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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.
00:27
Alright, Alright guys. We have made it. We've made it through Shark Week. And this is the last episode of the entire series. I hope you've enjoyed it. I have picked up a lot of great things. And I hope you guys have learned from the entire series you've heard now after this episode from seven brokers around the country. And you have no excuse now.
00:53
to not understand the process or how to approach a broker because these folks laid it out for seven days. So I can't hear that excuse anymore. Today I'm interviewing a good friend who this is his second time on the show, Justin Schafer. We'll get into what he does and who he works for. But we talked a lot about some really, really key things like what are you actually buying? The goodwill, what does goodwill mean?
01:20
We talked about the expectations of a broker in general. Like what should you expect from a practice broker as a buyer? We also talk about like what are the expectations for a seller as well. So that was cool. My favorite question in this entire week was how do you differentiate yourself so that you stand alone against the pack to try to position yourself to get into first position and win these
01:49
really good practices. So I asked Justin that just had a great conversation with Justin. We I think we find final finished the episode with what are his thoughts on seller staying back and staying on staff and the pros and cons and how we look at that. So just a great episode and a dandy. It's a dandy to end with Justin and the East Coast. I hope you all have enjoyed Shark Week. I know I have.
02:18
Remember, I'm a buyer's rep first and foremost and a consultant. We love to make sure that our clients are successful in these transitions. So please reach out to me if you're interested in that type of thing. But we do this for fun to educate you guys and to make you all better practice owners. So without further ado, let's hop on in to the last episode of Shark Week. Acquisition uncensored.
02:46
The truth when buying and selling a dental practice. And now your host, Michael Densio. All right. All right, guys. Welcome to another episode of Shark Week Dental Acquisition Uncensored. We're moving right through the process. But hey, today is the last shark that I'm interviewing. Had a lot of fun. I hope you guys have picked up some great tips about the process in general and what you can do to position yourself.
03:16
But I was holding back, the best for last, Justin. I'm getting ready to introduce my friend and you've met him earlier on in the season. His name is Justin Schaefer. He's the National Director of Practice Transitions at Aprio, a national broker, but has a ton of experience on the East Coast. And that's where we're landing, is the East Coast and talking about transitions in that world. So Justin, thanks again for being part of the program.
03:45
It's going to be back. I'm a little bummed out. We talked about me being a co-host on the first episode. I haven't heard anything from you. So that must not have must not have came through fruition, but I'm excited to be back and talk about transitions and anything else that might come up during our 20 or 30 minutes. You know, we actually have a running poll of people like you or not. The verdict's out. We'll see. We'll see what happens there. Doesn't sound well, but it's OK. I had to get this shark week. All right. There's lots going on here. But
04:15
But yeah, buddy, thanks for joining us again. so the overwhelming theme of Shark Week was really how to get buyers into a position where they can actually win these practices. And we've heard so many things. Well, wait a second. Let me back up. Justin, tell us a little bit about Apri. I'm sorry, I just jumped right into it.
04:40
It's top 35 accounting and advisory firm. We've got about a 52 person dental specific team. A transition to us could be as you've been on all sides of these transactions, someone looking to start a practice, somebody looking to expand a location. I just focus my time and energy on those individuals that are looking to sell or transition their practices. So it's a great group. We try to leverage technology as much as we can. Just announced a West Coast merger in Northern California.
05:09
which is where you and I met, but primarily focused in the Southeast and Northeast for now. My favorite part about CPA accounting professional firms that take on acquisitions is that you can rely on the numbers a little bit more heavily than what you might with some of the other practice brokers. I find that practice brokers, there's a huge range of...
05:36
Would I say professionalism or a huge range of just acumen in the evaluation process. And so when you are working with a company like Afrio and they are listening to practice, you know that these numbers are coming from a CPA slash accounting firm, which adds a nice touch. Is that fair to say, buddy?
06:02
Yeah, I tell what it does. It streamlines a lot of the communication with underwriters from banks because it's coming from an accounting firm. We're not going to try to push too hard on an ad back if we don't really fully understand it or don't have it documented. Like the financials from our end, it's going be very streamlined when we're having those communications to really get to a number for cashflow. And I think that eliminates a lot of nonsense and gets the buyer right from the beginning of setting a good tone of we're not going to have to go back and
06:29
You've been through those negotiations where you're picking out 17 things from a P and L or a tax return. And it's, it shouldn't be that way. It should be very clean, professional. Here are the numbers. Here's the historical data. And let's move on with the negotiation. Actually, let's make that a topic of today. What are the expectations of a practice broker? That way our listeners can really identify if a practice broker is doing their job or not. think
06:56
I get a lot of calls is like, is this normal? Or like, I feel like the communication is an issue or I don't quite understand these reports. Like I know there's a wide variety of the way people do things, but in your opinion, Justin, what is a practice brokers, what are our buyers expectations or should be of a practice broker? Does that make sense? I think you gotta start out.
07:25
on the right foot with asking a seller, what are you looking for? And that could be a variety of things. Are you looking to stay and work for another three to five years? Are you looking to retire tomorrow? Are you looking to align with the larger group? Are you looking to sell to an associate because 25 years ago you sold to an associate and that opportunity came. I think my responsibility is streamlining that process for any potential buyer.
07:52
I've got to be direct with my seller and say, what are you ideally looking for? Something is keeping them up at night. And that could be the legacy of their practice. It could be a financial concern. It could be something to where they want to, they're tired with the COVID of the HR and the billing and all the stuff that comes along with being a practice owner. And they just want to do dentistry. Until you uncover that piece of it, it's unfair to bring a practice to a market because your seller's not going to want to be a good match until the
08:22
the buyer, I'm sorry, he's not gonna have a good match until the seller determines what they want. And I think that's the foundation of their relationship is this isn't selling a house. Unfortunately, the seller is gonna have to be involved. You don't just hand the keys to someone like me and say, know what, I want you to handle this. I wouldn't even take that engagement. They're gonna have to be involved with everything from the structure of the deal to the conversation with the staff, to the interviewing of the buyers, to the potentially showing the practice,
08:51
and you got to set that tone early or else all parties are off to the wrong start. I love that you talked about kind of the mindset and the expectation of the seller. That's that's perfect because oftentimes when brokers struggle, they might not ever admit that their client is being a cuckoo bird. But oftentimes that is absolutely the case. Just like me as a buyer's rep, frankly, I need to to get
09:20
to check my clients and their emotions and everything about them. So it is both sides. It's a very emotional process. I think that's the best expectation of a practice broker is to hold that seller accountable to the process. What about though the mechanics of the deal? Like the buyer facing part of it from a practice brokers, what should buyers expect the broker to do for them in these transitions?
09:50
I think confidentiality is key for us. I think one thing that from the beginning that you got the buyer has to know that everything has remained in confidence. And I think that the financials and having clean reporting, it is a small industry as we talked about on the last podcast. And I think that you've got to have the tone set to where the buyer trust that you're representing the deal just as much as you are in the seller and everything that you're saying from a communication standpoint is correct.
10:17
And what I would think that is adamant from the buyer side is that they want to work with somebody that responds, but they also want to work with somebody that's friendly. This is the first time a buyer is going through this process. And a lot of times they could ask a question that a lot of times you and I've been, or someone's snippy or someone won't give them an answer. Like you've got to sometimes press pause and explain it to a buyer because although we've done it a bunch on both sides, the buyer, is the first time they're doing it.
10:45
And there might be dumb questions and they might not know they've got to make an offer within three days because there's 10 other buyers that are looking for it. Picking up the phone or just saying, Hey, this is the expectation. This practice is located in Atlanta, Georgia. It's a million five in revenue, right? It's netting 35 to 40%. You and I know that thing's going to go in a second. Buyer doesn't necessarily know that. So like you got to be compassionate. got to be sensitive to the fact that that's a big decision for the buyer.
11:15
What's your buyer coming out with? Like the profile of your buyer is what? Three years, 500, 600,000 in student loan debt, maybe just starting a family. Like they've got a lot going on and you gotta keep that in mind, although you're representing the seller, that that's the mindset of your buyer right now in this market. Yeah, and as you were talking about that, oftentimes the most successful practice brokers have the
11:45
the ones that are most successful quote unquote, because they have a lot of listings. So the busier the practice broker, the less they are sensitive to the stuff that you were just talking about, right? Because if they're managing 40 listings at a time, half their information is not accurate. They're just kind of pushing it out as fast as they can. And that touch, that light touch to the buyer,
12:14
does absolutely get missed and it is a huge, huge life and business decision. It does get missed. So it sucks because the more successful you are as a practice broker, the more of that soft touch you lose. Am I off on that? Yeah. And I think the one thing we're trying to do is use a lot of technology to what we ask from the sellers, putting it together, package in a way that the...
12:42
buyer understands. So we'll put reporting together in addition to where the practice has been historically, but also candid areas of improvement. If our client was one buying this practice, here's 10 things I would look for in terms of maybe increasing the price per patients. Maybe we're doing recall, maybe opening up another day week. Now know that won't affect the approval process for the lender, but it's just us being able to evaluate a dental practice and saying,
13:09
These are the opportunities that if I was buying the practice, I would focus on and package that together with our listing on top of the normal tax return profile, et cetera. See, Justin's vying for my job, but that's beautiful because that's exactly what a good practice broker should and would do. I would never be able to help every deal in the country, right? So there's...
13:35
there's too much, too many of you out there looking for practices. But the fact that you do that is huge because it gives you a playbook or a transition plan of some sort for opportunity so that you can actually offset what you lose every transition you're gonna lose something. Some patients are not gonna jive with you or whatever. So you gotta have a game plan for offsetting that. Can I ask you something? How frustrating is it when someone comes to you and says, this practice has so much potential?
14:05
because we never say that. Like, is that not something you're like, of course, every practice. Let's talk about that. Let's talk about that. are you buying, so from a shark and folks that have been listening to the shark week, it's totally a pun. The brokers I'm interviewing are not sharks, but there are a lot of sharks out there. The reality of it is yes, a practice broker should probably not say,
14:32
What Justin just said and that is you're buying opportunity here. Why is that not a good thing to say? Because I get mad when I hear something like that. You do too because you were an ex-banker. What is the buyer actually buying? I guess my point is that we're not going to sell a practice on the potential. You and I know it has historically cash flow so that a buyer can afford to pay their student loan debt.
15:00
their mortgage, their car payment and still be profitable, everything else is upside. And we just keep that in mind when we do our evaluations and we do our financial analysis. And a lot of people will say, there's two more operatories available. That's great. It's going to be 300 grand in equipment. Plus you got to get patients in there. Like if you do that, that's great, but it has to work historically. You have to know that the deal has to cash flow or you're just spinning your wheels and you're putting a buyer
15:29
in bad spot, which we refuse to do. So that's the question then. What is a buyer buying? And I always have a hard time explaining goodwill in a very simple way, but that sounds like a pretty good definition of goodwill. How would you describe goodwill and what the buyer is buying? what you said, it's historical, but.
15:55
Yeah. mean, our thing is the buyer has to be able to live exactly like they've lived. They have to be able to pay all of their personal and their new debt with their new practice loan and still be profitable. If all three of those things don't align, that's not the right deal. And I could have a practice listed for $500,000 with a $180,000 net that might be a great fit for somebody that already owns a practice and has excess cashflow.
16:23
But that's not the right fit for a doctor that's able to produce seven to $900,000 in dentistry and, you know, five years out and ready to work three to four to five days a week and make it a two million dollar practice. You just got to know where the fits are. Like it's just, you can't match things up just to match them and close a deal because that that'll come back. Yeah, that that's the, that's the ugly stories we've all heard.
16:53
So more on this. So when you're looking at a business, someone approaches you to list their practice. I like what you were saying because you and I talk the same language with the banking, but the historical, when you're looking at a practice, I like the idea of boring, meaning flat lines.
17:21
predictability, no craziness. To me, that is the definition of goodwill, is predictability for the future, right? Right. So does a practice, in a sense, a practice should be worth more if it's more predictable. If the cash flow justifies it, right? Like if the historical numbers are strong and there's certain limits, which we all agree, I think in the industry that you could price out practices based on
17:50
cash flow or low in the gross or multiple that are standard. I'm not gonna go to end those today. There are higher and low limits of each of those. And if you can prove that a practice fits in a higher category, absolutely you can charge a little bit higher, but it's gotta hit those parameters. It's gotta be fee for service. There's gotta be enough production. It's gotta have a good hygiene department, good staff, right? Good lease. Like there are a lot of things to look at that I think are not into, you know, in...
18:18
intangible, like you should be able to identify those things. And we could all agree when a practice deserves a higher purchase price and when one candidly does it. And if a seller comes to me and says, hey, I've been declining revenue for the last three years. So the first things I'm going to say, that's affects your purchase price. That's understood from the beginning. If not, then that's just not the right fit. Yeah. And the other question we get is every time someone gives me their financials and say, what's your practice worth?
18:48
My answer to that is who's the buyer, right? Michael, like, are you representing someone that owns, like, is your buyer an associate? Someone's got three offices, someone that's got 10? That'll all affect your purchase price because different strings are attached to every one of those deals and you can't just paper and put a 60 page valuation together and say, this is what my practice is worth. Because it's worth whatever some buyer is willing to pay and in our analysis that we do,
19:17
There are different groups of buyers that have different values based on what they look like, not what the practice looks like. I like what you said there, because the market dictates the outcome there. And that has been a theme of this entire week that something's worth what someone's willing to pay for it. that makes sense. That can hurt you or that can help you in a negotiation as a buyer.
19:46
knowing when that could help you is key. And knowing when you're outgunned. And if you want something, you're just gonna have to pay more for it. We talked to the guys in Texas, and they were talking about 15, 20 people looking at one practice. They literally take applications. They're looking at applications per practice. that has been
20:15
the theme of the entire week. And I asked all the practice brokers that we interviewed this week, how does a buyer get into first position? What are some creative ways? How can they stick in your mind, Justin, as the practice broker? Because to me, if you're head to head with five other dentists, you got to differentiate yourself somehow. And to me, that's through the broker because the broker has influence with the seller.
20:44
So how can they impact you in a great way? And I'm sure the other guests have already dictated or talked about this one. It's, I'm not going to go into specifics, but work with recognized dental specific CPAs, attorneys, and or lenders and have those conversations with those individuals before you come to me, because we are going to ask those questions. We ask, are you working with Mike Denzio? We ask if you're pre-qualified with XYZ. That shows us that you've taken the time and can streamline the process and
21:14
get through the closing and not have to make the process more painful for our seller who's our client than somebody else that, would have to start from scratch. And we don't know, right, you're busy. Is it gonna take them two weeks to get on your calendar? Is it gonna take them three weeks to get pre-qualified with somebody? Is there another accounting firm that, you know, they're the first dental client that's gonna be looking at our valuation and we know there's gonna be a lot of back and forth? That is absolutely taken into play when someone's looking at
21:43
And I would say the second thing is, you know, there's a lot of practices that, that if you go in and, you know, start associating, have a conversation with, with the owner about joining or buying or talk to other attorneys or go to networking events, like there's a ton of business out there for everybody, ourselves included. But I think the more active you are in the community, the more active you are within the dental advisory networks, the better off you're going to be to find a practice, but also thrive in that practice.
22:14
So essentially the more prepared they are, the more you can trust that they can make it to the finish line. And the other thing with the buyer is know what makes you the least anxious. For example, if it, if, if you're going to get anxiety about borrowing a million dollars to buy a practice, but you're don't get anxious if you've done these thousands of times, do a startup, like you're not going to have any patients, like really have a heart to heart with yourself is to what's the best path for you. Right? Like,
22:44
One of the things that's gonna make you more anxious, right? And that's if you don't have a patient base and you borrow less money or you buy a practice that's more expensive, but you got to redo the whole thing over time, but you got patients coming in the door, talk with someone and just put the pros and cons of both, but also the pros and cons of staying where you are as an associate, or if you're working with a DSO, like what does that look for you in 36 months and map out the opportunity cost of each of those paths, I would say.
23:15
Yeah, I think in general, if I lined up all, you know, 30, 40 of my clients right now, I would say the majority of them haven't asked themselves enough questions. And I think that's key because I find myself educating my clients, but then almost educating them on things that they haven't thought about yet that they really should have.
23:45
they should have thought about, can they handle the clinical? They should have thought about, are they a good leader because the practice that we're looking at has a small team and they're gonna really need cross training and whatever. Like whatever the scenario is, do their strengths align with the practice that they're buying? I don't think our buyers
24:14
are doing that enough, but I don't know if they've gotten the training for that either. But I'm having the same conversation with the sellers. So, but if you're having a conversation where you have a prepared buyer that's thought out their four or five options, and I've got a seller that comes to me and says, hey, they've thought out that they want to work for another five years. They want to sell tomorrow and work one day a week because their daughter just moved to Colorado. Like those are the more prepared sellers. Somebody comes to me and says, I just want to know what it's worth. We're not ready yet. Like we're.
24:43
There's seven other conversations you got to have until you reach that point in time. And both sides have to think about it. But the awesome transitions, as you agree, was when you have a buyer and he or she is ready to roll and we've got a seller that's very dialed in on what they want. It's awesome. It's the best. Yeah, it's easy. It's it's easy. Hey, let's talk about when sellers want to stay on. I've had a lot of that lately and.
25:09
It's interesting because the sellers have this idea of getting that big check and it's kind of like they're getting their cake and eating it too. Like they get their big check and then they have these like carrots of like, hey, I want to stay on for three days as well. By the way, the practice will be fine. What are your conversations on the other side of that table? Because I feel like nobody is thinking about what that means for the new owner.
25:36
So we have it from day one and let's just profile practices from like, if they're less than 1.5 million in revenue, I will gauge where the buyer's production capabilities need to be to buy the practice and come up with the amount of dentistry that's needed to be done. And I can fill out the math on where my seller will likely land in terms of their employee agreement remaining. And that might be one day a week.
26:03
or it might be two, but it's certainly not going to be three because as you know, a lender is going to hit them with what's called a production gap and the seller cannot eat up the buyer's cash flow, which is have your take and eat it too, right? They cannot afford to make the new loan payment plus pay all their bills plus now pay my seller an unreasonable amount of compensation post-sale. If you are north of three million in revenue, you in all likelihood are going to be required to stay on. So let's have a conversation.
26:33
about what that looks like and know if you sell, are you prepared to stay on three days a week? You just told me wanted to only work one, but you, it's a numbers game that can be quickly calculated within reasonable certainty before you even get the listing. That should be no surprises there whatsoever. There should be tweaks with that expectation. Back to the expectations of the practice broker, right? Cause without a practice broker having that conversation, it's like,
27:03
it's just like the worst conversation. Like us buyers are the most evil people in the world that want them out of the practice. And- No, and all likelihood the lender is the one saying they can't because they can't afford it. And they gotta pay their bills and they've got a family, right? Or the lender just says decline. And then the buyer is sitting there like, why? It's a great practice. It's well, because yeah. So,
27:31
Back to that, staying on that topic, the buyers oftentimes think, and they have this like romantic idea of keeping the seller on and training them into the greatest dentist business owner of all time. And Justin's same question is why is that bad for the buyer? Let's go into it just a little bit more other than numbers. Maybe what's that mean for the team? What's that mean for the patients?
28:02
And I just think like the expectation we set with the sellers is they're buying the practice, they're paying you a lot of money. You're now back to the associate. They should get to choose what marketing they should do. They should get to choose what they're scheduling. That's not your decision anymore. And honestly, there's a lot of great tech that the sellers, in my experience, who have came back and worked a day or week are like, I wish I would have done that. I didn't know that.
28:28
I could have text messages to my patients. I didn't know I could do all these things. I didn't know the capabilities of a website or using the latest technology and how I could do that or how I could get that in the office. I just was cruising the last 10 years like this and I didn't know there could be things that could be done to make the practice better. I wish I should have done those. And that's usually what hear. That's exactly it. That's,
28:56
Spot on. So it's always like a struggle of power a little bit. I've been in the room multiple, multiple times where seller stays on, buyer's now the owner. And there's like this weird, the buyer says, hey, we're going to do it this way. And the entire room looks over to the old, the older doc seller and the older doc seller is kind of like, that's not my practice anymore. there's.
29:24
There's just this weird dynamic going on. so it sounds like you're in agreement with me, that is it's better just to make a clean break. Correct. And I think too, like a lot of it is the communication is unfortunately have to be kept quiet, right? Until closing, like that's just the way a lot of these transactions have to occur. So the buyer is not going to get introduced to the staff until after the seller gets their funds, right?
29:52
unless there's something to where they already working in the office or everyone's open with it. So I think that again, creates a little bit of anxiety, but these deals work. And if a buyer has the right team going into the deal and they've got their accounting and their consultant and their attorney on board, right? These practices work. It might be a nerve wracking week or so until you get to know the staff. But after that, our experience or my experience is 99 % of them, right?
30:21
work from the financial side and work from the practice side. So like you gotta have faith in that piece of it. Yeah. Okay. Last question. Finish up this episode and that is what's so different about the East Coast deals compared to the rest of the country? I think it's based. I think the thing that's maybe shifted the market is with COVID over the last two years, buyers are coming from different regions to come back home.
30:49
So we're seeing a lot of people that maybe went to dental school and say, Hey, I've got family because my spouse is working from home and we need help. Right. Like the kids, like the relocations we're seeing are probably on 80 % of our deals right now where there's someone that's not within, you know, 20 to 30 minutes of the practice. They're outside that 30 to 45 minute database. I think, um, just within the Southeast state income tax and Florida is driving a lot of stuff.
31:18
And I think that the overall market is going to continue to stay hot on the entire Eastern seaboard, but specifically the Southeast, because a lot of people like the warmer weather, but it's still a great market overall nationally we're seeing across the board. talked a lot about that actually this particular week about how transient deals can be more of a challenge because there's a lot more things to think through.
31:48
where you've got someone moving, getting credentialed, buying a house, and that can create some anxiety with the seller. So is that spot on? mean, there's a lot more to think through there. There is too. Like you think, like a dentist might go to undergrad one place, which could be in Boston. Then they could go to dental school in Texas, but then they grew up in...
32:14
Georgia, right, or vice versa. like we prep our sellers is this is a national search we're going to do, right? We don't know. We don't know where the buyer is going to come from. So we're just going to start broad and narrow it in. But again, it talks about the candidates we look at are the ones we talked about that are that have done their homework, done their due diligence, not know exactly what they want, but have an idea what they want.
32:41
Justin, you're the man. I always enjoy talking to you. We get so much out of these calls. Final tips. Just what would you tell a buyer if they're trying to get into position with you or just last minute tidbits that you might want to throw out before we close this amazing shark week down? I'd just say just be confident about the process. Be patient. You're going to find a practice.
33:06
And when you do find the right one, is absolutely awesome. So do not get discouraged. Keep looking. Keep getting creative on how you look, whether it's through me or somebody else. Do not give up on the process because it is a very rewarding profession and career. And, you know, don't give up if you miss out on some stuff. Keep plugging ahead. There you have it, folks. The final comments of Shark Week, Justin Schaefer with Aprio. I'm going to be putting all of their contact information below in the show notes.
33:36
please get ahold of Justin to see what his firm has to offer as far as listings in all parts of the country, really. And yeah, he's a resource. I have known Justin for a long time. And if there's anything that you would like for him, he leads with a giving hand. know that. with no further ado, let's shut this baby down and call it an end to Shark Week and a successful one at that. So thanks again, Justin. Appreciate your time.
34:07
Talk to soon buddy. Tune in next time for another truth-filled episode of Acquisition Uncensored. We want to hear from you. Interact with your host Michael Dinsio. Follow us on Facebook and YouTube. Comment and subscribe.