This episode is kicking off the first of our four-part Dental Series! Over the next few weeks our attention will be focused on the dental industry. In Episode #51 of the The Cultivating Business Growth Podcast, we discuss “What Dental School Didn’t Teach You.” This means exploring the business side of practice ownership. We know you are the best dentist around and tend to your patients with the highest level of expertise and care. There are business fundamentals that can help ease the burden of business ownership and that’s exactly what we’re aiming to cover today.
What we cover in this episode:
- 05:32 – Business setup prior to ownership
- 06:35 – Legal set up
- 11:36 – Critical banking information
- 13:18 – Financial statements
- 16:58 – Taxes
- 20:37 – Practice management set up
- 23:10 – Human Resources
- 29:10- Insurance considerations
- 30:45 – Balancing everything
As seen on:
Earn 1 CEU credit by viewing the on-demand webcast, 3 Ways to Lead a Profitable Practice While Working Fewer Hours through Dental Economics.
Business setup prior to ownership
Preparation is key when you are establishing your own dental practice or are taking ownership of an existing practice. Establishing the proper business setup and foundation has a tremendous impact on the amount of success you will see in the future. Mistakes made in the establishment of your practice can come back to haunt you, so it is critical that you invest the time and money necessary to have a solid footing.
Get a mentor
Speak with successful dental practice to get their advice. Learn from their experiences, good and bad. They likely have things that they wish they had and had not done and are happy to share that insight. Finding someone who has been through this experience and who is willing to share their wisdom is priceless.
Choose an entity structure – After you purchase your practice or establish one on your own there are legal steps you must take to protect yourself and your business. Choosing an entity structure should be the first legal decision you make. Before you make any decisions, we recommend consulting with an attorney and/or a tax CPA to determine what is best for you and your situation. Attorneys and tax CPAs can ensure you understand the impacts to your business, depending on the entity structure you choose. Make this decision wisely because entity structure has different legal liabilities and numerous tax consequences.
Obtain legal documentation – Before you open your doors for business, make sure you have all your ducks in a row. The type of entity structure you have determines the documentation you must have in order to be operational. Typically, filing fees are associated with documentation. We highly recommend speaking with an attorney to understand these implications. Consulting with an attorney prior to obtaining documentation is highly recommended. Attorney fees can be expensive, but their legal advice could save you thousands of dollars and, in the long run, they could help you save even more!
EIN (Employer Identification Number) – Once you’ve determined your entity structure, you need to request an Employer Identification Number, also known as EIN. An EIN is essentially your tax identification number. In order to obtain your EIN documentation, the official name of your business is needed, as well as your name, address, and entity structure. Obtaining your EIN needs to be done immediately after you determine your entity structure because your EIN will be needed for other steps we will cover such as banking, financials, and later on, your tax returns.
Articles of organization or articles of incorporation – Documents required for all LLC entity structures include articles of organization, which is a document that legally establishes your business as a corporation in your state. Ideally, we also recommend putting together an operating agreement. The operating agreement defines how the owners of the business professionally relate to each other (in a binding way). They establish rules for the ownership and operation of the business. This is especially important if you have several owners in the practice. Operating agreements are not required by all states, but it’s a good idea to create this to serve as a guideline. Documents required for all corporation entity structures will require something similar to articles of organization, but they are called articles of incorporation.
Bylaws – Most states require corporations to have company bylaws in place. These bylaws document how the corporation’s shareholders, officers, and directors will oversee the organization and manage its daily operations. Bylaws also detail the company’s structure and governance.
Business license – In order to be in operations, likely you will need a business license for your city or state.
Critical banking information
At a minimum, you’ll want to establish a business bank account, business credit card, and if needed, a business savings account. It’s ok to utilize the bank you use personally. However, business banking should not be associated with your personal banking. All business transactions must be tracked separately. Commingling personal and business banking can cause confusion, additional accounting expenses, and, most importantly, can jeopardize your protection. Many dentists obtain their business bank accounts and credit cards with the bank they used for their business practice loan.
Determine what financial system you will use.
Your financial system is what organizes your finances and gives you financial statements. QuickBooks is one option commonly used to manage financials. All bank accounts can be connected directly into QuickBooks and transactions can be downloaded directly, decreasing the amount of time needed for data entry. Regardless of the system you use, it is crucial to capture all information from your bank accounts, credit cards, and any loans to ensure everything is accurate and complete on your financial statements. All business accounts and loans should be displayed on your balance sheet and every transaction should be tracked. You’ll also look at all production and any expenses, in order to analyze your net income.
Understand how to read your financial statements
Keeping your balance sheet accurate is extremely important. We’ve seen dental practice owners who don’t want to look at their balance sheet. They’d rather just skip straight to the profit and loss statement. Here’s the problem though – If the balance sheet is not in good order, the profit and loss statement will not provide accurate information. You MUST reconcile your accounts, record any new loans, and ensure everything is complete to effectively rely on your P&L (profit and loss). Anything missing from your balance sheet could cause an issue with your profit and loss accuracy. Complete financials give you the ability to make good business decisions.
Your CPA or virtual CFO should be reviewing these statements with you on a regular basis. A CPA can provide you, the business owner, the highlights of what you need to know and can help you understand the balance sheet. You don’t need to know all of the details. We don’t expect you to be as interested in the intricacies of accounting as we are. You DO need a high-level understanding of the financial statements so you can see any red flags though. Your advisors and accountants try to report information correctly, but as the business owner, you have the intimate knowledge of your business that no one else can lend. If something looks wrong, you should be able to recognize that and point that out or ask the question.
Establish a relationship with a tax advisor.
Everyone loves taxes. Right? Kidding. Successful dental practices make a fair amount of money. If you have a high net income, you’re going to owe taxes and we want you to be prepared. Establish a relationship with a tax advisor and meet with them at least every quarter. They will help you know and understand your tax liability upfront and, if possible, how to mitigate your tax liability. You will have to pay taxes, one way or the other, but there may be things you can do to reduce your taxes. We recommend tax planning for all business owners. You can ease stress and anxiety relating to taxes by proactively managing it, rather than simply hoping for the best. Don’t let a cloud hang over you all year! Tax plan! Tax planning ties back to financials and the importance of having solid financials. Without accurate financials, it will be difficult to determine an accurate estimate for what you will owe. By proactively planning, by around November you can get some good estimates and, if needed, you have the ability to make changes that can reduce your taxable income.
Practice management setup
Planning is never bad. In your business, there needs to be a way of managing the dental practice. There are different software options available to help you manage your patient care, bill patients, collect, manage appointments, and more. You will need to determine what software works best for you.
What system will you use? What will work best for your practice? Programs like Dentrix, Open Dental and eaglesoft are popular options in the industry. Usually, practice management considerations fall into two categories:
- If you’re starting your practice from scratch, it’s wise to schedule demonstrations of different systems where you can see what they have to offer and also ask questions. You and your team should be present for the demonstration because your team will likely be using the system more than you.
- If you have purchased a practice, it’s likely there is already a practice management system already set up. If so, we recommend using that system for some time because it’s best to avoid any major changes. You’ll have enough going on and there is no need to add a major system change to your plate too. Once you’re up and running, you can reassess to ensure you’re using the right system for your practice.
Ensure proper training
Your team is going to use the practice management system the most. It’s important for your team to be trained on the system, know how to use it, and be happy with it. Even though you may not be in the system as much as your team, you still need to understand how the system works. There may come a time when you need to pull a report and your team may not be available to assist you.
Human Resources setup
You are responsible for the people in the practice. This means you are responsible for hiring, managing, and sometimes terminating those people. If you purchase a practice, sometimes employees come with that purchase. If this is the case, it’s necessary to evaluate their skills and performance to determine if they are operating and communicating the way you expect. If not, some type of training is needed. Regardless of how you got your team, your responsibility as the business owner is to create the culture you want in your office. Open communication with your team is essential, as is establishing trust. In order to create a healthy environment for your team, they need to know you have their best interest, and your patients’, at heart.
Time tracking and scheduling responsibilities
Systems need to be put in place to track your team’s time and pay them. There are apps and other programs that can be used to track time in the office. Like practice management, many payroll services provide demonstrations. We recommend starting there so you can see how systems work and are able to ask questions.
Benefits and other HR responsibilities
You also need to determine if your team will receive benefits. If so, which benefits? Under the Human Resources (HR) umbrella, there are many things to think about. At the end of the day, lead by example. If you aren’t willing or able to be the first point of contact for HR related issues, you may consider having someone fill an office manager type position that would create a buffer between you and your team. The office manager could be the person organizing and managing the team and handling minor issues. Then, only unresolved or larger issues will come to you and you can handle them together.
Last, but definitely not least, you need to protect your practice. That’s where insurance comes in. To protect your business from all sides, you should have malpractice insurance, general liability insurance, and coverage for your building if you own the property. It is best to reach out to an insurance professional who can evaluate your needs and help you determine the best coverage and the types of insurance to consider. They should ask you questions and help you identify every aspect of your business that needs insurance coverage, including any equipment you own. As a business owner you are working hard, you want to be successful, and you need to be protected.
Buying or starting a dental practice can be overwhelming but it doesn’t have to be. There are many resources available for you and experts who can help guide you. Before diving into something like this, it’s best to read books, talk to others, and consult with mentors. Learn what you can about the process of owning a dental practice before you dive in. Gather as much information as possible and gain experience from others who have already done it!
Today, we talked about “What Dental School Didn’t Teach You.” We started with high-level business setup and what is needed if you just started your own dental practice, or if you purchased a dental practice and you are now going to be taking ownership of it. We also shared how to set up practice management systems in order to confidently and successfully run your practice. Human Resources is often not discussed in school despite being very important when owning a business, so we tackle some of the high level things you should be considering. We also covered insurance, more specifically, what insurance you need to protect yourself and your practice. Lastly, we talk about how to be successful as you move forward and what you can do to balance everything in the future. If you have any questions or would like to have a conversation about any of these topics, feel free to reach out!
Looking for CEU?
We are excited to share an opportunity for you to earn one CEU credit. View the on-demand webcast on Dental Economics, called 3 Ways to Lead a Profitable Practice While Working Fewer Hours. You can find this through the Dental Economics website or visiting www.pjscpas.com/dental-CPA. This course is free and available immediately. Don’t forget to register!