Dental Unscripted

Welcome to Dental Unscripted.

Where Mike Dinsio and Paula

Quinn break down the

practice ownership journey,

one episode at a time.

Starting up, buying,

and running a successful dental practice.

What up, what up, guys?

Welcome back to another

episode of Dental Unscripted.

As you guys know, this is Michael Dinsio,

one of the co-hosts of the program.

And I,

if you guys are big YouTube followers,

I'm sitting in my living room,

so the sound is not my

weird podcast booth that I sit in.

uh but that's just how

today's going um and so

here we go uh so yeah

today's I'm super excited

about today because we are

um me and a friend of mine

that's uh big into the

accounting world I refer a

lot of clients over to

we're gonna uh digest

everything that goes into

the allocation schedule

when buying a dental practice.

And so we're going to break

this kind of this idea,

this topic of allocation schedule.

But first,

before we do that little housekeeping,

And before I bring on my guest,

I'd like to invite you guys

over to the Dental

Unscripted channel if you

haven't already done that.

So I've talked to a lot of

you on the phone that are

followers of the program

and you haven't done that.

Do it.

We will stop publishing on

Dental Acquisition

Unscripted and we will stop

publishing on Startup Unscripted soon.

So please jump over there.

to Simply Dental Unscripted, the channel,

because we're just bringing

both brands and both channels into one.

And we are going to be

talking all things start, all things buy,

and also how to run a

dental practice as well.

So please join us over here, like, comment,

subscribe, all the things.

okay without further ado

let's bring in morgan

hammond uh morgan is has

been working with me for

many many years on lots and

lots of deals he's a wealth

of knowledge um morgan

welcome to the program man

how you doing thanks

michael thanks for having

me it's good to see you again

Yes, sir.

Yes, sir.

Why don't you tell us a

little bit about your firm?

I know you guys just went through Emerge.

Congratulations again.

I mean,

you guys started a fantastic

accounting firm and just

brought in more resources,

which is exciting.

But why don't you give

everybody like a breakdown

of what you're doing today

and what the company is all about?

Yeah, you bet.

We started in twenty ten as

HD accounting group.

And so we've been at it for

fifteen years supporting

dentists who own their

private dental practice,

very much a niche firm.

And as we've grown and scaled, you know,

we decided we were at a

point where we wanted some

additional resources in the

form of technology and staffing,

which is always important

and accounting and tax.

And so.

We recently combined with a

top-twenty firm, Eisner Amper,

and they have organized us

in our dental-specific subsidiary,

Eisner Advisory Group Dental Advisors.

I'm the partner in charge.

I have all my team.

We're still doing our same core services,

which is the monthly accounting,

the profit advising, and the tax planning,

only now we get to offer so

much more and have a more

comprehensive experience for our clients.

As an example, this morning,

We just sent an announcement out.

We can do cost segregation studies now,

and we already have.

That went out at nine this morning.

We already have like three

doctors that are saying, hey, look,

we want to talk.

So we can add a lot of value

as part of Eisner Amper now.

So it's been just a natural

progression as part of our journey,

but it's still very specific niche,

private dental practice owners only.

That's our world.

I mean, just cost seg,

picking cost seg up is huge

for the listeners.

It's huge.

Yeah.

And the price point's great, too.

I mean,

it's just it's we're super excited.

And so we're just getting

started with that.

But it's been it's been really,

really wonderful.

I love it, Morgan, man.

Congratulations on that success.

The first question I asked you was,

is the fee structure going to change?

Is the service going to change?

That's always the big question.

My clients that we sent over

just more recently, the answer is no.

Same people, same service,

same responsiveness.

We all have the same tools.

We just get to add a lot more to it.

That's awesome.

That's awesome.

Well, let's get into this topic,

allocation schedule,

because it feels like every

day I have to kind of get in and I'm like,

look, I'm not a CPA.

I just know enough to be dangerous.

And I thought, well,

let's get a CPA on the

program and let's just kind of

diagnose this kind of issue

the first thing the first

thing to hit what is it

what is it what is it yeah

as you know you're you're

heavy into the transition

space we're not in the

transition space we

certainly advise on it and

um when it gets to to this

particular topic so the the

first point of negotiation

is the price of course

And then once that price is agreed to,

then we have to decide, okay,

how are we going to

allocate that price among

the various assets that are

being purchased?

Because these are all asset

purchase agreements.

So broadly speaking,

there is the used equipment.

There is the patients.

there's a promise not to compete.

And then we might, you know,

generally it doesn't get too granular,

but you know,

you might break it down to

some supplies and sometimes

they might say, well,

this is medical equipment

and this is furniture,

but I kind of group those

as fixed assets.

So there's,

there's generally like four or

five main categories where

that purchase price will get allocated.

And I've even seen website

thrown in there too.

Sometimes you can get as

granular as you want.

I, you know, I think of it,

Honestly, Michael,

if you break it down and

you and I both know,

there's two main categories.

It's the fixed assets and

it's the goodwill.

Just so you know,

the promise to not compete,

that should never be more

than five thousand bucks.

It should just be a nominal amount,

but it's usually just the

assets and the goodwill.

Morgan, can I ask you, like,

why do some people get more

granular on the topic?

Like what,

what's the purpose of chunking

this thing up?

Cause you're right.

It's like, okay,

there's the equipment and

then there's the goodwill

and that's really it.

So why do they,

why do they do that with the goodwill?

Oh, well, with the goodwill,

it's very important.

And we'll talk about that

consideration with the seller.

But if people want to get

granular into the website

and I've got these supplies

and you've got to buy, you know,

I don't think it serves

much of a purpose.

It doesn't really have a

material impact on the taxes.

And so when you see an

agreement put together by, I think,

somebody who does a lot of

dental transitions, you don't see it.

broken down like typically

it's yeah it's four or five

categories well I have seen

brokers get more grand and

I'm like why are we doing

this but I I felt like they

had a reason for it but not

not really so if we think

about it and I um there's

two two perspectives and

they're very different

there's the the seller

perspective and the buyer perspective

And within each of those roles,

there's competing objectives, right?

So what's the buyer,

what's good for the buyer

is the opposite of

typically what's good for the seller.

So I think maybe we start

with the seller because-

So wait, let me recap.

So so the allocation schedule,

just kind of throwing it

out and just making this

super simple is you got the

purchase price.

Let's just say a million bucks.

And we have to define how

much of this million

dollars of the purchase price,

whatever it is.

is broken up into hard assets,

which is the equipment, and not so hard,

soft assets,

which is what we all call is goodwill,

right?

Intangibles, you bet.

Intangibles.

And the other thing we might

want to throw in here, Michael,

is that this is an asset

purchase agreement.

They're almost all asset

purchase agreements.

So when you buy a dental practice,

you're not buying that dentist's company.

You're buying their stuff, right?

And you're going to put

their stuff in your own

brand new company.

And you're going to start day one as your,

whatever,

whatever PLLC or PC you set up

for yourself.

So you're just buying their assets.

And that's why it's an asset

purchase agreement and why

we're allocating those assets.

So versus, versus, and I know,

but just for the audience

versus a stock sale, right?

A stock sale,

which is a horrible deal for the buyer.

And you should never do that

because you can't,

a stock sale is not

deductible for the buyer because,

And then you're on the hook

for all prior liabilities of the seller.

So if they didn't pay their

payroll taxes from years

ago and didn't disclose it,

it's still your problem.

So you almost never see a stock sale.

I don't either.

I don't either.

So can you say that a little

bit more simple?

So everything that we touch

and I honestly don't think

I've ever done a stock sale.

stock sale is you're buying

the other dentist company

so if it was abc family

dental llc you're buying

their stock certificates

and saying that is now my

company okay the problem

with buying stock it's just

like buying stock on the

stock market you can't

deduct that it's

non-deductible so the

allocation schedules moot

point with this doesn't

matter you're taking their

balance sheet you're also

taking all their liabilities

Yeah, liabilities, taxes, all the thing.

But I have heard of some

stock sales before when like very,

very unique situations, right?

The only time I've heard of

it and seen it is if

somebody's selling a piece

of their practice.

And so they want to sell

maybe fifty percent of the

stock if they have an existing S Corp,

which that Michael's a

whole separate podcast.

So adding a partner is a whole, whole,

whole new topic to visit about.

OK.

But so I will just call it

ninety nine percent of the time.

It's an asset purchase.

You're buying the doctor's assets.

You're buying their their

fixed assets and their tangible assets.

You're going to put them in

your own company.

Perfect.

Yes.

So because the show has

gotten more broad over the years,

it's not just buyers that are listening.

If I helped you or if you've

been listening for five years,

I'm getting calls today,

my younger docs wanting to

sell to DSOs or, hey, look,

ownership's really not for me.

I think I just want to sell

and go back as associate.

Totally fine.

Let's start.

Let's hit both buyers and

sellers because Morgan,

you might be helping sellers.

I primarily help buyers buy,

but let's let's hit the buyers first.

Let's hit the buyers first

and then we'll talk.

And I think it's important

whether you're a buyer or seller,

it's always helpful to know, hey,

where's the other side coming from?

That's right.

What's keeping them up at night?

That's right.

So for the buyer,

this is the key is a key concept.

On an asset purchase agreement.

As the buyer,

you get to deduct a hundred

percent of the purchase price,

no matter what.

Say that again,

because that's something I

say on every deal and it

needs to just sink in.

They oftentimes hear that

just because the hard

assets are lower in value,

that they're not going to get right.

I'm missing out.

And so, and this is the,

as a new business owner,

also an important key concept,

you always get to deduct.

a hundred percent of every

business expense.

It's just a matter of timing of how soon.

Yes.

So that that's where you

start as the buyer,

no matter what you get to

deduct the whole price in all cases.

Yeah.

So,

so when Morgan says that it's twenty

percent equipment,

eighty percent goodwill.

OK.

The buyer the equipment that

twenty percent you get to

deduct that Either right

away or over five years

That's the choice so as an

example medical equipment

is ductable five years or

You can say everyone's

heard of section one

seventy nine that says

let's let's just deduct it

all right now the goodwill

Eighty percent of the

purchase price that that

must be deducted straight

line over fifteen years.

So that's why you'll you'll

hear people say, well, as a buyer,

you want a high amount to fix assets,

you can deduct it all right

away and then you can you

can have your let's just

say you'll have your party

a little bit earlier.

Right.

You only get the tax deduction once.

Do you want it sooner?

Do you want it later?

But you still get to deduct

the whole thing no matter what.

So it's just timing the fixed assets.

It's more accelerated.

You can do it now.

goodwill over time for

fifteen years okay so so in

in reverse morgan in

reverse here so you get to

write off the whole thing

it's just how long do you

spread it over time right

it's kind of like a loan

the more you spread a loan

payment out the smaller the

payment is the

So that's essentially that amount,

if it's goodwill,

that smaller amount is the

write-off every year.

That's what I heard.

Correct.

So just to say it again,

because I think you may

have broke out if that was

on my side or your side.

Yeah.

So for hard assets, it's how many years?

And for goodwill, it's how many years?

So there's a schedule.

It depends on the type of hard asset.

The biggest one,

the most consequential is

the medical equipment.

The accelerated, the rules,

the accelerated

depreciation is five years

for medical equipment.

Okay.

Okay.

Or you can say, tell you what,

let's forget that five years.

That's what section one-seventy-nine is.

That says, you know what?

You bought this used equipment.

Let's deduct it all this year.

Let's just take it all right now.

So it could either be

instant or spread out in the short term.

And then whatever's

allocated to Goodwill is

straight line over fifteen years.

Okay.

Okay.

So as short as five years

with hard assets,

And then as short as fifteen

years on Goodwill.

Yeah.

Okay.

All right.

So the other thing I want to

comment on is when we kind

of separate topic,

but similar when we're

evaluating or coming up

with true profit of a dental practice.

This is an interesting little thing.

Everybody always asks me

about depreciation and amortization,

right?

So can we hit that real quick?

Because isn't it, it's related here,

is it not?

So that's what we call,

we put that what we call below the line,

right?

So if we're talking profit

margin on a practice,

that's before you look at

depreciation amortization.

So we do not factor that in.

If we're analyzing a

practice for profitability,

the depreciation and

amortization is not part of

that discussion.

That's the owner's tax situation.

Same thing with like the

owner S-corp salary, that's irrelevant.

So if the practice collected

a million dollars,

and has a forty percent

profit margin before owner

comp before depreciation

before amortization I mean

there's four hundred k in

profit for the owner so we

don't we do not factor in

depreciation and you know

you'll hear the term ebita

and that's what they're

talking about their

earnings before interest

depreciation amortization

because it doesn't matter

like whatever the seller

whatever their whatever they chose

to depreciate their assets

because you do get a choice

whether you want to do

bonus or section one same line.

That's irrelevant to how the

practice is performing financially.

That's just the owner's good

deal write-off.

It's just kind of another line.

It's not an actual bill.

It's their strategy,

the seller's strategy.

But

is it true that goodwill is

related to the amortization

is that a true statement or

because depreciation is uh

yeah the relation and

amortization yeah go ahead

depreciation you'll hear

depreciation more related

to like a fixed asset

because it depreciates like

it's worse less over time

or amortization over a

period of time they're

really referring to the

same thing they're non-cash deductions

So let's say you're

deducting your goodwill

over fifteen years.

You get to year ten,

so you still have the

practice at that time,

and you still have your

one-fifteenth tax deduction

on the goodwill.

That didn't cost you any money.

No.

You spent that cash ten years ago.

But is amortization goodwill

and depreciation hard assets?

Yeah, that's a good way to think about it.

But it's the same thing.

It's a deduction.

They're both deductions.

That's perfect.

Okay.

All right.

So I wasn't really planning on going there,

but since we had an account on the phone,

you might as well go there, right?

Okay.

So back to the buyer's perspective.

So essentially now we've got

our asset groups, Goodwill, hard assets.

We've got the schedule now

that you've laid out seven or five years,

seven years, fifteen years,

depending on what the

accountant wants to do.

And that's your job for them.

Let's talk about like.

I mean, what's the bridge there,

any other things that

you're thinking about as

far as like the buyer goes and what they.

So this is what I think

about for the buyer,

and I think to really understand

like where to go for the buyer,

you do have to have some

knowledge of where the

seller is coming from.

And so I'll just touch

briefly on the seller's

perspective because that's

going to inform my advice to the buyer.

So for the seller,

when they go to sell a practice,

that's a significant taxable event.

And the first question every

seller is going to have is

how do I minimize the tax bill?

And the answer is there's

really not much you can do

because they owe gain,

they owe income tax on the gain realized.

And the gain is the

difference between what the

buyer's paying them

and what's called their tax basis.

And their tax basis is what

they originally paid less

what they took in depreciation.

Well, let's not get crazy.

We're getting crazy.

Simple example.

Simple example.

Let's say somebody buys a CEREC machine,

okay, a hundred,

a hundred and fifty thousand.

And let's say they choose to

depreciate the whole thing right away,

right?

I'm taking section one seventy nine.

I'm writing that whole thing

off this year.

So if they buy it for one

hundred fifty K and they

take one hundred and fifty

thousand in depreciation,

their tax basis is zero.

Right.

If they bought bought it for

one hundred fifty and

accelerated over five years

and that's going to be over

time and maybe by year two,

it's I'm just pulling

numbers out of the area,

but it's down to like one

hundred thousand.

So if their tax basis,

if they depreciated fifty,

their tax basis is now one hundred.

So.

That's the math.

Right.

And so whatever you get paid.

So back to my example,

they bought the CEREC.

One hundred fifty K. Let's

say they kept it.

They deducted the whole thing right away.

Tax base is zero.

Two years and they say, you know what?

This isn't for me.

I'm going to sell it used.

And so they sell it used for

eighty thousand.

Well,

if their tax basis is zero and they

sell it for eighty thousand,

they just pick up eighty

thousand in ordinary income.

It's called depreciation recapture.

They got to pay income tax on it.

So the same thing applies in

the aggregate when you sell

a dental practice, right?

And you look at that

allocation and let's keep it real simple.

Michael,

we've got the million dollar practice.

We got two hundred K to

equipment and eight hundred

K to goodwill.

If the tax basis on their

equipment is fifty thousand.

And the purchase price has

two hundred allocated to equipment,

they just picked up one hundred and.

Fifty K of what they have to

pay income tax on.

You can't change it.

There's no there's no hiding from it.

There's nothing that can be done.

So for the seller,

where we get into competing objectives,

the same thing applies on the goodwill.

If it's a startup,

there is no basis in goodwill.

They owe gain on eight

hundred thousand in that example.

But the difference is the

gain on goodwill is taxed

at favorable capital gains tax rates.

So if they're in the thirty

seven percent tax bracket,

the gain on equipment is

taxed at thirty seven percent.

Yeah.

The gain on the goodwill is

taxed at twenty percent.

So.

The only way the seller can

influence and lower their

tax bill is to push for a

lower allocation to equipment,

because that means a

smaller percentage of their taxable gain

is taxed at that high

marginal tax rate so it

doesn't dramatically alter

the tax bill but it does

influence it so that's why

I you know our clients have

heard me say the allocation

is a bigger deal for the

seller than it is for the

buyer yeah and and I you

know I think the buyers at

the at the time like

I think at the time that the

buyers get to the place

where you pick them up,

looking at allocation

schedule and they're

getting ready to close and

you're talking to them

about accounting and

bookkeeping services and

they're just exhausted, right?

They're exhausted.

They just got their butts kicked.

That's how they feel, right?

They tried to negotiate the

price they may have lost.

We started chipping away at the ARs.

We won a little bit there.

Then they started getting

into the work in progress

and all the little things.

And then the lease,

the lease starts kicking

them in the shorts.

And by the time they get to you,

they're like,

I just want to win somewhere.

Right.

And then there you are like, well,

you know,

you get a little benefit to

juice the hard assets and

then they lock on to that.

The truth is, this is a big,

big deal for sellers and a

very little deal for the buyers, right?

It is.

And so to kind of circle this back around,

For the buyer, just keeping that in mind,

the more you push them on

bumping up the fixed assets

so you can have your bigger deduction now,

you're driving up the

dollars on their tax bill.

You're literally on the seller's tax bill.

And it's going to be a big tax bill.

It's sometimes shocking for the seller.

You're driving up the actual dollars.

So you just have to be mindful of that.

And we're not in the transition space,

Michael.

You've already counseled

them through this process.

And by the time they're

asking me about allocation,

I will tell them, look,

it comes down to a meeting of the minds.

let's say that the the

seller you they've arrived

at like fifteen percent to

equipment and I I'll I'll

ask the the dent to say I'm

you know they're looking at

hiring us as their

accountant after they're in

ownership and I'll say well

how do you feel about that

practice you know do you

see yourself there do you

like it does it check every

other box does it feel good

if so like you may not want

to jeopardize the deal over allocation

Because you still get to

deduct the full purchase

price no matter what.

And the other thing, Michael, is this.

Let's say they're buying a

practice and this buyer has

maybe a more expansive

skill set than the seller.

And so some of the stuff

that was being referred out,

they're going to start doing.

That's production they're not paying for.

They're going to make more money.

And they're going to make

way more money than they

made as an associate.

And so if even though maybe

a higher percentage of that

goodwill gets pushed off

for the next fifteen years,

when you're making more money,

those tax deductions become

worth more when you're in

higher tax bracket.

So it's not all bad having

some of that hanging out in the future.

I didn't even think about that.

So if the plan is for you to

make more money in the future,

it's great to defer some of

those tax write-offs to the future.

And I will say this, as an ex-banker,

you usually pay your loan

off in eight to ten years on average,

right?

Those were just statistics

when I was a lender.

So in eight to ten years,

when you don't have that

loan payment and you don't

have that interest

write-off anymore that we

all love to take advantage of,

that allocation schedule

could be the difference maker.

So I didn't even think about it.

Yeah, it doesn't, you know,

people get very excited

about Section one seventy nine,

which again, just to recap,

all Section one seventy nine is, is

Hey,

the rules are if you buy medical

equipment,

that's depreciated over five

years or section one, seven, nine.

Forget that.

Let's just deduct it all right now.

And so if you're making, say,

your practice profits,

four hundred grand and you

buy that CEREC and that's

one hundred fifty thousand

dollar deduction that like

that's that feels pretty good.

Like I'm having that party like right now.

And you're going to have

very favorable tax rules that year.

But but let's just say, OK, we do that.

But you're, you know,

two or three years from now.

Maybe we're not making four hundred.

Maybe we're making seven hundred.

You're going to be at a

higher effective tax rate.

And if you still had some of

that CEREC deduction hanging out,

that tax benefit is

actually worth more money.

So it's not always...

It's not always a bad thing to,

to push those off.

I love, I love what you said there.

So everybody always talks

about section one, seven, nine,

when you go to the trade

shows and like right now,

the Invisalign is, or a line,

I should say a line tech is

coming out with this

Illumina and they've got

some sweet deal and everybody's,

this is the rage.

And like a hot minute ago, like,

It was something else was the rage.

There's always going to be a rage.

And then the salespeople

always love to talk about this.

Section one.

And you're right.

Everybody gets super excited about it.

So what's the longest you can stretch?

Because everybody talks about how,

like you said,

let's have a party and not

pay any taxes this year.

By putting it all in one year next year,

I tend to think let's bank it over time.

So how long can you stretch

one seventy nine out?

It depends on what you're buying.

But again, medical equipment,

it's five years.

There's no discretion.

It's hard rules.

It's like it's like the goodwill.

It's fifteen.

There's no there's no option A,

B and C. It is what it is.

But you could do all of it

in one year or you could

divide it by five years.

In the year of acquisition,

you have a choice.

You could say,

let's take half now and then

deduct the other.

But whatever's left over is five years.

You cannot say, hey,

let's just start with five

years and we'll get to year two.

Then let's take the whole thing.

No.

No.

The year of acquisition,

you can choose to take all

or a portion of section one

seventy nine and then

whatever is left over,

if there's anything left

over is five is five years

and it can't change after that.

OK, so so so for simple math,

I've got two hundred thousand dollars of

Hard assets.

The allocation schedule,

it was a million dollar practice.

Let's say it's eighty twenty.

Eighty percent was goodwill.

Twenty percent was hard assets.

So I've got two hundred grand.

If you're following my math,

the very first year of the acquisition,

I didn't know that half of

the two hundred could be

written off the first year

to be a hundred grand.

And then you would divide

the other hundred grand left over five.

It has to be over five for

medical equipment.

So, OK,

so twenty grand a year and then

that would be the schedule, essentially.

Yes, it's accelerated.

So it's not linear.

It's accelerated to geek out.

It's double declining

balance depreciation.

So it's not linear on the equipment.

Now,

the goodwill is straight line over

fifteen years.

okay okay but in theory like

give or take that's kind of

how people should think in

general yeah okay but

here's to to um go back to

what you said you know okay

we're you know it's your

end the equipment's on sale

and if you hear anything

like well you don't want to

miss out on section one

seven like you never just

for for all practice owners

out there you never miss

out on anything it's all just timing

You know, if you don't get it this year,

you get it next year.

You never miss out.

And again,

if you're going to make more

money next year,

the tax benefit is more dollars.

It's actually worth more.

So I don't get wound up about that.

The other thing,

just a very key concept of

section one seventy nine is

just ordering the equipment

doesn't doesn't count.

It has to be placed in service,

which means delivered and

in a ready condition.

So it has to be installed.

It doesn't mean you have to have used it,

but it has to be installed

to be deductible in that tax year.

And the other thing that

people can sometimes get

confused about is, okay,

what if I get a loan?

Does that spread the tax deduction out?

Or what if I pay cash?

Your method of payment is irrelevant.

If you buy a piece of

equipment and it's placed

in service that tax year,

that's when you can depreciate it,

whether you do the whole

thing or spread it out.

Whether you got a loan or paid cash,

it is irrelevant.

that uh that's really good

like we this is exactly

what I wanted out of this

episode um just as kind of

a fun little bonus and

since we're since we're

into it and we've kind of

funneled it all the way

through hard assets yeah

you mentioned startup yeah um

Because I do have a lot of

startup listeners and

they're listening to this as well,

potentially.

How does cost segregation,

because we mentioned in the

beginning episode,

how does that play into this strategy,

if at all for an

acquisition or a startup?

So cost seg is for when you

start talking about real

estate and let's think commercial,

non-residential commercial real estate.

So you buy your practice,

build your location.

When you purchase

non-residential commercial real estate,

that gets depreciated

straight line over thirty nine years.

That's a long time.

Thirty nine years is thirty nine years.

So that's a very small tax deduction.

So one question I get often, Michael,

as well, you know, from a tax perspective,

should I buy or should I lease?

And I tell people, look,

it's like the tax should

not move the needle on that decision.

You only want to buy real

estate if you want to be in

the commercial real estate

space and you want to own real estate,

invest in what should be an

appreciating asset,

realizing there is risk.

know a good buddy of mine

bought he bought his real

estate it was a good move

for him it was a a bank

building he converted into

a dental practice it's

beautiful michael six

months into it the city

came and made him repave

the parking lot that was

two hundred fifty thousand

he's like what I wasn't

planning on that so that I

mean those are the things

you gotta think about when

you own the real when you

own it it's your problem

So there's risks involved.

So you only want to own

commercial real estate if

you want to be in the

commercial real estate

space and you want to

invest in what should be an

appreciating asset.

That's why you own real estate.

Don't do it for tax

write-offs because your

mortgage interest and your

one thirty ninth depreciation,

if you compare those to

what your lease payment would be,

and lease payments fully deductible,

it's not a huge,

it's not a big enough difference,

in my opinion,

to be a significant decision,

factor in decision making.

But let's say we go down that road.

We say, you know,

I really want to own my spot.

And you purchase it,

you either do a ground up, build it,

or you substantially remodel it.

So again, whatever the cost is,

whatever dollars you spend

on the improvements, not the land,

but the improvements,

you get to deduct the whole price.

It's just a matter of time.

You get to deduct a hundred percent.

So what a cost segregation study is,

is that's when engineers go in,

it's a very specialized

work and they break it down.

They look at every,

every dollar you spent and

they look to substantiate and reclassify

those expenditures to fix

assets as opposed to real

estate improvements to take

it from a thirty nine year

depreciation schedule to

maybe down to a five or seven.

Essentially,

it's like slicing up the asset

so that you could find

things within the building

that could be depreciated sooner.

And a good example of that would be,

I hear this one a lot,

I bought a building and I

bought cabinetry and dental cabinetry.

And so let's get dental

cabinetry accelerated,

not on thirty nine years,

but on five or seven years, right?

Or five years, rather.

So what a cost seg study does,

it does not create new tax deductions.

It just accelerates them so

that you can have them now

because you likely will not

own that building for thirty nine years.

Right.

Now, here's the other thing, Michael.

Let's say somebody doesn't

do the cost seg and say, well,

I just didn't think about it or just,

you know,

was on the to do list and just

never did it.

Not the end of the world.

Let's say five years, five,

seven years later, they go to sell.

They sell the building.

Well, whatever your cost is.

Right.

Let's say they paid eight

hundred thousand for the building.

And let's say, you know,

they forgot to do the cost seg.

And so they're just

depreciating one thirty ninth.

Right.

And whatever time left,

let's say they've

depreciated two hundred thousand.

So they paid eight hundred.

They depreciated two hundred thousand.

They have six hundred K tax basis.

And then they turn and they

sell it for nine hundred thousand,

turn a nice, handsome hundred K profit.

They will owe capital,

long term capital gains.

On the difference between

nine hundred and six hundred.

So the reason I give you

that example is if they

didn't take the cost seg,

their their tax basis is higher.

They're going to pay less

capital gains when they

sell the practice.

Right.

You don't lose anything.

It's all just a matter of time.

Interesting.

The IRS gets what they want to get.

They get paid.

When and how.

Right.

That's cool.

All right.

Wow.

Great episode, Morgan.

We went almost forty minutes

here on a lot of different things.

At times,

it probably got a little detailed

and granular,

but I think we did a great

job of explaining

really how you should

approach this from a seller

and buyer's perspective we

looked at what it is how it

works depreciation versus

amortization we looked at

one section or section is

there any other tricks tips

that you would have maybe

post close uh for buyers or

sellers to kind of end cap the episode

know if we just if we just

circle back to okay

allocation you know what

what what is that that

meeting of the minds and so

I I think you know a seller

one of the one of the

bigger challenges of the

seller is just is breaking

down the tax liability and

helping them with that with

buyers um it is it is less

consequential for them and

I think they'll soon find

once they get into

ownership they're going to

have a whole lot more to

think about than that little

You know,

four or five percent difference

that gets moved to a fifteen percent,

you know, I'm sorry,

a fifteen year amortization.

So in the in the big picture,

I think it's kind of a

short lived concern for the buyer.

And they got they have such

an amazing journey in front

of them in practice ownership,

higher income potential.

uh you know working to to

build because the practice

itself you know should be

an appreciating asset that

allows the dentist to enjoy

high income have some

control over their life and

hopefully have a nice high

quality life if they put it

all together so um I'd say

it's just it's the

allocation it's just a step

in the process as they move

into practice ownership and

it's one like you said it's

one of the last ones before

you're at the finish line

Totally.

Morgan, how do you guys help?

When do you want to be brought in?

I always give an opportunity

for you guys to just, you know,

we could put something in

below your firm and, you know,

you guys do.

We love working with doctors

that are that are our first time owners,

whether that's a startup or

a practice purchase.

We've supported hundreds of

doctors in both over the

last fifteen years.

I have always uh helped them

along the way I don't

charge for that we're we're

not in the in the

transition space we don't

we don't negotiate deals we

don't we're not we're not

involved like you are but

what we do always is if

somebody is looking to if

they're buying a practice

the time to get us involved

is I'd say at least thirty

days prior there there's no

like earlier is better um

And I'm always happy to be a

second set of eyes over the

seller financials, just to let them know,

hey, is there anything concerning?

Is it sort of within the

norms that we see every day?

And then if they do want

some help on that

allocation and they decide

we're a good fit,

I'll help them with that as

well and come to that

meeting of the minds.

And ultimately our goal is

to support our doctors and

ownership and help them with their,

it's the easy button for

their monthly accounting.

We give them that our

practice profitability analysis,

help them make sure they're

realizing that appropriate

financial reward that they

have in mind when you own a

dental practice.

And then help them, of course,

understand and plan for the

tax liabilities that are

going to be very different

for a new practice owner as

opposed to perhaps being

like a W-II associate.

So that's our world.

We love working with first-time owners.

And I would say earlier is the better.

We like to really get

involved and formalize our

relationship about a month

prior to either the close

date or the opening date.

That's about when I'm

throwing it over to a CDA.

Yeah, it's perfect.

That timing's perfect.

Yeah.

Go ahead.

Honestly,

not that we don't sometimes get

the call of, hey,

I bought a practice last week.

And well, hey,

it's still a good time to get going.

And you guys are a full

service bookkeeping, accounting,

the whole?

Yeah, that's our pro.

I mean,

we really have one program and it's

full service.

So we build the accounting

system and maintain it moving forward.

We take complete care of it.

And then we give them a full

color dashboard style

report that's written for dentists.

Dentists can actually read

and it makes sense, right?

And it gives them comparison

with our client averages.

So we're all about,

we want the dentist to

realize that appropriate profit margin

so that they have that

appropriate financial

reward that they should

they should have uh when

owning a business and I

personally you know for the

clients that we coach on an

ongoing basis after people

own you know next level has um

many clients that have went

through the buyer and

startup journey with Next Level,

but then they retained us

after close and are paired

and working with one of our

seven wonderful practice

management consultants.

I personally love your

report because I still get

pulled in kind of as a high level CFO.

And when they send me your reports,

it makes my job super easy.

And so I love those reports.

I find that they are just enough, not,

you know,

you guys are trying to be a consultant,

but you're also trying to

educate them on some basic KPIs,

which I love.

So yeah, good stuff over there.

Yeah.

Awesome.

Appreciate that.

Well,

I guess this concludes another episode.

Again, folks,

very important topic in the

purchasing a practice process.

I've never done an

allocation schedule episode before,

so here we are.

Morgan,

thank you so much for your acumen

and knowledge in the space

and what you do for our

clients and all the dentists out there.

We covered a lot of ground in

uh your time and investment

and folks thanks for

listening being a part of

the program I would ask you

to please review us give us

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And subscribe, be part of the program.

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And anyways, as always,

thanks for your time, your investment.

And I guess that concludes

another episode of Dental Unscripted.

Thanks a lot.

Thanks, Morgan.

All right.

Thank you, Michael.

Appreciate it.

Take care, buddy.

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