“Those who fail to plan, can plan to fail.” This is more than just an old proverb or trite saying, but should be considered words to live by, to be posted up on the front office of every dental laboratory and practice as well as any other myopic small business that focuses too much on day-to-day survival and not enough on setting and striving to achieve long-term goals.
Unfortunately, the dental industry is comprised of thousands of dedicated professionals with a singular avidity toward what they do—create exceptional dentistry and provide optimal patient care—that often inhibits them from seeing the forest for the trees. The technician who opened his own small lab or the clinician who started up her private practice exhibits a passion for dentistry that frequently precludes the mundane, yet vital, running of their business.
“They’ve spent 20 years learning how to make a crown, not learning how to manage a lab,” said Gary Maxon, CDT, a former lab owner himself who learned his craft during a four-year stint in the navy in the 1960s. “Unfortunately in our business, myself included, most of us only have the equivalent of a high school education or maybe a little bit of college. Not too many in the dental lab industry have financial background, so it’s difficult to understand sometimes.”
After building a successful laboratory business, Maxon turned what he learned from his experience back in to the industry and now consults and lectures on dental laboratory management strategies. He mentions one recent instance when he was lecturing to a room of 400-plus lab owners along with a pair of computer science majors right out of school. “They were absolutely amazed at how little lab owners know, or how to figure, about their business.”
Insider Information
Bob Creamer, CPA, President of Creamer & Associates, P.C., an accounting firm in Salem, Ore., that specializes in dental businesses (practices and laboratories), said lab owners need to learn how to separate the financial and artistic sides of their operations.
“What dentists do and what lab owners do is they work in their practice and do not work on their practice,” he said. “They don’t take the time to step back and say, ‘Do we have goals for this business, for our family, for our retirement? Have we set those goals, and have we set up the plan to reach those goals?’”
Creamer adds that even though the average dentist in the United States earns more than six times the income of the median household in the country, most are not in the position to retire at age 60 without facing a “substantial drop” to the standard of living to which they are accustomed.
“The lab owner is not much different. They’re doing the exact same thing, except they don’t have the 6X income,” he said. “The underlying problem is they do not have a plan.”
In most cases, because dental lab owners are not experienced in business management protocol, meeting with a financial planner is a wise first step. Ideally, it should be one who has worked directly with dental business and is familiar with the specific demands and nuances involved with producing dental restorations.
“Unless you found an accountant who’s already working with a lab, they’ll have no idea where to put the different costs” on a balance sheet or on the profit-and-loss statement, warned Maxon. “Ask them if they know the manufacturing costs to produce a unit. Most accountants don’t know.”
But there are accounting professionals available who do have the knowledge and training necessary to help dental lab owners navigate through the foreign waters of finance. In addition to being a certified public accountant with more than 30 years of experience working with dental business owners, Creamer also is co-founder of the Academy of Dental CPAs, which is comprised of more than 25 accounting firms located throughout the country that work specifically with dental practices and laboratories on accounting, tax services and what Creamer terms “quality of life issues,” meaning ADCPA firms help clients set short-and long-term plans so they can enjoy a comfortable life while they practice dentistry as well as after they retire.
Taking the gambling out of retirement
It all starts with taking a good, hard inventory of what you own and owe. Look at where you are now, where you want to get to, and when you want to be there. Then develop and follow your roadmap.
Creamer discussed Monte Carlo computer analysis that works out a number of possible scenarios based on certain criteria. For example, you enter your age, income, assets, liabilities, expected retirement date, and your desired cash withdrawals. Depending on the specific inputs, you would be able to ascertain the probability of which will last longer: you or your money.
“If after running all those variations, it came up with a 48% chance you’ll outlive your money if you live to age 78, most of us wouldn’t feel very secure under that scenario,” he said.
The next step would be to make adjustments where possible to current income, retirement withdrawals, and debt payment schedule and retirement age to improve the statistics to a comfortable range.
“Every client is different and every analysis is different, but it helps to test the waters and helps the lab owner to make the appropriate plan,” he said. “It’s going to be constantly changing, and it has to happen simultaneously with you running your business. This is what is going to get you there in the long run, but we need to start today.”
First Steps
Or more appropriately, you should have started a long time ago. Ideally, retirement planning should start the first day on the job. Just as your life and career change with growth and recession, your retirement plan should change as well. Creamer said his clients typically make changes to their retirement plans four or more times during their working life.
The next step would be to build a well-diversified portfolio spread among different asset classes. Monitor your portfolio, and rebalance when necessary.
A big part of your financial picture should be debt management. Creamer points to a misconception many clients bring with them concerning student loans. They often carry an interest rate lower than that of a standard business loan, so the lab owner thinks it is more practical financially to pay off the business loan first. In fact, it is just the opposite tactic that you should take because the business loan is tax deductible where the student loan is not. So in the long-run (and that’s what retirement planning all boils down to), it makes more sense to eliminate the student loan and take the tax break on the business loan.
Tax Attacks
“Most accountants are morticians,” Creamer said. “The patient died on Dec. 31, and the client brings their tax stuff in—usually just before the 15th of April—and they want you to embalm it and get it ready to send off, and that’s it. We’re not morticians. Our 2010 tax planning started at the end of last year or before.”
Part of this plan-ahead tax strategy is a multi-faceted plan centered around tax code Section 179. According to Creamer, “It allows a lab owner to invest up to $250,000 in equipment and technology. They can write it all off in one year against their taxes even though they haven’t paid any money down on it, as long as they meet certain requirements of the law, which are very easy to meet.”
Creamer added the tax savings can be used to pay off student loans, reinvested in additional business improvement equipment, or placed into a retirement plan.
“You can buy $40,000 of equipment on time, and by expensing that, you can take the tax money saved and have extra money to put into your retirement, which will further reduce the taxes. Over a couple year period, the taxes will pay a good share of the equipment and the retirement,” Creamer said. “By funding the retirement plan, you get a second deduction. So it’s a snowballing effect. You save money by putting it in the retirement that you got by saving money on the taxes from buying the equipment.”
Government in Action
But government assistance for lab owners doesn’t come just from knowing the tax laws and using them to their full advantage. The U.S. Small Business Administration also is set up specifically to assist small-business owners.
“Whether it’s access to capital or finance, general business and coaching, or access to government contracts, the SBA provides resources for small-business owners often in their own neighborhood or in their local community,” said Jack Bienko, U.S. SBA Deputy Director for Entrepreneurship Education. “They can walk into SBA resource centers, or they can schedule an appointment and more often than not get free counseling. There might be a very affordable fee for a workshop on a specialty topic.”
Bienko said the resource centers are staffed with volunteers who are experienced business counselors from a variety of industries. “So a lab owner or a lab executive could request somebody who’s been in the industry. If they can’t find somebody from that industry, they may be able to find someone who’s leased equipment before and can walk them through the basics. They provide practical business knowledge, not only because they know it, but because they’ve lived it with their own firms. They can talk very hands-on about the negotiation tactics involved with leases, equipment, real estate, or anything else related to business management.”
Bienko stresses that, while the SBA is a federal entity, it is aware of the intricacies of local economies. “There’s a local face of SBA in communities. They interact with, coordinate, and direct folks to the proper resource,” he said. “They are very attuned to the local lending scene if someone is looking for a local resource. Also, knowing local economies are diverse, they may know about a local initiative for a tax abatement.”
While there are SBA resource centers in every state and most major metropolitan areas, online resources also are available to help business owners who can not get to an office. “We have about 30 online courses available on a range of business topics, such as starting a business, how to manage your money, how to market yourself, dealing with regulatory issues,” Bienko said. “We cover all those bases, either in conjunction with a partner or directly on our website.”
Changes coming
In addition, the SBA recently announced that it will launch a redesigned website this fall that will allow visitors to more quickly find the information they need through a simplified navigation structure. New features will allow users to tailor their experience to provide information that is specific to their needs and location. The new website also will offer a dedicated lender area that helps banks and other financial institutions that partner with the SBA.
Our goal as an agency is to get information, tools and services into the hands of small-business owners more quickly so they can spend more time doing what they do best —creating the jobs that will drive our economic recovery,” SBA Administrator Karen Mills said, according to a news release. “Through a new, personalized and dynamic SBA.gov we will be better able to support job growth across the country.”
