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The 5 Major Pitfalls for Dentists(When it Comes to Financial Planning)

Articles, Business Life

Harsh Patel, CPA, Owner at HMP Consultants – Specialize in helping Dental Practice Owners improve their Financials

Let’s be honest, expectations are key—especially when it comes to the person handling your hard earned cash. People always have a kind of “run-of-the-line” set of expectations for their CPA. But you should always set the bar high—especially for the person handling your finances. You shouldn’t settle with a CPA who just shoots for the status quo; you want someone who asks the right questions, measures the right diagnostics, creates the right reports—you name it. I love working with all kinds of CPAs, always striving to find the right one, because I know one thing for sure: when it comes to financing, the smallest changes make the most significant impact. That said, there’s always been one CPA who has been serving both myself and the Nifty Thrifty community. I mean, c’mon, why don’t we just call this man the CPA of Nifty Thrifty Dentists? After all, he’s been hooking my crew up for a while. Most of you probably know exactly who I’m talking about already: Harsh Patel, the owner of HMP Consultants. So, what does Harsh believe
to be the five major pitfalls for dentists when it comes to financial planning? Well, keep reading.

1. Not properly measuring financials. You need to do this on a monthly or (at least) quarterly basis. For those who are multi-practice owners—especially for those at DSO level of ownership—you need to compare yourself to other practices. If you’re not accurate and timely with measuring your finances and struggle to understand the meaning of them, you’re missing out on a crucial component of achieving financial success. Overall, it is imperative that things are being delivered on time and also done consistently throughout the year. That’s why HMP Consultants is focused on benchmarking, where they can deliver specific diagnostic reports. Through differing KPI analyses, they can measure numbers such as production, staff performance, etc. and then compare those metrics to other practices not only within your region, but also throughout the industry itself. That’s something that a lot of practice owners simply don’t do—let alone CPAs.  So many dentists get stubborn, assuming they can go through some cousin who’s a CPA—or something along those lines.  But I’ve worked with Harsh personally, and he always touches upon subjects, obstacle’s etc. that are so relevant to dentistry.

Any CPA might know what it takes to go about measuring finances—P&L’s, KPI’s, etc.—but Harsh always uses that lingo that only us dentists can understand. A CPA who doesn’t have a strong grasp on the industry and has zero exposure to dentistry is going to have a hard time knowing what to do with a dental practice—and that’s why Harsh is different. He knows how to take your dental practice to the next level. He’s aware of what benchmarks and targets you should aim for, and how to achieve the vision that you have in mind for your practice Other CPAs just won’t ask the same questions, which is what makes him so invaluable.  Between cash-flow analysis, evaluating benchmark data, viewing charts on sales, measuring collection reports, and more, Harsh and his team will really start to peel through each layer of the onion.

2. Not setting the right expectations. A major mistake dentists make when hiring a CPA is not fully utilizing their CPAs capabilities. And I’m of the opinion that this issue often stems from not setting the right expectations. To keep expectations on the right track to make your way to your vision, it’s important to set consistent meetings— monthly, preferably—to go over results. When your spending isn’t providing a comfortable ROI, it’s worth studying why.

3. Not being diligent about taxes.  Dentists or not, many entrepreneurs often fall victim to the misconception that taxes are taxes—what they pay is what they owe. But, the reality is, with the right tax-planning, you can save quite a few bucks.  For example, one thing Harsh points out is that there are different layers of “government credits”—such as employee-retention credits. Not many people know about that—do you know about that?  Some people are eligible, and some are not. But what is even worse is that some CPAs don’t even let their clients know about that government credit.  Between government subsidies, payroll taxes, equipment purchases, and more, it’s a bit of a tricky subject to tackle—unless you’re someone like Harsh, who can explain it so simply. When a consultation comes and the communication becomes too “muddled” with technicalities, important points—and pivots— fall through the cracks.  One of the trickiest subjects for any CPA—especially for one dealing with the dentistry game—is the legislation.  On that note, Harsh wanted to bring up an important new law: “Bonus Depreciation.” Effective2023, instead of 100% owner distribution, it’s going down to 80%. And, every year afterwards, it’s dropping down an additional 20% until it phases out. In other words, if you want to make a big purchase, this would be the year to do it.So how can you tackle “Bonus Depreciation”? Well, there are two different methods. But, for the sake of this article, we’ll just dive into one. If you have five-year pieces of equipment—meaning they’ll last five years or more—you can depreciate those over five years. Again, in 2022, the “Depreciation Law” ran to 100%. However, in 2023, you can only cap it off to 80%. From there on, it phases out—you can do the remainder of the math between months, years, etc. Compare that ratio to the portion you’d earn this year. It can be subsidized to $100,000, $50,000—whatever is relevant to your situation. If you’re re-doing your office, this is important to consider! To see what savings you can make, just reach out to Harsh himself.

4. Not keeping current with the trends of dentistry. When you came out of dental school years ago, maybe you were working as an associate. Back then, everything was much more basic: W-2’s, plug in some other stuff, and you’re done. But when you’re owning a practice, everything has surfaced to a whole new level. And when you’re owning multiple practices, things have escalated even further. Add on kids, multiple employees, etc., and think about how the requirements change. So, with all these factors, how much could you potentially be losing?  When it comes to the multi-practice range, you could potentially be losing millions of dollars due to poor financial planning, lapses in efficiency, outsourcing marketing—you name it.  So, what do you do? Keep an overwatch. Look at how your competitors are doing— and adjust.

It’s easier when you have one practice but, when you’re managing multiple practices, there’s more to take care of.  That’s why it’s super important to take a good, long gaze at the financials. Where can you cut costs, especially if you have practices side-by-side. You really need to look at every single item, every single month. The important component is making sure that your vision remains on track. Thousands or even hundreds of thousands of dollars can be missed if you’re not careful.  Although taking care of patients is a priority for all dentists, it is just as important to take the time to be diligent about your finances—especially if it means you’re sloping on your ROI.

5. Not doing your own book-keeping.  On that note, let’s dive into a hot issue I’ve seen time and time again: Us dentists love to do our own book-keeping.  As they say: You can spend your money for time, or spend your time for money. For those of us who didn’t go to school for accounting (most of us), why would you try to play accountant?  Sure, check your books for 2-3 hours and save a buck. But, honestly, with that investment, you could definitely make 10x the amount of money sitting patients in chairs or exploring other business ventures. If you keep all the pieces of the puzzle separated between book-keepers, tax planners, etc., things will get muddy.

Back-and-forths between parties will sometimes create complications, errors, and so on. Harsh often finds that dilly-dallying and lapses in communication make room for critical errors. So, when you’re keeping the books, make sure your go-to is reliable.

“Not to” not do next? Contact the man himself for a free tax and accounting analysis session to practice owners, with a 10% off Nifty Thrifty discount.

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