Opportunities to get the most out of your business, even after the pandemic
The road to financial freedom is paved with good intentions—especially for orthodontists.
Generous, determined, creative, fun-loving and growth-minded, this specialty of
dental professionals carries the same spirit for growing their dental practices to reach
their personal financial goals.
Although I’m not an orthodontist myself, I know this all too well. For more than 16 years,
I’ve been able to guide dozens of Cain Watters & Associates’ 500-plus orthodontic clients along
their journey to reach their long- and-short term financial goals. I’ve had a front-row seat of the
life cycle of an orthodontic practice owner, from overcoming dental school debt and buying a
second or third location to transitioning into retirement.
And although I don’t want this getting out, my orthodontic clients are typically some of
my favorites. They have the best personalities, work hard and are always ready to conquer the
next big challenge. All of these are great qualities—but when it comes to finances, this can
sometimes be troublesome.
To be effective in meeting their personal financial goals, orthodontists need to be successful in
their businesses. Which usually is not a problem for most practices … but then 2020 happened.
Dealing with last year’s hurdles and unknowns is the perfect example of how business owners
might take their minds off long-term goals because they’re distracted by day-to-day demands.
For example, many orthodontists returned from shutdown to busier-than-ever practices,
government stimulus opportunities and new state safety mandates. At times like that, it’s easy to
take your eyes off things you were doing before, such as staff management, accurate accounting
and retirement planning.
Practices could always be running more efficiently, just like there’s always room for improvement
in a personal financial plan. Based on these observations and more, I’ve selected the top four
mistakes I see my orthodontists making. They are a hybrid of personal and practice, because
the health of the personal plan relies heavily on the health of the business.
1. Not raising fees
Nobody likes to raise fees, and
many owners believe that higher
prices could become a barrier to
entry. Fees should be assessed annually,
and sometimes increases must be made,
especially with 2020’s cost increases on
things like personal protective equipment.
Additionally, ask yourself these questions:
Are you charging enough for Invisalign
or other aligner cases? It’s unlikely a patient
will pay the full difference between the cost
of aligners and brackets, but you should
charge a premium for the aligner cases. We
typically see a premium of $100 and $200
for an aligner case.
Are you undercharging for either
Phase 1 or Phase 2 to get people in the
door? Remember, a combined Phase 1
and 2 needs to be more expensive, because
it’s more work, and should be at least
125–140% of the full case fee. According to
Cain Watters’ latest Orthodontic Practice
Comparison Report, our clients’ average
Phase 1 is $3,136, Phase 2 at $5,088 with
a combined fee of $8,224. The average full
case fee is $5,910.
Do you know how much you’re writing
off each year? Orthodontists are typically
very involved in their communities through
schools, churches and charities. They know
a lot of people, which can sometimes lead
to doctors discounting fees at a high level.
Adjustments can be within 8–10% on
average, but when you pass 10%, you need
to question if you’re writing off too much
in discounts. Consider writing out a plan of
discounts in advance, quantify the number
of free cases and set a standard discount
percentage for your selected group, rather
than make it a free-for-all.
2. Overpaying staff
Orthodontists traditionally have
great relationships with their
staff, resulting in low turnover.
Although this is good, when long-term staff
have been given 3–5% raises annually, this
can lead to staff wages above national and
regional averages. (Cain Watters’ latest report
also features average orthodontic practice
pay rates by position. The report is available
to download for free at cainwatters.com/
ortho so you can see how you compare.)
Staff salaries can be a practice’s largest
overhead expense and need to be around only
17–19% of collections to remain healthy. If
you find yourself over this percentage, it’s
time to regain balance.
Look to see what other practices in your
geographic region are paying and see how
you measure up. Hourly rates can also vary
significantly based on if you are in a rural,
suburban or urban area. It is important to
give raises to underpaid individuals, but
for those who are within the average range,
keep them there by giving only cost-of-living
increases on an annual basis.
Production-based bonuses are a great
way to reward based on performance.
This way you can offer incentives based
on growth and profitability, rather than a
blanket hourly increase.
If you have staff members who are
overpaid, unwinding this is one of the
hardest things to do. No staff member will
volunteer to take a cut and turnover may
be needed to regain control.
3. Overlooking tax
As successful small business owners,
most orthodontists are high-income
earners, which positions them in highest
tax brackets. Although most are already
incorporating some of the larger tax benefits
of ownership, they may be missing out on
some of the smaller strategies that can really
add up to significant savings.
The bottom line is that there are more
deductions out there than just your cell
phone and internet. Moving expenses from
your personal accounts to the business,
when justified, can add up and save you a
lot in taxes. Working with a CPA familiar
with both the dental and small business
tax landscape can make a big difference.
- Orthodontists may typically only
attribute business travel expenses
to continued education events, or
when the expense has the potential
for other travel as well, like an
annual corporate meeting or event.
Also consider writing off some auto
expenses. Although you cannot write
off your daily commute to the office,
consider other milage like visits to
referring doctors, study club meetings
or drives to the bank or to pick up
supplies. If there is a business reason,
you should be running travel and
auto through the business.
- Meals and entertainment is another
area that has potential for savings.
For 2021 and 2022, business meals
are 100% deductible, instead of only
50%. Entertainment expenses, like
a sporting event or tickets to a show,
are still nondeductible. Make sure
you keep all itemized receipts for any
- If you have children, consider
employing and paying them out of
the practice. During the pandemic,
I had clients whose children were
working in the office and helping take patient temperatures or shuttling
patients out of cars. Children can also
help around the office by marketing
within their sports or school club
or even modeling. Paying children
moves money from your high tax
bracket to the child’s bracket.
4. Missing retirement
Leveraging your business as a
vehicle for retirement savings
is an extension of being tax-efficient. As
high-income earners, orthodontic practice
owners have the ability to deduct $57,000
for the doctor into a 401(k) plan—$63,500
if over 50. If the spouse is working in the
practice, there is the potential for another
$19,500 (or $26,000 if over 50). With the
ability to get $76,500–$89,500 annually
into a 401(k) at a 37% tax rate, that saves
the doctor a significant $28,000–$33,000
Orthodontists who are already maximizing
their 401(k)s yet still have excess should
consider looking into a defined benefit or
cash balance plan. Because orthodontic
practices have efficient staffing structures, this
available option offers $50,000–$200,000
in additional tax-deferred savings.
There is a common misconception that
it would cost too much to run your own
401(k), cash balance or defined benefit
plan. I disagree and suggest searching out
a different pension company if you are in
Business ownership, management and
personal finance isn’t easy, especially after a
year like 2020. There were many unknowns
thrown at orthodontists, making it easy for
them to take their eyes off the fundamentals
of their financial plans. The good news is that
there is so much potential for orthodontic
practice owners. With the help of an advisor,
orthodontists can look forward to reclaiming
efficiencies and new strategies to make this
year the best yet.
Cain Watters & Associates is a registered investment advisor. Cain
Watters conducts business only in states where it is properly registered
or is excluded from registration requirements. Registration
is not an endorsement of the firm by securities regulators and does
not mean the adviser has achieved a specific level of skill or ability.
Request Form ADV Part 2A for a complete description of Cain
Watters investment advisory services. Diversification does not ensure
a profit and may not protect against loss in declining markets. Past
performance is not an indicator of future results.
Judson Crawford is a certified public accountant and investment advisor representative. Crawford is a partner and financial planner at Cain Watters & Associates, where he focuses on the orthodontics specialty and spearheads a team of financial planners with whom he shares his insights and subject matter expertise. In addition to his role as a CPA, he is the executive board member responsible for CWA’s marketing and communications department and the co-host of the Accumulating Wealth Podcast, a production focused on
guiding dental practice owners along their journey to reach their personal and practice goals.