With dental clinics reopening, recovery from COVID-19 is well under way. Many dentists are reporting billings returning to 80% or more of pre-Covid 19 figures. Several other offices are doing better than pre-Covid-19 due to work that accumulated during office closures. We still don’t know if the worst is behind us or, if this is the calm before the storm. A second wave is still on the minds of many and we want you to be prepared for any situation. Here are our tips to help you transition from reopening to full recovery and getting your house in order in case COVID-19 strikes again.
FOCUS ON YOUR BUSINESS, NOT GOVERNMENT HAND OUTS
Since the start of the pandemic, the government has paid out hundreds of billions of dollars in handouts and subsidies. These government payouts have been the focus of many Canadians. Many business owners have seen the positive and negative impact of these benefits. The benefits have amounted to thousands of dollars a month to help sustain businesses; however, staffing shortages have now become an issue with many preferring to stay home and collect these benefits instead of coming back to work.
With changes to Canada Emergency Wage Subsidies (CEWS) resulting in lower payments for business owners, the focus should be on growing a successful business, even if that means giving up government benefits. Many business owners have asked whether it’s better to maximize government benefits by minimizing their practice’s performance. The thought process is that the office closures resulted in delayed billings instead of lost billings so those billings can be recovered later. However, consider the following:
1) Dentistry is a year-round business, but a second wave might mean you are only able to work for 6 months of 2020. Can your business survive another round of closures from government handouts alone? Banks and other lenders have provided deferrals to help cash-flow, but interest is still accruing. Would 6 months of additional interest on your loans exceed the benefit of government handouts? Don’t take being able to operate your clinic for granted, it’s possible you won’t be able to continue operations in the future. Focus your time and attention on building your cash reserves now and improving your practice rather than on government subsidies.
2) Delayed revenues can become lost revenues. Delaying a procedure may help you get a little bit more in government subsidies, but that may not be the case for your competitor down the street. Patients who are unable to see you for emergencies etc. may decide to look for a practice that can serve them immediately. Not only would you lose the immediate billings, you would lose the patient.
TURN EXPENSES INTO ASSETS
Rising costs for PPE and salaries to get staff back into the office are a concern, but if you treat them as assets instead of expenses, you will see they provide far more than what they cost.
Tens of thousands have been spent by practices to secure PPE, but has any of this been explained to your patients and staff? Show them how their safety and protection is of the utmost importance. Do patients know why there is an air purifier in the room beside them or why they may be waiting a few minutes longer to get into the dental chair or why a previously open concept clinic now has every doorway covered?
For staff who are concerned about their safety, work with them to improve the clinic. Ask them what actions they would implement and then plan it out together. Show them you are on their side. You may view outfitting your staff with N95s, face shields and disposable gowns as being wasteful, but patients who walk in and see the entire team outfitted with PPE may view your high practice standards in a different light and may be willing to help pay for these additional costs. Charge patients for PPE. Consider the ODA fee guide.
PAY YOURSELF A SALARY
There has been an ongoing debate between salaries and dividends for a long time now. There are pros and cons to each. Government COVID-19 benefits may have tipped the scales towards salaries as these benefits are generally targeted at employees. While programs such as CEWS and EI exists, there is no such thing as a Canada Emergency Dividend Subsidy. If or when a second wave hits, you want to make sure you are eligible for these benefits by paying yourself and family members who work at the practice like employees. This doesn’t mean you only have to receive salaries. Consider a mix of salary and dividend to be remain eligible in the event that another round of government benefits becomes available.
A side benefit with salaries, especially in these times of uncertainty, is that taxes are withheld after each pay cheque. This helps you with budgeting, because your taxes have already been paid and money you don’t see is money you can’t spend.
RESUMING LOAN REPAYMENTS
Many dentists took a deferral on loan payments when their offices were shut down. This includes deferrals on their student loans, mortgages, car loans and practice loans. As clinics have reopened, many dentists are wondering whether they should start repaying their loans versus keeping cash in the event of a second wave. We recommend the following:
1) Strive to have cash or access to cash (e.g. unused lines of credit) to cover 6 months of expenses if your office is closed again
2) Where you have less than 3 months of cash reserves, pay down loans that are revolving such as credit cards or lines of credit. This way you can reduce your interest expenses while still having access to cash.
3) Where you have over 3 months of cash reserves, pay down debt starting with loans with the highest interest rate. Loans which are not tax-deductible have a higher effective interest rate than loans which are tax-deductible. A home mortgage which charges 2% but is not tax- deductible has a higher effective interest rate a practice loan which charges 2.45% but is tax- deductible.
4) Many banks are providing loans at less than prime rate. Secure these favorable rates if you are being charged primed rate or more.
COVID-19 has caused a massive disruption to our lives and while we may not have been ready or prepared for the first wave, we should be for the second time around.
This article was prepared by David Chong Yen*, CPA, CA, CFP, Louise Wong*, CPA, CA, TEP, Basil Nicastri*, CPA, CA and Eugene Chu, CPA, CA of DCY Professional Corporation Chartered Professional Accountants who are tax specialists* and have been advising dentists for decades. Additional information can be obtained by phone (416) 510-8888, fax (416) 510-2699, or e-mail firstname.lastname@example.org / email@example.com / firstname.lastname@example.org . Visit our website at www.dcy.ca. This article is intended to present tax saving and planning ideas, and is not intended to replace professional advice.