According to an article in the fall issue of “Dental Entrepreneur” by Kim McCleskey, a practice transition consultant for Professional Transition Strategies (PTS), it’s not a matter of if you get embezzled; it’s when. However, with proper oversight, you won’t be left wondering if there was anything else you could have done to prevent misappropriation of funds. Here are three ways to ensure financial accountability in your dental practice.

Recruitment and employee retention

Yes, you’ll want to hire for skill, but don’t overestimate the power hiring for character will do for employee retention. A resume will already tell you if the applicant is qualified for the position, so use the interview as an opportunity to screen for character. After running a background check on an applicant, get the rest of the team involved in the hiring process to come to an agreed-upon decision. After all, it’ll most likely be your employees who train this new person, so you’ll want to ensure a level of comfort on both ends.

Daily accountability

At the end of each day, you’ll want to ensure the accuracy of treatment documentation and insurance submission accuracy. This includes comparing the master schedule with any cancellations or reschedulings and same-day treatments. Computer reports should include a day sheet by provider and adjustments, bank deposits by amount and type, and insurance explanation of benefits posted that day. It’s important to also note any refunds requested and a list of follow-up calls to be made, as well as any reviewing instructions for the provider, such as production, adjustment, and refund and credit balances.

Monthly meeting preparation

In preparation for a monthly staff accountability meeting, your bookkeeper should run the following reports: patient collections, patient refunds, insurance refunds, care credit or other third-party fees, merchant credit card fees, and profits and losses, noting expense percentages of wages, dental supplies, lab fees, office supplies, marketing, and rent. Use this as a guide to make sure all your numbers line up and your staff is on track and held accountable for any differences.

What’s next?

Contact the experts at PTS to arrange a consultation of your dental practice to ensure financial accountability among staff.

When managing a dental practice, it’s easy to get lost in all the ways to establish worth. EBITDA and SDE are two different ways of measuring the earnings or income-generating ability of a business, the main difference being the way the doctor’s compensation is treated. Here’s what else you need to know about the differences and similarities between EBITDA and SDE as it relates to your dental practice.

EBITDA

EBITDA stands for earnings before interest, taxes, depreciation and amortization. Aptly named, it is calculated using a company’s earnings, before interest expenses, taxes, depreciation and amortization are subtracted, as a proxy for a company’s current operating profitability. In dentistry, it represents the investment someone would make if someone else does the work. EBITDA reflects a value based on investment and is mostly used when a group is looking to buy the practice.

SDE

SDE stands for seller’s discretionary earnings. In short, it’s EBITDA plus the deduction of all the owner’s income and benefits. SDE represents a true take-home value and leftover money after you pay the doctor and run the practice. It is made up of adjustments, net income, and the amount of money that the doctor pays themselves. This valuation method is used for individual buyers as a way for third-party investors to look at a practice.

What’s next?

Contact the experts at Professional Transition Strategies to learn the best method for valuating your dental practice.

Six months later, rules around the pandemic are still constantly evolving and adapting to take care of businesses and their employees. To add to the list, the new U.S. Families First Coronavirus Response Act provides a safety net of emergency paid sick leave for qualified staff members. Here’s what your dental practice needs to know before the temporary provisions expire on December 31, 2020.

The details

Those employed for at least 30 days are eligible for two weeks of paid sick leave if they are ill, quarantined, show symptoms and seek diagnosis or preventive care for COVID-19, including those who have to take care of a family member. It also provides up to 12 weeks of paid family leave for those caring for children under 18 whose schools or daycare centers have closed because of the pandemic.

The amount

Those employees who qualify will earn the full amount of their regular pay up to a maximum of $510 a day for two weeks or $5,110 total. Staff members caring for a sick family member or children whose schools or daycare centers are closed due to the pandemic will receive two-thirds of their usual pay up to a daily limit of $200.

The specifics

The Department of Labor has the authority to exempt small businesses with fewer than 50 employees if this would jeopardize the viability of the business going forward. The American Dental Association (ADA) is lobbying for an exemption for dental practices since operations have likely been scaled back to only include emergency care and results could cost up to $9,600 per employee.

The cost

The new law requires the full amount of sick leave pay granted to be reimbursed within three months through a payroll tax credit to the practice to offset the cost. This reimbursement will also include any practice contribution for staff health insurance premiums paid during the leave, which are fully refundable.

What’s next?

Contact the experts at Professional Transition Strategies to learn how your practice can make the most financial sense during these uncertain times.

Owning more than one dental practice is a good strategy when your businesses are running at full capacity, but what about when you’re ready to hang up the proverbial hat and transition your practices? When it comes time to create a prospectus and valuations for your practices, it may be more advantageous to group the practices together rather than selling them individually. Here’s why.

Higher multiples

An increase in multiples is a direct correlation to an increase in the value of your dental practice. When looking at the earnings before interest, taxes, depreciation and amortization (EBITDA) of a practice, these multiples are then used to figure out the value during the process of creating a prospectus. Higher multiples, in turn, result in a higher value.

Economies of scale

The economies of scale for purchasing can be used to help with the overhead of the collective practices. As a result, it can give the buyer more power for purchases the practices make before the transition occurs.

Transaction options

Selling multiple dental practices as a package deal gives the seller more options for the type of transaction under which the deal will transition to the buyer. While options still include selling to an individual, selling more than one dental practice opens the door for offers from different dental service organization (DSO) models, such as a joint venture (JV).

Diversify risk

As with any major life decision, the more options you have to ease the transition, the less risk for all parties involved. This is especially true when the practicing dentist is looking to divest themselves of just one of the practices while maintaining ownership in the others. With the complete picture in mind, a prospectus will illustrate why not to put all your eggs in one basket.

Location

Alternatively, if the practices are located too close to each other and the seller continues to practice in close vicinity, a buyer will realize the potential high attrition rate because many patients will simply follow the selling dentist to the other location. Consequently, the seller will be presented with fewer options from which to select.

What’s next?

Contact the experts at Professional Transition Strategies to get the ball rolling on your dental practice valuation to figure out which option is best for you.

Asking the question of which appraisal method is best for your dental practice isn’t a cut-and-dry answer. Income, asset and market-based appraisals each come with their own set of pros and cons. Here’s a breakdown to help determine which method is right for your dental practice.

Income appraisal

An income appraisal can be broken down even further to determine the value of a business based on the future economic benefit to be derived by a buyer: discounted cash flow, capitalization of earnings and multiple of discretionary earnings — all of which rely completely on assumptions that can dramatically skew the implied value of a practice. Both methods are used to make sure someone is not overpaying for a practice with the chosen variables, rather than the market, determining the value.

Asset appraisal

Asset accumulation and capitalization of excess earnings further define the asset appraisal method. This includes measurable factors, such as labor and hard assets like equipment, and intangible assets, such as goodwill. The total value of the practice is the sum of tangible assets and goodwill. This method is generally used when the value of a dental practice is needed by a third party or in a dispute, such as a divorce or partnership dissolution.

Market-based appraisal

Just like with home real estate, a market-based appraisal focuses on comparable sales. Dental practices are most affected by the comparable practices that are sold in the area and the type of buyers that are buying them, whether an individual dentist or an institution, such as a dental service organization (DSO). However, if used incorrectly or for the wrong job, it can make everything more difficult.

What’s next?

Read the full article Dental Economics’ website, then contact the experts at Professional Transition Strategies to figure out which appraisal method is best for your dental practice.

There’s more to a dental practice valuation than hard assets and even the state of the pandemic. Earnings before interest, taxes, depreciation and amortization (EBITDA) is not a static evaluation of the practice with so many factors that affect the investable value of a business. In addition, most businesses also run one-time and personal expenses aside from operations through their profit-and-loss report and tax return that are also backed out to determine profitability. Here’s how all these contribute to the valuation of your dental practice.

Salary

To finalize the EBITDA, the owner’s salary must be taken into consideration to calculate the market rate. Sometimes, the owner is overpaying themselves as a W2 employee, while other times, they aren’t taking as much as they should, both based on market, tax and investable perspectives to raise or lower the amount of net income that remains with the business to produce a living wage.

Property

Oftentimes, when the owner of the business also owns the real estate in another company in which the buyer is not looking to purchase the building, non-market rent is being paid much higher and essentially just covering the costs of maintaining the building. As an asset, the building also needs to be paid a market rent by the business that occupies its space, causing a need to adjust the valuation amount.

Calculations

Between EBITDA and real estate costs, it is often a circular reference because every dollar that could have been considered EBITDA now affects the value of the business toward rent. The key is balancing the value of the business with the value of the real estate. This is normally done by having the business pay a market rate and the building receives a market rent rate that stabilizes each value to what it really should be.

What’s next?

Contact the experts at Professional Transition Strategies to help determine the value of your business while also ensuring a living wage is paid.

To say the last few months have been a roller coaster is an understatement. After temporarily shutting your dental practice’s doors due to the COVID-19 pandemic, your revenue was only delayed and not lost. You may even be working harder now than ever to meet demand since tooth decay and impacted wisdom teeth don’t solve themselves. Even if you’re not considering selling, you should get an appraisal done to see where your dental practice stands. Here are the reports you’ll want to run to prepare.

Production summary by category

A buyer will want to know everything there is to know about your practice prior to making an offer. More specifically, they will want to know the types of procedures you do in-house and if they can replicate the type of dentistry you perform. Do you place a lot of implants? Do you refer out most surgery?

Practice statistics

A practice statistics report will give you a statistical snapshot of your practice. A potential buyer is interested in looking at this so they can develop a strategic business plan should they decide to buy your practice. The report easily groups together statistical information about your practice, such as patient demographics, continuing care statistics, new patient stats and the number of patients per provider.

Aging reports

While your accounts receivables (A/R) tend to not be included in your practice value as it is always changing, it still holds value. An aging report helps determine how your practice is collecting its A/R, as well as tracking family and insurance balances. A good rule of thumb is to expect 85% of your A/R total on top of the fair market value of your practice, if you are planning to sell your A/R, in addition to your practice.

Ratio of patients with insurance versus cash-pay patients

Most buyers have a preference of fee for service (FFS) versus insurance when buying a practice. While some may not care, almost all want to know the breakdown. Is the practice 50% insurance-based and 50% FFS? Is it mostly insurance based? This report will do the hard work for you when finding the answer.

Patient demographics by age or zip code

A buyer does not need to know exactly who your patients are (after all, that would violate U.S. Health Insurance Portability and Accountability Act (HIPAA) laws). They do, however, need to know the types of patients you see. Do they skew younger or older? Do they live near the office, or do the majority tend to travel a long distance to see you? Understanding who the patient is by demographics allows a potential buyer to understand even further what they are investing in, as well as potential attrition rates.

Production summary by American Dental Association (ADA) code and category

In addition to the breakdown of production by category, a buyer will also want to know how much of each procedure contributes to your overall revenue. Furthermore, they are interested in learning what each provider is producing and collecting. This includes not only the seller, but also associates and hygienists. It is important for them to determine at what level they will need to produce to maintain practice revenue, especially if the selling doctor is not staying onboard.

What’s next?

Contact the experts at Professional Transition Strategies to set up a valuation of your dental practice.