A Wise Dentist’s Approach to Money Management
Fill in financial knowledge gaps with expert guidance
Despite having sophisticated higher learning and an efficient clinical practice, many dentists wonder where the income has gone that they have worked so hard to produce. Even those dentists with good advisors for personal financial affairs can’t comprehend why they have so little revenue available for management from their practice.
It is rare to find a personal financial advisor with the knowledge and experience needed to assist the dentist with the management of funds in the dental practice. The cash flow and tax strategies that dentists have employed in their practices probably have not kept pace with their knowledge of dentistry or the effort invested into the clinical side. One likely reason for this deficit is the amount of time and knowledge that would be necessary to be an expert both clinically and financially.
Start with What You Don’t Know
One of the most important steps for the dentist to take to improve the dental practice’s cash position is to admit what he or she knows—or doesn’t know—about the financial side of running a business. Removing the ego factor and retaining an expert in dental practice financial guidance allows the dentist to eliminate time spent managing tax, investment, and other financial matters that an expert can more efficiently and effectively handle.
The resume of a “dental” certified public accountant (CPA) will reveal a financial person with the expertise in the world of dentistry. This helps to maximize the advisor’s ability to guide the dentist with financial advice specifically tailored for the dental practice. The transfer of that knowledge will produce additional cash flow directly to the dentist from the practice.
If the dentist retains and learns from someone with financial expertise, the fee paid to that person will ultimately be much less than the monetary results obtained. Although the effort previously expended by the dentist in financial management may not have produced results, it will now do so with expert support. In addition, the extra time available to the dentist to work chairside will allow income from the dental practice to increase.
Expert Guidance, Long-Term Thinking
One step that dentists can take to improve the cash and tax management of their practice is to design the proper retirement plan for the dentist and staff. Many dentists and advisors use pro forma, boilerplate designs that are not customized for the individual needs of a practice and the dentist.
A skilled financial advisor will know when a defined benefit pension plan should be used rather than a defined contribution plan, for example. The right advisor will also understand how a custom designed retirement plan can increase the deductible contribution and substantially reduce taxes for the dentist. This will likely increase the personal wealth of the dentist significantly. Finally, the advisor should understand and explain the option to legally discriminate so the maximum allocation from the deductible contribution goes to the dentist and not the employees.
Another move that can impact the practice’s cash flow involves assessing financing for the dental practice equipment, evaluating real estate holdings, and establishing credit lines for the dentist. Is the lowest interest rate and shortest loan term always the best way to finance a dental practice for maximum cash flow and the accumulation of savings? Sometimes a higher interest rate and longer term provides a much lower monthly payment. If the dentist uses that excess cash flow for retirement plan savings, the additional interest rate from the loan compared to the tax rate saved with the retirement plan contribution can easily yield a material differential in rate analysis. Compare an interest rate of an additional 1.5% on a term loan to a tax rate savings of 35% or more with the lower monthly loan payment. In this case, does it make more sense for the dentist to lease or buy equipment, especially highly technological equipment with its constant upgrades?
Final Thought
An experienced dental CPA is a good choice to assist with these and other financial decisions related to the management of the dental practice. Some dentists don’t even understand that there are decisions to be made about these matters. When seeking an expert for financial advice, look at the CPA’s resume. Does the CPA publish articles on these subjects? How many dentists does the CPA represent? It is easy to see that if a CPA represents a multitude of dentists, that person probably has the same questions asked frequently and will know, or be able to find, the answers.
About the Author
Bruce Bryen is a certified public accountant with more than 40 years of experience. He is the managing partner of the accounting firm Bryen & Bryen, LLP, which is based in southern New Jersey. Mr. Bryen specializes in retirement planning design, income and estate tax planning, determination of the proper organizational business structure, asset protection, and structuring loan packages for presentation to financial institutions. He can be contacted by calling 856-985-8550, ext. 112, emailing bbryen@bbllp.net, or visiting www.Bryen-BryenLLP.com.
