dental practice losing money??

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enamelgonewrong

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undergrad student here with a father who is a general dentist w his own practice. Hes had it for quite some time (started it well over a decade ago) and I recently looked over his profit and loss reports from his accountant spanning a few years.. hes had multiple years where hes lost money (during 3 years his practice net income averaged out at a 70k loss per year).

How is this even mathematically possible?? On a side note, hes recently discovered that someone who used to work for him embezzled via misuse of the company credit card. Do you think its possible that the issue goes much deeper and staff are overpaying themselves? (its a large practice and he doesnt manage payroll, billing, etc himself ). How would we even go about checking this? Hire a forensic accountant?

Thanks for any helpful comments

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Does the net income include compensation to the dentist (your father)? Practice overheads usually run between 55-70% before doctor compensation. If you factor in owner compensation (25-30%), the net income or profit margin could run anywhere between 20% and 0 (or negative), so if the net income appears small but your father is still paying himself appropriately it's not a huge concern. Net income can become negative sometimes for a host of reasons. Did the gross collections drop? Was there a big equipment expense or other large one-time expense? Check every line item on the income statement to look for discrepancies year over year? In embezzlement cases there sometime will be an expense put somewhere (such as supplies cost) which the employee improperly reimburses himself/herself for. If something appears off, take it to your CPA and get a professional opinion.
 
Does the net income include compensation to the dentist (your father)? Practice overheads usually run between 55-70% before doctor compensation. If you factor in owner compensation (25-30%), the net income or profit margin could run anywhere between 20% and 0 (or negative), so if the net income appears small but your father is still paying himself appropriately it's not a huge concern. Net income can become negative sometimes for a host of reasons. Did the gross collections drop? Was there a big equipment expense or other large one-time expense? Check every line item on the income statement to look for discrepancies year over year? In embezzlement cases there sometime will be an expense put somewhere (such as supplies cost) which the employee improperly reimburses himself/herself for. If something appears off, take it to your CPA and get a professional opinion.
it doesnt but he doesnt take much out for salary. His salary is a very small fraction of the practice, and even when i add it back, he would still lose money or break even on those "bad year". Good years have been an overhead of around 95 percent. What i cant help but find suspect is that there are yrs when "associates" and "office" (his managers and billers i assume) get paid the same all in. I can almost be sure of the fact that not only did one of his managers steal from him via misuse of company card, but 1 or both managers also overpaid themselves.
 
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Match up the P&L to cash. Pull bank statements and look at monthly credit card statements, expenses should have corresponding invoices including the expenses put through the credit card, this is basic AP. If it is a matter of gross collections, AR should have a monthly aging report for open items and % collections to know whether the business needs to rebill denials, etc.
 
it doesnt but he doesnt take much out for salary. His salary is a very small fraction of the practice, and even when i add it back, he would still lose money or break even on those "bad year". Good years have been an overhead of around 95 percent. What i cant help but find suspect is that there are yrs when "associates" and "office" (his managers and billers i assume) get paid the same all in. I can almost be sure of the fact that not only did one of his managers steal from him via misuse of company card, but 1 or both managers also overpaid themselves.

95% overhead?...why did he wait so long to confront the problem? I'm sorry but if my income dwindled from 40% to 5%.....I would be asking alot of questions the moment I started losing even 1-2%.
 
95% overhead?...why did he wait so long to confront the problem? I'm sorry but if my income dwindled from 40% to 5%.....I would be asking alot of questions the moment I started losing even 1-2%.
i have no idea.

he started his practice roughly 20 yrs ago. at first it was , like most private practices are, a "one man show" for the most part. He worked long hours but made about 300 k net he tells me. Then he expanded.. he had a couple amazing years, and then issues started. This is the way its been for a very long time. He does exams 3-4 days per week and thats it.. i dont want to give exact figures but gross collections are very high (between 1.5-4 m lets say as a range). Overhead is high as well.. he claims its due to over half his active patient base being medicaid, but idk.. im just an undergrad student so 0 exp within this field. For the longest time it put me off of dentistry because i assumed all dentists are sort of poor, before meeting his ortho friend w 2 practices who lives in a home worth over 3 m.

Hes hired a couple consultants over the years and nothing changed. Honestly i have to confront one of two realities.. either there is embezzlement occurring on a grand scale that should put multiple people in jail for over half a decade, or hes incredibly inept as a business owner and should have just ran a one man shop private practice, high end little to no medicaid, or just remained an associate.

I want to look at all card statements from as far back as i can along w all p and l statements as well. Then look at payroll or comp structure and compare it to p and ls. if there is some major discrepancy, i have to assume managers paying themselves more than they should have (he doesnt do payroll himself and barely looks at his p and l from accountants.. hell, his managers usually dont even get the necessary items to his accountant on time so he sees p and l a year after ).

I told him we should get that stuff over a month ago and we still only have p and l and card statements 5 yrs or so out.. he claims he cant go back more, again idk if its accurate or if hes just inept.



as a side note, im now thinking if i go down this route ill want to end up at harvard or michigan dental school, do ortho , and set up some high end practice in either texas or arizona. Maybe nevada.
 
P&L is only going to tell part of the story, assuming the books are accrual. I should have emphasized that it is very important to see the cash side of things, maybe moreso than the P&L statements because if there is fraud, as you suspect, then you will first notice the discrepancies through the bank withdrawls/charges on the card that simply look too high; then see the P&L to see where they hide it. ALL and i emphasize all, cash deposits to the bank must have remittance statements from the payers, and all withdrawls/payments must have some type of backup to identify what/who is getting paid; this is basic accounting practice.
 
P&L is only going to tell part of the story, assuming the books are accrual. I should have emphasized that it is very important to see the cash side of things, maybe moreso than the P&L statements because if there is fraud, as you suspect, then you will first notice the discrepancies through the bank withdrawls/charges on the card that simply look too high; then see the P&L to see where they hide it. ALL and i emphasize all, cash deposits to the bank must have remittance statements from the payers, and all withdrawls/payments must have some type of backup to identify what/who is getting paid; this is basic accounting practice.

Should i just relay this info to him? Issue is, i doubt he will do anything, and i have my own stuff to deal with lol. Maybe meet w his accountant?
 
Should i just relay this info to him? Issue is, i doubt he will do anything, and i have my own stuff to deal with lol. Maybe meet w his accountant?
Probably the easiest way to go about asking is to ask if the staff keep receipts even for things like office expenses and petty cash, and allow the conversation to unravel from there, since like I said backup information should exist. You can even possibly ask to see who monitors the daily cashflow and is making sure enough funds exist in the bank accounts, given that you are told that overhead is very high, someone must be monitoring it daily to make sure weekly bills/payroll can even be processed. This would be a good start to figuring things out.
 
Probably the easiest way to go about asking is to ask if the staff keep receipts even for things like office expenses and petty cash, and allow the conversation to unravel from there, since like I said backup information should exist. You can even possibly ask to see who monitors the daily cashflow and is making sure enough funds exist in the bank accounts, given that you are told that overhead is very high, someone must be monitoring it daily to make sure weekly bills/payroll can even be processed. This would be a good start to figuring things out.
i see. thanks for the help
 
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