8/18/08 – The information you need, when you need it. That’s what DentalBlogs is all about. And with the economy facing hard hits recently, expert financial information is just what the dentist ordered. Keith Drayer, Vice President at Henry Schein Financial Services, kindly agreed to provide some timely and valuable insight for our DentalBlogs readers.
On Practice Transitions
DB: In this tumultuous economy, dentists are worried about their retirement. What advice would you give those preparing for retirement in the next few years?
KD: Think of it in terms of selling a home. Some people prepare to sell their house by fixing up their homes to be their dream house, only to sell it soon after. Then the buyer gets a spectacular home. It’s a shame that the seller didn’t get to enjoy those renovations and the fruits of their labor. It’s a similar situation for a dentist. Why not provide an attractive, quality practice where patients will enjoy the experience, the staff will want to work in that environment, and the doctor will benefit as well?
Also, as a dental practice acquisition lender, we look at multiple years and not just the past year. So the average last few years’ production goes into the valuation formula. This is a great incentive to enjoy your dental practice. An attractive practice and quality delivery of care is the best way to attract new patients, get patient referrals and is more productive then advertising.
DB: What would you recommend for dentists who are just beginning their retirement plans?
KD: The best advice, regardless of age and numbers of years remaining in practice, is to think about a transition. Having personal and professional goals and having them in writing is just the prudent thing to do. It’s no different then why people have insurance – to protect their families. The building block of a transition plan is a professional practice appraisal. Once done, they don’t need to be updated annually. The worst-case scenario that we see is in the case of death or disability and the family has no idea what the practice is worth. The family or estate may think one number. The value of a practice without an active dentist declines with time. Since procrastination will only lead to a lower practice value, its worth having an appraisal; the caveat is an appraisal by someone with specific dental practice experience (and not a small business generalist).
On Practice Transitions
DB: Is this a good time for a practice transition, with the stormy economy?
KD: Yes, we’re at a speed bump in the economy. Depending on what part of the country you are in, it can be a pebble in the road to a deep pothole. But the demographics of a growing and aging population aren’t going away. The economic power of the baby boomers still represents a massive, well educated demographic. They want to look and feel good.
DB: Does a dentist need professional help with a practice transition – a realtor, a consultant?
KD: The best resource is a professional dental practice transition firm. Sure, if real estate is part of the practice, a realtor should work with the practice broker (some options are to separate the practice and the property in a sale). Let’s look at two different dental practices. Both practices have one doctor, one hygienist ,and gross $800,000. One practice is all fee-for-service and one practice is dominantly insurance program-based. While both practices are profitable, their values will vary substantially. That’s why a dental practice transition firm can help a dentist maximize the value of a practice.
DB: What are the most important considerations when planning to sell a practice?
KD: If I were a dentist that wanted to transition, I’d ask lots of questions. I care about my patients, who can make sure that my practice continues to provide excellent patient care? Who has specific experience with dental practices?
On Financing the New Practice
DB: To the dentist who wants to purchase a new practice, what do you recommend as far as financing?
KD: Financing for practice start-ups is still available. The credit crunch that we read about in the newspapers is not deterring industry specific lenders that solely deal with dentists or physicians. Simply put, the more prepared a dentist is, the quicker they’ll receive funding. Has the dentist seen or been provided with demographic reports on the area they want to start up in? They provide terrific insight and are available for as low as $80. Has the dentist figured out the breakeven amount they need financially to get by in the early stage of their start-up? Many distributors can provide free software that shows dentists their projected revenue and expenses.
DB: When is the right time to purchase new technology, when opening a new practice or a few years down the road?
KD: Digital technology in a dental practice is pretty much expected these days. Whenever I ask a group of younger dentists, “Who uses a digital camera, and who uses a film camera?” it’s no guess which one is pretty close to 100%. How many younger doctors download digital music? Again, close to 100%. The digital age is here to stay.
Just like some dentists might equip two or three rooms and plumb additional rooms for future expansion, it’s similar with technology. Many doctors start with digital radiography and then integrate other solutions over time.
On Investing
DB: For dentists looking to grow their cash, which investments are wise choices right now?
KD: Great question! There are a few answers. The best investment is one where a dentist can maximize pre-tax benefits. First, maxing out a 401(k) program for the dentist and offering a 401(k) program that can help dentists recruit and retain a great team should be looked into. This can provide an extra benefit if a dentist has family members on the payroll who can contribute towards their retirement as well. There are great turnkey 401(k) programs that take can be done with one firm. This eliminates the burdens of dealing with different firms for investment advisors, trustees, regulatory filing, and plan design.
Secondly, take advantage of tax incentives that lower taxable income. Section 179 tax incentive lowers taxable income up to $250,000 in 2008 with a fifty percent bonus depreciation after the $250,000 for acquiring equipment or technology. While most dentists are small businesses and eligible, all individuals should check with their own advisors. Section 179 has never been so high and next year it is scheduled to go to $128,000 plus a small amount indexed for inflation. So if a doctor is considering cone beam technology or moving their office, 2008 can be the year to do it.
Third, learn about Tax code Section 199. Section 199 is basically a benefit for businesses that are domestic manufacturers. So dentists that are using D4D or cad-cam may now be considered manufacturers of crowns (instead of outsourcing this to a lab that is the manufacturer). In 2008 & 2009 there is a six percent benefit relating to the crown income. Technically this is known as “QPAI” or “Qualified Production Activities Income.” In 2010, this benefit goes from six to nine percent. As this is a newer tax benefit, dentists should ask their accountants.
As a side note, a prudent investment is to review annually your credit report. There are a few services, like www.freecreditreport.com, that will provide your credit score and show you inquiries and account standings with your credit bureau. The worst thing anyone wants is a surprise, and I’m not talking about a good surprise, when they want to use other people’s money to acquire equipment or seize an opportunity.
On The Economy & Dentistry
DB: Do you have a few wise words to help dentists weather this storm?
KD: I highly recommend that dentists stay “fiscally fit.” What I’m getting at is that dentists are healthcare practitioners. They should not be bankers to patients. There are wonderful patient financing programs out there that can help patients say “yes” to optimal treatment plans and not settle for a capitation solution. It’s a competitive industry and there are plans that allow a dentist to provide 12 month “same as cash” financing to patients for as low as 2.5%. That fee is actually lower than certain credit cards.
On Recommended Reading & Resources
DB: What resources would you recommend for dentists who want to stay on top of financial issues that will affect them?
KD: I keep copies and often go back to what I consider to be classics for today’s dentists. The ADA’s Future of Dentistry Report and the United States Surgeon General Report on Oral Health in America. They are easily accessible on the web. There are good newsletters for dentists in the market place. The one that I eagerly await every few weeks is the Collier, Sarner & Associates Newsletter. I think the newsletter does a great job keeping it simple, concise, and timely, all within just a few pages.
On Keith D. Drayer
1.800.443.2756
Keith D. Drayer, Vice President, is responsible for Henry Schein Financial Services and Henry Schein Professional Practice Transitions. Henry Schein, Inc. is a Fortune 500® Company and the largest provider healthcare products and services to office-based practitioners in the combined North American and European markets. Keith received an M.B.A. from Binghamton University.
Henry Schein Financial Services’ mission is to help healthcare practitioners overcome the financial challenges of healthcare today and operate successful practices. In 2007, Henry Schein Financial Services arranged hundreds of millions of dollars in healthcare practitioner practice start-up, practice acquisition and equipment financing transactions.
Keith is an active leader in professional dentistry. He participates in the Dental Trade Alliance and a board member of the Dr. Edward B. Shils Entrepreneurial Education Fund. He is also a member of the Alpha Omega corporate roundtable and works with the National Dental Association and Hispanic Dental Association on matters of dental diversity and practice ownership.
Keith has spoken with college dental students and residents on associateships, financing practice start-ups and acquisitions. Additionally, Keith has spoken with veteran healthcare providers looking to transition out of their practices. He has written articles for Dental Equipment and Materials, Dental Economics, New Dentist, Mouth Magazine, Dental Entrepreneur, Journal of Women Dentists, Tooth Magazine as well as various medical journals.