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This podcast covers from START to FINISH How to Acquire a Dental Practice. Michael Dinsio, founder of Next Level Consultants has literally seen hundreds of deals as a banker in the industry & he has personally consulted hundreds of dentists as a Buyers Representative. Michael talks with GUEST SPEAKERS about Due Diligence, Legal, Demographics, and more... He invites experts to the show to help you avoid those headaches and heartbreaks. So start at the TOP w/ Episode 01 and work your way through the transition process. We break it down step by step in a true #UNSCRIPTED and genuine way.
00:00
Oh yeah! Here we go! Practice acquisition! There are pitfalls throughout the entire process.
00:26
Hey, hey, folks, welcome to another episode. Super excited to get this thing kicked off. We are working our way through an acquisition and excited to do it. My name is Mike Dinsio, founder of Next Level Consultants. For those of you that don't know,
00:39
I'm a buyer's rep. It's what I do. It's what I enjoy and am passionate about. Me and my firm can help you with everything from valuation all the way to closing. We specialize in due diligence and helping doctors realize what they're trying to buy and the impact of that decision for them personally, also for them professionally. I'm bringing in a legend. I will introduce him in a minute.
01:05
and they also have similar services, but stay in the accounting realm. But the gentleman that I'm bringing to you today has 38 years of this stuff. So I tip my hat to him and he's a wealth of information. We're gonna go over his key things that he looks at when looking at a practice and deep diving into due diligence. That's what this episode is all about is the due diligence.
01:34
the key practice indicators, the key metrics from a business perspective. We talked about verifying collections. We talked about Delta Dental and Delta Premier Transition. We talked about retention. We talked about how to calculate cash flow. We really deep dive into active patients and the definition of what active patients are. So I really enjoyed my time with Art Wiederman. Let's bring him in. But remember,
02:03
We are here for you and can help you buy a practice or start a practice, whatever stage and direction you want to go into. So keep that in mind, reach out, direct me if you need to. Without further ado, let's roll into the next episode of Dental Acquisition Uncensored. Acquisition Uncensored, the truth when buying and selling a dental practice. And now your host, Michael Dinsio.
02:32
Okay, okay guys, welcome to another episode of Dental Acquisition Uncensored. This is Mike D'Incio and today we are going into the next phase of an acquisition, the next step. Not too long ago, we came off of Shark Week and that was awesome. If you missed it, you gotta check it out. We went through a whole week of interviewing top practice brokers in the country from West Coast to East Coast.
03:00
Last episode, we touched on LOI and the whole LOI process. Ali Aramshin did a fantastic job explaining to us how an LOI is structured and the importance of it. Okay, so if you can imagine, essentially, what we are doing today is we're now in contract. So we used an LOI and we got into contract and due diligence begins. And I have a dandy for you.
03:27
a great, great legend in the industry. And I'm excited to have him on the program. Mr. Art Wiederman, who is the Dental Division Director at a CPA firm called Ides Bailey, located in Tustin, California. You may have heard of him before, because he has a very successful podcast program called Art of Dental Finance and Management. If you haven't checked that out, you got to do it. So many great things.
03:54
particularly the episode where I was on his program, but nonetheless, really enjoyed being on that program. And I have the honor of bringing art in. Art, thank you so much for being on the program, my friend. Michael, it's an honor and a privilege to be on your podcast. And I love the things that you do and the things you're doing to help dentists all over the country. Yeah, no, it's a great industry.
04:23
you've been serving it for 38 years or maybe even more, but you owned your own firm for 30, 33 years and then sold it to Ides Bailey. But you've been officially in it 38 years is what you told me. Is that right? Or is it more? Yep. was the day after Labor Day of 1984 that I started as the managing director of the Pacific Institute of Management. for any of your listeners who maybe are gray hairs like me,
04:49
that was run by Dr. Jim Pride and Dr. Phil Whitener. And they hired me to run their financial services division at the time it was in Newport Beach. And that's where I started. If you'll excuse the expression, that's where I cut my teeth in the dental industry. Well, there's some names you just dropped. That's the Pride Institute, correct? Like that's that's that's that foundation. So so anything that has pride, it's got arts signature on it, probably, I assume. But anyways,
05:17
Without further ado, let's get into it. I try to cut right to the chase, because as you know, in the podcast industry, if you don't catch them early, you'll lose them forever. So as you're walking or down the street or driving to your job or wherever you're at, we are going to discuss due diligence today from a business perspective. The next part two of this little due diligence series is going to be focused more in clinical, but who better to have our CPA
05:47
And he and I look at deals very similar, but Art, I'm gonna just start with the first question. it's a, we can kind of take this anywhere you want, but if you're representing a dentist to buy a practice, okay, and they're in the midst of really figuring out the nuts and bolts of what they're trying to buy, okay, what are kind of your key things that you love to see or maybe hate to see? are you trying to find out?
06:13
Quickly, just by the numbers, KPIs, what are your hot buttons? What are your things? So a couple of things we're looking at, Michael. Number one, we don't, as part of the due diligence process, we don't value practices, but I want to make sure that the practice is valued in the range of practice valuations in the area. I mean, we work, we're in Southern California, so we know what practices are valued at. So if I've got a...
06:43
a doctor who has gone into contract and they're paying 110 % of last year's gross, I'm going to ask a lot more questions or actually if they're paying 60 % of last year's gross, what's wrong with the product? What's going on? So I want to get the story of the practice. I want to know, you know, how long is a doctor? Why is the doctor selling? I once got an answer of, well, because it's a really bad practice and he's not making any money. Well, is that really a practice? I want my buyer to buy. Maybe not.
07:13
So we want to get the story of kind of the whole overview. You know, how many treatment rooms do we have? How, know, what types of procedures are they doing? What did they do? How did they come out of the pandemic? You know, 2020 is almost a throwaway year because you can't really evaluate, but how do they do in 2021? How are they doing in the first six months of 2022? You know, I want to make sure that the profitability is there because at the end of the day,
07:42
What it comes down to is you have a young dentist that young dentist Michael is gonna you know, they may have you know, 300 400 500 thousand dollars of student loan debt or more and You know, they've got a they might be married. They might have a family. They have a mortgage payment So they need a certain amount of money to pay their bills So you got a doctor who's working as an associate and maybe they're making a hundred fifty thousand a year two hundred thousand a year as an associate
08:11
Now I say to them, well, geez, this practice isn't going to make you that much after you make the payment. How are you going to live? So we want to kind of get a global overview of is this the right practice for the doctor? Can he or she make the money that they need to make to pay their bills? And then what's the potential? I'll ask, do they refer out, does the seller refer out all the specialty work?
08:42
When I started in dentistry in the 80s, endodontists did root canals and orthodontists did braces and periodontists did gum surgeries and implants, whatever implants were 38 years ago. The super GP was the everyday GP. That's right. And that has changed right, wrong or otherwise. We're not going to go into that conversation. But the point is, is there opportunities? You know, one of the other things we have to
09:11
ask about and that is not something that we get into but we ask and that's something more into what you might get into when you get into the management reports is here in Southern California and in California is the seller a Delta Premier only provider and I don't want to go too far down this road but just your listeners need to understand that if they buy a practice where the seller is a Delta Premier only provider they will have to accept
09:40
the Delta PPO patients at the Delta PPO fees, which are lower. So there is an opportunity, a possibility, mean, reality that revenues could go down. Let's get into that. I don't think that's been covered on our program. And California is definitely a bit of an anomaly in that your Delta group in California is running things a little bit tighter than maybe some of the other parts of the country.
10:09
Let me define that a little bit more. So Art, if I'm hearing you right, it's the same concern that I have, and that is that you can't get Delta Premier anymore at the same fee structure. And so therefore, if you want Delta, you'll be forced to take some lower fees for still accepting Delta. Is that right? That's right. And they will still be able
10:37
to be a Delta Premier provider. The problem is, that virtually nobody who is buying Delta insurance today, that's employers or individuals, are buying the Premier product because it's too expensive. Delta would love to sell the Premier product because it's a profitable product for them. But 98, 99 % of the patients who have Delta insurance have the PPO fees and the Delta Premier
11:05
was reimbursing. And again, it depends on the area and the dentist and the part of the country that you're in. But, you know, 80 to 95 % of the UCR was Delta Premier. And now you look at the Delta PPO and those fees are less. So that buyer is going to take a haircut. And that's a mathematical calculation we as CPAs don't do because we're looking at tax returns and financial statements. So we don't get into that. We just
11:35
say to the buyer, listen, you need to lean on Michael, who's gonna look at this for you and determine how much of a financial hit. I mean, if the practice is 70 % of the patients are Delta and you're contracted with Delta, that's something you have to take into consideration. Yeah. And I find that the folks that do take a run at that calculation,
12:01
are a bit off. They don't understand how to make the appropriate calculation because the way the banks calculate, it's not accurate. But that's even a longer conversation of like how much restorative versus how much bread and butter hygiene preventative there is. And the calculations change based on that. without...
12:27
without getting too, too into the weeds on just that particular topic, it's not what today's about. The Delta Premier PPO thing is a real thing and I think it needs to be addressed during due diligence. Good point. The only thing that we do as accountants in that is we say to the buyer, you need to ask if it's Delta Premier only and you need to address that with your
12:56
consultant who's going to help you determine that if you are going to buy the practice and you stay in network with Delta Dental, once you buy the practice, what kind of a financial impact is that going to have the day you take over? And oftentimes the team's not capable of going off of Delta without some training, without verbal skills. And I've found that the practices that we've helped and been a part of
13:26
to help the front office and the rest of the team adopt the idea of educating the patient beyond just the normal insurance lingo to get off of insurances is very possible, but you just need a lot of training and verbal skills to have that conversation with patients. The only comment that I'll make is number one, I totally agree with you, Michael, but doctors, if you are looking at changing your relationship with insurance companies,
13:55
in general. You must engage someone like a Michael Denzio who is going to help you because it's not something you do in a week. It's something that takes a year and it takes planning and you do things well before you actually pull the trigger with changing the relationship with the insurance company. So that's the only point and our time is limited but that is my best advice to your listeners.
14:23
couldn't agree more. There's gotta be a strategy and you have to be intentional about that process. And there's some insurance companies actually pay pretty well. Why drop them? You just gotta- That's correct. That's correct. You just gotta evaluate the scenario and just make a plan. Okay, so insurance strategy, insurance negotiation, credentialing, huge piece of the puzzle for buyers. What other things metric wise
14:53
Art, do you look at collections to production and the collection rates and the ARs? You want to have that conversation? Yeah, we do. A lot of what we do, Michael, involves the profit and loss statement. How much money is the doctor going to make? But let's get into maybe a little bit of your world. you know, we ask, you know, we want the doctors to we want to look at, you know, how much uncompleted treatment plan work is there? I want to know.
15:20
what percentage of the doctors of the sellers production is in the 4,000 codes? That's SRPs, that's hygiene. I'm sorry, that's non-surgical periodontal maintenance, that's SRPs. The national average is about 9 % of the hygiene production is in the 4,000 codes. We, you know.
15:45
And again, you're the consultant here, you're the coach, but my feeling is we like to see 25 to 30 % of the practice hygiene production in the 4,000. So now if it means that there's only 9%, that could be an opportunity.
16:05
because we need to change the discussion. That's a whole nother part. mean, everything we bring up, Michael, is another podcast. It's another podcast. mean, we're talking to each other. That's one podcast after another. But but if I have, if I have a very small percentage, then the conversation is, Doctor, what's your philosophy? And one of the things you might do is over time, help.
16:31
to increase that. Now you're not gonna increase it from 9 % or 5 % to 30 % in one year. It's over time philosophy, it's all these things. So that's one thing. I wanna look at how many active patients are in the practice. And I wanna know, have those or do those patients have a future appointment? And that's where metric software is really helpful. So for example, if my practice has a thousand active patients and I define an active patient,
16:59
as any patient that has been in the office within the last 18 months. And different people use different, you 12 months, 24, I use 18. I love that. That was my next question. What is your definition of 18? But wait, that, let me, I want to just drill down on that because software doesn't kick out that number. And I have to do it my way. I use 18 months too, but do you use,
17:27
uh, have been in the practice. Do you use hygiene, recare, uh, numbers? What do you visit any visit to the practice now? Okay. If you want to drill down on that, Michael, we can say, okay, we have a patient that was in, in the last 18 months, but have they had at least two or three appointments in the last 18 months? Because if they were in, in the last 18 months, they should have at, in my mind, at a minimum.
17:55
a hygiene appointment at least every six months, have they been in for any restorative? Do we have patients who have just dropped off the chart? I mean, they've dropped off. So there are hundreds of patients in every practice who have been in in the last 18 months, but are not on regular recall or don't have a restorative or an operative appointment coming up. again, you could have, if we have that, and again, the
18:24
you know the metric software's out there that are available. You you pull that out, as you say, you can't get that from Dentrix, Eagle Soft, Open Dental, PracticeWorksoft, you can't get it from those. But you can get it from this metric software, these companies that pull it out. And if we can see that there's 400 patients who have been in in the last 18 months, but they're not back on active recall, it's like,
18:50
All right, so what can we do? We've got an opportunity. That's opportunity. like reactivating patients. Yeah, no, I have. So sorry, I love this part of the segment because active patients is the more you drill down at folks you heard art, he was talking to all these different scenarios and emergency visits and hygiene visits and frequency of visits and.
19:16
the more you narrow it down, the smaller your active patient quote unquote number is going to be, right? Because, know, and so, you know, I think everybody asks me, how many active patients and there's kind of like this range of two years, 18 months, are we looking at, you know, hygiene only clients, are we, there's all kinds of scenarios, right? And so,
19:46
That being said, have you ever ran into a situation where a practice was heavy emergency or heavy like cosmetic and then the active patient was a little more challenging to figure out? That's where you have to figure out what kind of a practice are you buying? I mean, we've seen practices where it's 90 % HMO.
20:13
That's a whole different animal where the hygienist is spending five minutes cleaning teeth. You can look at, there are other practices that are almost prosthodontic practices where they're doing full mouth rehabs there's a very small hygiene program, which is great. then, and the other thing is the doctors need to look at the procedures that are being done. And that's the production by ADA code and production by procedure.
20:43
is, I mean, we had a practice one time that we were doing a due diligence on, and it was actually a pediatric dental practice. And we came to find out that 80 % of the production was IV sedation work. So we asked the question that nobody asked. So Dr. Beyer, do you do IV sedation? No. Well, then why are you buying this?
21:10
You have to, and that again, I'm getting a little more into what you know. No, no, no, no, no. That's perfect because it is about the fit. You talked about it in the beginning of this episode is every practice has its nuances. The question is how do you fit into it? And the story you said, you're trying to figure out what the story is, whether it's by money metrics, KPI, whether it's clinical metrics.
21:37
you're trying to figure out the story to see if our main character, the buyer fits that story ultimately. Yes. Right. So one of the things that one of my good friends who's a dentist, he's done all the jobs, um, you know, in dentistry, he was a dentist, he's an attorney, he's a broker. Yeah, he's done everything. And he told me one time, he said, I tell people that they should go into a practice and pull 10 charts.
22:06
I mean, you should pull more than 10 charts, pull 10 charts and look at what the diagnosis, look at the patient, look at the issues that were found and independently do your own diagnosis. And is your diagnosis gonna be similar to what the seller's diagnosis is? In other words, do you have what's called a watch factory? Okay, watch this, watch that, let's watch this. We had one doctor that I actually sold the practice for.
22:34
And after 40 years of practice, this doctor, you know, was doing 400,000 a year. And I didn't want to insult the doctor, but I said, gee, that's not a lot. And he says, well, I have this watch factory and the buyer came in and diagnosed everything and overdiagnosed and lost a ton of patients because they freaked out. So these are the things that we have to talk about. No, there's the part two of this is really going to be clinical and Paula.
23:03
Paula and I are gonna deep dive into this, but these are the things that you have to look at. So, so back to the metrics. So I interrupted you future visits as it relates to active patients. So now that we kind of discussed the active patients, you were getting into the opportunity of getting people in, I think more frequently. Right, because if you have a practice where 400,
23:32
of your thousand active patients are not in regular recurring recall or have future appointments, then you could come into this practice and as you get your feet wet in this practice, you could hire, we call it dialing for dollars, you could hire a high school or a college person who can come and say, Mrs. Smith, we noticed that you haven't been in here in the last 18 months.
23:59
Um, you know, you haven't been in here. We, we, got you back. Is everybody okay? Um, you know, some of the things that these metrics programs, Michael do is they'll, you know, in the morning huddle and by the way, doctors, if you're not having a morning huddle, you need to have a morning. Oh, that's another podcast. So I'm going to give you like a whole bunch of new podcasts. Yeah, that's right. That's right. This is like, yeah, podcast central. so, you know, you have this on these, you, you see on the morning huddle in these metrics programs that are available. Uh, for example,
24:29
What happens if Mrs. Smith is coming in at 10 o'clock? The metrics program will tell me, have their family members been in? Well, that's interesting. Mrs. Smith comes in 10 o'clock, her husband has not been in, the two boys have not been in. So Mrs. Smith, gee, we haven't seen your husband, Steve, and your two boys. Are they okay? We really, we wanna make sure that they're okay. And there's another opportunity.
24:55
And so all kinds of information can be gleaned. anyway. No, I, I, it's, it's, it's absolutely right. The point that I wanted to make about all of this. So are you become a pro at finding opportunity and seeing what the story is? I, I, I, I fancy myself as also someone that loves to be that detective Columbo.
25:20
and looking at that, maybe that's too old for our listeners, but Detective Columbo is fantastic. That's back to my day, I Fantastic show. Yeah. I love Peter Falk, yeah. Yes. Folks, that little life hack, check out Detective Columbo and start watching some episodes. Yeah, it's good. Looking at the story and trying to find the opportunity, I'm always really excited about talking about opportunity. I think it's
25:49
important to note though, and you've been a part of many transitions where you had that client then as a CPA or as an accountant client, and you saw what I would consider aftermath of the deal, you could get sucked into the opportunities too much. What I mean by that is if the office today is not good at re-care or keeping people consistent or maybe not collecting money at the time of service, if they're not doing that today,
26:19
Why do you think they will do it tomorrow when you have the keys yourself? Is it because you're so dynamic and your leadership ability is just so great that all of a sudden they're gonna start listening to you? No, you're gonna have to put in some training, some TLC, you're gonna have to pull the reports, you're gonna have to micromanage a little bit. So the opportunity is absolutely there as Art is mentioning.
26:46
But then it's about how do you get the team to start doing it because they're clearly not. Well, one of the questions I like to ask, and I want to be clear, Michael, a lot of this stuff we are asking the questions about, but when we do the accountants due diligence, which we really haven't gotten to yet, we're looking more at the CPA side. We're going to say, talk to your consultant about this because they're the ones that have all the access. Most CPAs are not going to, some do, guess, spend the time doing
27:16
you know, we're going to bring up the topics and say, ask, ask Michael about, uh, you know, what percentage is in hygiene and ask Michael. mean, we can certainly look at those and find them for you. Um, uh, but, but yeah, one of the things I like to also ask is, because we get an interview with the doctor and we get to talk to the doctor hopefully several times until before we buy the practice. We normally in 90 plus percent of the cases, we don't get to meet the dental team before the
27:44
the deal closes. So we don't know, but we want to ask the doctor one question is really important. Michael is so Dr. Dr. Dinsio, your practice, are your employees pretty well set in their ways? You think they would be open to changing things now? If he says, oh, no, no, no, these are, these are all dinosaurs and they will do what they do. Then you've got to think about if you come in and you see all these opportunities and you want to make these changes, are they going to fight you on?
28:13
We had a practice that was bought by one of our clients where the doctor's wife was the only hygienist. And she absolutely did not believe in any type of non-surgical periodontal SRP. I mean, not that she didn't believe, but she didn't, she cleaned teeth. And it was a huge struggle because if you let the prior owner's spouse go,
28:40
then there goes a bunch of patients and goodwill because you know, got to have a goodwill. So you just have to ask a lot of questions. Yeah, one of my favorite things is really looking at the production reports and I feel like the doctors are afraid of that report of like the procedure counts of each procedure and just really trying to get an idea of how many ortho, how many implants, how many perio,
29:09
maintenance and SRPs. And if you don't know that, look it up, ask some questions, ask Art, ask me. We'll try to help you understand what those codes mean. It's Google it, whatever. But yeah, I love that you're highlighting a lot of these things. Art, let's get into the CPA's role of the deal. Let's transition the last half of this program, even though we've been talking more than a half, because we're getting so into it here. But
29:37
Let's drill down on the accountant's role in due diligence. Okay. So we generally have two main components of the CPA due diligence. Component number one is to do the best we can to verify the collections in the practice. So for example, if you're buying a practice and the doctor
30:03
is representing that they collected $800,000 last year in 2021. I want to do what I can to verify that you collected $800,000, that the doctor collected $800,000. So what we're gonna do is we're gonna look at several independent documents. We're gonna look at the collection report from the practice management software. We're going to look at probably two years of bank statements.
30:30
because I wanna see transfers. We had a deal, Michael, where a doctor was trying to fraudulently represent that his practice was collecting more money. So what he would do is he would transfer money and show it as collections on the fraudulent profit and loss statement. This is a once in a lifetime thing, but we found that and we were asking the questions and then we ran from the practice. So you wanna make sure that the-
31:00
You look at the collections reports from the dental software. You look at the profit and loss statement. You look at the general ledger and you look at the bank statements and you look at the tax returns and we compare all of them. Now, the collections per the dental software reports are never going to tie to what's on the tax return of the financial statement. That's because you're generally inputting daily into the software. I collected on June 28th,
31:30
$3,000. But the office may only deposit three times a week, twice a week, once, I mean, they should be depositing every day, but they don't. there's a time, always a timing difference. So if I'm within a couple of percentage points, say $800,000 is on the software and the collections are $808,000. All right. I want to look, I want to look at, I want to see a general ledger and I want to see if there's
31:58
things in the collections that shouldn't be there, like refunds and stuff like that. That is so, I want to stop you there. Just to get people to digest that. I get that question all the time of why the collections report is one thing and the profit loss or the P &L is a different thing. And you just very simply put, spelled that out.
32:26
it shouldn't be off by more than what did you say? A couple percent? You know, a couple percent. mean, if it's off, if you have $800,000 on the bank statements and the financial statements and the tax return, but there's, you know, 700,000 on the management reports now. One thing that could, I mean, what could create that? I hate to say this, but.
32:55
Sometimes doctors don't deposit the cash that comes into the practice. That happens. I have seen people put their checks in their bags, book bags or whatever they're using. And then they don't, that check never finds its way to the bank. don't know if you can imagine. mean, yeah, that is something. And if we have anybody who owns practices that's listening.
33:21
That's fraud. That's what they send people to jail for. know, just real quick. If you're going to try and save money on your taxes, you want to do it on the deduction side legally, but you always, always report 100 % of your income. have fired. I believe the number is three or four clients who we found out were not. I said, I'm not, I'm not going to be your CPA anymore. That I'm that adamant about it. that's specific. The major danger there is, uh,
33:50
cash, if it's a check, they're just, where's the issue with the check? Well, you know, if the check is made out to the practice, the only place they can deposit is in the practice. Cash can be deposited anywhere. I see. So if Delta Dental sent a check and they deposit it their personal Well, you can, you can, you can endorse a check over to your personal account. But I mean, if someone's doing that, you know, and the thing is, if they're doing that, what else are they doing?
34:19
Are there problems in filing insurance claims? we, I mean, that's a whole, here's another podcast for you, Michael. My pen is not moving fast enough. You need an Excel spreadsheet. This is why Art's program is so successful. Cause he comes up with these genius podcast topics. I don't know about, I don't know about genius, but we do have fun with it. But, but, but so these are the things.
34:45
that we want to be looking at and the numbers give us a good. So the first thing, Michael, is verifying the collections of the practice. OK, want to be also clear, doctors, in our engagement letter, we do not detect fraud. OK, detecting fraud is another part. It's probably too bad. OK, we'll have categories for one podcast and then for two podcasts. Right. So we don't detect fraud. We we verify the numbers.
35:13
and we look and see the numbers and are they corresponding? Then does this look right? Understand doctors that when you sign a contract to purchase a dental practice, there's a section that's called the representations and warranties and the representations and warranties simplifying it down, say, okay, for the seller, we represent that all the numbers that we gave to you by to look at and do due diligence are true and correct. And you didn't make these numbers up.
35:43
I had one doctor who literally dumbing up a tax return and sent it to us. And you know, that's fraud. I mean, that's just flat out fraud. So, but the seller is representing. So if we find out after the fact that these numbers were not true and correct, then we go talk to the lawyer. And that's as far as we go in that conversation. So, so we want to make sure that, we're dealing with, we believe good numbers. The second major part of that, of what we do as CPAs is
36:13
calculating how much money, doctor, do you think you're going to earn from this practice? a lot of things go into that, Michael. We start off with the income from the tax return. We can add back depreciation. We can add back interest expense because the buyer isn't going to have the interest expense that the seller had. We can add back amortization. We can add back maybe a pension contribution because the buyer is
36:42
probably not going to take over, well, they're not going to take over the seller's plan, but they're probably going to wait a little while to get their feet wet to start a retirement plan. That's what we see in most cases. So we end up with a true net profit. So let's say that that net profit, Michael, is $250,000, right? And before I go further, here's another thing. If we have the doctor's spouse or daughter or son working as a key employee in the practice,
37:13
If it's the doctor's spouse and the doctor's retiring in most all of the cases, the doctor's spouse is going to retire with the doctor. So if we're paying the doctor's spouse $50,000 a year in salary, I have to take 50, but we have to replace that. But maybe I'm not paying the doctor's spouse anything actually. Maybe I'm paying the doctor's spouse
37:40
you know, $10,000 a year so they can fund an IRA or 20,000 to fund a 401k. I now have to go find a new front office administrator and I'm going to have to pay that person 50,000. So I have to reduce the profit. These are the things that we look at. So we take a look at at the profit, let's say it's $250,000. Okay. And then we reduce from that. What is the payment going to be on the loan?
38:09
So if I buy an $800,000 practice and I get 100 % financing from a bank, the interest rates are going up. They're not going up as quickly as in other sectors. Again, another podcast. But basically, you're looking at most all of the banks are going to finance a practice purchase over 10 years. When I started in a practice,
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we used to lecture that if you couldn't pay off a practice in five years you shouldn't buy it that is completely changed. So it's 10 years for the bigger practices 15 years but most practices are financed over 10 years. So if it's 250,000 and the payment is let's just say 7,000 a month 84,000 250 minus 84. Doctor we think you'll make 175,000. Now
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You have to take into account the potential of a reduction in revenues due to not being able to have 100 % of your Delta patients on the premier fee schedule. You have to take into account the fact that most dental practices there is, my experience is 10 to 15 % of attrition. You're going to have some patients who, they travel 20, 25 miles. They love the doctor for 30 years and this gives them an opportunity to find somebody closer to home.
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You have other people who just are nervous about a new buyer. might, and I hate to say this, but it's true. know, a man owns a practice, a woman buys it, a woman owns a practice, a man buys it. You know, you might have some of that. That's real life. That's not being discriminatory or sexist or anything like that. People are people and they look at this and they say, I think I want to find new dentists for stupid reasons.
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because they should all give the new dentist at least a chance because the team is going to stay. So these are some of the things that you have to take into consideration. in the report, and my partner Pam Chamberlain, who is my dear, friend, she does most all of the due diligence work in our firm. She will basically send a report that reconciles the collections.
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and that shows our estimate based on the information provided of the true net profit. Now, and then we say, okay, doctor, this is what we think. And this is, know, we don't value practices, but we certainly talked to doctors about this. And we say, you can expect to make this amount of money. And that's the accountants due diligence. And it looks like it's a clean set of books and records. If the CPA for the practice,
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is either, I mean, a member of the, is a dental CPA, a member of the Academy of Dental CPAs, of which I'm a founding member. I have a lot of confidence that those books and records are clean. But if there is the doctors doing their own accounting on Quicken or on a napkin, whatever it is, then I have to be, I've seen some financial records that I just say,
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These financial records make me nervous and I really can't come up with what I need to come up with. And I just need you to know that at the end of the day, doctors, it's your responsibility. It's buyer beware for all of this legal accounting, your office lease. You need to do your due diligence. It's this is the most probably the most important purchase you're ever going to make in your life. I I'll stop you there. All right, because
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And I just kind of pull up a percentage out of a hat on this comment, but I always say to my clients, like, you you've got art or a CPA on your team. You've got me on your team. You've got an attorney on your team. You've got a banker on your team. You've got all these people on your team. That being said, this decision is yours. Only you can make it. And your team's gonna mitigate, I don't know,
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60, 50 % of the risk, but there's a huge part of this risk that you need to take on and that is your clinical piece. And that's going to really be segment two of this program. But like I've seen fantastic practices go down because the producers couldn't keep up with the production that the seller did or whatever bad personalities, not good chair side, you name it. And so
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We as professionals can look at all of these things and really paint the story and explain to you what you're really buying. But at the end of the day, the risk is yours and no one can predict the future or what your abilities are. And so that's the big question. So you hire these people to advise you, but at the end of the day, it's your decision, your risk, and you have to mitigate your own risk in the deal as well.
43:20
How else could you say that? to kind of... That is very, very well put, Michael. And I'm going to tell you one of the rules that I teach, not only my clients, my friends, my family, is this. 75 % of any major decision that you're going to make in your life. And in my mind, a major decision, the most important major decision is which set of golf clubs am I going to buy?
43:46
Or which club to use when you're 200 out. Exactly. that's a three hybrid or a five wood for me. I don't hit it like Mr. Deschambault or Mr. McElroy do. But anyway, 75 % of any major decision you're going to make in your life is in your gut. If you look at this practice, doctor, and you say, you know, this is in the neighborhood that I grew up in.
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This is where I want to be. This is the type of patients I want to see. This seller is doing the type of dentistry I want to do. I can add some stuff. I can make some changes. And this is the office. I love the office. This is going to be my home for the next 30 years. 30 years. Because once you do this, it's really hard to get out of it without having serious financial troubles. If your gut tells you,
44:45
that this is the place, even if you have to pay a little more for it than I think or Michael thinks or the bank thinks, then you should do it. If you go into this practice and you go, oh gosh, I don't like the setup. I don't like the facility. This is not really where I want to be. And this doctor does different procedures and has different philosophy, then
45:14
don't buy it. Don't buy it. And don't let anybody ever pressure you and say, if you don't make an offer by nine o'clock tonight, you're not going to get this practice about a, okay. Because any, any, um, yeah, in a negotiation leverage is important. And in any negotiation, you have to look at your leverage and most of you doctors are working and you have a job and an income. Okay. So you don't have to buy this practice.
45:44
You want to buy a practice. You don't want to wait five more years, but your leverage is you don't have to do this. Now, if you've quit your job and you have to make your mortgage and you need to own a practice the next two months, that's not a good idea, but you have less leverage than if you are working and you're making a good income and you're just doing your homework. And at some point, bam, you're going to get hit in the right hit between the eyes, you know?
46:12
What's a major decision, joking aside, getting married, buying a house, buying a business, having children, all this kind of stuff. I mean, 37 years ago, hit, I got hit right between the eyes by this beautiful blonde lady and I was done. That was it. I'm done. This is it. And it's, it's worked out very well. So, you know, my gut said, this is the lady that I'm going to spend the rest of my life with. Is this the practice you're going to spend the rest of your life with?
46:42
Mm-hmm. I think, I think on that are that's about as good as this episode could be with with that knowledge because I can't I couldn't echo that louder. Your gut is going to tell you everything. Don't ask me if you should move forward. You either feel great about it or you don't. If you need more information from me or art.
47:08
We will provide, we will instill confidence, we will explain the risks, the challenges of what the implementation of these challenges would be, the transition plan challenges. If you're not up for it, if it doesn't feel good, I loved the way you just described the leverage. You might not have leverage in the deal, but your leverage is that you still have a job.
47:33
you could go get an associate position. You don't have to buy that's your leverage. I think that's the key of today's episode. That's great. You are the man. I love our conversations. I got 17 ideas for more episodes. I feel like I need to send you a bill for being a podcast consultant. You mean I need to send you a bill? Yeah, that's what I mean. That's what I mean. I need to pay a is we should do the Mike and Art.
47:59
podcast or something. That's right. Okay. We'll do that next. That's perfect. but this, this has been super fun folks are as a wealth of knowledge below. I will have all of arts information about his firm and how you could get ahold of his firm and him potentially. And all of that contact will be in there. Art, do you want to let people know how to get ahold of you just verbally? Sure. Sure. My, my office phone number is six five seven two seven nine.
48:30
three, two, four, three, that's six, five, seven, two, seven, nine, three, two, four, three. That comes to my computer, because we don't have phones anymore. We do everything on Microsoft Teams and computers and stuff. My email address, if you'd like to email me, is A.Wiederman, and that's W-I-E-D-E-R-M-A-N. The state of New York spelled it wrong on my birth certificate. They spelled it E-I, so it's A.Wiederman, W-I-E-D-E-R-M-A-N,
48:59
Eid Bailey, which is spelled E-I-D-E-B-A-I-L-L-Y.com. listen to the podcast, the Art of Dental Finance and Management with Art Wiedermann, CPA. Listen to the episode. Michael was amazing on my episode. It was really great. And it came out, think in late May, early June, if I remember correctly. Yeah, it was great. I've been listening to Arts Program way before I even started a podcast.
49:27
You got to check out, there's a lot of great episodes and excellent resources there. So folks, this does it. Another episode of Dental Acquisition Uncensored. Tune into the next one. We will continue this conversation with Paula Quinn, my partner, who will represent the clinical side of due diligence. Her and I will both lead you in that conversation from the clinical perspective, but we will carry on. And by the end of the program, you have bought a purchase or you have bought a practice and
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You're more educated than you were when you started the program. thanks again everyone for tuning in and don't forget to leave us a review and engage with us on social media. love that. Until next time, we'll talk to you soon. Thanks folks. Tune in next time for another truth-filled episode of Acquisition Uncensored. We want to hear from you. Interact with your host, Michael Disnsio. Follow us on Facebook and YouTube.
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