As the “Baby Boomer” market approaches retirement, we are seeing more and more accountants and financial planners entering the transitions business. It is readily apparent that they have little or no experience in selling dental practices or as a management consultant, yet they are setting up transitions and providing legal documents. They are even offering tax strategies for retiring dentists that are often dangerous programs that can have devastating results for your future retirement plans.
“Smoke & Mirrors” Advisors
The main interest of some accountants and financial planners is to get the retiring dentist to invest the money from selling his or her dental practice so that the accountant or financial planner can manage it. They make a lot more money managing money than they make by providing transition advice.
Case in Point: The most common investment vehicle is a Defined Benefit Plan. It is usually set up using an associate who is promised future ownership of the practice by accepting a reduced percentage of collected receivables as payment for the practice over a five-year period.
Sounds good so far? Not really. There are two problems with this process.
First problem: A Defined Benefit Plan requires a defined contribution based on the participant’s income every year for a minimum of five years. In the event the associate does not work out—and more often than not, this is the case—the contribution still has to be made. The plan cannot be terminated prematurely without paying all of the previously deferred taxes plus penalties and interest. This can become very expensive. Furthermore, Defined Benefit Plans also require contributions for other employees of the practice.
Second problem: Let’s say that you are selling your dental practice outright and the proper allocation of assets is made. In this case, a large majority of the sale price (90%-95%) will be treated as a Capital Gain and taxed at 15%.
Compare this to deferring taxes by contributing the proceeds of the sale into a Defined Benefit Plan and then taking distributions from that plan at ordinary income or 35% resulting in a loss of 20% that the promoters of these transition schemes do not reveal to you. It would take a long time for your money to be “managed”—and hopefully growing—for you to realize a 20% gain!
As Henry Schein PPT dental practice transition specialists, we do not purport to be investment advisors or money managers. We do know how to successfully assist you with your transition needs. We are experienced specialists in providing brokerage services, associateship to co-ownership processes and solo group structures.
We suggest that you use a dental practice transition specialist to assist you in your transitions decisions and let a legitimate and separate financial advisor assist you in your investment strategies.
Remember, if it looks too good to be true, it probably is!
Henry Schein Professional Practice Transitions, Inc. is a national leader in dental practice transitions. A subsidiary of Henry Schein, Inc. they provide expert guidance for selling and buying dental practices, dental practice fees and management, assessing partnership and associate-ship opportunities, and performing dental practice appraisals and valuations.