The
55 Professional
Advisory For Dental Professionals
IN THIS ISSUE Holistic tax Planning David Chong Yen CFP, CA
WHen is tHe RigHt time to sell my Dental PRactice? Colin Ross MBA
legal matteRs WHen selling youR PRactice David E. Rosenthal BA., LL.B.
WHeRe to invest casH toDay Mark McNulty BA, CFP, CIM
sPouses anD KiDs: Do tHey neeD insuRance? Dr. Ian Wexler
stoP oveRPaying aDDitional Rent Ian Toms B.Sc. (Hons)
afteR all tHis time... WHy cHange tHe PRactice Dr. Ron Weintraub
plus it’s all about communications notes fRom tHe eDitoR
Vol. 55 : June 2012
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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 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.
It’s All About Communications RALPH CRAWFORD BA., DMD Readers of the last The Professional Advisory (PA) issue, Volume 54, and this current issue, Volume 55, will note that under each author’s name and photo there is a highlighted notation Please send comments to.... followed by the author’s e-mail address. This is clearly an invitation from the author/contributor to each and every reader to contact the author with any questions, comments, and even critiques if necessary. Its’ all about communications! Within days of the PA publishing the communication invitation in Volume 54 there appeared in my maildelivered Spring Edition of the Manitoba Dental Association (MDA) Bulletin an article entitled Your Guide To Better Patient Communication. The article had two main headings: The goal of effective communication is simple To empower your patients with knowledge required to make an informed decision about their oral health. It is up to you to communicate your goals and expert opinion about the patient’s oral health so that you and your patient can determine the best treatment option. Why good patient communication is important If you include your patients as fully informed partners in their care, they’ll return the gesture by being loyal and continuing care with you. As I gave further thought to the two above MDA communication headings, and compared them to the PA author/contributors invitation for readers’ comments, I couldn’t help but realize that the MDA and PA are both in the same mode of thinking. There is no doubt PA authors/contributors are doing their best to empower dentists with knowledge to make an 1
informed decision about their practice health. And by including dentists as fully informed partners in their care they’ll return the gesture to the author/contributor with continued efforts to seek information on how to better align their practices and personal well-being. It’s all about communications being a two way street and it falls in line with the primary purpose of The PA - to interpret with 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. As you browse through this particular PA issue you will note some of the questions raised therein - Where to Invest Cash Today, When Is The Right Time to Sell My Dental Practice, Spouses and Kids: Do They Need Insurance and After All This Time...Why Change The Practice. Without doubt you will be reminded that at some time or other you asked yourself similar questions. So don’t hesitate to turn to these articles inscribed meticulously by Mark McNulty, Colin Ross, Ian Wexler and Ron Weintraub for the answers. Similarly, articles by David Rosenthal, Ian Toms and David Chong Yen deal with Legal Matters When Selling Your Practice, Stop Overpaying Additional Rent and Holistic Tax Planning - each an integral aspect of aligning your practice and personal well-being. It’s quite evident - and we repeat - that with every contribution to The Professional Advisory its authors are doing their very, very best to empower dentists with the knowledge required to make an informed decision about their dental practices and personal status. And when they head their articles with Please send comments to my e-mail address they are saying, “Let us know how we can help”. It’s All About Communications! PA
crawford@dccnet.com
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Holistic Tax Planning DAVID CHONG YEN CFP, CA www. dcy.ca
Please send comments to dcy@dcy.ca.
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A comprehensive approach to dentistry and tax planning yields better results. I will address the comprehensive approach to tax planning in order to generate tax savings. Five Main Principles of Creating a Comprehensive Holistic tax savings plan is as follows: 1. Ensuring that you claim all the possible tax deductions or credits to which you are entitled 2. Paying taxes later vs. sooner where possible. This is known as “Tax Deferral” 3. Income Splitting. This involves dispersing income into as many “poor” hands as possible 4. Choosing one type of income over another 5. Avoiding taxes all-together Here are some specific strategies that you may consider implementing today in order to save taxes in the future. Personal tax credits which may save tax dollars: • Public transit amount • Children’s fitness amount (children 16 and under) • Children’s arts amount (children 16 and under) • Home buyers’ amount (must be your first home) • Adoption expenses • Tuition, education and textbook amounts (full time/part time) • Examination fees Tax saving deductions: • Interest: Rearrange your debts; pay down your home mortgage as quickly as possible using practice profits while slowly paying down practice loan. You will have, in essence achieved tax deduction of your home mortgage interest. • Trigger capital losses to offset capital gains
Incorporating your practice, will not only defer taxes, it saves taxes too, even if you withdraw all profits from the corporation.
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Why pay now if you don’t have to especially when the government permits you to do so. There are various ways you may defer tax, for example, contribute to your RRSP or incorporate your practice. If you are at the top tax bracket of 46.4 per cent, you have successfully deferred $0.464 on every dollar you contribute to your RRSP, i.e., $10,000 RRSP contribution will cut your current tax bill by $4,640. Taxes will be payable when you withdraw the funds out of your RRSP. All income earned inside your RRSP will be taxed at the same rate at your withdrawal. You must have “earned income”, including salary, business and rental income in the previous years to generate RRSP room. Dividend income does not generate RRSP room. The maximum RRSP deduction for 2013 is $23,820 which means you must have $132,333 of earned income in 2012. Incorporating your practice will not only defer taxes, it saves taxes too, even if you withdraw all profits from the corporation. In addition, you have more flexibility in planning your remuneration mix i.e., salary vs. dividend, income splitting with your family, tax deferral and enjoy/multiply the life time capital gains exemption. 4
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*Profit (revenue minus expenses) before salary to DDS/DMD Salary to DDS/DMD (including CPP and EHT) Corporate taxes (including CPP and EHT) Personal taxes Total corporate and personal taxes
DDS /DMD
Professional Corporation * without family members
Professional Corporation with Two no income family members >18
400,000 N/A 400,000 N/A 169,000 169,000
400,000 -137,000 263,000 46,000 116,000 162,000
400,000 -137,000 263,000 46,000 75,000 121,000
7,000
48,000
SAVINGS
The chart above illustrates the tax savings on incorporating with and without “no” income family members. If you have two no income family members (for example parents or children attending university), you could save as much as $48,000. Income splitting to the extent possible will reduce
your family’s tax bill. The basic idea is to shift income from a high tax bracket person to a low income person. Income splitting may be in the form of paying a reasonable salary to family members, paying dividends to poor family members or loaning dollars to poor family members/minors to invest.
Equivalent Personal Net Return after tax investment yields
Interest or Ordinary Income
$ Received Taxes Net Return
100.00 46.40 53.60
Capital Gains
69.79 16.19 53.60
You are in the same position, receiving $69.79 in capital gains versus $100 in interest. The above does not include the new Ontario two per cent surtax (i.e., additional Ontario income tax on incomes over $500,000). If possible, you should generate more capital gains which are taxed the least. For example, Corporate Class Mutual Funds which convert income that would otherwise be taxed at high rate (e.g., interest) into dividends or capital gains. This could reduce your tax bill. Review this kind of investment with
Canadian Dividends (non eligible)
79.49 25.89 53.60
Canadian Dividends (eligible)
76.07 22.47 53.60
your investment advisor to make sure it fits your investment portfolio and risk tolerance level. Certain life insurance policies, for example, whole or universal life, shelter earnings from income taxes. This permits you to accumulate wealth and at the same time provides life insurance to protect your loved ones when you are not around. The above provides you with an overview of the potential tax planning tools. Tax planning is an ongoing exercise and should be done throughout the year. 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. 3
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When Is the Right Time to Sell My Practice? COLIN ROSS MBA www. ppsales.com
Please send comments to colin.ross@ppsales.com. Yes, it’s true, that due to a combination of factors, the values of dental practices are on the rise. As a result, we are often asked the question, “When is the right time to sell my dental practice?”, and, “Have we hit a ceiling on these values?” While the answer may be as simple as “Sell it when you want to retire”, I think that the true question that we are asked, is When Is the Right Time to Sell My Dental Practice for the highest price that also provides me with the flexibility to commence the next stage of my career. The response to that question is complex and must take into consideration many factors, including net worth, health, family, economics, demographics, the future, and many practice performance factors (No, age is usually not a factor!). The most important consideration is your personal situation. Surprisingly most decisions are more about lifestyle factors than financial considerations. Selling your practice doesn’t necessarily mean retiring from dentistry. When we are helping a dentist decide what
Sell Earn $189K/year Invest $730K @ 3% 5 year total
$ 945K $ 848K $1,793K
decision to make, we ask many questions about their personal situation, dentistry, and their practice. When a dentist responds that they love dentistry, their patients, and staff, then it’s clearly not time to sell! If the response is; they love dentistry, their patients and staff, but don’t want the management headaches and want the flexibility to slow down, then options arise. These options may include selling and associating back with the new owner dentist, adding an associate, merging their practice, hiring a manager, or simply reducing hours, with the understanding that the value of the practice will decline. When dentists respond that they don’t like practicing anymore, the staff and patients are a hassle, that they are tired, etc. - then do yourself and your patients a favour and sell! While the concept of selling and associating back is growing in popularity, and for many it is a fantastic way to transition into retirement, it is not always the best financial solution. We recently were part a sale where this occurred, and here are the financial implications. The practice produced approximately $715k per year in revenues, and the dentist was earning $323k pretax income. He sold his practice for $730k and agreed to remain as an associate for five years earning 45 per cent associate compensation. In this example, his new wages would drop to $189k for the same production. If we compare the financial implications after five years (without taxes, fees, etc.), and can invest the proceeds of the sale at three per cent per year, and assuming that the practice value stays the same, here are the results:
Don’t Sell Earn $323K/year $1,615K Practice Value $ 730K 5 year total $2,345K
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This was not a financially motivated transaction, but it made sense because the dentist did not want to continue to own and manage his practice. The above strategy is also increasing demand for the practices where dentists want to remain as an associate. In some instances, the price paid for a practice if a dentist is willing to stay on, can be higher as typically these purchasers have other practices, and can reduce costs through operational efficiencies, (bulk buying, shared resources, etc.), by bringing in additional services (specialists, implants, additional technology, etc.), and don’t forget, you are a very valuable associate. Another factor to be considered is the convergence of economic and demographic forces. It is clear that our dentist population is aging, and due to two major recent economic downturns that have affected net worth, some dentists are being forced to delay retirement. By some estimates, 34 per cent of Ontario dentists graduated in 1982 or earlier, making them approximately 55 years old and over. At some point, these dentists will want to sell their practices, and depending on the location, etc., the increased supply may put pressure on the supply demand forces in the market and may in fact bring practice values down. Irrespective of when you decide to sell your practice, you will be faced with competition from other sellers.
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This fact makes it extremely important to ensure that you prepare your practice for sale well in advance of the listing. The factors that create value include; a stable revenue stream, good profit margin, solid long term premises lease, good hygiene program, good recall patient base, a decent asset base, etc. The preparation for sale and your retirement planning can be started as much as 5-10 years before you actually sell. To maximize the value of your practice, start focusing on your practice well in advance of the selling decision. The start of this planning phase may involve performing a comprehensive valuation of your practice, and working with your other financial advisors to create a long term plan. In a typical valuation there will be enough information for you to identify issues and opportunities to work on to improve value. Subsequent simple updates can be completed every two years to measure the results of the changes you have made. In summary, the decision to sell should be based on your own personal situation. You will know when the time is right. The most important part of this process is that you start as early as possible to understand the market, and take the necessary steps to maintain a strong healthy practice. That way, irrespective of market forces and competitive pressures, your practice will be ready to be marketed and its value will be maximized. PA
Colin Ross is a Partner in Professional Practice Sales Ltd. (www.ppsales.com), which specializes in the valuation and sale of dental practices. He can be reached at (905) 472-6000 or 1-888-777-8825 or e-mail at: colin.ross@ppsales.com
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Legal Matters When Selling Your Practice DAVID ROSENTHAL BA., LL.B. Please send comments to david@drlaw.ca. When selling your dental practice, there are many legal issues to consider. Ideally these matters should be dealt with early in the sale process. This will enable you to make informed decisions about the nature of the sale transaction and help avoid costly problems later in the sale process. The following are some of the main legal issues that should be taken into account: 1. Price Determination - How is your sale price determined? For an asset sale the purchase price is allocated to various assets. A proper valuation of your practice by a reputable appraiser is important and will assist in determining asset values. Review the allocations carefully with your accountant to help finalize the sale price. 2. Professional Corporation - If your practice is owned by your dental professional corporation (PC), you need to ensure the PC legal documentation and minute book are up-to-date and in compliance with the laws relating to the PC - in particular the rules and regulations of the Royal College of Dental Surgeons of Ontario. 3. Assets or Shares: What are you selling? - If you own your practice personally as a sole proprietor, before closing you may be able to transfer the practice to your PC and then sell the PC shares to take advantage of the capital gains exemption. There are many tax and legal considerations and differences between a share sale versus an asset sale. Hire professional advisors who are experienced in advising dentists and who can provide solutions to the various issues when selling dental practices.
4. Cost Sharing or Partnership - If you are currently in a cost sharing arrangement or partnership, it is critical you review such agreement with your lawyer to understand how it impacts on the sale process. You may be surprised to learn that such agreement might require you to first offer your dental practice for sale to your partner or cost-sharer, before you can offer to sell your practice to a third party. Or, in many instances such agreement will require you obtain the consent of your partner or cost-sharer before you can sell your practice to a third party. 5. Sale Agreement - This is the definitive legal document, whether selling assets or shares. Such agreement will contain extensive representations, warranties, and covenants by the seller. Various conditions precedent are typically included, all of which must be completed before successful closing of the sale. The sale agreement will also include an indemnity by the seller to the purchaser. Since that indemnity obligation will survive after the closing for a period of time, you must ensure you, as seller, understand all such legal obligations. 6. Your Current Associates - Sale transactions can be hampered by associate issues, particularly when there is no existing written agreement with an associate who has been practicing at your premises for many years. Carefully review the existing associate agreements you, as principal of your practice, have with your associates. Do such agreements permit you to transfer the agreement to the purchaser? A purchaser will be particularly concerned with the non-competition and nonsolicitation clauses that bind the associate. 7. Premises Lease - A purchaser and purchaser’s bank financing the transaction will require a long term premises lease with renewal options in place. Review your existing lease to determine landlord requirements to transfer the tenant’s obligations to the purchaser. Your lease may require you, as seller, to remain liable for the remaining lease term even after you sell your practice. 4 6
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8. Leased Equipment - Typically purchasers buy the practice free and clear of any lease obligations. That means the seller must payout all lease obligations before closing. Review all existing leases to determine prepayment privileges and penalties. Often the early buyouts or cancellations of such leases are very costly. Instead of the seller paying such termination costs, it may be cheaper to require the purchaser assume those leases and reduce the sale price accordingly. 9. Employees - Similar to associate issues, sale transactions can be hobbled by employee matters, particularly when there is no existing written agreement with employees who has been working at your practice for many years. There are potentially large liabilities to your employees upon terminations. Ideally the purchaser will keep all employees and assume all liabilities for staff.
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Often the purchaser and seller will agree to share equally the costs of any employee terminations during the first three months after the closing. 10. Non-Competition Covenant - The purchaser will require you, as seller, to agree not to compete within a certain area for a certain time after closing. I recommend you read again my article in volume #53 of The Professional Advisory, which discussed in detail the parameters of non-competition covenants. 11. Seller associating after closing - Purchasers typically want sellers to remain at the practice to assist in the transition. Sellers may desire a longer term post closing association. To avoid potential problems, the terms of the post closing associate agreement should be agreed to early in the sale process. My practical recommendation is to include such associate agreement as a schedule to the purchase and sale agreement. 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 dentists. He can be reached at (416) 865-0736 or e-mail to david@drlaw.ca.
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Where to Invest Cash Today MARK McNULTY BA, CFP, CIM www.yournumber.ca
any economic outlook. We expect this to continue for some time to come. So what do we do? In Warren Buffett’s 2012 Letter to Shareholders, he wrote a section called “The Best Choices for Investors and the One We Strongly Prefer”. To summarize:
Please send comments to mark.mcnulty@raymondjames.ca. I’ve had two meetings in the past few weeks with dentists who have over $700,000 sitting in cash in their corporations. Why such a large cash build up? They just don’t know where to put it. Stocks had another losing year in 2011, and bonds are paying next to nothing. They don’t know what to do. I had a conference call with a hedge fund manager who summed up well what appears to be happening in the stock market today. To paraphrase, “we are experiencing a global tug of war between deleveraging and quantitative easing.” What is Deleveraging? A simple example is that companies will often take on excessive amounts of debt to initiate growth. However, using leverage substantially increases the riskiness of the firm. If leverage does not further growth as planned, the risk can become too much for the company to bear. In these situations, all the firm can do is delver by paying off debt. Any sign of deleverage shown by a company is a red flag to investors who require growth in their companies. What is Quantitative Easing? Governments increase money supply by injecting capital into the financial system. The increase in money supply is intended to stimulate the economy. So a ‘tug of war’ is occurring between these two factors. Companies begin to engage in necessary deleveraging, so investors panic and sell stocks. Governments (U.S., Europe, Japan, and even Switzerland are all doing it) then print more money to stimulate the economy. Investors get excited and buy stocks. Until the quantitative easing and corporate deleveraging strike a balance, this ‘tug of war’ will create a very volatile market, and place a cloud over
Berkshire (Buffett’s company) defines investing as “the transfer to others of purchasing power now, with the reasoned expectation of receiving more purchasing power - after-tax - in the future.” With this definition in mind, Buffett reviews three broad investment choices we have: 1. Currency based assets: Money markets, bonds, mortgages, bank deposits etc. In Buffett’s words, “most of these investments are thought of as safe. In truth, they are among the most dangerous of assets. Over the past century these instruments have destroyed the purchasing power of investors in many countries.” 2. Unproductive assets: These assets are ones where the buyer’s hope is that someone else - who also knows that the assets will be forever unproductive - will pay more for them in the future. 3. Productive assets: These assets have the ability in inflationary times to maintain their purchasingpower while requiring a minimum of new capital investment. These can be farms, real estate, or businesses. 4 8
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With the low interest rates that currently exist in the market, placing money in cash and fixed income will not deliver us more purchasing power - after-tax - in the future.
As Buffett explains, “Our first two categories enjoy maximum popularity at peaks of fear. We heard cash is king in 2008, just when cash should have been deployed rather than held. On these occasions, investors who require a supportive crowd pay dearly for that comfort. My own preference is our third category: investment in productive assets. Our country’s businesses will continue to efficiently deliver goods and services wanted by its citizens.” With the low interest rates that currently exist in the market, placing money in cash and fixed income will
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not deliver us more purchasing power - after-tax - in the future. We cannot beat inflation and income taxes, and increase our purchasing power with cash and fixed income. In my opinion, investing in businesses (through the stock market) is our best option for increasing our purchasing power over the next decade. It will just depend on our ability to avoid the crowd in predicting the result of the short-term ‘tug of war’. In other words, avoid the temptation to panic, and focus on the longterm. PA
Mr. Mark McNulty BA, CFP, CIM, is a financial 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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Spouses and Kids: Do They Need Insurance? DR. IAN WEXLER www.protect-ins.com
Please send comments to drwex@protect-ins.com. If you are like most dentists, you probably already feel that you are paying too much for insurance between your home, auto(s), professional liability, practice, life, long term disability, etc. The average dentist spends many thousands per year on insurance protection. So what happens when your insurance advisor asks you about coverage for your spouse and kids? For many, the answer is a quick “No thank you!” The better answer may be however, “Why do they need it?” How to proceed The first step in analyzing whether some sort of insurance protection should be considered specifically for your spouse and children is to undergo a comprehensive insurance needs analysis. Your advisor should also perform this analysis at different times in your life including: • When you first meet with the particular advisor • Upon significant life changes including but not limited to marriage/divorce, children, major asset and debt accumulation, business acquisition and/ or sale and income change. This includes you and your spouse individually, as well as together • Every several years As a result of this analysis, assuming you are the primary bread winner, the emphasis will be on ensuring you and your business are adequately protected in the event of death or disability. Your advisor, as mentioned in previous articles of mine, should then prioritize all of the coverage you need, want and can afford. The goal should be to ensure that you have the correct types and amounts of coverage,
your plans are structured properly and that you are paying appropriate premiums in the most tax efficient fashion. As long as “core” coverage is in place, many dentists simply do not require anything else. In other words, additional insurance purchases may be purely discretionary. This may include a number of different types of coverage that you were told “you absolutely must have!” There are literally dozens of life, disability, and other plans that for many dentists are discretionary. This list may include everything from critical illness protection to overfunded universal or whole life insurance plans that come with promises of a wealthy and tax-free early retirement. In previous articles, I have given warning after warning to dentists on how to avoid being sold plans that do not make sense for them. What is the financial impact? Once your coverage is in order, step two is for you, your spouse and your financial advisor to determine the financial impact of your spouse incurring either a significant disability or passing away. It is important to include your spouse in this discussion. All variables and scenarios should be considered including: • Spousal income and assets • Childcare and future education costs • Family cash flow, liquidity and lifestyle maintenance • Significant medical expenses, home renovations and final expenses • The impact on your practice if your spouse works for you • Your wanting or needing to take time away from your practice for a prolonged period of time What types of coverage should be considered for your spouse? 1. Long term disability • Especially if your spouse’s income is significant in maintaining family lifestyle 2. Life insurance • Help cover childcare expenses and future education costs 4 10
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• To enable you to spend more time with your children • Final expenses • To replace lost family income • Maintain family lifestyle 3. Critical illness • To help cover medical expenses that may include home care and home renovation • In case you need to take off significant amounts of time away from the practice to care for your spouse • To replace lost family income in the event your spouse chooses to work less or to take off more time before returning to work • Childcare 4. Long term care The final step is that once the decision is made to proceed with coverage for your spouse, it is important to consider the following: 1. Time frames for when coverage is necessary. For example, is coverage only necessary until retirement or the children are out of school and self sufficient?
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2. Be realistic and do not go overboard with amounts of coverage required 3. Make sure your spouse’s coverage is flexible in case variables change What about the kids? Insurance protection for the kids should come after the needs of the parents are properly addressed. Generally, two types of coverage are considered for children: life insurance and critical illness. Statistically, there is a remote chance of claiming during childhood, but some parents feel that coverage is important, even at very young ages. The following is a list of reasons to consider as a parent obtaining coverage for their child: 1. Guaranteed insurability a. In the event of significant medical histories involving either spouse’s family. This may include breast or other forms of cancer and other illnesses with a strong genetic component 2. Low cost at younger ages plus convertibility options as the child gets older 3. The potential for incurring significant medical costs 4. Providing a “permanent gift” to your child that may include the ability to save and accumulate a significant amount of wealth in their lifetime 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 900 dentists across Ontario for the past 17 years. He can be reached for questions or other enquiries at (416) 3913764 or drwex@protect-ins.com. 11
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Stop Overpaying Additional Rent IAN D. TOMS B.Sc. (Hons) www. iantoms.com
Please send comments to iantoms@pipcom.com. Well, I’ll bet your rent went up again this year. What else is new? Likely you have a net lease, which means that you agreed to pay a net rent plus additional rent on a periodic basis. Since net rent is fixed, it’s likely that the additional rent increased. Typically additional rent is the tenants portion of the landlords costs to run the property, which costs are loosely described as tax, maintenance and insurance (tmi). These costs do typically increase each year as most costs do. The problem arises when these costs and or share of costs is incorrect, inappropriate, or unfair. There are a number of approaches to manage additional rent and prevent overcharge. During the offer to lease phase, the components and share of additional rent can be negotiated. Additional rent components often include far more than the tax, maintenance and insurance referred to above. I have seen everything from staff uniform dry cleaning to ghost costs for which landlord received tax, insurance, warrantee, guarantee payments. Tenants share calculation is often distorted to favour other tenants. The key to effectively managing your position is to clearly describe each additional rent component, how your share calculation works, and to provide the opportunity to audit your landlords books. Unfortunately, many large landlords simply don’t agree to significant changes to additional rent share or components leaving the tenant with the choice to either take the space at the additional rent payable, or find somewhere else to rent. Some landlords, especially smaller ones, will adjust additional rent components or share, but since additional rent isn’t compared to lease provisions, the tenant often pays
what the landlord wants regardless of what the lease says. Further, negotiating additional rent too vigorously can cause the landlord to cut back on services because they have no budget. In short, no money = no snow removal for example. Therefore most tenants simply “go with the flow” and pay the same additional rent components and share as the remaining tenants, which is safe to a certain extent based on the premise that your landlord is competing with other landlords for the same tenants and therefore can’t charge more than the market will bear. But don’t give up just yet. What tenants really want is just to be treated fairly by receiving fair value for the rent spent. You can reduce additional rent without a great deal of effort by a quick check of your lease and additional rent statement. 1. Look at the additional rent statement costs and share to see if they are correct according to the lease. a. Is your premises area correct? b. Is your share of additional rent calculation correct? c. Are you being charged for any costs you did not agree to pay for under the lease? 2. Look at the additional rent statement costs to see if they make sense. a. Look at the municipal tax bill, make sure it’s for your property, apply your share calculation, and then cross check to what landlord charged. b. Make sure the landlords insurance cost for the property is reasonable, and you are being charged a correct share. c. Check that the repair and maintenance costs, including common ones such as snow removal and landscaping, are reasonable. Common sense will tell you what cost is out of whack. d. Is the administration fee being charged on all, or a subset of the additional rent costs? Does the math line up with the lease? 3. Work with the landlord to reduce general operating costs. a. It simply makes sense to turn off signage 4 12
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The key to effectively managing your position is to clearly describe each additional rent component, how your share calculation works, and to provide the opportunity to audit your landlords books.
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and parking lot lights during daylight hours. order of $1,000 per month. Make sure the landlord is using timers. 4. Reduce your utility costs paid through additional b. Encourage the use of computerized thermostats, rent. window shades, thermally efficient glazing, high a. If your baseboard heaters and your air efficiency lighting, and high efficiency heating conditioning are BOTH running at full capacity and air conditioning systems. Ask your landlord at the same time, you are overpaying. Fix the if it has investigated these opportunities; they problem. could save you $2 - $3 psf. b. Consider installing a check meter if you water c. Make sure that all utility use is being monitored. is not separately metered to avoid paying for a Since they are often a pass through cost, they utility another tenant is overusing. are not monitored by either landlord or tenant. I have seen some outrageous overcharges on the Take action. Save your money. 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.
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The Professional Advisory
Vo l. 55 : June 2012
After All This Time... Why Change the Practice? DR. RON WEINTRAUB Please send comments to drronips@rogers.com. After all this time, why change the practice? you might ask. The short answer is that our targeted patient demographic has changed, and it has changed radically. Three recognized stages of practice development are 1. Start up: Initial and a recently purchased entity 2. Practice maintenance phase 3. Mature practice/pre-transition phase. Stage One Stage one is the early acquisition phase requiring a great deal of effort and focus to attract and/or maintain a patient base. Typically, the practitioner and team are sensitive to and work hard at maintaining inherited patients as well as at growing the practice by adding new patients. Strategies such as offering flexible appointment times and state of the art, innovative office interface (clinically and administratively) are typically presented. These strategies satisfy patient expectations at that juncture of the practice’s development. The longer term goal, however, is to build a critical patient mass to a comfortable level to support a full-time practice. Stage Two The second stage is characterized by a validating process as the team polishes its values and solidifies the perceived “brand”. Fine tuning clinical skills and patient experience contribute to maintaining the practice, thus resulting in an entity that usually thrives and relatively satisfies office owners’ expectations. Stage Three We need to concentrate our efforts on the next era of our endeavor, stage three. At this stage, we need to put
our efforts into renewal by implementing strategies based on new developments in the field, clinically and administratively, to prevent a slow, but steady decline. This is the crucial time to grow the practice and offset the naturally occurring attrition that leads to the possibility of not keeping our schedule filled on a daily basis. The problem internally is often self defeating as some practice owners resist changing what they perceive has been working well for many years. The premise, “If it ain’t broke, why fix it?”, ignores the reality that attitudes toward professional services have dramatically altered over the past decade and a half with the rise of electronic information sources and social media. The result of the immediacy of instant communication heightens expectations among potential patients. Such awareness particularly influences the first and third stages of practice development. The third stage, spanning middle age to maturity, is most vulnerable to this type of scrutiny. Practices that project themselves as comfortable, long established, and mature risk stagnation in terms of patient growth. Even though there may be a sufficient number of existing patients who are comfortable and, indeed, enjoy the predictability of the existing team and physical plant, they may not be motivated to refer the next generation of patients to the practice. Without new patients, the practice stands still or endures a slow, insidious attrition , often leading to an inevitable reduction in clinical hours and more undesired “down time” for practitioners. So, what can we do to offset this predisposition or perception that third stage, middle-aged practices are, somehow, less capable of providing excellent care than their emerging counterparts? We can consider making several useful dynamic adjustments in order to contemporize the mature practice. 1. Structural modifications: Update the physical plant and add more current decor. Redesign the reception area to allow for more modern interface between patient reception and administration. 2. Image changes: To dispel the image of yesterday’s dental office, include a balance in staffing 4 14
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The Professional Advisory
Vo l. 55 : June 201 2
Without new patients, the practice stands still or endures a slow, insidious attrition , often leading to an inevitable reduction in clinical hours and more undesired ‘down time’ for practitioners.
of existing, mature faces and younger ones to recognize the generational mix of patients. With a complement of knowledgeable, long-term staff and new, younger teammates, existing staff, principals, and patients benefit. One way to accomplish this mix is by considering a younger part-time associate (a potential transitionee) to help attract the next generation of referrals. 3. Technological upgrades: Use interactive electronic communication equipment to share staffing updates and highlight new procedures, for example, to accomplish several different desired outcomes. Not only will it increase office efficiency, but also it will resonate with younger, more techno-savvy patients. WARNING: Many hold the erroneous view that cutting edge environments provide a superior, modern standard of dentistry. In addition, this thinking perpetuates the myth that an ostensibly modern office somehow appears to be a
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superior choice to recommend to friends’ adult children and colleagues. On the contrary, no correlation between image and reality exists in providing the highest quality dental treatment. 4. Safety upgrades: Share the fact that we use this generation digital radiography. Today’s patients are well-aware of safety concerns, particularly in the realm of radiation safety. A recent news item highlighted meningioma as a potential risk associated with the use of radiographs, particularly in children. The ability to reassure patients (in keeping with ADA, CDA, ODA guidelines) that our facility is up-to-date and proactive in mitigating risk to assure their safety is crucial. Yes, our targeted demographic has become more sophisticated. Yes, we need to make changes. Yes, we need to keep abreast of innovation. We CAN expect growth rather than decline of a maturing practice by committing to evolving with the times. PA
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 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 views expressed in any article are those of the author alone. They should not be acted upon without the advice of your “professional advisors”.