McKenzie Newsletter 439

Is “Quality Employee” an Oxymoron in Your Practice?
by Sally McKenzie CEO
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I’d like you to take a moment and think about each person on your team. How would you rate them in terms of being a “quality employee?” First, let’s consider what makes a “quality employee.” While your criteria may vary from the list below, consider the following:

Performance evaluations - Are these a positive part of the employer/employee relationship or a dreaded, avoid-at-all costs chore?
Ability to respond positively to training opportunities - Does the employee effectively implement what they learn from formal and informal training opportunities?
Ability to follow instructions
Willingness to help others and cooperate with the team - Does this person bring a positive attitude or are they difficult?
Initiative and commitment to their job and the practice - Are they looking for ways to make the practice better or is it status quo all the way?
Work ethic and consistency in following established policies and procedures

You might consider assigning a certain number of points to each, and see how your team stacks up. Is your hiring process effective? Your ranks are probably lined with good employees and the result of quality hires.

However, if you look at the suggested criteria above and shudder at how your crew stacks up, it’s likely a reflection of the hiring process. I would be willing to bet that when the time comes to fill a position, your focus is on doing so expeditiously rather than effectively. In addition to having a specific hiring procedure in place, which I discussed last week, I suggest you consider a few other points.

Mission Minded
Recruiting quality employees is a process that goes well beyond the two-line classified ad written in secret code. Look at your mission statement and remind yourself where you want to take your practice. Remember you’re building a team, a practice, and a vision - not just filling a position. Consider the strengths and weaknesses of your practice as well as your own and those of your employees. Are there voids in employee skills and/or duplication of strengths or weaknesses among the team?

Skills, Personality, and More
While no applicant is perfect, it’s important to understand each job and what particular attributes a prospective employee needs to have. If your goal is a 98% collection rate, you don’t want a candidate who has trouble asking for money - even if she does have a perfect smile and charming personality. Most importantly: gut instincts are NO match for good data. As the school of hard knocks has taught virtually every dentist I know, a seemingly rock-solid resume and practical skills offer no assurance that the person you hire will prove to be the excellent candidate you interview. The candidates may appear to have the right skill set, but if one has trouble making decisions or the other is overly controlling, today’s seemingly ideal hire can metamorphous into tomorrow’s employment nightmare. Don’t gamble and don’t guess, instead test the candidates.

Testing tools available in the dental marketplace provide a statistically valid and scientifically based hiring assessment tool for dentists. The computerized assessment measures job applicants against a profile of the “ideal” dental practice employee for each position. The procedure is simple: applicants answer a list of questions online. Just minutes later, the dentist receives a statistically reliable report enabling him/her to clearly determine if the candidate under consideration would be a good match for the position being filled. It’s straightforward and accurate. What’s more, this carefully tested and thoroughly researched hiring tool is fully compliant with legal requirements associated with employee testing.

Beyond “You’re Hired”
Once the new hire is in the practice, help them succeed. Supply the necessary equipment, tools, and training they need to perform the job well. Explain clearly what is expected of the employee and how their performance will be measured. Provide an office policy manual that explains policies and procedures, such as sick time, holidays, vacation, disciplinary procedures, etc.

In addition, provide routine, ongoing and direct feedback. This is constructive direction that helps the employee learn the ropes. Finally, schedule performance reviews to assess the new hire’s performance at least twice and preferably three times during the first 90 days.

If you take specific steps before, during, and after the hiring process, you are far more likely to ensure that “quality hires” make up your quality team.

Interested in speaking to Sally about your practice concerns? Email her at sallymck@mckenziemgmt.com. Interested in having Sally speak to your dental society or study club? Click here.

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Ken Rubin
CPA, PFS
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Should My Dental Practice Be Incorporated?
By Ken Rubin, CPA, PFS

Many factors go into determining whether or not you should operate your dental practice as a corporation. If the right factors are present, it could be a very wise decision for you to incorporate. Most dentists tell me “it’s no longer advantageous to be incorporated.” They feel this way mainly because of three changes that occurred back in the 1980’s:

Corporate tax rates were raised and are no longer dramatically lower than individual tax rates
Corporate retirement plan contribution limits were dropped so they are no longer significantly higher than for other plans
Some state taxes have increased (e.g. in California the annual corporate minimum tax of $200 was increased to $800 per year)

These changes make incorporating no longer as beneficial as it used to be. However, it still may be very beneficial for you to be a corporation and many factors need to be considered.

Limited Liability
You cannot try to hide behind a corporate veil for protection from professional malpractice. This means if you make a mistake while performing dentistry, being incorporated won’t help. However, you will be able to shelter your personal assets from most business-related lawsuits and liabilities if you incorporate. For example, if one of your employees is driving negligently (talking on a cell phone, texting, putting on make-up, speeding, etc.) while running an office errand and kills someone, all of your personal assets are at risk if you’re not incorporated. Given today’s litigious society, asset protection strategies are essential. An attorney recently informed me that, although our country only makes up 5% of the world’s population, we are involved in 90% of the world’s lawsuits!

These last two factors cannot be quantified in terms of dollar amounts. However, the potential benefits from either one of these could easily greatly outweigh the costs of incorporating your practice. As always, I recommend you seek competent professional assistance to help you make the proper decision given your particular set of circumstances.

Medical Insurance
If you’re not incorporated, generally you can only deduct 60% of your family’s medical insurance. However, incorporated dentists may deduct the other 40%.

Reduced IRS Audit Risk
Most dentists (and even many CPA’s) don’t realize how incorporating will dramatically reduce your audit risk. Suppose your practice collections are $400,000 per year and you’re operating as a sole proprietorship. At the IRS, your tax return goes into the same pool for audit selection as all the other sole proprietorships. The vast majority of sole proprietorships (filing a schedule “C” on their 1040 form) are small part-time and full-time businesses like flower stands, hair dressers, consultants, etc. Naturally, you’ll stick out like a big target for audit selection in this pool. But if you incorporate, you’ll get thrown into a different pool: with Microsoft, Ford, Exxon, AT&T, etc. In this pool, you’ll be such a small target you’ll hardly be noticed.

IRS audits can be extremely expensive and stressful, even if the final end result is no increase in taxes. Several years ago I represented (and successfully defended) about 30 dentists across the nation that were being audited by the IRS for claiming a tax credit (better than a deduction) for their intra-oral camera purchases. Guess what - none of the dentists being audited were incorporated!

Other Corporate Fringe Benefits
“C” Corporations can establish a medical expense reimbursement plan to pay medical bills not covered by medical insurance. Group term and split dollar life insurance also is available. “C” Corporations are less popular nowadays because of the extra planning involved to avoid the annual double tax, and the potential double tax upon practice sale.

Payroll Tax Savings
Alternatively, it may be beneficial to operate your practice as an “S” Corporation, and generate thousands of dollars every year by reducing your self-employment and owner’s payroll taxes, by setting a minimal IRS, but acceptable and reasonable salary for yourself. The IRS has been very seriously threatening to close this loophole for a long time. They came closer than ever in 2010, but the proposed regulation was not passed.

In analyzing whether to be a dental corporation today, many factors must be addressed - and as always be sure to seek competent professional help.

Ken Rubin is the President and CEO of Ken Rubin & Company, Dental CPA's - www.kenrubincpa.com. Ken can be reached at Ken@kenrubincpa.com

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Nancy Caudill
Senior Consultant
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Know Your Facts Before You Buy a Practice
By Nancy Caudill, Senior Consultant McKenzie Management

Case Study #587 – Dr. Stan Marone

Dr. Marone was a previous client of McKenzie Management. He contacted us inquiring about generalized questions regarding the purchase of an existing dental practice that was struggling financially. He wanted to know and understand if this practice had revenue potential to bring to his existing practice in order to consider this important decision. Practice transition specialists provide the value of the practice in equipment, good will, etc. But Dr. Marone wanted to know more than the purchase price of the practice. He wanted to know if there was increased revenue opportunity that he could capture to bring to his existing practice. In other words, how long would it take him to begin seeing a profit? In order for us to help him with this analysis, informational reports needed to be requested.

Reports Needed

1. Accounts Receivable (Aging) Report – This report should be generated in two forms: one that does not include the credit balances and one that is only the credit balances. Why? You need to determine if you want to “inherit” these accounts in the purchase of this practice. Many of the debit balances may be uncollectible and all the credit balances should be refunded to the patient/insurance company.

2. Outstanding Insurance Claims Report – Look for claims that are older than one year. Chances are that you will not collect on these claims. Otherwise, this is a possible revenue stream for you. (Do not include pre-estimates.)

3. Production Report by Procedure Code – This is a very important report, as it will illustrate what types of procedures are performed more often than others. For example, if you see hundreds of fillings and not near as many veneers/crowns/inlays/onlays/bridges, this may indicate that either the doctor is not comfortable “selling” higher dollar treatment, there is not a need (especially if the restorative procedures are primarily 1-2 surfaces opposed to 3-4 surfaces) OR there is the opportunity to convert these patients to more applicable treatment options relevant to their needs.

This report also provides the number of New Comprehensive Exams the practice is seeing. Remember that all those paper charts that are on the shelves are NOT active in most cases! Even though emergency new patients produce income and may convert to comprehensive exams, they are not contributing to the growth of the practice through hygiene until they are converted. Standard in the industry would be 25 New Comprehensive Exams being seen in hygiene to support one full-time dentist.

Periodontal production should be 33% of the total hygiene production for a typical general practice. This report will also reflect the number of periodontal procedures that are being performed by the practice. If it appears that periodontal procedures are limited, this practice does not have an active periodontal therapy program. This is an indication again of another revenue stream after the patients are educated.

4. Past Due Recall Report - Many doctors are looking to sell their practice because it is not producing enough to support the practice overhead and/or the financial obligations of the practice owner. McKenzie Management has found, over our 30 year history of consulting with dentists, that the Hygiene Department will make or break a practice.

Generate this report for the past 12 months. These are patients that were seen within the previous 12-24 months and never returned, usually because there was no follow-up. Sending a computer-generated “cutesy” postcard does not qualify as a legitimate effort to retrieve these patients. A systematic 5-step process must be instituted to keep a practice’s recall retention at a minimum of 90%.

This report is important to a buyer because these patients are NOT active! Until they are seen again in hygiene, they remain inactive so be careful when the selling dentist indicates that his practice management software says that he has 3,279 “active” patients and he has one lonely hygienist working 3 days a week to maintain all these “active” patients!

5. Recall Report for Patients with and without Appointments – This report should be generated for the next 12 upcoming months. If the practice has several “types” of recalls, be sure to include all the types. THESE are your active patients! All 600 of them…because that is all a hygienist working 3 days a week can support!

6. Fee Schedule Report – What are the selling dentist’s patients accustomed to paying? Are there PPOs involved and if so, how are you going to handle the change? If he hasn’t increased his fees in 3 years, take this into consideration when negotiating your purchase.

7. Unscheduled Treatment Plans Report – Are there tens of thousands of dollars “sitting” out there waiting to be picked by you? Maybe the report shows no treatment because the treatment plans weren’t entered into the computer unless the insurance coordinator needed to submit a pre-authorization claim. Be careful that if there is treatment, that it is accurate. Many times appointments are made and not scheduled from the treatment plan. If there were changes made to the treatment, the software will leave the existing treatment in the report as incomplete.

Conclusions
Remember… buyer beware! I would prefer to say “Doctor - be informed” and know what you are buying before you buy it. A sale is a good sale when it is a “win-win” for the buyer and the seller. It is possible that the seller has no idea what his practice situation is – maybe that is why s/he is selling it in the first place!

If you are interested in working with a McKenzie Management consultant during your “due diligence” period andwould like more information on how McKenzie's Consulting Coaching Programs can help you IMPLEMENT proven strategies, email info@mckenziemgmt.com.

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