Talking with Dr. Howard Farran

Howard: So, you were going over that top ten tax mistakes. The first one is to plan and most young dentists they learn real fast that whenever they see that they actually have money piling up in their savings account that only means one thing. It’s time to pay taxes. So, they don’t have a plan. They just know that whenever they do have money in the savings account, it’s all over to the IRS. So, when they come out of school they should go to craigcodyandcompany.com/dentists and you can help their planning, their accounting. What about my homies in Canada? You do Canada?

Craig: No, we don’t do Canada. No, sorry.

Howard: And that’s just one more reason those Canadians should move southward. Ninety percent of Canadians live within a hundred miles of the border so maybe this will be the last straw. They’ll just move down ninety miles and they’ll just be in America. If we just raised our border a hundred miles we’d add a complete another California. Another thirty-eight million dollars and a huge economy. So what was on your ten? So go through the ten. What’s two?

Craig: I would say poor communication. Which is kind of failing to plan but it’s just not communicating. It’s a two-way street. Doctor doesn’t call you up and say, ‘how are you feeling today?’ Right. You need to communicate with them. So, that’s number two.

Another thing we see, and this is really more in the practice owner side or when you’re younger dentists, when they buy practices. It’s amazing how many times we see where they bought this practice, and you’re familiar with goodwill because you’ve been involved in dentistry for a long time. They have this goodwill on the books which is for the laymen out there. It’s the difference between the assets you’ve purchased and the purchase price. And that gets amortized over fifteen years. And so many times we see it is just sitting there. Nobody’s ever taken that expense which could be fifteen, twenty thousand dollars a year. Its amortization and then depreciation of leasehold improvements whether it was done right. And the good thing about that is when you find those errors you could actually go back and recalculate it and take it in one year.

Howard: Okay, one of the problems though is… how long have you been doing accounting? Because you were a police officer for what? thirty-three years?

Craig: Yeah. I wish. I retired as a New York City police lieutenant about seventeen years ago.

Howard: And how long were you with them?

Craig: Seventeen years.

Howard: Oh, you were with them seventeen years.

Craig: And I’m retired seventeen years.

Howard: Okay I see. So, you just used two words… I know… I know the kids don’t know… they don’t know the difference in depreciation and amortization. In fact, they see… they always see EBITDA. Earnings before interest, taxes, depreciation, amortization. Will you… before you keep going, I need to back up and do vocabulary words. What is amortization? What is depreciation? What is EBITDA?

Craig: Okay. So, depreciation is when you buy an asset like a piece of equipment. The government says you could deduct that either all at once or over a certain period of time. That’s depreciation.

Amortization is very similar to depreciation. It’s for that goodwill that when you buy a practice that there’s actually nothing there to touch. Okay. But it’s the difference between the assets you bought and what you paid. And that gets deducted, it’s called amortized over fifteen years. And so often we see just sitting there nobody’s ever amortized it.

And then the last was earning EBITDA. Earnings before interest depreciation and taxes, which… that we see more when somebody’s going to sell a practice, alright. We look at net profit with the practices that we work with, and figure out ways where they could keep more of what they make. And maybe not necessarily increase the net profit, but there are things that they can be doing and deducting that than not. So, they’re actually putting more cash in their pocket.

Howard: So EBITDA is E-B-I-T-D-A. Earnings before interest, tax, depreciation, amortization, is a measure of the company’s operating performance essentially toward evaluating a company’s performance without having to factor in financial decisions, accounting decisions, or tax environments. So, number one was the plan. Two was poor communication. Three was depreciation.

Craig: Amortization. That was an depreciation and amortization. Okay.

Howard: Was that three and four?

Craig: That was three and four.

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