Reinvesting to benefit your patients and practice
October 20, 2014
As you approach the end of the calendar year, it's a good time to take stock of how your business has performed and review the physical and financial condition of your dental practice. If your practice profit has gone up this year, consider reinvesting in updated office equipment or a planned expansion project.
Practice upgrades not only bring important benefits to patients but can also help build on your financial position by increasing practice value and enabling you to take advantage of allowable tax deductions for the current year.
Here are some tips from Wells Fargo Practice Finance, the practice lender endorsed by ADA Business Resources:
- Delivering patient benefits with new technology: It's never too late in the year to upgrade your technology and bring greater benefits to patients. Regular technology upgrades can help generate a loyal following from patients who seek out the latest advancements in medical procedures. Plus, appropriately selected state-of-the-art dental technology not only reassures your patients of the quality of your care — it can empower and energize staff and associates as well, increasing job satisfaction and staff retention. If your year-end profitability allows you to invest in new technology, you have the added benefit of meaningful tax deductions for the current tax year as well.
- Growing value with a practice expansion: Practice expansion is typically a requirement for maximizing growth potential. We know that a single operatory can generate from $150,000 to $250,000 in production annually. So limiting your practice to two operatories with no room to expand constrains your ability to develop your practice to its fullest potential and simultaneously grow income. Yet many doctors hesitate to expand or upgrade their practices for fear of generating more work or debt than they can handle. However, if planned well and with the appropriate objectives in mind — adding technology, services and space to improve the patient experience, increase office efficiencies and enhance service capabilities — then a practice expansion should generate increased cash flow through greater productivity and a higher balance of fees.
- Improving cash flow through loan consolidation: One way to generate increased cash flow for reinvestment in your practice is through loan consolidation financing. If you're like most practitioners, you probably took out your first loan to finance dental school. Years later, you may have borrowed again to realize your dream of owning a practice. And as your business and professional goals grew, you may have decided to finance the expansion of your practice. While these are all smart investments, your challenge may now be in managing three loans with high rates and at three different terms. Consolidating your debt simplifies monthly payments and can save you hundreds, and even thousands, of dollars per month, increasing cash flow and freeing up resources that can be reinvested in your business.
- The impact of federal tax law: Technology and expansion projects offer significant opportunities to take advantage of deductions and depreciation formulas in the federal tax law. Section 179 of the Internal Revenue Code allows businesses to write off the cost of new equipment purchased and put in service during the current tax year. Property that qualifies for the deduction can include such items as technology and equipment, furniture, cabinets and other tangible goods. The maximum Section 179 deduction for 2014 is currently $25,000. Expansion projects can potentially benefit from a cost segregation study, which separates all expenditures into structural and non-structural categories. This segregation of expenditures can often convert as much as 30 percent to 40 percent of project costs from the "buildings" category, which has to be depreciated over 39 years, to the "personal property" category, which can be written off over five years and qualifies for the Section 179 deduction. Greater write-offs over a shorter period of time translate into greater cash flow, and more opportunities for investment in your practice.
In summary, it's never a bad time to invest in your practice. But waiting until the third or fourth quarter gives you the advantage of hindsight. You now have a feel for your financial condition and profitability for the year, and can allocate funds judiciously.
Wells Fargo Practice Finance has specialized in dental practice financing for nearly 30 years, providing clients financing and access to tools and resources to help them achieve their practice goals. ADA members receive preferred pricing on practice financing, as well as equipment, expansion and relocation project funding, practice equity loans and more.
Be sure to explore Wells Fargo's Practice Success Program for dentists, which offers complimentary business planning tools, referrals to professional dental practice service providers and short term management consulting. To learn more, contact Wells Fargo Practice Finance at 1-888-937-2321 or visit wellsfargo.com/dentist