DDSmatch has been successfully connecting dentists’ present with their future for over ten years. A major factor in our success are our proven processes, which are continually revised with new information from each dental office transition that we facilitate. With our Practice Optimizer Experience, we not only help doctors plan for a successful dental practice transition, but also prepare for the type of retirement they want.
It’s never too early to start planning for retirement. As dental practice transition specialists, we know that selling a dental practice is often not enough, on its own, to support a dentist and their family through the period of retirement. Proceeds from the sale are significant, indeed. But consider, if you are accustomed to earning $200,000 or more a year from your practice, selling it for $1m will only support your lifestyle for five years or less.
If you are thinking about placing your dental practice for sale, our Practice Optimizer Experience can be invaluable to you as you prepare, plan and prioritize for your future transition. In this article, first, we’ll discuss an example of the kind of retirement planning we can help with. Second, we’ll go into more detail about what the process entails.
If your practice consistently reports high earnings, it’s a good time for you to consider an employer-sponsored, qualified retirement plan. In addition to good planning for your future, you can do it in a way that will also save you money on your yearly tax bill through deferred compensation.
The Devil is in the Details
First, you will need a dental accountant. The ability to maximize your retirement savings and minimize your tax liability is going to require an accounting professional with expertise in your business. Using a general CPA might seem like it will be cheaper, as they may have lower fees. However, in the long run, what you save—both in your retirement accounts and from lower tax bills—will make dental CPA specialists worth the potential extra costs.
The reason for this is twofold. First, you need a CPA who understands your business in the most detailed way. If you are the only dentist in your accountant’s portfolio, then you are paying for their learning curve. And you can’t be confident that they are picking up on and correctly incorporating all of the details that are specific to dental practices.
Second, you need a CPA who has a functional understanding of the full panoply of retirement plans, not just the most common ones (such as the ones you, as a non-accountant, can think of off the top of your head). Do you know the difference between a defined contribution plan and a deferred benefit plan? That difference could mean savings in the amount of hundreds of thousands of dollars. A specialist is worth the extra expense.
Is Your Practice Right for a Defined Benefit Plan?
Do any of the following apply to you?
- Are you nearly 50 years old or older?
- Are your earnings consistently on the higher side?
- Do you have a relatively young staff?
- Do you employ a high number of specialty employees (i.e. hygienists)?
If any of these apply to you, a defined benefit plan might be a good fit. Consistent high earnings are important because these types of plans are based on formulas. With a deferred contribution plan, you have a maximum contribution, set by law, for your allowable deductible contribution. If you can save more, with higher tax savings, through a defined benefit plan, you should be making use of one. However, you need to review your financials with a dental CPA to be certain.
Also, if you are nearing 50 or older, you should be considering what position you want to be in when it comes to selling a dental practice. The better prepared you are now, the better prepared you are when that day comes (especially if it comes sooner than you think because of an unexpected life change).
Here’s How it Works
If you paid yourself $300,000 dollars in salary and paid taxes on those wages, this can be essentially the same as claiming $150,000 in salary and your business organization contributing $150,000 to the defined benefit plan as a deductible contribution made on your behalf as an employee of your business. This would save you money on your state, federal, and Medicare taxes for the first year you claim it (even if you wait until the very end of the fiscal year) and every subsequent year, as you would only be taxed for the $150,000 claimed as salary.
If you are paying close to 50% in taxes, considering the double Medicare tax as the owner of the business, and the extra Medicare tax on earnings above $250,000 for a married couple filing jointly, this can translate into at least $75,000 each year that you will save in taxes. Instead of paying that to the government, you are paying it into your defined benefit plan for your retirement. This means that half of your $150,000 retirement plan contribution is being made of tax savings.
How this will play out for you specifically is dependent upon a number of factors, a major one being how you have organized your dental practice (as an S-corp, LLP, LLC, etc.). That factor, after consultation with your dental CPA, can be combined with other methods of savings to fund the balance of your retirement account.
Finally, a defined benefit plan, like most qualified employer-sponsored retirement plans, are immune from creditors. Regardless of what happens after you set it up, the contributions will appreciate without being taxed until the funds are disbursed, which will likely be after selling a dental practice.
What’s the Downside?
Of course there is always a downside to consider. An employer-sponsored defined benefit plan is different from other retirement funds because the employer knows the formula calculating the benefits ahead of time. This means that if there is a funding shortfall (due to either faulty assumptions or poor investment returns), the employer is legally obligated to make it up with a cash contribution. As the owner of your business, this would mean you would owe yourself the difference out of your business’s earnings.
Because of this potential liability, it is essential that you carefully consider your options after a thorough consultation with an experienced and reliable dental CPA.
The Practice Optimizer Experience—Helping Dentists Plan and Prepare for a Future
As we mentioned, this is just one example of what we can provide dentists to help them plan for the practice transition and be more prepared for the retirement they want. Our Practice Optimizer includes the following steps:
Step 1: Conceptual Transition Experience
In this first step, your DDSmatch dental practice transition specialist will help you visualize your future, set achievable goals for your transition and afterward, and devise strategies to start you in the direction of your post-transition dreams, well in advance of your intended transition timeframe.
Step 2: Trusted Valuation Analysis
As part of the selling process, your dental practice will be analyzed twice by Certified Valuation Analysts with dental industry expertise. Their findings are fair, reliable, and, importantly, respected by banking institutions. At DDSmatch, we’ve partnered with the professionals at Blue & Co. to provide our valuation analyses. This step is an important part of your wealth management planning. The first analysis will be at the beginning of the process. The second analysis will be when you are ready to actually start your practice transition and move on to our Trusted Transition Process.
Step 3: Ideal Retirement Calculation
For this step, DDSmatch has partnered with Avantax to conduct a Retirement Check-Up. This is a financial review of all of your investments and projected future income to establish security in the timing and planning for your future transition. This can be done in tandem with your current advisor or as a supplemental third-party opinion. However you prefer to approach it, it’s an important step toward your ideal future.
Step 4: Estate Preparedness Gameplan
Your DDSmatch practice transition specialist will refer you to a local experienced and reliable attorney with expertise in wills, trusts, and estates, to update or create the essential legal documents that will protect your practice assets and value in the event of an unforeseen death or disability.
Step 5: Dental Insurance Navigator
Before you place your dental practice for sale, DDSmatch will arrange for a comprehensive and customized consultation with Shelley DeGroff of Integrative Dental Solutions, a PPO Advisor on the current dental insurance plans in place in your practice. Ms. DeGroff will advise on new insurance plans to consider adding to your practice, or plans to discontinue to achieve your ideal payer mix. Ms. DeGroff and her company have established relationships with insurance companies and their representatives that allow them to be in a unique position to negotiate terms to increase your revenue, with established success nationwide.
Can you rewrite this into a generic form that isn’t specific to Shelley DeGroff and PPO Advisors? We’re pivoting to use other insurance professionals as well.
Step 6: Clinical Opportunity Blueprint
Using Dr. Charles Blair’s “Practice Booster Clinical Treatment Analyzer,” we reveal your practice’s potential in a 70-page report. This report functions as a blueprint of opportunities, detailing production mix and intensity, new patient flow, and more. This step allows you to maximize the opportunities for growth in your practice.
This too has shifted. We’re no longer working with Charles Blair’s company. I’ll send you an updated marketing piece on the POE process that just came out yesterday.
Step 7: Critical Metrics Analysis
Importantly, the analysis of your practice is not static, but evolving. We will provide you with the Practice in Your Pocket Ongoing Report, a customized practice report on critical items conveniently delivered to your phone, tablet, or workstation. This report will be a guide to keep your practice producing at a high level. An annual review of the results is included as part of the analysis.
Step 8: The Trusted Transition Process
When the time is right, your DDSmatch practice transition specialist will start you on the Trusted Transition Process. This process provides a clear and consistent path to help you transition your practice, while maintaining the legacy you have worked so hard to establish. We offer a complete range of professional services, which includes a full business valuation, to provide reliable information and counsel from the start of your transition to the successful finish.
Let DDSmatch Help You Prepare Your Dental Practice for Sale
DDSmatch Mid-Atlantic are dental practice transition specialists committed to helping doctors meet their practice transition and retirement goals. If you are thinking about transitioning your practice in the next five years, we offer help by reviewing with you the current, local dental practice transition market, best transition options for your practice, physical and image improvements to increase value, potential practice investments, and present and future staff integration. Contact us today and find out what we can do for you!