Closing Costs: Selling A Practice to Supplement Retirement

Are you counting on your practice sale to fund your retirement?

If so, you may need a backup plan. Typically, after taxes and closing expenses, the profit from selling your practice is roughly equivalent to what you would take home from the practice after working an additional 1.5 – 2 years. As a result, many dentists fail to plan their finances for retirement.If you are considering retirement in the next ten to fifteen years, now is the time to start planning.

To start, ask yourself: How much will it cost to live once I retire? If you can’t answer that question, it is time to start calculating. Use your credit card statements and check register. You will need to include taxes, health insurance, medications, mortgage, travel, gas, insurance, repairs, maintenance, phone, clothes, gifts, entertainment, hobbies, food, utilities, and cable. Then, determine a monthly and annual cost of living.

Now is the time to get totally out of debt. Banks place liens on your practice when you borrow money or open a business line of credit. If you have borrowed money, the debt will have to be paid off before, or at the sale of your practice.

What investments and other assets do you own? Do you own stocks, bonds, fixed assets, cash, or money market accounts? How much income will these assets provide after retirement — and is it enough? Currently, social security is still viable, but will likely only fund a small portion of your retirement needs.

Determine whether your future total income from investments, social security, disability insurance, and any other sources will be enough to cover your future budget. If not, then you will either need to reduce your current and future standard of living, or lengthen your timeline for retirement.

The most common solution dentists see as the answer to retirement income is to sell their practice. If that’s your plan, you should probably be looking at other options to supplement your retirement.

If you haven’t started planning yet, now is the time.

• Jennifer Furey, CPA

How Well Does Your Practice Manage All The Different Dental Plans?

Does your staff see your production and think everything is great? Meanwhile, you have joined a variety of dental insurance plans and are left to review your lower reimbursements which make it a challenge to manage your dental practice. When you have joined several insurance plans, it is essential that you review the appropriate numbers. If you just look at production you will most likely be misled. Utilizing your software and setting up the system correctly can have a huge impact. Entering the fee schedule and identifying the correct claim format will save your office staff significant time as the negotiated fee will be entered on the patient ledger. This saves your office staff from manually entering an insurance adjustment for every patient, or even every code! Also, by setting up the proper tracking for the insurance plans, you will be able to run reports that provide information necessary to evaluate each PPO plan’s performance.

When you join several insurance plans, here are several  item you should consider:

• Fee schedule – how to enter the negotiated fees into your practice management system
• How to enter insurance payments so your system improves its insurance estimates in the future
• How to train your staff to add patients with certain employers and insurance plans
• Number of existing patients with this insurance plan – some patients will suddenly change from out-of-network to in-network and you need to know the effect this will have on your collections
• Subscribers in your zip code – so you know how many potential new patients you could gain by joining
• How to compare the different PPO plans so you know which are the best and worst – and determine which you want to join.

Getting your system set-up properly from the beginning will save time and money and provide you the resources you need to evaluate each plans reimbursements.

Thinking About Hiring Your Children In Your Dental Practice?

Generally they will be in a lower tax bracket than you. Therefore, you can shift income from your higher tax bracket to your children’s lower tax rates.

In order to qualify as a deductible business expense, there are four criteria that must be met.

1. The compensation must be shown as an ordinary and necessary expense connected with the practice.
2. The pay must be reasonable, defined as the amount normally paid for similar services.
3. The services must actually be provided.
4. The compensation must be paid.

Your child is eligible to contribute up to $5,000 to an individual retirement account (IRA). Thus, in 2014, your child can earn $11,200 without paying any Federal income tax if they contribute the full $5,000 to an IRA.

They could also decide to contribute up to $5,000 to a Roth IRA. They would then pay about $500 of federal income tax, but all the qualified distributions from the Roth IRA would be then tax-free.