ukcd 2016 - how does a private practice dentist get paid
TRANSCRIPT
How Does a Private Practice DMD Get Paid?
Matthew S. Smith, CPA, CFE Associate Director of Tax
Services
Understanding dental office cash flow.
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Please ask questions anytime throughout the presentation!
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Today’s Objectives To give an overview of the typical flow of
funds from the gross charge for services rendered all the way down to what ends up in the dentist’s pocket.
To help you recognize that a dental practice is a business. Understanding the basics of how the business works from a cash flow standpoint is the foundation of a financially successful practice.
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Outline Discuss typical:
Steps involved in acquiring a dental practice
Structure of dental practice & DMD earnings
Cash flow of newly acquired dental practice
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Key Steps in Purchasing a Dental Practice
Identify target practice & obtain financial & clinical data to analyze existing practice
Negotiate purchase price & details Prepare financial/cash flow projections
Form separate legal entity “the practice” Prepare organizational & operational
documents Articles of organization/incorporation Operating agreements Lease agreements Obtain Tax ID #s (federal, state & local, if
necessary)
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Key Steps in Purchasing a Dental Practice (continued)
Obtain financing to acquire practice & for other needs
Ensure all necessary business procedures are in place, such as:
Payroll setup Business Insurance in place Billing software installed Providers credentialed with insurance
companies MANY others too numerous to list
Use loan to acquire practice & begin operations
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Key Steps in Purchasing a Dental Practice (continued) – Cash Flow Projection
EXISTING PRACTICE CHANGES PROJECTION
Revenues Collected 600,000 (90,000) 510,000 OverheadStaffing Costs (125,000) (125,000)Facility Costs (75,000) (75,000)Dental Supply/Lab Fees (100,000) (100,000)Other Costs (50,000) (50,000)Net Income 250,000 0 160,000 Less Loan Repayment 0 (50,000) (50,000)Net Cash to Owner (BEFORE taxes) 250,000 (140,000) 110,000
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Dental Practice Business Structure
Typically a “pass-through” entity, which means that whatever profit or loss from the year is passed through to the owner(s) and they pay taxes at the individual level on their personal tax return (Form 1040)
Depending on the entity type, owner may be paid partially with a salary/wage (W-2) with taxes withheld.
Practice Taxed As : Sole Proprietor S CorporationPatient Fees 800,000 800,000 Overhead (600,000) (600,000)Net Income before Provider Pay 200,000 200,000 Wages Paid to owner N/A (150,000)
Net Income 200,000 50,000
Income to be taxed on owner's tax returnWages 0 150,000 Practice Profit 200,000 50,000 Total 200,000 200,000
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Dental Practice Business Structure (continued)
Taxes must be considered and paid in throughout the tax year
In previous examples, assuming tax rate of 34% (federal 28% & KY 6%), income taxes $68,000
Withheld from wages or paid in estimates
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Typical Dental Practice Cash Flow
Gross Charge 1,000 Your charge for service
Insurance Contractual Adjustment (150) Agreed to discount by accepting ins
Revenues Collected 850 Cash collected
OverheadStaffing Costs (225) Wages, p/r taxes, emp benefits
Facility Costs (150) Rent, utilities, r&m
Dental Supply/Lab Fees (150) Consumable supplies & lab bills
Other Costs (100) Ins, prof fees, advertising, office, etc.
Net Income 225
Less Loan Repayment (50) Acquisition loan & other bus. loans
Net Cash to Owner (BEFORE taxes) 175
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Key Observations Planning is step #1 Only a fraction of the original charge
to the patient remains for the owner after everything else is accounted for
As the owner, all risk (and reward) is on you
Must plan for all anticipated items on projection
Must plan for and pay taxes
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Questions/comments
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