The Professional Advisory June/2008

The

35 Professional

Advisory For Dental Professionals

IN THIS ISSUE HOW DO I PREPARE MY PRACTICE FOR SALE? PT. IV Graham Tuck H.B.A C.A

ISSUES TO CONSIDER WHEN PURCHASING A PRACTICE David Rosenthal BA., LL.B.

A $250,000 LESSON Mark McNulty BA, CFP, CIM

ARE YOU GETTING BAD INSURANCE ADVICE? Dr. Ian Wexler

COMPETITIVE PRACTICE LOCATION Ian Toms B.Sc. (Hons)

LEARNING OPPORTUNITIES: AVOID THE PITFALLS OF NOT KNOWING ENOUGH TO KNOW WHAT WE DON’T KNOW Dr. Ron Weintraub

PERSONAL TAX RETURNS + POST MORTEM ANALYSIS = TAX SAVINGS David Chong Yen CFP, CA

plus I MEAN “CAREFUL” CAREFUL NOTES FROM THE EDITOR

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The Professional Advisory consists of a group of seven independent professionals who provide services to the dental profession, each of who specializes in a different eld. They have gathered to keep each other informed of the latest developments relating to the profession, and to produce this publication which is designed to provide expert information and advice solely for dentists and their advisors.

I Mean “Careful” Careful RALPH CRAWFORD BA., DMD For those of us who follow the daily newspaper comics you may have noticed recently that Dr. John Patterson of For Better Or For Worse fame officially declared his intention to retire and “Beginning in September I’ll be working on Fridays only”. Apparently it is part of author/creator Lynne Johnson’s compromised plan to phase out the 28 year saga of the most famous Canadian family in the funny pages that attracts readers in more than 26 countries. The next day’s panel following the official retirement declaration really caught our attention. Dr. John and Elly are seated at the kitchen table apparently reviewing some financial documents.

John says, “Michael and Elizabeth are OK. Financially we’ve got enough put aside for April’s education and our investments should carry us through…we’ll be able to live quite nicely as long as we’re careful”.

Appearing puzzled, Elly speaks up, “We’ve always been careful when it comes to money, John”. And it is John’s reply that really caught our attention: I Mean “Careful” Careful!

When we ponder Dr. Patterson’s “I Mean Careful, Careful” it doesn’t take long to realize that that is what life is all about whether it’s personal, family, dental practice, community - everything and anything embracing our daily lives. And as we review past issues of The Professional Advisory and read through the topics addressed within the current Volume 35 Dr. John’s admonishment keeps recurring. How about Ian Wexler’s Are You Getting Bad Insurance Advice?

As he moves from one kind of advice to another his concluding sentence rings out loud and clear with “careful”: “when making insurance (or any financial) decisions you rely on the advice of experts with the best reputations and qualifications”. And having just dealt with the April 30th 2007 tax deadline, David Chong Yen in his Post Mortem Analysis = Tax Savings lays out 12 points of “care” on how you can save tax

dollars for the year 2008. If dentist John and his wife Mary, in their preparation to retire, had taken the care to seek out their financial advisor Mark McNulty much earlier in the game they certainly wouldn’t have had to incur A $250,000 Lesson. And Ron Weintraub wants us to carefully Avoid the Pitfalls of Not Knowing Enough to Know What We Don’t Know by our careful need to create a learning culture to promote our professional growth and a motivating environment for the staff ’s professional development.

We’re not sure how old Lynn Johnson’s Dr. John Patterson is but if the comic strip has been around for almost 30 years we would guess the good dentist is probably in his early 60s. All we know at this time is that starting soon he is going to be working only on Fridays and this of course suggests there is going to be a practice for sale - which raises many, many questions that fortunately have many, many carefully thought out answers within the pages of The Professional Advisory.

In this issue alone Dr. Patterson is going to find a lot of help. Without much information on where his practice is, but knowing at age 60 he still has lots of time, he may want to consider Ian Toms Competitive Practice Location and “understand that investment in your premises location is an investment in the future of your practice, not an expense”. On the other hand, as Graham Tuck points out, if you want to sell your practice now, it’s a different situation - “assuming your billings and patient base are all set and ready for the sale of your practice, now is the time to focus on having a tidy and attractive office”. We realize our fictional dentist is selling, not purchasing a practice, but the advice that David Rosenthal deals with in his Issues To Consider When Purchasing a Practice is not only superb for the purchaser but should be equally and carefully understood by the seller.

So Dr. John Patterson, we thank you for your insight in being Careful, Careful and we wish you the very best of luck on your impending retirement - For Better Or For Worse. PA

crawford@dccnet.com

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How Do I Prepare My Practice For Sale?

GRAHAM TUCK H.B.A., C.A. Part IV - I want to sell my practice, now The time for planning has passed. Either the prior planning took place or it did not. Let us assume your planning was limited. What can be done now? The biggest thing today is to make your practice showable.

Get rid of those piles of paper, package off the old models, look at your carpets - did they not have a good winter? If you think that the purchaser would like to stay in the same location consider whether the carpets should be replaced - especially in the high traffic areas.

Review your charts. If there are a great many charts where the patients have not been in for four or five years or more, glean them down to more active charts.

Purchasers are not impressed with a lot of charts if they are not active - in fact it is a turnoff. A good rule of thumb is to have as many inactive charts (over two years since the last appointment) as there are semiactive charts (patients who were in over a year ago but more recently than two years). The chart drawers should not be overstuffed to the point where one has difficulty removing them. Also ensure that each pouch or folder has only one patient’s chart in the folder, not the whole family.

If your current paint or wall paper is marked, soiled, tattered or outdated, replacing it freshens and revitalizes the appearance of the practice space. Equipment should be in good working order or removed. Buying new equipment may not be productive but good used equipment may be called for.

Replace burnt out light bulbs anywhere and everywhere, including signs. Clean out the refrigerator of old “stuff ”. Dispose of expired dental supplies.

Clean off your desk - this may be a big job. Tidy up your bookcases and dispose of those old textbooks that you never look at. Throw out old and broken toys in the children’s area. Tighten up the hinges on the

doors in the lab and the operatories. Replace poor lead aprons which only last about five to seven years. Try to see your practice through a purchaser’s eyes. Once the above is complete it’s time to prepare the valuation of your practice. This valuation may bring out other “presentation” issues. The valuation is needed for the purchaser to borrow the money from the bank.

Now you are ready to sell your practice. You should be prepared to understand what you want in terms of transition. Retirement, vacation time, transition period, taxes and selling shares or assets are some of the additional considerations. Having an accountant, a lawyer and a broker on your side is important. The better you can describe what you want to the broker, the easier it is to achieve.

OVERVIEW: Assuming your billings and patient base are all set and ready for the sale of your practice, now is the time to focus on having a tidy and attractive office. PA Graham Tuck, H.B.A., C.A., is the broker/owner of Professional Practice Sales (Ontario) Ltd., which specializes in the valuation and sale of dental practices. He can be reached at (905) 472-6000 or 1 (888) 777-8825 or by e-mail at: grtuck@rogers.com.

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Issues to Consider When Purchasing a Practice DAVID ROSENTHAL BA., LL.B. In volume 34 of The Professional Advisory I wrote about various issues to consider when selling a dental practice. In this article I will discuss those same issues, except from a purchaser’s perspective: 1. Price Determination - How is the purchase price determined? For an asset purchase the purchase price is allocated to various assets. A proper valuation of the target practice by a reputable appraiser is important and will assist in determining asset values. Review the allocations carefully with your accountant to help finalize the purchase price. Caution: the appraisal was prepared for the vendor’s benefit and not for the purchaser, so review the values carefully.

2. Professional Corporation - More often than not, the purchaser will be a dentistry professional corporation (PC). There are many tax reasons for using a PC as the purchaser. You need to ensure the purchaser PC legal documentation and minute book are up-to-date and in compliance with the laws relating to the PC, especially the rules of the Royal College of Dental Surgeons of Ontario (RCSDO).

Note: the purchaser PC must have a Certificate of Authorization issued by the RCDSO before it can carry on the practice of dentistry.

3. Assets or Shares: What are you purchasing? There are many tax and legal considerations and differences between a share purchase versus an asset purchase. Hire an accountant and lawyer who understand the issues when purchasing dental practices. For example, consider the following: When purchasing assets (not shares) typically the purchaser pays all transfer taxes on the purchased assets. Those taxes are in addition to the purchase price. Transfer taxes are Goods and Services Taxes (GST) and Provincial Sales Taxes (PST). Certain assets may be subject to GST, while other assets may

be subject to PST. Exemptions may be available so that GST and/or PST is not paid on certain purchased assets. Review the asset allocations carefully with your accountant and make sure you understand the tax implications. Tip: to reduce transfer taxes, negotiate with the vendor regarding the allocation of the purchase price to the various asset classes.

4. Cost Sharing or Partnership - If the vendor is currently in a cost sharing arrangement or partnership, upon closing the purchaser will assume the vendor’s rights and obligations under those arrangements.

Before closing, the purchaser must carefully review these agreements with his/her lawyer to understand those rights and obligations. Consider if any changes to those arrangements are desired and make such changes a condition to closing the purchase.

5. Purchase Agreement - This is the definitive legal document so make sure you understand all your rights and obligations, including your representations and warranties, covenants, conditions and indemnities.

Tip: to reduce transfer taxes, negotiate with the vendor regarding the allocation of the purchase price to the various asset classes.

6. The Vendor’s Associates - Consider what happens to the vendor’s associates on the purchase. Do you want to keep them? Review the associate agreements to determine what non-solicitation and non-competition covenants bind the associates. If revisions to those arrangements are required, make such revisions a condition to closing the purchase.

7. Premises Lease - A purchaser (and purchaser’s bank financing the transaction) wants a long term lease in place with renewal options. Review the existing lease in detail as the purchaser is taking over the vendor’s rights and obligations under the lease.

Consider if amendments to the lease are required and make such amendments a condition to closing.

Warning: if the purchaser is your PC, the landlord will likely require your personal guarantee of the PC’s obligations as tenant under the lease!

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8. Leased Equipment - Review all existing leases.

Ideally the vendor will pay out all such leases in full and transfer the equipment to the purchaser free and clear of any claims. Alternatively, if the purchaser is taking over the ongoing payments and obligations under equipment leases, the purchase price for those assets should be reduced accordingly.

9. Staff - Possibly the most important and misunderstood area when purchasing a dental practice.

There are potentially large liabilities regarding employees upon terminations. Typically the purchaser will keep all employees and assume all liabilities for staff. However, the purchaser may not have worked with the existing staff before closing and will not know if certain staff members are suitable or not. Recommendation: require the vendor to agree to pay all staff termination costs during the first three months after the purchase.

10. Non-competition or Non-Solicitation Covenants - The purchaser should require the vendor to agree (i) not to compete within a certain area for a certain time after closing, and (ii) not to solicit the patients and staff at the practice.

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11. Vendor associating for transition after closing Purchasers typically want the vendor to remain at the practice to assist in the transition or for a longer term association. Think about what your expectations are after closing. How long do want you the vendor to stay after the purchase and on what basis?

David Rosenthal is a senior lawyer with Spiegel Rosenthal Professional Corporation whose practice is devoted to corporate, commercial and business law, with special emphasis on advising and consulting for the dental profession. He can be reached at (416) 865-0736; or fax to (416) 203-8592; or e-mail to david@drlaw.ca

A $250,000 Lesson MARK McNULTY BA, CFP, CIM A couple recently contacted me to help them figure out how close they are to retirement. Let’s call them John and Mary. Dentist John, age 53, was under a great deal of stress and did not feel he could keep up with all his costs. He has a cottage, a boat, his house costs, travel, insurance and on and on. All outflows and no matching inflows except what he produces. As he put it, “I don’t have an annuity to match these fixed outflows.”

As a result of this stress, he decided on his own (and convinced his wife) that they would need a $4,000,000 portfolio before he could retire and sell his practice.

He made this decision just over a year ago when his investment portfolio was worth over $1,300,000. The

only way he could see of reaching his $4 million target was to adopt what I consider a very aggressive investment strategy - over 70 per cent of their savings were moved to stocks.

Thirteen months later when the client contacted me, they had lost over $250,000. What makes this even worse is that the $4,000,000 assumption that led the dentist into this risky investment strategy was incorrect. He and his wife were in much better shape than they thought.

I cannot speak to the math John used to come up with the $4,000,000 figure. We have been successful at addressing these retirement questions for dentists by using what we call an integrated and holistic practice and personal financial independence plan.

The first step in determining how close you are to retirement is having an accurate understanding of where you are today in a financial sense. Between their RRSPs and hygiene corporation’s investment account, John and Mary’s portfolio was now over one million

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dollars. The practice was worth $600,000. Mary had some inheritance money in a non-RRSP account worth $75,000 and they had a home in a Toronto suburb worth around one million dollars. Their only debt was the $45,000 practice line of credit.

Like most families, John and Mary did not have a good handle on what it cost them to finance their personal lifestyle costs. Therefore, we gathered twelve months of credit card and bank statements and determined

we call “bar napkin planning.” What is your practice worth? Will you do a full or partial transition? Will you associate after you sell the practice? How much income tax will you pay on the sale of your practice?

How will you finance your lifestyle costs once the practice is sold? How will you get money out of your corporations in retirement? When should you start taking government benefits? What level of risk do you need to take on to meet your retirement income needs? And on and on….

that in 2007 they had total personal outflows (excluding income tax) of $185,000. The good news was that most of these outflows would not be recurring in retirement. You do not make RRSP contributions in retirement and the kids’ tuition costs will be completed, etc.

We determined their retirement lifestyle costs were actually $100,000 (after-tax). Based on this information and a series of conservative assumptions, we constructed a plan that would allow Mary and John to sell their practice today! In other words, managed properly, John and Mary were financially independent.

There was no need to target a $4,000,000 portfolio.

There was never a need to take such an aggressive investment stance. Using the strategies we outlined, they would be able to finance their retirement lifestyle costs for the rest of their lives, after-tax and indexed for inflation. There was no need to lose the $250,000.

The common misconception is the belief that you need more than you do to retire. I find this causes a lot of stress and confusion. There are too many factors involved in planning your retirement to leave it to what

The amazing thing is that John has decided to continue practicing. When he learned he was so close to achieving financial independence and had a game plan in place, he no longer felt tied to the dental chair.

Work became a lot more fun when he wasn’t stressed.

I see this time and again with dentists we have been working with for years as they move towards financial independence. Once we get there, they are happy to keep working. It’s the reason we no longer ask people when they want to retire. Instead we ask “When would you like to be in a position to work out of choice, rather than necessity?”

The right game plan from the beginning would have saved John and Mary $250,000 which they will never see again. I encourage you to take action to make sure you have the right plan in place. PA Mark McNulty is co-author of The Canadian Small Business Owner’s Guide to Financial Independence. Mark is an Associate Portfolio Manager with Raymond James Ltd. Independent Financial Services - Member CIPF. The opinions expressed by the author are not necessarily those of Raymond James Ltd. Mark may be contacted at 1.866.261.4768 or mark.mcnulty@raymondjames.ca.

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Are You Getting Bad Insurance Advice?

DR. IAN WEXLER I find it mind boggling who many dentists turn to for insurance advice and expertise! In this article, I will explain why you may wish to think twice about how you base your insurance related decisions.

Your Accountant’s Expertise Over the years, I have encountered dozens of clients and prospective clients who turn to their accountant for advice and “final” approval before purchasing insurance. The problem lies with the fact that few accountants I have encountered are insurance savvy. I have encountered some that are extremely knowledgeable and even have a Certified Financial Planning (CFP) designation. It may be unrealistic to expect your accountant to understand the fine details of how your plans work, the benefits they provide, and the impact upon your personal and professional financial well being in the event of a claim. Yet, your accountant may feel obliged to assist you with insurance decisions that can have potentially devastating implications in the event of a claim.

...like a dentist who cannot be a specialist in all areas of dentistry, a financial planner cannot be an expert in every area of financial planning - including insurance.

Accountants, in general, view insurance as an expense which should be minimized whenever possible.

Recently, a client’s accountant, without consulting with me first, advised him to cancel his recently purchased critical illness coverage. This was after a comprehensive insurance review and analysis had been

performed. The client informed me that the accountant’s opinion was that: • The client could invest his funds and get a better return, versus paying the critical illness premium; • The client did not need the plan and could self insure by selling the practice and cash in RRSPs. In reality, neither of these recommendations proved to be viable alternatives for the client.

The bottom line is that although it would be beneficial for your accountant to be knowledgeable in basic insurance planning, insurance taxation, and estate planning issues, you may wish to think twice about utilizing their expertise in your final insurance planning decision making process.

Your Financial Planner’s Objectivity Just as with accountants, many dentists turn to their financial planners for insurance advice. Unlike accountants though, a good number of financial advisors or planners are licensed to sell insurance products. The inherent problem lies in the fact that like a dentist who cannot be a specialist in all areas of dentistry, a financial planner cannot be an expert in every area of financial planning - including insurance. Although there are some that may focus on the specialized area of insurance planning, the majority focus on client investments and retirement planning. As such, I have met very few financial planners who have actually sold a life insurance policy and not one who has handled an actual disability claim. Because of this, I have always found it more than interesting when financial planners offer complete insurance reviews and detailed insurance recommendations.

Issues you should be aware of when relying upon the advice of your financial planner include: 1. Some financial planners consider your insurance premiums as dollars better spent invested with them; 2. Does your financial planner represent a financial planning company that requires them to refer out their clients “exclusively” to insurance advisors who work with the same company? If so, there may a conflict of interest and even “fees changing hands” that you should be aware of; 3. Will your planner work with and respect the

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expertise of your existing insurance advisor? This is extremely important!

4. You may wish to think twice if your financial planner wants to oversee all of your insurance needs as well as your investment and retirement planning needs - especially if they do not specialize in insurance planning.

Your Insurance “Specialist” I have personally known some excellent insurance advisors who specialize in the dental field across Canada. At the same time, I have encountered more than a few advisors who call themselves specialists in the dental field, who have provided questionable advice to clients and prospective clients. Such advice includes: 1. Do not go to see your physician until you buy coverage; 2. Do not travel abroad until you buy coverage; 3. I can get you a deal that other brokers can’t; 4. A dentist who owns a practice in their early career stages does not need business overhead expense coverage; 5. All you will ever need is term life insurance; 6. One insurance company provides all of the products you will ever need; 7. Older dentists don’t need critical illness insurance; 8. I can replace your old plan with a better one; 9. You need an advisor who will “fight for you” at claim time.

In closing, when you trust an advisor, it is sometimes

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difficult to know whether the advice and recommendations you are receiving are the best for your particular situation. As such, it is recommended that when making insurance (or any financial) decisions you rely on the advice of experts with the best reputations and qualifications. PA Dr. Ian Wexler is Canada’s leading authority on insurance issues for dentists. He is the President of Protect-a-dent and Protect Insurance Agencies Inc. in Toronto which provides life, disability, critical illness, and healthcare insurance products and services to professionals, executives, and business owners across Ontario. He can be reached for questions or other enquiries at (416) 391-3764 or drwex@protect-ins.com

Competitive Practice Location IAN D. TOMS B.Sc. (Hons) It used to be that successful dental practices were located close to the practitioners home, in absolutely invisible, windowless, upstairs, collective medical professional office space, open 8:00 to 5:00 Monday through Friday - and with restricted pay parking. New patient traffic was driven by referral alone and chair time was booked months in advance.

Times have changed. Like it or not, oral health care

is now a retail enterprise.

The current competitive environment requires a different strategy to maximize the sales volume of your practice. Today, practices need to be positioned in a retail context, which really means effectively marketing your services. By effectively marketing your services, your available treatment capacity will be filled.

For example, you need to respond to the industry pressure to offer competitive fees for services, prepare to treat prospective patients armed with unrealistic media inspired expectations related to treatment possibilities and costs, and develop alternate modes to supplement or replace new patient traffic formerly provided by loyal referral sources. Without sufficient new patient volume, the practice becomes progressively less and less profitable, and more and more

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difficult to sell.

Used properly, the most powerful and cost effective marketing tool to address these market changes, and to increase new patient volume, is the physical location of your practice. Your challenge is to identify and implement practice location updates which will make your practice competitive.

Consider the locations of successful retailers and your competition. Their locations: • are conveniently located close to where their patrons live • are conveniently located at a destination such as the grocery store or mall • are able to operate hours of their choice enabling early, late or weekend appointments • offer free, unrestricted and convenient parking • are located at convenient public transportation stops such as bus or subway • are directly visible to large numbers of potential patients • are located at street level in the correct real estate type • are associated with highly visible, tasteful, and appropriate signage • are designed to meet the expectations of patrons who are influenced by television, internet and print media to expect: • efficient and appropriate premises size and appearance • convenient premises layout • modern premises decoration • state of the art consulting facility, which performs an equivalent function to a sales office If you think the cost of relocation is too expensive, compare these costs to the losses you will experience by

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your current and future reduced practice sales volume and reduced price when you sell your practice. Spread over a 15 year period, the combined construction and increased rent cost is very roughly $25 per square foot which for a 1,500 square foot practice equates to $2,500 per month. If new patient traffic equals or offsets this cost, then the cost is an investment with a positive return. Typically, clients report a permanent increase of 20 to 50 new patients per month following a move from office to retail space. At a net gain of 10 patients per month, the practice would grow by 1800 patients increasing sales to roughly $500,000 per year, over the same 15 year period.

Understand that investment in your premises location is an investment in the future of your practice, not an expense. Successful retail chains employ dedicated professionals whose only job is to look for and secure the best locations on the best possible terms and conditions.

Take control of your future. Book a consultation with a knowledgeable real estate professional to identify: 1. realistic opportunities to adjust your current practice location to become more competitive until you relocate 2. a realistic time line and the budget required to relocate your practice into more suitable and competitive premises, and 3. alternate practice locations which will improve your strategic position. PA Based on more than 20 years business experience Mr.Toms, B.Sc. (Hons) acts as a tenant advocate on behalf of select retail and professional tenant clients primarily in the Greater Toronto Area. Mr. Toms is licensed as a Real Estate Broker and can be reached at (705) 743-1220, by e-mail at iantoms@pipcom.com, or through his web site at: www.iantoms.com

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Learning Opportunities:

Avoid the Pitfalls of Not Knowing Enough to Know What We Don’t Know of dental offices use computer software but only twenty-five per cent of them use just over one-half of its capabilities. The richness of computer programs requires instruction and ongoing support for staff to develop the necessary skills needed to implement them. Encouraging a learning culture pays great diviDR. RON WEINTRAUB dends when it results in a well-trained administrative staff with positive effects on office success.

Dentists understand that part of our professional duty is to stay abreast of newly developed techniques and Another opportunity for professional development equipment and we take many continuing education is to include administrators’ attendance to Toronto courses as part of our licensing requirements. Keep- Academy of Dentistry Winter Clinic or Ontario Dental ing our practices current in a fast-moving environ- Association Conventions. By alternating staff who ment is no easy feat. We often spend our out-of-office attend, offices aren’t left unattended; administrative time devoted to courses focused on clinical aspects of staff can take turns going to conferences or conventions. patient management. Although commendable, we need to do more. We need to create a learning culture to promote our professional growth, create a motivating environment for administrative staff ’s professional development, and widen our vision to remain competitive.

Creating A Learning Culture While we are busy with patients and learning new skills, we are often happy to relinquish our administrative responsibilities. To carry out these duties, the office staff is in the best position to handle the growth of the practice. They, too, need courses to maintain professional and financially successful entities. Consequently, we need to show leadership by creating a learning culture to motivate staff to become involved in learning new skills in their efforts to promote our services, provide a positive environment for patients, and present efficient front desk procedures.

Administrators, for example, have significant value Still other opportunities lie in creating a library on because they know the patients. Oftentimes they have site of journals with practical advice specific to dental been with us for many years and serve as role models administration. Discussion of these journal articles for new hires. Since staff needs new knowledge to can take place during a monthly meeting to encourage keep pace with rapid changes, they require courses to participation and take a proactive position assuring involvement. In addition, intervention by a practice update the systems. management group offering specialized solutions Learning Opportunities to individual practice issues presents opportunities.

One opportunity for staff development is in learning Learning opportunities are limited only by the imaginew software programs. An informal Innovative Prac- nation, but rewards for taking advantage of opportutice Solutions survey reveals approximately ninety per cent nities are limitless.

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It’s up to owners to take an interest in creating an environment to motivate an awareness of current progressive modalities. Encouraging staff awareness and supporting the changes needed to implement new procedures, owners show leadership to initiate change to move the practice to another level. Growth leads to greater transition opportunities versus stagnation that produces a shrinking patient base over time. The business side of our practice needs the same attention as we employ in its clinical side to keep abreast of the latest ideas and systems employed by progressive offices resulting in happier, more efficient, professional, and financially successful entities.

Benefiting From A Learning Culture In addition to enhancing our skills through continuing education, widening our vision of business aspects during the growth of our practice also benefits us.

Early plans include establishing long-term goals and objectives. Including an “exit” scenario in our goals, prompts decisions along the way to help us realize them. A broad vision of the choices we make in the development of our practice helps us understand the complexity of an exit strategy.

For example, in choosing a cost sharing practice, difficulties selling two cost-sharing practices under one roof exist. There are two different configurations in these practices: 1. Integrated: The clinical and reception areas are joined. Clinicians see their own patient base, but hygienists may see a combination of both practitioners’

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patients for greater time efficiency. They derive profits on the income produced from the individual patient base.

2. Non-integrated: With only shared real estate and possibly a limited amount of equipment such as a Panorex x-ray, partners share only costs of occupancy.

Some of these practices work successfully until transition time when one doesn’t want to buy the other’s practice. Practice management intervention offers help in resolving complex strategies for a smooth transition.

Learning the differences between sales potential of large practices actively sought by third party purchasers today, in contrast to the diminishing popularity of cost sharing partnerships formerly in vogue, gives practitioners valuable information upon which to decide what type of practice to develop. Seeking professional advice helps avoid potential risks and barriers to developing an exit strategy.

Within a learning culture, opportunities abound to avoid the perils of “not knowing enough to know what we don’t know.” PA Ron Weintraub is a founding partner with the Bayview Village & Downtown Dental Associates and brings over thirty-five years of knowledge and experience in the practice of general dentistry to the Professional Advisory.

Large companies such as Patterson Dental, Ash Temple Ltd, Henry Schein Arcona, & the former Canadian Dental Co. have benefited from his insight.

As a consultant to Innovative Practice Solutions, Ron advises dentists on practice enhancement, practice purchases, sales, location evaluations, associate buy-ins, and business mergers. Dr. Weintraub can be contacted at (905) 470-6222 Ext. 221 or drronips@rogers.com.

Personal Tax Returns + Post Mortem Analysis = Tax Savings DAVID CHONG YEN CFP, CA Having completed several hundred dentist tax returns during this past tax season, I wish to share common tips with you which will help to reduce next year’s tax burden.

1. The ideal time for tax planning to reduce next year’s taxes is throughout the year; but especially after you have completed your most recent tax return.

2. Trying to save 2008 personal taxes is difficult to do in March/April 2009.

3. Using family members can be an effective way of reducing your overall tax bill. (i.e., making your parents and/or children shareholders of your professional corporation (PC) or your technical/hygiene services corporation (T/HSC) could save you taxes). Paying individuals, including family members, a reasonable

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amount for services rendered is also another common tax savings tool.

4. Having your PC take a tax deduction in its current fiscal year for a bonus which will be paid to you within 179 days (about six months) after your PC’s year end is another way of winning the tax game.

Your PC gets a tax deduction this year although you don’t pay taxes on the bonus until six months later, (when you actually receive the bonus). This works for a PC with a fiscal year end of July 6 or after.

5. Given the low interest rates, consider lending your poorer spouse money at the prescribed interest rates (as outlined by Canada Revenue Agency). Although you will be taxed on the interest income, your spouse will receive a tax deduction for the interest paid, provided the loan proceeds were used for business or investment purposes. This way, the business and/or investment income gets taxed in your poorer spouse’s hands. Practical applications of this concept include rental properties and stocks.

6. Consider electing to have pension income taxed in your poorer spouse’s hands as opposed to your hands.

7. Ensure all donations are claimed on either your tax return or your spouse’s tax return, regardless of whether the donation receipt is in your name or your spouse’s name. Consider having your PC make and claim the donation instead of you individually claiming it.

8. Consider claiming all medical expenses for your family on the poorer spouse’s tax return.

9. Consider paying dividends from your PC/HSC/ TSC to your children who are attending university, provided the children are shareholders of your PC/ HSC/TSC. This will enable your children to attend university with virtually tax free dividends. A child attending university on a full-time basis, for say eight months of the year with a tuition of $10,000, and no other income, can receive $50,000 dividends virtually tax free.

10. Considering paying your poor parents to babysit your children. This will net the poorer spouse a tax deduction of up to $7,000 per child (0-6 years old) and $4,000 per child (7-16 years old). Your poor parents will pay taxes on the income at the lower tax rate. Your spouse must have employment or business income to claim the child care expenses.

VO L. 35 : JUNE 2008

11. Where one is a proprietor or in a partnership, consider structuring your affairs such that monies from your practice are withdrawn to rapidly pay off your non-tax deductible home mortgage. Appropriately structured, your practice loan will increase. The interest on the dental practice loan will be tax deductible. Hence, the end result is that non-tax deductible home/cottage mortgage interest is eliminated and tax deductible practice interest is increased.

12. Where one has a PC, consider: a. Paying the poorer spouse dividends. These dividends will be used to pay down home/cottage mortgage. b. Implementing a tax maneuver to claim your capital gains exemption in respect of your PC shares. You are permitted to claim up to the $750,000 lifetime capital gains exemption relating to your PC shares even though you did not sell these shares to another dentist (i.e., you are still the owner of your PC). c. An Individual Pension Planner (IPP), Retirement Compensation Arrangement (RCA). This is where your PC pays for and receives a tax deduction for contributing to your retirement plan. d. A health spending account. This is where your PC pays for and receives a tax deduction for any medical expenses relating to its employees, including the dentist and dentist’s family e. Buying a universal life insurance policy. The PC could pay for the life insurance premiums, although the PC would not receive a tax deduction. Our perspective is that one should have little or no personal non-tax deductible debt (i.e., home/cottage mortgage) before embarking on this strategy.

The personal and corporate affairs are intertwined.

To effectively reduce your overall taxes, one should plan in advance and on an ongoing basis taking into account one’s personal goals and family members, retirement and estate plans and addressing both personal and corporate tax issues simultaneously. An effective tax plan also requires consideration of the dentist’s personal spending. PA David Chong Yen, CFP, CA with an international firm background and more than twenty-eight years of experience, advises healthcare professionals and owner-managers. Additional information can be obtained by phone (416) 510-8888, fax (416) 510-2699, or e-mail david@dcy.ca.

This article is intended to present tax saving and tax planning ideas and is not intended to replace professional advice.

The views expressed in any article are those of the author alone. They should not be acted upon without the advice of your “professional advisors”.