Episode 118: Buying a Dental Practice - The Transition
In the final episode of The Dental Amigos’ fourth season on buying a dental practice, Rob and Paul discuss critical issues buyers should consider when buying a dental practice and planning for the transition of the practice following the purchase.
First, the Amigos outline strategies to help new owners facilitate a smooth transition for the remaining staff. Then, Rob and Paul elaborate on the seller’s role post-closing and during this transition period. Finally, they caution listeners on common mistakes they see first-time and veteran buyers make when creating a game-plan for their practice transition.
See the full transcription below:
Welcome to the dental amigos podcast with Dr. Paul Goodman and attorney Rob Montgomery, taking you behind the scenes of the dental business world. All the things you didn't learn in dental school, but wish you had. Rob is not a dentist and Paul is not a lawyer. But since Rob is a lawyer, we need to tell you that this podcast is for informational purposes only and shouldn't be considered legal advice. listening to this podcast does not and will not create an attorney client relationship. As is always the case, you should formally consult with legal counsel before proceeding with any legal matter. Learn more about the dental amigos at WWW dot the dental amigos.com. And now here are the dental amigos.
Rob Montgomery 0:39
Hello, everyone and welcome to another episode of the dental amigos Podcast. I'm Rob Montgomery. And I'm joined as always by the head Nacho himself, Dr. Paul Goodman. Great
Paul Goodman 0:48
to be here talking, Rob.
Rob Montgomery 0:49
All right, Paul, good to have you. Here. We're here we are in our finale of season four, buying a practice. Today we're going to talk about the all important topic of the transition, buying a
Paul Goodman 1:01
practice the biggest decision of your career and what happens I liken it to taking a baby home from the hospital. But uh, Rob, you know, your real children, they kind of stay with you until they're 18 years old. But your practice before you're looking at 30 years. So you're bringing the practice home, and you're taken over and the transition and a lot of times your team scatter, so we're going to, you know, your transition team, they're done. They don't scatter, they've just completed it. And now you're ready to kind of manage this transition, and a lot of things go well, and some things go sideways.
Rob Montgomery 1:33
Yeah. And I think it's talking about some specifics. And I do I love the metaphor, because it's really true, you know, and we can spend the next 15 minutes talking about all the ways that's true, but it's truly you know, like you get there like, oh, wow, I got what I asked for
Paul Goodman 1:48
and then now what there's a Seinfeld episode with you got to come see the baby. And you know, and I've had two awesome children and people are demanding to come over and see your children say when can I see this baby? When can I watch this baby baby and I just want to No one has asked to see my dental practice or want to take care of it for me. Okay, so practice owners, it is not as attractive to go to a strip mall one of our practices or an old house office and petting it and say, hey, I'll take care of the practice for you today. So it is a important thing to pay attention to. Yeah,
Rob Montgomery 2:17
and I think you know, you also alluded to the fact that some things are going to be good some things will be bad and I you know, we're going to get into the nitty gritty on some of these issues but we both own professional practices like there are ups and downs like you really like do you not think that this is just going to be as Steven traders as rainbows and unicorns, right I bought my practice and now everything is happy and good. What could possibly go wrong? Well, you know owning and operating a small business a small professional business there's a lot that can go wrong you're gonna manage issues put out fires on a regular basis you know and and not this isn't trying to dissuade people from doing it you know, because I I have no regrets and I suspect you don't either right but if you do I don't want to hear them you know there it's not always easy I don't have
Paul Goodman 3:12
regrets I just have learning experiences that made me cry inside I don't know if those regrets but there are learning experiences that have made me cry inside completely different thing I will share you know, as we dig in I am big acronym guy people know from nachos. But opp was a band was a group where l opp is really lack of people predictability. And I just think you know, since you are not going to go to Dennis fantasy camp, as many times we've talked about it, Rob, but I'm sure it can be the same for you know, taking over an attorney group. It's the lack of people predictability, and that real lack of people traceability in your transition is the team. I did a great interview with a new mom recently, Robin, I said, who had the tougher adjustment to you when you took over this practice? The patience of the team? And it's probably simpler. It's the team because the team has been with this person in the past sometimes 510 1520 years. And the patients pop by for their cleanings and crowns. So I think it's just important frame for the in this transition. The team part is key.
Rob Montgomery 4:08
Yeah, so you gotta be down with lop pick. Yeah.
Paul Goodman 4:12
In the show notes now hello, VP, you remember?
Rob Montgomery 4:17
All right. So some things that you need to think about after the transition now you've got the keys day one you walk in. Let's talk about treatment philosophy. You know, what, how are you bridging that gap? And I mean, I talk about this and hear it discussed with consultants and our clients and I, you know, obviously I don't have the clinical experience but But I understand the issue, you know, which is, this is the way things used to be and this is the way things are now which is part of the danger of buying a practice as opposed to doing a start up, right you. You have to transition something the people, the patients, the staff everything but Talk to the listeners about specifically treatment philosophy, why that matters and some strategies to help manage that.
Paul Goodman 5:08
I mean, I've done this for my own life. So I'll tell you stories. You know, when we purchased a practice, we didn't, we never even had the chance to meet one of these dentists. Sadly, he had passed away, he was sick. So when we look at a patient, say, hey, Millie, this tooth, it doesn't have any white part left, it's all this silver part, and you've broken more of it. The only way to keep this tooth chewing, is to use a dual crown, which is like a hard hat for your tooth, Todd Fleischman says that, or Jeff Goodman says one of those fancy cases for your phone. So the only way to keep this to chewing is to do this. And you think you're doing a good job explaining it and they look at you and say, well, old doc Smith never did a crown. You know what's interesting, they got five other crowns in their mouth. So now you're like, You're lying to me. We're in this mess where you're lying. Now. They didn't even know. Yeah, so what would the treat and philosophy is one of the most difficult parts. So of the immediate buy in buy out, we can talk about how long the seller staying so that, you know if the seller is staying for a period of time, for introductions, you can you can get a deeper understanding of this treatment philosophy. But it's one of the, you know, we talked in previous episodes about buying into a practice where you're gonna associate. And that's one of the advantages because you've shown behind the curtain. So I think you have to just be extremely cautious, still caring. I strive to not suggest things that are very elective, if they're not needed, in the beginning trying to develop relationship. I have to be a good dentist. So I don't let people go if they have an infection, and sometimes you don't want them all but I think it's talking to the seller enrolled you know it role playing is life. So if you look at some charts with with the seller, before they leave, say what would you do here, and then see if that fits with their treatment philosophy, one of the things and we can kind of even go back further in the season, Robert asked you is how many times your clients connecting with the seller on the clinical part of what they do during the deal? You know,
Rob Montgomery 6:57
I can't say for sure, yeah. And every deal was different. You know, there are there is communication. But typically, we're not involved in that beyond to have a conversation about the importance of understanding what you're getting, you know, and that's just part of the due diligence process. But we're not, we're not involved in the nitty gritty of that. But But let me turn it back to you, though, like so what can people do? Or what should they look for which they avoid, prior to the closing? When it comes to this issue, because to me, my understanding of this is this is, this can be a big problem, but it's also an identifiable problem. Like you need to get in and do the due diligence before and understand what that flaw treatment philosophy is, I almost feel like, if you haven't done that, you don't do that shame on you. If you wait until the day after closing to see like what's been going on here.
Paul Goodman 7:47
One of the things is dental schools like the Dental School Hunger game, we don't learn how to talk to each other. We don't deal with conflict easily. So no surprise, when you're buying someone's practice, you're buying their baby, you may not be able to have these conflict oriented discussion. So one of my suggestions is along the way, when you go in for a chart audit, or just see the equipment, say to the seller, would it be okay, if we reviewed some charts together? I would love to learn from you. That's what you say, I'd love to learn from you. I like that. And then you know, one of my coaches said this not me accidentally on purpose, say some things like, oh, would your patients normally do a crown and something like that. And you know, as we can deepen this a little bit, and this is some highlights. If a practice doesn't use intraoral photos, Rob, it's a red flag, because that means that they're not showing pictures of the teeth of the patients. And they're just sort of describing it like a speech from Hamilton days. So photos, you know, in the story of this tooth in the background, there's a silver silica into all photos, do they take them or not? So if you're listening right now, and you go to a seller and say, Can we see some intro photos? And they say yes, here's some you got to you're already a step ahead. They say we don't use intro photos here, you have a problem with treatment philosophy, because a picture's worth 1000 words. That means that they're at least showing their patients pictures of broken teeth, swollen gums worn down teeth. So I think along the way, when you're talking about the real estate, when you're talking about the finances, when you're going to look at their chair from the 1970s say, Hey, can we review some charts together?
Rob Montgomery 9:13
Yeah. And I think that that's a great point. And I think people really need to understand that this is one of those instances where, you know, the numbers and the revenue or the practice. That's not that's just the beginning of sort of the search, right. Just because a practice grosses. $850,000 doesn't mean it's a quote unquote, good practice for you to buy. If the treatment philosophy is so off from what your treatment philosophy is, because now you're trying to literally put the square peg in the round hole, right? It just doesn't work. And, you know, it's so much more involved in the quote unquote transition, you know, than just paying the money and getting the price. This is why we talk about you You sell liquor stores, you buy gas stations, you transition dental practice
Paul Goodman 10:05
people places, there are pizza places like we talked about. So I think the treatment philosophy, it's key to pay attention, there's no perfect way to do it, but to have as many conversations about the clinical care, every time you see the seller SSE some charts, say I'd like to learn from you. And then I accidentally accidentally on purpose, say, oh, what would you do here? Would your patients accept crowns? And if they say, No, we do giant fillings, and just, you know, this might not mean something to you, Rob is gonna mean something to listeners, if you buy a practice where they do a lot of conservative dentistry, it's not a goldmine, because the patients are trained not to do that work. Yeah. And on training their brain for that
Rob Montgomery 10:41
is not easy, right? And it's a big transit. Right? Right.
Paul Goodman 10:45
Because now you're threatening the previous philosophy of the previous owner. So it's just key that it doesn't have to align with you perfectly. It just has to be something that you feel comfortable managing, you know, Ben, we there's periodontal charting. We take the health of the gum tissue, we say, How often did you do that? And they say, what's that? That's gonna be a problem, right? Yeah, they say we do it every other year. And you're supposed to do it every year? Well, maybe now this becomes more manageable actually think one of the things is we're talking about this. And I can tell you some drama stories with a recent coaching client about hygienist. The key is not being able to talk to the hygienist about this as a challenge. Yeah, because the dentist will also lie to you. Because they lie to you, unintentionally, they will be more optimistic as to how things go there. Hi, Janice. Well,
Rob Montgomery 11:32
well, that's use that to pivot to the next topic, which is transitioning and managing the team, right. So a lot of times, from a buyer's perspective, and this is, this is a challenge. They may not have spoken to the team and in a lot of cases, and I don't love this when you represent the buyer, but I somewhat get it but there needs to be a happy medium. But if you're you're buying a practice and the people that work in that practice, you know, everybody, as you'd like to say, puts on this Broadway play all these they find out on Monday morning, when they come to work that that the practice has been sold. Like that's a scary
Paul Goodman 12:07
thing that we maybe if we talk this out enough, or I belong to my job last year, for example, sometimes my wife who you know, says, I don't want to watch this TV show with you, you can watch it on your own time. And I go, what universe? am I watching TV? Am I getting up at 2am and saying, I know we watch it at the same time, Mary, very specialty nine to 11. Like you go, Oh, you could watch that, or oh, I'll get up at 3am and watch the Game of Thrones thing. So back to this way. So unrealistic solution. We there's no realistic solution as to when these dentists can talk to the team like when is the day before the closing ahead of the time, where they sit there. My suggestion in this transition is please don't schedule patients, I would spend two full days with no patients, just spending time with the team. You got your whole life to make money, just say to the seller, if we're going to close on Monday, just block out Monday and Tuesday and give me time with the team, pay the team, hang out with them, interview them, learn from them. Because if you don't get that set to start, and I know you've seen this, it's like we're closing at 9am 10am There's a feeling on someone you never met the team you don't know. So I think that you have got to at least block out two days of your life where you can train the team get to know them as people first. You know, I mean, you know, what's kind of interesting, Rob, is that it's a really happy day for the seller. But is it a happy day for the team members?
Rob Montgomery 13:30
No. Right? Like so uncertainty, right? Happy that they lose their jobs? I guess right, maybe but they don't know. I mean, they may think that they may lose their jobs next week.
Paul Goodman 13:39
So I mean, think I think for sellers out there who might be listening, you just have to have Greg Gilbert, who you know talks about grace. It's like, we're empathy like Gary Vee, you have to have some understanding of like this happy day for you where you're hanging up the handpiece and maybe getting the check that you wanted, is not such a happy day for your team. And that really makes it difficult because this coaching client I have hygenist just left his thing. He said he just doesn't want to be here. And now patients are leaving because of that. And it's a that's a true transition problem. And it's the first four months of them owning
Rob Montgomery 14:11
Yeah, yeah, that's that's a tricky thing. And unfortunately, you know, there's not a good solution to this, as you said, because most sellers don't want you to talk to their staff until it's not at the closing close to the closing, or until there's a signed agreement. You know, and if and by the time there's a signed agreement as a buyer unless there's something really blatantly wrong you see those people and it doesn't come as they start to proceed.
Paul Goodman 14:38
They say feel like I was taken advantage by the broker had an attorney had an account. I think I overpaid for this. Because when I got in the practice, what can I do now? And I kind of want it back nothing, right? There's not much to do now. What's interesting is DSOs set themselves for success with this by keeping the Celeron in this world that we're talking about. There's really no transition required. Mitch Right, right, right.
Rob Montgomery 15:01
Well, and let's let's, let's pivot into that topic, you know, how long does the seller stay on? Should the stuff seller stay on and every deal is different, as you said, DSOs require it for the obvious reasons. They, they need dentists, you know, but then, as far as what the sellers doing, post closing, to a large extent, depends on the size of the practice and the nature of the practice. You know, in a perfect world. It's a practice that could support the seller staying on for a couple of days a week for a year. While it can be awesome, right? You know, in some respects, right? We could, we'll talk about the downside, possibly. But that certainly helps to transition the relationships. Everybody feels like the day after closing, things are still kinda like they were the day before closing. And that could be a good thing. But if you're dealing with a one doc, PPO practice,
Paul Goodman 15:56
just not enough, not enough work. Also, it's like, I don't know why, you know, even if you were like, if you bought your dental or someone bought your law firm, and say, Hey, Rob, hang around with me like, are you gonna watch him lawyer over their shoulder all day, right, you're gonna have to have a thumb twiddling problem, right? You're probably they'll probably be weird friction, right? It's just strange. You know, it's like, yeah, it's like, there's I'm gonna watch I mean, I don't can't watch my wife cook dinner and be like, you help over here. I know where the blender is. Like,
Rob Montgomery 16:25
it's like a comedy create. So what's the dude? What's what's, what's the doc do?
Paul Goodman 16:30
If you want me to share someone who has been through this and someone who brokered and does this, it's really as you can get the seller to stay around checking hygiene and doing the hygiene visit saying, Hey, I have really good news, right? I have someone who's taking over for me after all these years, and they're still sitting there in front of the patient, checking their hygiene. And then ideally, they would call in the person and say, Hey, this is my patient. Rob, he's been a patient for a long time, we've been watching this tooth. Hey, Rob, just so you know, Dr. Smith, probably is gonna need a crown over the next couple of years, that would be ideal, right? That would be they're not doing work. And they're just saying words, and you know, it's a trust factor, you trust the person just sold it. You have no trust in the new person. And they're transferring that trust. And I called I said to my clients the other day, they have a, it was a $2 million practice that they purchased. And it's like, that's a team relationship based practice. No, it's like, the team has my office with my brother, the team knows the patience, right? So if we weren't there anymore, and someone took over, they got to manage that team. Well, also, the whole thing is gonna be a problem. So I think, I think, you know, getting help, like, you know, we've had two people like to cure dance on, there's people to help, I'm sure, there's people that have signed up to help you with this process. Just have to connect with them.
Rob Montgomery 17:43
Right. Yeah. And as you said, you know, trust is goodwill, you know, you see that line item on the purchase price allocation. And maybe not surprisingly, or coincidentally, that is the lion's share of the allocation is goodwill, Goodwill is trust. That's what you're buying and your ability to capture that in transition that is going to ensure the success of the practice. But, you know, there are some downsides, sometimes to to the seller stuff, like I talked about, and I think, you know, it's sort of like, well, what's, you know, he or she doing just standing around? And it also confused, can cause confusion with staff, right? Because now, you know, are they going to the seller for issues? Are they possibly diverting good cases to the to the seller, so that, you know, is not always the greatest thing. But next, sometimes, too, we'll see situations where people are buying a one doc practice, and they say, well, we want the seller to stay on for six months, and we're not going to pay them. Like they're just going to come to work every day and not get paid to stand around. Like that's gonna be a different kind of problem, because now you have this this summer, like semi invested miserable human, that everybody that is a pretty important human right, shall we say, in this whole? In this whole puzzle, visa vie the patients and the team who's just like trolling around misery for six months for free.
Paul Goodman 19:08
Excuse me all the problems that were on the seller robbing that if you're a buyer doing this, ask some good questions along the way of how the systems are set up for the team, right? Because if you deal with big, small, medium and large transition, some are just a total mess. The systems are mess, when the dentist is there, yes, they can make magic happen. And yes, they can do crowns. But as soon as they remove themselves, the whole thing falls apart. And somehow you have to identify the massification of the things outside of the dentistry, right. Yeah. Is there an office manual? Have they heard of an office manual? Yeah. You know, for an example OSHA training, it's as simplistic as that seems. There's always those good practices. A one was an associate training. We do it yearly in April. That's a great answer. When was the last OSHA training? I don't know. Sunshine rep came four years ago and David gave a video and brought us pizza. No, good. Yeah, yeah. So it's like it's what is the mess? that you have on your hands and how you're going to unmask Nephi it when you take over
Rob Montgomery 20:03
Yeah, and I think it's a great point that leads me to really, you know, to another topic with that, which is just like with all of this, all practices are different. There are some practices where the seller is essentially the office manager and has their hand in everything. And then at the other extreme are some offices where the seller has no idea what's going on in the office, you know, and both of those have pros and cons with those with the transition, as you said, you may ask the seller a question, they may say, yes to this, well, they might be dead wrong. They may not be they may not be answering incorrectly, you know, maliciously, but they may just not know because there are people that we see that in some of our clients who just turn over everything to their staff. They come they go to the dentist and they walk out the door, and they have no clue.
Paul Goodman 20:50
I definitely talked about forcemeat. Like, is that going to match your leadership style? Because yeah, if you have a micromanager, take over a hands off thing that's tamp. The team is not going to like that. No, because they're used to deciding you know, we got it. There's there's dentists that want to decide which Keurig flavor coffee, they're gonna get, right. Paul Goodman says get some Keurig. Right, which flavors you decide. That's my leadership style. But not all dentists are like that. So is your leadership sound? And really, in that transition time, you've hopefully done work before that happens. And then you hopefully you're getting I mean, we say this so many times get good people on your side, including the transition time. Yeah, get a cure didn't get the Costas group. I mean, there's there's just people been on our podcast get get coaches that help with this.
Rob Montgomery 21:32
Yeah, yeah, it'll help you to identify these problems. And I'll say what I said a few minutes ago, which is, you have to look beyond the numbers when you're doing the due diligence and be realistic. And if this is not a practice, that is sort of consistent with your vision for how you want your practice to work, regardless of what the gross revenue is, it may not be a good situation, because if the gross revenue is x, and then you have people quitting, and everybody's miserable, and the patients don't want treatment, and all these problems are occurring post closing, the practice is no longer worth X. It's worth, you know, some percentage.
Paul Goodman 22:11
In the beginning, Rob, would your there's awesome, annoying parts this morning, I was having a bribe based discussion with my four year old to get off the floor and come to school right to start my day. Am I glad that my parent Yes. To have to deal with that? Also? Yes. So like, what was the bribe, she could watch the phone on my shoulders for part of the way to school, right? To associate a little nice job, you know, there's only two ways to get the honor for change. Even you can give her give her away everybody loses. So I think are really is a key for our listeners who haven't bought a practice yet that this is baked in to the experience. And I think you have to be very cautious on this transition. Very cautious, and as you say, aware of what that transition is going to look like, because maybe that rules out the practice for you.
Rob Montgomery 23:00
Yeah, yeah. And you've said this so many times in so many different contexts, though, you know, dental practices or people business. Right. These are these are people issues, not number issues, you know, and I think it was you shop for practices and do your due diligence, you have to look beyond the numbers, because it's really at the end of the day, it's the people
Paul Goodman 23:21
it's the LPP the lack of people predictability for the tea for this transition is definitely team.
Rob Montgomery 23:27
Yeah, yeah. And then it's kind of wrap up on a more mundane topic that you need to be aware of is you know, how you're tracking and managing accounts receivable post closing a lot of this is going to put your should do is going to depend on what you agreed to do.
Paul Goodman 23:43
My hope is this and doing this variety of ways and burning my hand on the nachos is by it by the accounts receivable. Oh, by their accounts receivable. What about this thing? Because when I didn't do that, Rob, it was just death by 1000 cuts. I mean, it was
Rob Montgomery 23:57
most of the time, though, that's not gonna happen. I mean, that's, I'm with you. Yeah, totally, that that is the cleanest, easiest, best way to go. I would say that probably happens. One in five times. For us. One of the things I
Paul Goodman 24:10
noticed about this Robin, I was like, it's kind of like you're going out to a meal, and you say, I'm not going to care how many calories I eat, right? And you eat the meal, and then dessert comes and you're very into the calories on dessert. And it's inconsistent with what you've done before. I'll explain. $800,000 loan for a practice. And then there's like $120,000 of accounts receivable. And you say, magic wand. It's $72,000. Right? Why is it a big deal? The 800 should be the bigger deal. That's always kind of blown my brain up because the person who's taking a loan for $900,000 to buy a business now turns and says I don't want to create debt for $72,000
Rob Montgomery 24:55
It's not always the buyer though. A lot of times sellers don't want to do it. I don't know what they want either because They don't want to give up that extra, you know, few percentage points that are inevitably going to be
Paul Goodman 25:06
to come in, like jeans on on a Saturday and look through accounts on dentrix. With people.
Rob Montgomery 25:11
Amen. You're preaching to the choir. I yeah, I know. Well, I think you know, again, a lot of that is, in the perfect transition, you've got good representation on both sides, and both the seller and the buyer getting that same message that this is better for you, it's better for them. And and that's that's the way to go. But if I said that, that's one out of five that the AR goes is probably less than one out of five times that we have well represented buyer's or seller's.
Paul Goodman 25:41
I mean, my philosophy is if you don't buy the error, like I did one time, because I didn't really know better, you're just going to be annoyed a lot, because your office manager is going to come to you and say, Bill Smith has a balance of $500 you should sell things for 800. What goes to the old one will goes to the new one. Well, who's keeping these Ledger's? It's, yeah,
Rob Montgomery 25:57
it can be a full time job for for somebody in your office to manage that. Right? The cost of that?
Paul Goodman 26:03
So I would I would, there is something I can add a value that there's some really one as a nacho sponsor, and you Grover Cleveland, I mean, there are these agencies that will clean up your accounts receivable. So if you either way really you could say, hey, seller, you know how you haven't collected this money in two and a half years? Like before you close on this practice? Why don't you hire one of these places to see how much you can get cleaned up?
Rob Montgomery 26:24
Yeah, yeah. Good point. All right. Well, hopefully we've demystified and not scared,
Paul Goodman 26:31
he has to say I just think we've awared them we've aware of being a be responsible concern is important.
Rob Montgomery 26:39
I like that. I like that. Well, everyone. Thanks for listening. As always, if you enjoyed today's show, go on your favorite podcast platform and give us lots of stars and and until the next time, thank you. Thanks, Rob. Thanks
for listening to another great podcast with the dental amigos. And don't forget to tune in next time to have the dental business demystified. If you're looking for more information about today's podcast, you can find it on the dental amigos.com If you're looking for Paul, you can find Paul at Dr. Paul goodman.com. And if you're looking for Rob You can find him at your dental lawyer.com This podcast has been sponsored by Orange Line Media Group. Helping dentists and other professionals create content people love find out how we can help you take your business to the next level at WWW dot orange line m g.com. Till next time