of your daily trips would increase your business kilometers, for example, stops at a supplier or visits to your accountant before or after work can make the whole trip deductible. Driving directly from your home to your office and vice versa are not considered business kilometers.
The Professional Advisory
Meals and travel: Always keep your meal vouchers and document who you dine with, and for what purpose. Staple your credit card receipt with the meal voucher. If you own a dental office, you are entitled to deduct the full costs of up to six meals if you invite all staff to these meals. All other meals are subjected to a 50 per cent expense limitation. If possible separate personal and business travel expenses. If personal and business expenses cannot be distinguished, CRA is likely to consider the entire amount as personal and deny the deduction. Always document the purpose of the travel. Business use of home: If you do not use your home office to meet/call patients, it is highly likely that CRA will not accept it as a deductible expense. Again, the percentage use must be reasonable. Salaries and Wages to family members: Consider only paying reasonable salaries to family
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members for work they do for your practice. Pay them on the same frequency as you would a stranger (i.e., if your staff is paid every two weeks then pay your family members every two weeks). Ensure your family member deposits their salaries into their own bank account, preferably one in which you have no signing authority. If CRA determines that the amount is unreasonable, they will deny you the deduction and STILL tax your family member on the amount you paid them (i.e., double taxation). Also, prepare job descriptions for all staff including family members. What is reasonable? Oftentimes clients will ask, “What is reasonable?” It helps to work with professionals who know your industry, as well as you know dentistry. These professionals can benchmark your expenditures against other dental clients. This knowledge may assist you in planning and maintaining reasonable expenses. PA
David Chong Yen, CFP, CA of DCY Professional Corporation Chartered Accountants is a tax specialist and has been advising dentists for decades. 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 planning ideas and is not intended to replace professional advice. 15
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The Past, the Present and the Future GRAHAM TUCK H.B.A., C.A. www. ppsales.com
DAVID LIND www. ppsales.com
This issue of The Professional Advisory marks our 10th anniversary. All of the contributors have agreed that this is an opportune time to take a look back at what has changed since we began publishing the P.A. in May of 2001. Ten years ago in Volume 2, Professional Practice Sales (PPS) indicated that Patients and Profit were two of the core value drivers in a dental practice. This is still true today. One change has taken place with respect to profit. Dentists can now incorporate. Thus, we use the 15.5 per cent tax rate as opposed to the personal tax rate of up to 46 per cent that applied ten years ago. The result is that there is more money left over after taxes which makes the practice more valuable. This means that the purchaser must incorporate to afford to purchase the practice regardless of purchasing assets or shares. The debate over lower corporate tax rates is raging right now as a contentious issue in the federal election. They are certainly at historical lows and have had a positive impact on practice value. It is not possible to predict what may happen on this front in the future. We are confident however that a strong patient base and good bottom line will continue to be core value drivers long into the future. In Volume 5 PPS advised that Baby Boomers may well come on the market together but demand would be high and values would not be reduced. This has proven to be correct as Baby Boomers are selling today 16
and the prices have never been higher. We still hear dentists with concerns about an oversupply of practices creating a glut on the market. Our position is still the same; run your practice as efficiently as you can and focus on your patient base and the value of the practice will take care of itself. Creating value in your practice through balance was discussed in Volume 6. This central value driver was reiterated in Volume 45 last year. It has not changed in 10 years and is not predicted to change in the future.
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Corporate tax rates are certainly at historical lows and have had a positive impact on practice value. It is not possible to predict what may happen on this front in the future.
10 years ago we did not sell practices to investing dentists. Now, this group of purchasers forms a large percentage of the sales that are made of larger practices. Most often the vendor is asked to stay on for a longer than usual transition such as 3 -5 years. This is an ideal way for someone who wants to transition out of the day to day responsibility of the practice but still wishes to practice dentistry, perhaps on a reduced schedule. This phenomenon was discussed in detail for the first time a couple of years ago in Issue 39. Recently, some of the investing dentists we deal with have expressed interest in buying multiple smaller practices and merging them together to take advantage of the economies of scale. There is also interest from this group in purchasing practices that are out of the traditional “high-demand” areas around major metropolitan centres. This is evidence that the natural selection process is taking place and that there is resistance to some of the unrealistic prices some vendors are expecting in the big cities. We believe this trend will continue as buyers discover the strength of dental practices in smaller centres. The subject of “Dentistry outside the big City” will be the topic of an upcoming issue in The Professional Advisory.
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Another noticeable change is the last 10 years is where dentists choose to set-up. You seldom see set-ups in low visibility professional or office buildings anymore. Most often, new set-ups are in high visibility strip malls, or other retail type locations. Those that do set up in low visibility locations either have a particular skill that will draw in patients or they have a community that they will serve that is not location dependant. Otherwise they will have a very tough time competing with the higher visibility locations. Does this mean that all of the dentists who are in professional buildings should relocate to strip malls? Categorically no! There is still demand from buyers for good practices located in professional buildings. In fact, many younger dentists relish the opportunity of working regular business hours. For those practices, it is very important to have a “patient-centred” practice as it is your existing patients that will bring in your new patients. We hope you have enjoyed the last 50 issues of The Professional Advisory, and we look forward to providing you with timely and relevant information for many years to come. All of the articles referred to here are available on our website noted below. PA
Graham Tuck is the Broker of Record and David Lind is a Principal in Professional Practice Sales Ltd. (www.ppsales.com), which specializes in the valuation and sale of dental practices. They can be reached at (905) 472-6000 or 1-888-777-8825 or e-mail at: graham.tuck@ppsales.com and david.lind@ppsales.com 17
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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�.