Dentistry Rising
Dentistry Rising
Dentistry Rising is for and about dentists and dentistry. Dentistry may be changing rapidly - but it's also getting better in ways never thought possible. I want to provide you with inspiration, info, & motivation to have the best practice possible.
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Should You Buy or Should You Walk? (Part 1)

Should You Buy or Should You Walk? (Part 1)

5/15/2019 2:51:50 PM   |   Comments: 0   |   Views: 11

Should You Buy or Should You Walk? Look at the Tax Return FIRST! 

In my opinion, a practice HAS TO make money AND has to make sense for you to reasonably go forward with any purchase.

Let’s figure out how to determine basic profitability quickly and easily. 

 

It would be helpful to have the tax returns for the practice you are considering in front of you, as well as a piece of paper and pen.  

We are going to add up these numbers from this acronym.

 

Cats in Delaware Often Ate Apple Turkey.

C – I – D – O – A - A - T

 

  Compensation  (Line 7)  Doctor’s (seller’s) salary

  Interest   (Line 13) Seller’s interest, not yours

D   Depreciation  (Line 14)  Seller’s depreciation

  Ordinary income   (Line 21)  Profit after everything is paid

 

Then – you follow Line 19, “Other deductions” over to the statements– page back in the tax return until you see the statements - a list of items that shows the total as the amount in that line 19. 

 

The statement list is actually very obvious and you really can’t mistake it for anything else.  You just have to remember that you need to page back.

 

Statement items are rarely numbered, and you are looking for non-practice related items, 

For our acronym, you are looking for:

 

A   Auto

 Amortization

T  Travel

 

So, there we have it. CIDOAAT (Cats In Delaware Often Ate Apply Turkey)

 

Add those numbers together to get a total -  and you have a quick and dirty number for the profitability of the practice.  

 

Yes, there can be more to it, but this will get you started and we’ll discuss more in upcoming blog posts!

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