EP 94: This May Be Dangerous To Your Wealth with Chris Mahan

Did you know… Between 70% and 80% of dentists don’t have a tax strategy. And if you’re among them, you’re probably throwing away money that you could be investing for retirement. Why work harder and longer than you have to?

In this episode of the Double Your Production Podcast, you’ll discover:

  • The biggest tax deduction on the planet for dentists
  • How to legally boost profit margins from 35% to 50%
  • Why the “tax punches” you don’t see coming hurt the worst
  • How to keep your best employees with clever benefit packages
  • Why buying vs. leasing your auto can save you thousands
  • And much more …

Welcome to the Double Your Production Podcast with the Team Training Institute. The one place designed for dentists and their staff who want to grow their practices by following in the footsteps of those that have done it, who are in the trenches, know exactly what you are going through. And now your leaders, the stars of the podcast, Dr. John Meis and Wendy Briggs.

Dr. John Meis: Hey everybody. Welcome to this edition of the Double your production podcast. I'm Dr. John Meis with Wendy Briggs. Hey Wendy!

Wendy Briggs: Good morning!

Dr. John Meis: And with us today is Chris Mahan, from Mahan & Associates. They are a... I'm going to let Chris explain exactly the breadth of what they do, but their accounting firm that helps healthcare professionals, particularly dentists in dealing with financial controls, bookkeeping, and taxation strategies, so Chris, welcome.

Chris Mahan: Hey. Thanks a lot, Wendy and John for having me aboard on this podcast, and thank you for the intro, and that's exactly what we do at Mahan and Associates here in Nashville, Tennessee is we work with practices nationwide to help them navigate all the opportunities and some sophisticated strategies for them to save a lot of money, and make a lot of money. That's our number one bottom line, is our clients' bottom line, to help them navigate those opportunities in terms of operations, production increases, expense management, and then profit realization. And then the end game is how much can we save on taxes? So that's our elevator speech right there.

Dr. John Meis: Yeah. Fantastic.

Wendy Briggs: Well, I Love that. Dr. John, one thing that I really like about Chris and his team is that, Chris not only helps support dentists, but he actually owns dental practices as well. So one thing that's really unique about their perspective is that they get both sides, they're literally involved in both sides of the equation, managing and leading a team, keeping the quality of care up at the utmost level for their patients, and doing so in such a way that they're still able to be sound on the financial side. Right? So I think that perspective is really unique in dentistry.

Dr. John Meis: It's helpful to have to live in the real world when you're advising people in the real world. So people that don't run practices could come up with some things that they think are going to be very simple to do, but in reality are very, very difficult to do. So Chris, one of the things that we've identified with dentists is, we didn't really have as dentists, any financial training, any bookkeeping, accounting training, and so it's really a gap that a lot of dentists have. And so tell me about how you see that gap? What are some of the biggest things that dentists are missing, and what are some things that they can do to show up their capabilities?

Chris Mahan: Absolutely. I think the biggest gap is that most clinical professionals look at their taxes as, "a have to." They put everything in the shoe box or in that one drawer. And then when their CPA or enrolled agents or tax per professionals come to them, they ask for their information same as last year, and they just plug the source documents and tax forms and statements into the returns. And they're 100% compliant return. I think the biggest gap is finding... They definitely need to find attachable pair that specializes in what they do. So they're always abreast of the latest strategies, enhancements opportunities that are out there for dentists today. And that's in regards to tax savings, that's in regards to PPP utilization of those provider relief funds from health and human services.

And now you have to attest for those and how you attest for those with PPP to maximize that. Then we got the employee retention credit, and a lot of those things came through, so that's been keeping us busy since March 2020. And then in regard with the tax strategies all too often, I see some highly, credential and qualified tax preparers that are doctors may have gone to college with, or met at the country club, and they do their taxes, but they're not doing it from a strategic standpoint. And if you put a little strategy into any tax return, you can save a lot of money.

Dr. John Meis: And the tax strategies now that, just in a brief form, what are some of the things now that you think the majority of dentists are missing?

Chris Mahan: Man, a lot of them still don't take home office deductions, they're prepared, I'll say, you have your office at your clinical site, the IRS has changed their stance on that a few years back, and that'll allows them to take automobile deductions where they can take, depreciation bonus, depreciation on the autos, all of their gas and car washes. So that's something that's a healthy deduction. And here's another big one is, we do pension plan administration as part of our verticals of services. So we do payroll in HR, accounting and financials, practice management consulting, payables, and CFO solutions, and then we also do pension plan design and third party administration. The biggest tax deduction on the planet for dentist is their 401(k) plan. Okay? Probably the easiest gap Dr. John and Wendy, that I see out there is that they'll go with their third party payroll provider, one of these big nationwide, three acronym deals and they'll say, "I want a 401(k) plan, and they'll just throw them into a 401(k) plan and just their prototype plan.

And there are multiple different ways to set up a 401(k) based of the doctor and owner's age, earnings, age, and census data of the staff. We had one of our clients that we just amended their 401(k) plan for their staff, and saved them $60,000 a year, just because they got thrown into the template, default Manila folder, here you go, that their investment broker or their third party payroll put them in, and guess what? Both of those parties win by having more dollars in the portfolio, not necessarily the right dollars and having as a savings component, a huge tax strategy for our doctors. So that's a big, easy layup that we see a lot of times we have clients out there that have qualified retirement plans.

Dr. John Meis: Yeah. Good.

Wendy Briggs: I'm seeing more and more practices needing these types of incentives anyway, as our labor market is so tough, and so how awesome is it that you help them set that up? And then it's also a savings, a tax savings for the doctor themselves, right? So that enables them, in a perfect world, enables them to be able to offer a higher level of benefits, to be more attractive to team. Back in the day, it was all about who we wanted to hire? And now the team members are the ones making those decisions, right? Who do they want to go work with? And they have plenty of options. So it's nice to be able to sweeten the pot if you will, on that.

Chris Mahan: Absolutely. It's a much more competitive marketplace, especially recently, especially in hygienes, in that side, but all the way across the board, whether it's accounting, laying tables due to this current situation, you want to have the most competitive benefit package out there, which is something we assist our clients with as well in finding the right group medical, and the benefit packages in our payroll platforms to give them that really balanced benefit package they can offer to their employees and perspective employees.

Dr. John Meis: Great. From an operational level, very few dentists receive timely financial statements, and look at those financial statements in order to help manage their business. So tell us about how you work with dentists in that way to help them understand what valuable information is in their financial, and how they can use that to really impact their profitability?

Chris Mahan: Absolutely. Great question. Excuse me. So if you don't read the... They said, when I went to accounting school, accounting is the language of business, and Peter Drucker, the father of modern management said, "If you measure, it'll improve." Well, you're right. Dr. John, so many dentists have been blessed with high profit margins that they just look at the schedule, upcoming, how much production we have on the books? What I do yesterday? Did we hit goal by lunch? And that's all they care about, and everything else in their mind takes care of the self, right? They're on the slopes and asking, going, "We're killing it." "I know we're doing great." "Look at the bank account." And that's all their only measurement. Right? But there's so much more, I'm like, "If we sit there and show you how much more is on the table, what could you do with your life? With your kids' lives with generations, legacy planning?" Because it's a game of inches.

And I always like to work backwards and say, "Here's your number, what do you want your number to be?" And I'm talking about profit margin, because most of them just say, "Oh man, X, Y, Z newsletter, or dental economics said, the profit margins are 35%." I'm like, "Do you know it could be 45% or 50%?" And they're like, "How?" And I'm like, "Look at your bank charges, did you just go with whoever your lender is, or your merchant services?" "Look at your sundries, and what is your target?" "Let your office supplies rep become your inventory management specialist saying, don't go over this dollar or I'm going down the street, and they'll make that dollar happen. Look at your labs, see everything's becoming much more competitive, and if we can increase your profit margins just by 5%, and you're a million dollar practice, well, hey, that's a pretty nice chunk of change. Your bottom line take 50,000 times 10 years compound interest, and now has that changed a picture?

Dr. John Meis: Yeah. Very good. So one of the things that I'm constantly surprised is you use the word, your checkbook balance, and that is really a very frequent way that dentists measure their success, and so we have some clients who, when we first start working that are on the other side of that, where they don't think they're making any money because there's no money in their checking account, and then we find that, well, it's not the business that has a problem, it's they have excess spending. So fortunately we get to help them earn a whole bunch more because we show them the strategies, and the systems, and the processes to increase their productivity, their collections, and their profitability, and we get them on track so that their income matches their outflow. But it really is frustrating when we have these conversations and people really have no idea where they are financially.

Chris Mahan: Absolutely. You can really change a lot of things. Again, typically, it doesn't matter who their accountants or tax strategists are. If they have tax strategists, or tax preparers. Typically, if we see a client's P&L for 12 months, and I see their tax returns, we can uncover in probably about an hour, significant enough savings and stuff to pay for us for years.

Dr. John Meis: Yeah.

Wendy Briggs: It's not only the dentist that have the struggle. I saw a pretty funny meme the other day that said, "It's tax-refund season." Which I have to stop and laugh because most of your clients and our clients, haven't seen a tax refund in decades. But it says, "Its tax-refund season, I know you're missing the beach, but you're also missing a tooth, so let's make smart decisions this year." [inaudible 00:12:05] hilarious. So but see similar decisions on the dentist side, so what are some common mistakes that you see, Chris, and maybe even on the personal side, like Dr. John says, you have... All the financial experts out there that say, "Don't lease a vehicle." For example, "Buy them outright." But for a business owner, that might not be the most sound advice. So what are some little tricks of the trade that you can share with our listeners that maybe could make a difference for them, at the end of the year, at the end of a couple years, those things that could really add up?

Chris Mahan: Yeah. Absolutely. Outside of just tax savings, one of the ones you just hit on is, lease versus purchase. Most times, again, in most situations I will go with a purchase, but again, it depends. And in a lot of situations, when I say most, let's say, 60%, 40%, 40% of the time, the least makes more sense for the doctor in their practice, because they might want to turn their cars over every couple years. They want the latest, greatest Tesla, right? Or the miles they're going to put on are very low, or whatever the case may be. So there's a lot of different options where that lease can come in and play a very central role. Another way, there's really low line fruit for them to increase their profit margins.

That's the end of the day after taxes, and everything's about how much we can help them keep. Right? Most of them haven't looked at even their home mortgage. Are they still paying PMI on their mortgage? You got a jumbo loan, what rate is it out? Because most of them get it and forget it. You go through that whole underwriting process for your home loans, and you're like, "I'm glad that's done, I'll just set it on auto draft and keep trucking." How much savings is there? How much savings is with their current commercial lending network, or portfolio? How many loans do they have out there? And what are those rates at? And what can we do if we refinance those notes right now? I will typically find $100,000 plus in interest savings, whenever we do a debt portfolio analysis, right? And that's just easy money right there.

And then insurance. A lot of dentists will go to whoever the coolest Pinstripe suit, at the study club, right? And go, "Oh, man, I like that." And they're got great disability package and life insurance packages. Most of the time, our clients are tenants are way underinsured for what they need to ensure that their spouse and children can go on if something ever happens, most time, they're way underinsured on disability. And so you don't want to get disabled and have to sell your house because you're not getting enough disability. And also the third thing is most of the times on their current life insurance and disability, they're also paying an additional material amount than they don't have to.

So those are things that we look at, in helping them, keep as much of their money for themselves. I'm not an insurance salesman or rep, I'm not a banker, so let me put that out there. But we have a network of team members that we're not connected with but we work as a partnership to come in and just let look at those things. And sometimes we'll look at it and they'll say, "You've got a great deal." And you'll go, "Whoa, thank you, I can sleep better at night." And we'll have five of them and say, "keep on rocking."

Wendy Briggs: Nice.

Dr. John Meis: Very good. Another question I had was, what is the calendar look like for proper tax planning? We've crossed into the new year, and everybody's getting their 1099s and W-2s and whatevers. So there's some things probably in a tax planning strategy that could be done right now. But if we draft designing the ideal calendar, when is it that you start? When is it that there's a lot of activity and decisions to be made?

Chris Mahan: That's a great question. Dr. John. Used to "Back in the day." Everybody come in October and November and they want to see their third quarter financials and potentially have a tax plan. I would dare say this, 70% to 80% of your audience of the dentist out there don't even do tax planning. Right? I've never been fired for a client having to write a seven-figure tax check, but I've been fired for clients having to write a four-figure tax check that they didn't see coming. Right? So it is those punches that you don't see coming that hurt the worst. So if they know it's coming first and foremost, they know that we've done our due diligence. A. If we give them options, that's to reduce that liability and that cash outlay, that's B. And then C. If they do it and realize that they love us, right?

But that was traditionally how it went, but now it's become so strategic in their day-to-day operations, how they use the home office, if they're S corps do they lease it? They have accountable plans back and forth for the autos, and the home offices because those will get tricky, right? Again, with their payroll, a lot of S Corps out there have some of these national third party processors that don't even have a clue or care to know that if you're an S Corp, and you want to maximize your 401(k) contributions as an owner doctor, you got to have over $250,000 on your W-2, because S Corp and the retirement plans are 200% based on the W-2s, you got to look at how are you setting up your meeting structure, and how are you're setting up meetings from the house?

How are your phones set up? You have accountable plans for your staff? So again, now it's a fluid thing. Is it time to change that simple plan that you have for your staff to the 401(k) so you can defer more as the owner. Well, if you're going to do that, you got to know by December 31st, because if you do one withhold in that simple on January, you're stuck for that sucker for the next 12 months. Right? So now I think the tax planning and strategy... My clients are sending us stuff prepare the 2021 taxes, but they're already in the mode one, what do we need to do for 2022? Right? So again, it's a fluid part of day-to-day operations nowadays as used to, it was in the fall, let's see how you did, let's get a plan. And that was better than most. Now it's a fluid engagement, that's part of our ongoing monthly, and quarterly collaboration with our clients.

Dr. John Meis: Yeah. Fantastic. Very good.

Wendy Briggs: Yeah. I would say, when I look at some of the conversations I have, I think some dentists just delegate everything to their team leader, their office manager, and I think their handling all of the headaches. Right? All of the things that may cause stresses, and that includes taxes and financials, and all of that. And I'm sure you've seen some pretty crazy things happen over the years for dentists who literally just had their head in the sand and expected that other people were taking care of it. I know we've seen a few things like that. We were reading an email from somebody saying, their office manager hadn't filed any insurance claim since June unbeknownst to the doctor.

So sometimes not paying attention can be really, really costly as you've stated. So I think that's a great strategy is to have, the partnership with you guys, you are the ones that are keeping your finger on the pulse of what's happening, not just an employee, or a team member that may not know the harms that can come. Now certainly, we also see the other side where we have truly excellent team members that are keeping the practice alive and afloat and doing all the things right. So what would you say if doctors are not sure where they stand? What's the first step? Because all this can be a little over overwhelming

Chris Mahan: Absolutely. I guess, I get it. Dr. John and Wendy as well get it. These dentists are busy. They got high stress professions, physically stress mentally. They get in there and they do the production that a lot of our clients do, and they're ready whenever the bell rings that four or five, they go home and they have to get a massage and have to hop in the sauna, and really recalibrate. So again, a lot of them say, "Yeah, I need one more thing to do." Well, what I'd say is if you don't know, if you're not sure about how your tax strategies are incorporated, or even if you have a tax strategy, if you're not sure how your financials look, are you getting meaningful, realtime information out of that data? Then give us a call.

I don't want to be self promoting, but mahanassociates.com. You can find Chris at Mahan and Associates in Nashville, we're not hard to find, we'll do a complimentary tax analysis. You send us your returns, I'll schedule a 30 minute consult with you just by looking at it, and seeing what we see on your corporate partnership and, or 1040s, if you're a schedule C or single member, LLC. And just see what's there from that standpoint, and see what's missing. If you're not getting real time, valuable information that helps you run your business and not mandate a lot of time, then there are alternatives out there, and there's a lot of savings to be had and money to be made.

Dr. John Meis: All right. Fantastic. Chris, appreciate all your advice, and thanks for letting everybody know how they can get ahold of you. Appreciate you being with us today, and that will be it for this episode of the W Production Podcast. We'll see you next time. Goodbye, everybody.

Wendy Briggs: Thanks, everybody.

Chris Mahan: Thank you.

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