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    The need for advisory services for the dentist

    In many of the cases in which this author has been consulted, there is an after-the-fact approach that must be taken because of an absence of advisory services prior to the engagement.

    Dentists sometimes will attempt to save the penny when the dollar is at stake.

    Dentists should remember how they treat their patients. If little or nothing has been done on a preventive basis and the patient has gone to a friend with little experience, you can be sure that the dentist who understands treatment procedures will let the patient know what has to be done and the cost.

    Does the dentist then do this for himself or herself when a question arises that a friend cannot resolve for lack of experience? Is the approach the cheapest way out with a financial matter and advice or what the dentist would advise the patient on the best approach for the long term? The decision can be made after looking at a couple of examples.

    Example 1: Acquiring an additional practice

    In this example, an experienced dentist who owns a flourishing practice finds another practice available to buy. The seller is older and does not want to continue practicing. The dentist is looking at the transition in terms of the cost of the practice and how much he or she can negotiate the price without the use of financial advisory services. The thinking is that if the price is $500,000 and the buying dentist can transition it for $400,000 on his or her own, that would be a terrific deal.

    This is a typical approach, and without a good dental CPA, the buying dentist may have been better off with a $500,000 acquisition price with a favorable income tax allocation.

    For example, if the $400,000 is allocated to goodwill for the seller, the buyer has a 15-year write-off for tax purposes and the seller has the best tax treatment possible with a capital gain. With a $500,000 purchase price and a legitimate amount of $150,000 apportioned to equipment this year, with the balance to goodwill for the seller, the buyer would get an immediate $150,000 write-off and would amortize the remaining $350,000 over 15 years.

    On a comparative basis, the $400,000 scenario results in a $26,666 per year write-off for 15 years—while the $500,000 results in a $150,000 plus $23,333 per year write-off for 15 years so that in the first year $173,333 is written off against earnings. This is a hypothetical example of how the cost without a good allocation may cost more for the buyer.

    Of course, price is always a consideration. However, if the practice is honestly valued at $500,000 and the negotiations fail because of the buyer’ s insistence on a lower price, the allocation of the price may be something the buyer would miss without the advice of a good dental CPA.

    Bruce Bryen, CPA, CVA
    Bruce Bryen is a certified public accountant with over 40 years of experience and is a part of RKG Tax & Business Services LLP, an ...


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