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Dentists, Puns, and Money is a podcast focused on two things: The financial topics relevant to dentists leaving clinical practice and the stories and lessons of dentists who have already done so.
1. The stories of dentists who have transitioned from full-time clinical dentistry.
2. The financial topics that are relevant for dentists making that transition.
If you’re a dentist thinking about your exit from clinical, and you’d like to learn from the experiences of other dentists who have made that transition, be sure to subscribe to your favorite podcast app.
Host Shawn Terrell also dives deep into the many financial components of exiting dentistry, including tax reduction strategies and how to live off your assets.
And, we try to keep it light by mixing in a bad joke… or two.
Please note: Dentists, Puns, and Money was previously known as The Practice Growth Podcast until March 2022.
Welcome to dentists, puns, and money. I am your host Shawn Terrell and my guest in this episode is Ken Kaufman. Ken is an expert and thought leader in the dental industry as it relates to the financial and accounting components of running and scaling group and DSO practices. Ken recently wrote a book titled financial secrets to grow dental organizations. And in this episode from that book, Ken shares the nine required clarity tools that just need to scale multiple practices. As a reminder, our company that does exit planning helps dentists lead and clinical with the financial peace of that transition, specifically, how to reduce that massive lifetime tax bill and how to optimize living off your assets. If you're a dentist interested in guidance on your taxes and your income as you exit clinical schedule and initial consultation with us on our website, that website is dentist exit.com. And with that introduction, I hope you enjoyed my conversation with Ken Kaufman.
All right, Ken Kaufman, welcome to dentists puns and money. I'm excited to hear your story and I appreciate you joining us today. So much, John, I'm excited to be with you. The place I always like to start is with some background for the audience so they know a little bit more about you and sort of your history and your career. Could you share just a little context on kind of event and where you are today President?
I'll try to do this in a very summarized version. I did an undergraduate degree in business and work for a high growth startup. And that's where I learned what I that I wanted to build and grow companies, especially high growth companies did an MBA came out of that. And by 2004, I was in a CFO role. And in 2006 was the first time I really started to understand dentistry and see the history of dentistry. Doesn't stand I took over a company called the Redux Nomad, which was a hint is the handheld battery powered device that a lot of listeners probably know about and was pretty revolutionary at the time, that through an exit and I joined a community dental partners I was there for six and half years grew from seven to 80 locations and where I am at today, just in the last few months, I've transitioned to nuvia Dental Implant centers and we focus on full arch restorations and it's I just I've been in dentistry for a while and I love it. So as you mentioned your education and your training is in finance and and on the business and the entrepreneur side. You apply those skills to any industry out there. What was it that attracted you to the dental industry for that application? That's a great question. It wasn't so much that I was attracted to the dental industry I was attracted to high growth and I found a couple of opportunities that were unique enough and gave me that the opportunity to just hold the search leaves and build and grow building great businesses. So that for me has been probably the biggest motivation and then once you're in dentistry, they say you sort of can never get out. And there's so many great people like you know, Shawn, what you do to connect the community and so many other people do to connect the community of dentistry and the different trade shows and things that happen. Once you're here. It's kind of hard to it's kinda hard to leave actually a great people it's a great industry, there's so many opportunities and everything's growing and so I love being here, ya know, and I can relate to never leaving and the thing that I appreciate about it is just the personalities in dentistry everyone, or at least in my experience, it's kind and you know, dentists are good at making small talk. So there's never a shortage of things to talk about when you're when you're talking with people. They're either dentists or used to talking to Dennis, really topical reason for the podcast today. As you have recently written and released the book, it came out at the end of 20 to 2022. The name of the book is financial secrets to grow dental organizations, maybe just before we even get into the details of the book, what prompted you to write it that's a pretty big undertaking. That's a great question and set out to write a book for sure. But what happened is having spent as much time in dental as I have, and then as I started to understand that finance in Dental is very complicated, especially for growing and scaling organizations more so than just about any other industry on the planet. We started to get some knowledge and some information that and kind of an expertise, so to speak, that I started to have people asking me questions. Hey Ken, how do you guys do this? How do you do that? How do you solve this problem? Have you solved that problem? And I became a partner in that do several years ago and speak on the regular dentistry circuit, talking about all these things that I've learned over time and I finally realized, you know what, I need to get it all in a book. Just crystallize everything, put it all together, so that anybody could take it off the shelf and they could self consume at any moment. And the goal was is to try to make it memorable because Shawn, you're a finance person, too. And between the two of us, there are not very many page turner finance books out there on the shelf, especially for people who aren't in finance, who are who didn't go to school and that don't have a career in it. And so, the focus was to try to write it in a way that was very digestible and consumable, but also layer in all these really important concepts, when applied properly can make a tremendous difference in trying to grow either your single dental practice or if you're trying to grow and scale beyond that, I think you came up with a really interesting way to write it creatively in a way that is digestible for people. Could you share a little bit more about your approach with the book that's maybe a little bit more unique than just a standard history legalese finances textbook? So I actually ended up employing my daughter to help me so we co wrote the book or she's my co author and we're co authors. Everyone say that. And in doing this process, what I realized was is that throwing a bunch of finance content out there wouldn't work great. But what would work great is if we created a fictitious but very relatable dentist, entrepreneur, and let everyone watched through her eyes, how the financial clarity tools that are laid out in the book, make a difference in helping her to be successful in what she's trying to build and how she's trying to grow. So Julia Miller has five dental locations, she started to hit some pretty rough patches from a cash flow perspective and, and some other things and we follow her journey chapter by chapter literally as problems come up, and then she learns how to solve them. Implementing one of the nine required clarity tools. Interesting. So Julia Miller is the subject of the book. She's a fictitious character, and I'm guessing that story and some of the problems that she encountered and I haven't had a chance to read the book in its entirety yet, but I'm guessing it's written in a way that is just anecdotally a lot of different stories that you heard and encountered, and you're almost 20 something years in the dental industry. That's exactly right. All of the conversations I've heard problems that dentists entrepreneurs are facing and challenges that they face in some instances where I've helped them overcome. And then what was really fun with that information, transferring it to my daughter, and then her creativity allowed her to create the character and the whole narrative. So she literally is the author of anything that is about Julia and Julia is insights and what's happening in her head and her experience, she writes, and then I show up and I write the technical content, it's time to explain Okay, now here's what this clarity tool does. And here's how it solves the problem and here's how you need to get here's how you would implement it and here's how you would use it. And then my daughter comes and takes over until we hear more about Julia's story. And we're just kind of handing off through the whole book. And it's just this kind of tapestry that's woven all the way through and the goal, Patrick Lencioni is The Five Dysfunctions of a Team. These are books that I modeled this after where they were telling the story but teaching really poor principles at the same time, it's human level a little bit curious. When your daughter Writing a book is a hard thing to do, and to deal with someone else. I mean, that's an arduous process. But do you guys come out as friends? Still, I hope we still work together. And we absolutely we were still friends and she's actually sitting in the room just over from me. She's my executive assistant. And so we get to work together. We get to be a family together and yeah, great, great relationships. So we survived. I want to dive into the book a little bit more detail, but before I even get into some of the bits and pieces that are in there, I do want to go back to something you said a little bit ago and that you said that finance is very complicated for dental practices. As a follow up to that. Why is it so complicated at a high level? Sure. So healthcare in general, generally entity up or location that you create an industry is kind of it's all the small micro businesses, one dental practice that does 1 million or another one that does one and a half million, or sometimes I'll do two or 5 million and sometimes you see really mega practices.
from a risk perspective and from a compliance perspective, often you end up per location. As you add locations. What ends up happening is you end up with a lot of entities and then it starts to get really hard to get clear financially, because you have some employees over and this entity some and another one and you have revenue coming in and this one and really quickly need for what are called intercompany transactions and then eliminating entries to pull those out so that you can see a nice, clean, consolidated, look at what your entire operation is doing. It becomes ridiculously hard. We have five practices and you're going to spend more on accounting to get somebody to unpack that and $100 million company that has a very simple business model and just one legal entity and no need for all these intercompany transactions and things. Oh, interesting. Yeah, I mean, I'm sure it's gonna come in and just in me and running my own business, it's really easy to forget or like you're trying to jog your memory like okay, what does that LLC called again? I can't even remember if it's a million dollar. So very interesting. So let's let's dive into the book. And before we can get to the pieces there, the word that I see you use with the book and talk about over and over is the word clarity. Why is clarity sort of at the high level centerpiece of everything that the book is about and that you try to teach. There's really two primary components will answer your question. The first one is, is that without clarity in our businesses, our anxiety goes up dramatically. If we're not clear about where we're headed about where we're going and about what tomorrow is gonna bring it what next month or next year is and we never can be perfectly clear, to have the right information in our hands to be able to digest that I found that clarity becomes an anxiety Slayer. And as business owners entrepreneurs have this constant ongoing challenge where we have this impostor syndrome feeling that's going on, and we have all these other emotions that are happening. We whipsaw back and forth between a very horrible Google review that has happened to we just collected $100,000 And that's the biggest collection we've ever had. We have these swings back and forth 30 slays, the anxiety that goes with success and with failure and with the fear of failure and sometimes with the fear of success, and so, the first one and then the second one is, second component of this is clarity and make the most informed and the best informed decisions about how to build our businesses, again, whether it's dental practice, and how should I try to grow that or how should I try to improve it, or if you've got 10 dental practices, that clarity gives you the information you need to make the best decisions to deploy capital, to be efficient and to really create the best outcome that you're trying to create for because you're trying to do it for your patients. But then, we hope to reward financial dentists want to obviously reward to be rewarded financially for taking great care of patients. And it's it's just so critical for making making right decisions as you grow. So my inclination was to ask for a couple examples of how someone gets clarity but maybe there are nine clarity tools that you referenced in the book maybe in referencing those we could give us a small example. That would be the best way to illustrate a little bit better or communicate little bit better. How you think about clarity how you talk about clarity with dental practices, is that something you approach? I think that'd be great. The very first of all the clarity tools is financial leadership. And this is a big one, every dentist entrepreneur that has ever bought in somebody with some financial acumen to really help them organize and build and grow the business tells me Ken It was as if I'd been running a marathon with a 40 pound backpack. This person just showed up and they're bringing me so much clarity, so much help. It's like somebody just pulled that backpack off and I just realized how hard it was without having that mindset and without having somebody that can help me you know, whether it's a fractional outsource CPA or an outsourced CFO or an accounting director, whatever it is, is huge. And that's that's one great implementation of it.
Clery tool is what's called accrual accounting. cash basis. Accounting is where whatever comes in and out your bank account gets restated on your profit and loss statement. And that's your financial performance. Accrual accounting actually follows something called the matching principle which says the revenue that's been generated needs to be connected to costs associated with providing that revenue and transitioning now someone who just has one dental practice doesn't need to move to accrual accounting, but anybody who wants to grow or scale beyond that needs to have their financial statements presented to them on an accrual basis, because this gives them the most accurate view and we're trying to reduce anxiety and improve decision making, the more accurate the information is, which is what accrual does and why it exists. It gives you the best and most accurate information so that you can make the best decisions possible as you're trying to continue to build your business and struggling this is something that I have read about and talked about is that what's an example of accrual versus cash base in terms of collections in terms of overhead. So, here's a good example. It's the last day of the month and you have a patient coming in and you deliver a massive amount of treatment to them. Let's say $20,000 worth of treatment. And you had a bunch of supplies that were required and expenses. Yeah, definitely Police Day After inputting, overtime and all those sorts of things. And what happens is, next month, you don't collect that money in the month after that you collect it. So you have to whatever your collections are, but the payroll costs showed up in the next month, but the supply costs have been on your shelf for months. So those costs showed up the month before you see all the sudden cost and the profitability of that procedure is completely lost in a cash basis world hard to travel basis. Yeah, hard to track and accrual basis world you can nail down and say this is the profitability that I generated for my dental practice from this $20,000 case that I just completed. Got it really helpful there. Three of the clarity tools. So number three is called the Impact standard and impact is an acronym and what in essence is doing is it is encouraging the dentist entrepreneur to understand that all information is not good. In fact, most information isn't even helpful. Getting data that passes through this impact standard and I won't go through the details of it but each each letter and impact as a representation for example the it stands for in time, because if you get your financial statements at the end of the month, right if they're two months late, it starts to get irrelevant, right? So there's a standard that all of the financial information that you review needs to pass through before it's even worth your time to take a look at it and to digest it and then try to figure out what to do with it. Okay, for number four is historical reporting. It is so important to know where we have been and the reason why is because we learned so much from where we have been and the ultimate goal here of having clarity is to be able to see the future. You cannot see the future without truly understanding your past, what got you to where you are, what you're going to change and then how that's going to impact your future. So you have to have this basis of historical reporting, monthly financial statements, those sorts of things so that you know what your baseline is, is the fifth clarity tool. You're reporting. So this is about forecasting the future. And we break this up into three categories. There is what's called the 90 day cash forecast. I'll show on the sleep at night report. And the reason why is because I mean every dentist entrepreneur I've ever met is smart and knows how to solve problems. They can just tackle them and solve them. But if you give them five days to solve a payroll crisis, sometimes that's not enough time but if you give them 13 weeks to see that there's a cash flow problem coming, I have never seen an entrepreneur not figure out how to solve that problem. So we forecast our cash flow, which cash is king in the business, right? We forecast that out in 90 days, then we have what's called a 12 month rolling forecast. So this is a one year look at if everything kind of stays the same in the business with any growth initiatives that you've layered in. Here's where you're gonna be in a year. The third one is what we call the five year model is where you actually build a model of your business the way you want it to look in five years. And as you're making decisions about Hey, should we require this practice? Should we bring a new associate doctor on should we do these different things becomes a tool that allows you to make really clear strategic decisions that are going to drive the best outcomes for the business because you can test it against that five year plan and a five year vision. Right? You literally can drop those assumptions right in and see what does it do? Does it blow your plan up? Does it improve it? Does it make things look better or worse? All of that becomes very real time and I'll tell you I get dentists to push back on me on this. They say can I can't see the future. I don't have a crystal ball. I completely agree with that. Whoever I've been around long enough and I've been doing this long enough that you put the right tools in place and have the right help and be very accurate about what's gonna be happening. In the next 90 days, even in the next year. And these are just things that are anxiety sliders, they give us the clarity and they empower us. And so every time I've gone through this process with any business entrepreneur, they ultimately end up saying, Now I know how to improve things and make them better just after I got done showing them what was gonna happen in the future. They say, Oh, and what if we did this? What if we tweaked this? I think we could make this change over here. Just empowering and it fuels the best decision making of that because it's the same way in my world too. I can't predict what a financial future personally is gonna look like for the next 30 years. Of course, we're going to have to make course corrections. I just say we got to pick a direction. We just have to have a little bit of orientation generally on where we're trying to get and then we can course correct from there. Of course we can't expect to know everything is going to happen. I think with your clients and with the beginners you're working with it's a huge value to them because having that little bit of clarity or even that a lot of clarity that it's so empowering and so energizing as opposed to being in the dark. And I attribute it to you're driving down Highway and you're in huge rainstorm and your windshield wipers don't work and you can't see anything. That's anxiety, right? Absolutely. Absolutely. And I digress. So I look let's keep moving through the nine required clarity tools. I think we're on number six would you like to drop on us here. So number six is about financing growth, DSM structure, the infrastructure, this is the set of legal documents that allow non clinicians to own part of your own code and allow associates to own and do all those kinds of things as well as to allow non clinical investors to come into the business if that's something that you ultimately want to do. So we lay out all the pros and cons and talk talk about just everything that financing growth in the DSO structure requires Lucky number seven Do we have a behind the store? Associate compensation and associate equity models? How are you bringing on associates how are they being compensated? How are you sharing equity if you're sharing equity at all, so we lay out options and pass along that trail. Okay, and then number eight number eight is optics and CAPEX, operational expense and capital of course, dentistry we just sometimes get really stuck on that profit loss statement and we lose track of what really happened with our cash flow the capital required to invest, able to grow even to be able to maintain our existing locations.
So that's the focus in on number eight. And then last but not least, the ninth word clarity tool. This is what's called the ROI filter and prioritization tool happens with success that end up with a lot of great ideas, but never quite sure if you're picking the right ones to implement. And what this last chapter of the book does, it's actually my favorite because it it crystallized and come together just so perfectly when I when I wrote this chapter, but it is a tool that will help you see and understand what are the next moves you should be taking. Great ideas need to be shelved, and what great ideas are the ones that you need to invest capital in in order to grow the most efficiently. I'm curious about this one because I have no shortage of ideas as a business owner and you can't implement them all at once. So how do you avoid maybe briefly shiny object syndrome as I call it and see it myself? Oh, Shawn, it takes so much discipline. So in the chapter actually write about with different entrepreneurs that I've seen learn over time to discipline themselves with capital and with how they invest in with which shiny objects they choose to go after. That means if you're great at coming up with the ideas, you need to get somebody around, you can document those ideas and then get them a couple of layers deeper in terms of what's it going to take to accomplish those ideas. What ultimately will be the outcome if you were to execute on this idea, and ultimately, the tool runs what's called an internal rate of return analysis. And it allows you to compare all these projects side by side and the internal rate of return or IRR does not lie. And it points you to what's the most capital efficient decision and what's going to actually help your business grow the fastest. And I'll mention here, Shawn, that in the book, there are QR codes throughout the book and the lead reader to downloadable tools and this IRR calculator. It's right there in a beautiful Google sheet that you can download and you can plug in any of your projects and then the expected cash outflows and inflows and then you can compare all those projects together. It's one of the applications there's there's over 25 Different downloadable materials that any of your listeners start to implement these clearing tools. So one of the questions that I was chatting with you about before we hit record on the podcast was I asked you who's this before? Is this for people that are receiving dental practices? Or is this for people that are thinking about it and want to know what the playbook is you said was for both and maybe just touch on a little bit how the book can help in both scenarios. That's right. So those that are scaling, this is a powerful tool, get you out ahead of some potentially wrong decision making that's going to occur and to help you prioritize how finance needs to fit within your organization and within how you are going to grow earlier on somebody whose earlier stage it's a really helpful read, get into the mind of a dentist entrepreneur that's trying to solve their problems of these five dental practices that Julia has. And as you follow her journey, I'll step all the way back. Shawn at the University of Utah just reached out and they've asked if they could use my book as a curriculum for a business course that they're actually teaching in the dental school. And they've asked me to come down and actually meet all the students sometime this semester to just, I don't know, I might be the closest thing to a celebrity I've ever been. But because like how many times did you get to meet the author of a textbook from when you were in college back in the day right? But the principles and the concepts are there and anybody who immerses themselves in them is going to empower themselves for how to take better control of their future. What kind of pointed question here not pointed question, but just a specific question for someone for a dentist that is already an owner and thinking about owning more than one practice with more than one location. That's sort of like another path as I see it sort of like the original vision whether you own a dental practice. at all or not. How do they know if it's a good fit for them to go down the path of multiple locations or multiple practices because that's, that's a pretty big leap. It's hard to unwind or jump back to the other side of the cliff again, if you don't like it when after you make the leap. That's that's really fair. In short, the way I would answer that question, it's actually a lot less about running the financial numbers. It's a lot more about that dentist getting really clear on who they want to be and what their vision is. Now, there are some who get very motivated to learn how to become a great leader, because they want to expand their impact. They want multiple locations because they see patient groups and they see that the services that they can provide and expand and grow in order to facilitate and make that happen, which is admirable and are some that succeed at it. And they end up being very skilled business leaders, and they end up developing business acumen and all those sorts of things. Many never went to business school, but just chose to invest in themselves and learn and be involved in groups like the CEO and other groups that have lots of tools and resources to train. And so that's the path you want to go down. You want to do some soul searching, but there's plenty of opportunity to go do that or he may decide, though you look around and everybody else is building practices and talking about these huge exit multiples and all these different things but you say you know what? I just I like talking to my patients every day. I like delivering care. I just I want to be chairside in working my business. There's nothing wrong with that. either gonna be very successful financially and build a really successful dental practice that you can run and operate. And in sometimes there's a hybrid John where sometimes a dentist has a brother or a sister in law that's in business and they're interested in trying to scale and grow in some sometimes dentists partner with somebody who can take on some of the business leadership of adding locations but it can keep them in the chair. So the options are as numbered as there are dentists to be honest. And it really just comes down to the dentist deciding what's the most important thing to them and what do they care about and where is they're passionate, and then everything else you can you can fill in all the rest of it. No surprise, it goes back to getting clarity. I love it. I love it. Wrap up anything that we haven't hit on today that you think was important at camp, I think because I know those who listen to your shorts thinking about exiting, or at some point, you know, planning for an exit. I want to stress a couple of things. Number one, it is so critical to do the planning as early as possible because as you're thinking about your vision and where you want to go I mean a great plan in place, make all the difference. Number two, I would really stress that you not to jump on this bandwagon of what I call rack and stack where you've just are cobbling a bunch of dental practices together because you've heard you can get a 12 or 14 times multiple when you sell them is very problematic. I'm seeing it in the industry right now. And challenges is that when you have a second location, third location, it's not about just having a dental practice. You need repeatable and scalable systems that are consistent throughout all those locations so that you have levers to pull when Hey, revenue has gone down over here, hey, we're seeing that new patient flow is down in this practice. You have levers to pull to be able to course correct and to actually operate those businesses. Now just I've just seen some who jumped in and said Let's buy a bunch of practices and let's go sell them. There are so disparate. They're all on different practice management software's there's nothing consistent, repeatable or scalable amongst them all.
And they're kind of our couples going to call it called the rack and stack model. The hope is is that if you're gonna go down that acquisition Road, be very thoughtful, be very careful in how you are going to put multiple dental practices together. And I My advice would be stay very, very focused on building a great business operationally not on trying to cobble a bunch of things together that ultimately it's really hard to operate your business advice in general I think there as we start to wrap things up. The podcast is dentists puns, and money. You have a great, terrible dental joke that you'd like to share with us as we wrap up as a dental finance. So joke's on.
You heard about accrual accounting. I like to say it's a cruel world out there.
Didn't take long to get there. I love it. That's really good stuff.
That is Ken Kaufman. He's the CFO so speaker and he's an author, Ken, thank you for sharing your expertise. Thank you for telling us about your book and for being a guest with us today on Denists, Puns, and money. Shawn it's an absolute pleasure and I appreciate the time he spent with you. Thanks for listening and following along. Are you a dentist nearing your retirement from clinical or have you already hung up your hammies? Would you like a treatment plan for the financial components of your exit from clinical? Our company that does exit planning helps dentists like you reduce taxes in retirement and optimize how to best live off your assets including the ideal time for you to start taking Social Security. If you'd like guidance on those critical pieces, or just a second opinion, schedule an initial consultation with us on our website. Our web address is dentists exit.com, and there's no obligation for your initial consultation, that website again, dentists exit.com As a reminder that says Exit Planning and Terrell advisors LLC is a registered investment advisor. The information presented should not be interpreted or construed as investment, legal tax, financial planning or wealth management advice. It does not substitute for personalized investment or financial planning from dentist Exit Planning or Carroll advisors LLC. Please consult with your accountant and attorney for tax and legal advice. This podcast conveys the views and opinions of Shawn Terrell and his guests and the information herein should not be considered a solicitation to engage in a particular investment tax planning or financial planning strategy. information presented is for educational purposes only and past performance is not indicative of future results.