Divorce and the Practice Value

Issue #179-7.2.13

In This Issue: Dental Practice Valuation during Divorce Proceedings, By Bruce Bryen, CPA Monitor Positioning, by Dr. Lorne Lavine Maintaining a Realistic Quality of Life, by Dr. Frank Carter, Ph. D. Bruce Bryen, CPA Managing Partner Bryen & Bryen LLP Printer Friendly Version The Importance of the Dental Practice Valuation during Divorce Proceedings By Bruce Bryen, CPA Managing Partner Bryen & Bryen LLP Who is the Preparer and what are the Preparer’s Credentials? During divorce proceedings, the presentation of the dentist’s assets will be required for inspection by the attorney and expert evaluator representing the adversarial spouse. The judge will be reviewing the dentist’s balance sheet as well. It is probable that the most valuable asset owned by the dentist is his or her dental practice and the deferred and non-deferred income stream generated from it while in business. The question of actual compensation is an interesting one, in that many times dentists feel they can disguise certain expenses and no one will find them, thus reducing their earnings. The personal and enterprise goodwill allocation and its impact distributions to the spouse can mean the difference in hundreds of thousands of dollars paid or retained by the dentist based upon the judge’s ruling as to the dental practice value allocation of assets. It is important for the dentist to have the valuation prepared by someone with as much expertise as possible in dental practice valuation methodology, practice sales formulation and the actual experience of attending the transition of the dental practice. Knowledge and experience in expert witness testimony regarding dental practices is a must, as well. This type of valuation preparation is a special niche that most general business evaluators, CPAs, and other professional business appraisers do not possess. Reviewing the resume and interviewing potential evaluators is an important step in determining the right hire. Cost is important, but a higher cost for someone experienced will pay off in thousands of dollars of savings based on a business evaluator’s potential lesser price with no dental valuation experience. What Qualifications Should the Dental Practice Valuation Expert Possess? For qualification as an expert to evaluate and present the value of dental practices, one of the most important attributes recognized by the courts is the amount of publications available in professional dental journals and the content of those writings. These articles should describe areas of dispute such as the goodwill allocation between the dental enterprise, itself, and the personal goodwill of the dentist. This is an area in which a valuation expert with little or no dental practice appraisal experience will surely fail. In states where equitable distribution laws are effective, the support for the value is what will assist the court in determining which spouse gets what amount from the dental practice. In states without equitable distribution laws, the goodwill allocation is paramount to the dentist’s ability to survive the amount of the final distribution award and be able to carry on his or her life satisfactorily. The methodology for determining the practice value is another area of expertise that the evaluator should possess. Questions about these points should be asked during the interview process. Those evaluators not experienced with dental practice methodology may use a gross revenue and not take into account factors such as risk, earnings available on a net basis and that capitalized value or other forms of accepted analysis for the proper determination of value of a dental practice. Those amounts segregated as goodwill, and to whom the goodwill is allocated is a must for the presentation of the valuation narrative. Since goodwill probably represents 70% or more of the value of a dental practice, it is imperative that its allocation to the enterprise or the individual dentist is well documented. Using formulas and goodwill documentation for a manufacturing business, for example, would severely reduce the credibility of the supposed expert dental evaluator’s credentials. The manufacturing company in almost all instances would rely on inventory, fixed assets and earnings to create value. Professional education is not that much of a variable. The Goodwill Allocation and the Evaluator The expert dental practice evaluator should know that the personal and dental practice goodwill allocations are going to be based on the attributes of only the people and professionalism exhibited by them. There is no product sold. In most instances, the goodwill of the manufacturing company comes from the efforts of the business and its product. Dental practices produce almost 100% of revenues from the personal relationships developed and have much higher amounts attributed to the personal goodwill of the profession and enterprise, rather than to product development. If there are many professionals, the enterprise may get credit. Choose the Evaluator Carefully The allocation of goodwill and support for that allocation and the methodology for determining the dental practice value will determine much of the dentist’s life course after the divorce. Make sure your evaluator knows dentistry and its special place in the transition market. Bruce Bryen is managing partner of Bryen & Bryen LLP, certified public accountants. Bruce has forty years of experience in assisting dentists with their financial concerns. He has a strong expertise in retirement planning and has testified on numerous occasions as an expert witness regarding partnership disputes, business valuations and divorce proceedings. Email Bruce at: Bruce@thedentistsnetwork.net or call 800-988-5674 ext. 112 His web site address is www.bryen-bryenllp.com Forward this article to a friend Dr. Lorne Lavine Dental Technology Consultants Printer Friendly Version Monitor Positioning By Dr. Lorne Lavine, Dental Technology Consultants As dentists transition towards a modern dental practice, many of them realize the value and benefits of placing computers in the operatory. Many practices now have computers in the treatment rooms. One of the issues that has created resistance is the confusion over proper positioning of the monitors. One Scoop or Two? While the concept of having more than one monitor in the operatory was a foreign thought a few years ago, this is becoming more and more common today. The main benefit of two monitors is the ability to pick and choose what the patient sees and what they do not see. Most practices want the patient to be able to view intraoral camera images, digital camera images, digital radiography, patient education, and DVD or TV. However, in many cases there is more HIPAA-sensitive information that is best not seen by the patient, such as the day’s schedule, financial statements, and other private information. In these situations, a dual monitor set-up is ideal. It’s important to differentiate between two monitors and a dual monitor display. Many offices already use two screens, such as a TV and a computer monitor. However, the TV is not connected to the computer and these are really two separate systems. In a dual-monitor display, both screens are connected to the computer. This requires the use of a dual-display video card. These cards can have outputs for both monitors (VGA/ DVI/HDMI) and TV (usually HDMI). By setting up the monitors in Windows, they are basically treated as two halves of one monitor: drag an image to the edge of one screen, and as you continue to drag, it appears on the leading edge of the other screen. Through this system, you can pick and choose what appears on each monitor. Positioning For the monitor being viewed by the patient, there are a number of options that are available. Many offices currently have TV monitors that are positioned in the upper left or right corner where the wall meets the ceiling. While adequate for watching TV, this position is not ideal for viewing digital images. The monitor should be positioned about 18” from the patient’s face, and this corner position is simply too far away. So, this narrows down the options to three: the ceiling, the wall, or the light pole. For maximum flexibility, the ceiling is the best location. When connected to an articulating arm, such as those from ICW or Ergotron, it allows the monitor to be viewed from both a sitting as well as a reclined position. Since many offices have drop ceilings, it is also easier to run the necessary cables (video, audio, and power) from the monitor back to the computer. If viewing the monitor while the patient is reclined is important, then a pole mount is also a good option to consider. Many dental chairs have built-in options for a radius-style monitor mount. The one limitation is the issue of the cables. If the floor is concrete slab and there are no conduits in place, then there is no easy way to run the cables from the monitor to the computer. Also, it makes sense to position the monitor as high as possible on the light pole, as the higher the monitor is positioned, the easier it is to view while reclined. If viewing the monitor from a reclined position is not crucial, then a wall mount can be considered. These mounts come in many shapes and sizes. Dentists will have to decide if they need the monitor to extend out across the patient or just to the side, whether up-down motion is required, and whether they want a keyboard tray to be mounted to the monitor. As practices add new technology systems, it is important for dentists to evaluate the different options available for positioning monitors. There are ergonomic and esthetic issues that must be considered, but with proper planning, the ideal result can be achieved. Lorne Lavine, DMD is the Founder and President of Dental Technology Consultants. Dr. Lavine holds two prestigious certifications, the A+ Certified Technician designation and the Network+ Certified Professional. These designations demonstrate proficiency in computer repair, operating systems, network design and installation. Dental Technology Consultants provides dentists a full range of services relating to the implementation of technology. Interested in having Dr. Lavine speak to your dental society or study club? Click here. Dr. Lavine can be reached at drlavine@thedentistsnetwork.net Hear Dr. Lavine’s FREE podcasts at The Dentist’s Network - HERE Forward this article to a friend Dr. Frank Carter, Ph.D. Printer Friendly Version It's Summer Time and the Kids are Home All Day. What Now? By Dr. Frank Carter, Ph. D. A recent article in the Wall Street Journal reminded me of an important topic that I speak about continuously with my clients, and I thought I would share it. I generally have to demonstrate to my clients that any problem at work also shows up at home. These problems simply manifest differently or sometimes similarly. The capacity to see them or deny them is the deciding factor. The business owner, who feels powerful in the office, may not feel so powerful at home with the spouse and children. The business owner, who feels powerless in the office, might feel more powerful at home or not feel very powerful at home either. Some business owners will just do what they are told in order to keep the peace at home or keep making money in the office, because they feel as though making money is their most important value.             The children are often part of the scenery and victims of the problem. Children reflect a parent’s successes and failures in life. Business just like family is not only about making more of something, e.g. money, extracurricular family activities, vacations, choice of colleges, etc. Your performance in business and family is about demonstrating your competence, your personal sense of adequacy and proving to yourself that you have value in the world. Some people do this in their physical reality while some people can only do it in their fantasy world. The issue of one’s competency, adequacy and value is always on display for the children to model. The article encouraged parents to not organize their children’s summer, but to let the children organize their summer. They encourage parents to let the children pass through the “I’m bored” phase of summer without solving the problem for the children. While this phase can be very uncomfortable for the children initially, it is not supposed to be uncomfortable for the parent. And that’s the point! The average parent makes raising children all about their convenience and avoids letting children explore the world freely to learn and grow with each experience, even the ones that generate feelings of discomfort. Once the child becomes accustomed to solving their own problems, a sense of confidence and control over one’s destiny begins to surface and becomes a habitual belief. Letting the children solve their children problems and letting parents solve their adult problems leads to a habitual family atmosphere: we are productive and happy. I recently came across a book review: “The Secrets of Happy Families”. The author proposed running a family like a corporation. The intent of the book focused on the convenience of the parents and their idiosyncratic perspective on parenting. Children instinctively follow their parents’ dictates because they are programmed to live and breathe for their parents’ approval. They naturally grow towards the love. They need this love, because their survival instinctively and biologically is dependent on the connection to the parents. Children are victim to the competency, adequacy and value that parents believe about themselves. The job of being a parent is to facilitate the survival and growth of the children. That is not the same as telling children what to do so the parents are not inconvenienced. It has been my experience that clients who are overly controlling due to their insecurity and fear manage to raise children who are inherently angry and who manifest levels of helplessness in many aspects of their lives. In response to this anger and helplessness, some children fall apart, while other children overachieve in an effort to cover-up the uncomfortable feelings. Angry children appear in families when inadequate parents cannot meet the essential needs of the growing child early in childhood. Anger is a psychological reaction to not getting something you feel you were supposed to receive: an entitlement. A child, however, is forbidden from expressing this anger at the parents, so they drive the anger in against themselves. Furthermore, many children of inappropriate parents grow up feeling helpless, because these parents, in an effort to cover-up their inadequacy, do everything for the child. As a result these children do not develop the confidence that comes with initiating one’s own intent and then experiencing the consequences of one’s efforts. These parents appear controlling and smothering. As a result of being controlled by the needs of the parents to look good, the children lack real life feedback regarding their talents, abilities, skills and interests. The final point is simply that the distortions we experience as children persist into our adulthood. Those distortions continue to diminish quality of life. The deeper problem is that this author’s behavior feels normal to him, and because it feels normal, there is no inclination to change. As a business owner, it is your responsibility to maintain the realistic quality of life in your office, as well as at home, and the methodology for maintaining this quality of life comes through your behavior and what you believe to be normal. What is normal is often learned in childhood, but can you be sure that what you learned in childhood is really good for your children, or for your business? Dr. Carter is CEO of PEAKS Performance Enhancement and Business Coach for the Dentist clients of McKenzie Management. He can be reached at drcarter@peaks-coaching.com, or by calling 858-454-2828 Forward this article to a friend

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