The Dental Amigos are excited to be releasing our first podcast! In this episode Rob and Paul chat globally about practice transitions, start-ups (including everybody’s favorite topic- start-up v. acquisition), practice buy-ins, as well as Paul and Rob’s insights on the dental broker world. This is the first part of a two-part episode so look for the release of the exciting conclusion soon.
The Dental Amigos have a number of interesting and respected guests lined up for future episodes of their podcast, in addition to some freewheelin’ Rob and Paul chats about the industry. The Dental Amigos’ mission with these podcasts (in addition to having fun) is to hopefully demystify the dental business world through the insight and perspective of a practicing dentist, consultant and attorney. We hope you enjoy listening as much as we enjoy doing them!
Intro: 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 it 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.thedentalamigos.com. And now here are the dental Amigos
Paul: This certainly this is our first podcast, but definitely Paul and not the first time that you and I have talked about dentistry. Yeah. 10 years here, uh, grown up together through the dental world and uh, learn some exciting things about what each other does. Tell me a little bit about, you know, what you do with Dennis each day or up.
Rob: Well, we represent Dennis. We’re a law firm, we represent dentists and all their business needs for the most part. Uh, so we help people buy and sell practices. We help people start up practices with least reviews, negotiations, employment agreements, partnerships by-ins,. Basically everything that comes up in the dental business world. We don’t do malpractice defense though. We sometimes help with uh, with sort of pre-litigation issues in that respect. But, uh, we’re business lawyers that happen to focus on the dental industry and it’s probably about 95% of our clients are dentists.
Paul: You’re here for a good reason, helping dentists that, you know, some of the most challenging and exciting times of their life. So I’m sure they really appreciate, appreciate you guys doing that for them.
Rob: What’s funny, you said a few minutes ago, Paula, and I’d never thought about it this way, when you compared it to the excitement of delivering a baby and you said it and it when you mentioned that again, you know, that what we do get involved with dentists at a very exciting time of their career. I mean here they are ready to start a practice by practice and for all these people, every day is like the birth of your child in a sense. Which is awesome for us to be right there with them.
Paul: I know as a dentist it’s equal, equal parts, exciting and nerve wracking at the same time. You’re not sure if you should be doing it, wanting to be doing it and you go, you know, vacillate back and forth. So you really need somebody kind of who does this on a daily basis to guide you through it because these are definitely the things no one teaches you in dental school, and a lot of times you go through your entire career, get not getting any feedback or expertise in this, this area.
Rob: Yeah, that’s a, and we enjoy doing it. So recently, Paul, you’ve started to get into more of the the dental business transition world. Tell me a little bit about what, uh, what you’re doing in that regard.
Paul: Yeah, thanks rob. It’s a, I wear a lot of different hats in the dental world outside of clinical dentistry. One of the things I do is teach with an implant, a company and I’ve met a lot of great people doing that. And one of the student Dennis at the course or you know, private practice dentist had casually that she sold dental practices as part time and then was moving to Oregon. And I said, well, can I have your part time job? And surprisingly she just said, yes, sure you can have it. And as I looked into that, I’m always up for a new challenge, new things, and I spoke with this – so it’s a boutique company. It’s located in Pittsburgh, United dental brokers of America, and a lot of ways it operates like a real estate for dentists looking to sell practices. I’ve learned a lot about it in a year and a half. I’ve been doing it. You find sellers, as we all know, are only usually, you know, they only can sell their practice once. So identifying when they’re going to sell, if they want to sell is always coaching them through that process. But what I’ve learned is, uh, doing this is that it takes a lot more time than dentists think about in selling a practice. I think selling dentists think that the practices is going to be sold in a quicker timeframe, me included, and buyers as well or not totally aware of all the interactions that have to happen to get a practice owner to buy one with dental attorneys like yourself, with banks, with other advisors, accountants. So like when you use this example of delivering the baby, uh, when we had were, we have a three year old and we had her three years ago, right here in Philadelphia was just me and my wife in the room with the dental practice sale. There’s like thinking about having 10 people in the room at the same time. So that that adds to the, um, layers of complexity all trying to get these two people in totally different worlds. You’re trying to get the seller on to the next phase of his life. Sometimes sellers are stay on first period of time in the practice and stay with the, with the buyer. Sometimes they moved to Arizona or Florida and the buyer’s taking their place. So it’s a, it’s a big operation to get people to that finish line. So I’ve enjoyed doing that and I found out it like a lot of jobs and Dennis for listening, our patients think doing a 15 minute filling is no big deal and why is it costs 300 bucks? I realized that selling dental practices, there’s a lot more work that goes into it then you think of it as the buyer or seller and as I’ve thought buy-in practices. So that’s a little bit about that.
Rob: Yeah. And I think it’s interesting too that dental practices and sales and purchases of dental practices are different from other businesses. Um, and when you talk about all the people that are involved in all the moving parts, I think there’s a reason why you call the a sale of a dental practice a transition. I mean, you don’t talk about transitioning a, uh, a liquor store or a gas station, right? You sell the gas station. In a dental practice, you have to transition it. So there’s another component that’s a personal kind of goodwill cooperative effort that goes into buying and selling dental practices that you just don’t see in, in other, uh, yeah,
Paul: I totally agree. I mean, I, I say to the very first conversation whether it’s with a seller, thinking about selling his practice with number of buyers as I, I have this line that, you know, dental practices are people places they’re not pizza places because there’s just so many people involved that have to stay with the practice, post, post sale, post transition, the most important people, and that is actually the patients, and getting them to stay with the practice is, it’s not necessarily a challenge, it’s just something that has to be managed on both parties. And, and it’s also, um, when people go to look at a house for sale, they may say to the real estate agent, now I don’t really like the kitchen. And the real estate agent somehow takes that and brings it back to the person living in the house. They were usually we’ll make it sound a little bit nicer than that. I have to do that a lot with these practices, but a lot of times these dentists who are selling their practices, it’s the best thing they’ve done in their life. Sometimes they, you know, they’re so emotionally attached to it. So it’s also very, um, it’s an emotionally charged situation for them because the buyer who is 30, he was going to say something about the seller’s rugs and I’ll send it, you know, don’t say that when you see the seller, you can change the rugs later. But sometimes dentists just have this reactive personality. I’m a dentist too, and it’s not easy to always think about the other person on the other side. And I kind of say to them, you’re going to be this person one day too. Hopefully. So think about how you like a buyer to present things to you. Right? What are some of the common challenges you find come about and these transitions from a legal aspect?
Rob: Oh, there’s a lot of things obviously. Uh, and everyone is different, which is what makes it fun. Uh, but I think that, you know, one of the important things to note is that culturally the buyer and the seller are on the same page. So when you’re talking about, a few minutes ago, uh, about, uh, wanting to come into a house and change the kitchen, change the paint color, make all these changes to a house, you know, a lot of times we’ll see where there are buyers that want to buy a practice, but then they want to make all these changes to the practice, which is fine over the course of time. But by the same token, what we’re talking about here is still a transition. So if you don’t like what you’re looking at as a buyer, if you’re game plan is to totally revamp the whole thing and change everything about it. You have to think about what the patients are going to think about that. You know, if somebody doesn’t want to come in one day and say, who’s this new guy? And, and what happened to the office, you know, I guess what, I bought it last week and I changed everything. You know, will people stay? Yeah, some people will, but others will get spooked by that. Uh, so you know, a lot of times we run into situations where somebody is trying to buy something and it’s not what they want it to be. And it’s the classic of putting a square peg in a round hole.
Paul: That’s a good point. We had a couple of things I tell, uh, buying dentists and what I’ve learned myself, we acquired a satellite practice, uh, with our family and my brother in 2011 is that you have to give it a good six months because the patients come every six months for their cleaning visit. So even though this practice could be transitioned in January 1st of 2018, somebody out there didn’t get a letter or somebody out there never got the call or never got the email or text. And they come sauntering in an April expecting to see Dr. Smith who’s now playing golf in Florida and it’s you. So you need to give it a good six months of keeping that culture the same. Which is a great point because that’s why patients will be very unsure when they see a new face it at the dentist. Sometimes they see the, so keeping the physical space this as much as the same as possible is super, super critical. So I tell buyers unless it’s unsafe or unless you absolutely can’t work with it, keep it exactly how this this guy did. And once they meet you and if they come from one cleaning visit and know you and your team, then you can start to introduce things. It’s, you know, it could be something as simple as digital x rays when they have film based X-ray’s it could be something new with your hygienist. So that’s an important point.
Rob: Yeah, I mean there’s a temptation to, to buy something I think and make it yours and change it. And obviously people just spend a lot of money. They’re excited about what they just bought and the tendency is like, hey, let’s make it mine and which you should over time, but not overnight.
Paul: I know your code, I know you work with dentists and a lot of different stages. So tell me a little bit about, since you’re talking about, uh, you know, sometimes dentists are looking for acquisitions, they don’t find what they like exactly. Tell me a little bit about your work with the startups that you’ve done for when they’re starting from scratch and they can do everything the way they want. What, what are the pros and cons of that
Rob: of uh, doing a startup at versus an acquisition,
Paul: for example, you know, you can’t find the right number of ops that you want. You don’t really like to facility Dennis come with all different personalities just like any other industry. So some of them, you know, that are more apt to do a startup or it fits in there, fits with their sort of vision better. And I know you work with teams that do that. Tell me a little bit about some of the, you know, bumps along the road, good points of doing a startup versus an acquisition.
Rob: Well, you and I have talked about this at length in different times over the years. We’re big fans of, of ownership, of practice ownership obviously, you know, it can be a great thing. I mean, I did my startup 22 years ago, uh, and uh, there’ve been, some days are better than others, but I’ve never regretted it. But when we counseled dentists, I mean, ideally I like to tell people, you know, there’s not, it doesn’t, there’s no sort of set better way to go about it. You know, it’s not like, you know, oh, transitions are better. Buying a practice is better than doing a startup. It really depends on what your opportunities are. And some people think, well, I’m going to buy a practice that has good cash flow and as long as there’s cashflow, that’s better than doing a startup and starting from scratch. Not necessarily, you know, a good startup is better than a bad or mediocre acquisition. And similarly, you know, if you want to do a good acquisition, maybe that’s better than even a good startup or a bad startup, you know? And I think if you play the hand you’re dealt, then that’s what’s going to lead to success. And that means, you know, if you come into something saying, I’m just going to buy a practice, I’m not even going to consider doing a startup. And then people that we see, they ended up buying a three up practice that’s, you know, in a converted house, because it, quote unquote has cashflow and that that’s better than doing a startup. Well great, now you’re going to spend lots of dollars and time and marketing and try to build up that practice. Your reward for doing that will be, you have now outgrown that, that practice that you acquired and you’ll just be wasting money because there’s no where to put the patients and the, and the people that work for
Paul: It is important point because now he’s dealing with buyers in this world. You know, you can always buy a practice. It’s not easy to unbuy it. You can always start a practice, not as easy to go the other way. So sometimes like you, like you just mentioned, if you get involved with an acquisition, that’s not one that’s going to really suit your needs. It could be your family needs, it could be your income needs, you get, you put a lot of energy into something that doesn’t have a good outcome longterm. So I think those are important, important things for us to think about.
Rob: So Paul, now that you are a dentist and a dental broker, tell me what, uh, what has surprised you most about the dental broker world?
Paul: I, which really surprised me most and I, I’m lucky to have had a dad who was a dentist and work with my brother. So I’ve been insulated with some of these things. Although we did do an acquisition ourselves are, we did a satellite acquisition ourselves, is that there’s not really a lot of good information for dentist out there on either end to really find, to prepare themselves for this scenario. There’s, there’s far better information on how to sell your house and buy a house than there is to how to buy or sell a dental practice. So I really find the biggest one is unrealistic expectations on both parties ends which are, which are challenging because on these initial conversations a lot of the wants that a buyer may have, like I want a five operatory practice that does $1 million a year and the seller wants to stay for a year and then transition i to me they’re not realistic in certain parts of the country and it’s a lot of it has to do with, I guess I didn’t totally realize the how much I knew it was always a big part of it. Geography is a major issue as to where these dentists want to be because a lot of people nowadays, and I don’t blame them, I’m 40 years old, want to live in a certain area, had access to things that they like. A lot of times they have spouses that have jobs connected with city type areas, but sometimes the real dental opportunities are outside of these areas. And it creates a, a challenge for these families and young couples because what they want and what they called me up with the, the they are asking for is not really available in the area. There are. But then my next question is, um, can you move? And a lot of times I hear no, we already have bought a house. So one of the things I wanted to add in is, please don’t buy a house before you buy a practice for a few reasons. Good point. Yeah, you can always buy a house. They’re around all the time to get a, they’re fairly simple to buy and sell, but once you have bought one, it’s such an emotional investment from your family and you and your children, you’re just almost unwilling to do it again even though you could. So when you sink your roots down and then you say, okay, I want to practice within 15 miles, it’s all about timing. And it’s no different than looking for a spouse. If no one’s available to date, are looking to get married. You may be a great candidate, don’t have practice. We just limited your options.
Rob: Now all of a sudden you have a very small area or a smaller area where you can look for.
Paul: And the other point is, this is a really, the sellers, the right word is they’re not wishy washy. And I’ll probably be the same way. They’re not always unsure, totally short when they want to retire. I’m sure you’ve had conversations with dentists that have been trying to retire for the past six months, for the past six years. So it’s, you know, they’re just not ready. So if you know, you’re a 32 year old in the main line of Philadelphia waiting for this 62 year old who you think is going to retire, he could stretch it out for another five years.
Rob: Absolutely. And we have more conversations with the 32 year old who’s on the wrong side of that conversation, you know, where, uh, cause we don’t represent as many sellers. We do represent sellers but were too many more, rep transactions on behalf of a, a buyer. Um, and so, uh, we’re usually advising the younger dentist who has one. It’s a buy in to the practice for years and then each year it’s, well, you know, my, my, uh, my daughter’s going to graduate school and not ready to retire yet or the stock market is down and I’m not, uh, I can’t sell. Yeah,
Paul: You can make a million of that. The little cliches. He who has the gold makes the rules are, I was talking with your nice associate, Justin. Am I saying it was like a Seinfeld episode about do you have hand or not of hand and you know, the person was hand is the seller. They own the practice. And I mean, you know, for everyone listening and I think it’s important information to have you, they have the control. Many of them are been doing what they’ve been doing for over 30 years. It’s fairly easy for them to be a dentist. They’re most likely exhausted by the running of the practice, but they can go in and do the dental work. They’re making a few hundred thousand dollars a year and extending. And it’s like probably a lot of times like these professional athletes who stay on for a couple more years because they can keep doing it and they can only retire once a lot of times. And probably you’ve seen sellers retire too early and then have an issue trying to get back in the game, so to speak.
Rob: Oh, definitely. I mean, you have to sell your practice. It’s hard to be in the game and there’s gotta be a restrictive covenant. You know, the, the buyer’s going to expect you not to be competing. Uh, it makes a lot more difficult. But you know, you can’t blame sellers, uh, at a certain level because they’re making money. You’ve got that sort of, that there’s two choices of, Hey, do I want to cash out and monetize this asset now, but I’m also making $500,000 every year and so somebody is going to pay me know, whatever. One point $2 million. Well, and you know, in about a year and a half, I’m
Paul: A lot of times it’s not quite even as, as you know, those practices are great ones if someone was making it, but even if they’re making $200,000 a year, if their practices on the market for you, same thing, $500,000 in three years, they’ve exceeded what they could have for their, what they would have got for the practice and they can still sell their practice. And I, I never forget this too from my dental school graduation from a Collier, the Father Collier, he said, you know, he said all the time Dennis can only retire if they can answer yes to two questions. Do I have enough money and do I have something else to do? And it’s very hard to answer yes for dentists to those questions. So the buyers have to realize is it’s not an easy, they have to be more flexible with where they can practice. So my, our goal in dentists and helping people on both sides and sharing information is that if you’re in the buying side of this, you have to expand your geographic flexibility and to have conversations with your spouses or girlfriends because you may not be able to figure out how to practice in Long Island or center city Philadelphia, even if you want an acquisition because through our brokerage company, some people I don’t think are aware, some dentists are aware, there’s many practices that sit unsold because I have a say to people, okay we have a practice for you. It does eight, $750,000 a year. You’ll make $300,000 a year. This sounds good. Sellers rate is sell and walk away in six months. This sounds good. It’s 30 miles outside of Pittsburgh up. That’s not so good. So they are totally unwilling to go to those areas and I’m not even saying that I blame them cause I don’t know if I would do that myself. It’s just the landscape of practice transitions or are changing rather rapidly. One thing I wanted to ask you about because I need to do a lot of employment contracts and that helped me personally with those. I see not a lot of part time jobs out there anymore. Do you agree? You’d see people where, where I’m saying that a lot of times people will say, I’ll, I’ll buy into this practice or I’ll purchase this practice. I’ll be there three days a week, but I have another job two days a week. And I feel like that a good job two days a week working for somebody at 15 miles away. I found those are much harder for buyers to come by these days.
Rob: Yeah. Um, we see them, uh, and maybe a little bit less. I hadn’t thought of that before. Um, you know, there, there’s, there’s definitely, uh, there, there are pitfalls with all of that though, you know, with, with buyers and when people are looking to buy a newer practice and they take part time jobs, I mean I think at a certain point you have to be realistic too and, and sort of come into those situations with your eyes open. You know, if you’re going to work part time for a dentist or a dental practice where the owner is 40 years old and you expect to buy that practice or to have a controlling interest of that practice at some point in the future or in the near future, you’re kind of kidding yourself, you know? And, and so there are people that sometimes come to us and say, Oh wow, you know, I signed this employment agreement, they said I was going to be able to buy in and, and now I am not able to where it’s been going on for years. And you kind of think, well, what did you expect? You know, it’s just not realistic. You know, and it’s just like anything, you know, and we hear this too, even with the transitions, you know, when I have a buyer who’s going to buy a practice from a relatively young dentist, you know, somebody that’s in their late forties early fifties for me immediately it’s like, wait a second, why? You know, why are they selling this? Yeah.
Paul: Yeah, that’s a, that’s an important point you bring up. And I wanted to ask you about what you see from a seller’s standpoint. Cause I actually, my job as the broker and you know, I think brokers sometimes are unfairly painted in a negative light. And I thought of these things before I was a broker myself. We’re really here to put people together and help manage the situation. And one of the most challenging parts of being a broker, and this has happened to me today after we’re done, is that the buyer and seller expect me to know what’s going on inside the head of each other. And I’m really there to just transfer the information from each party. And I say that to them, but I start off with right off the bat for a seller is why are you selling this practice and hearing what they had to say because sometimes they’re not even totally ready to sell their practice. And I know we’re not even going to have a listing, but when the, depending on what their answer is to that question, why are they selling their practice? I’ve been practicing for 37 years. I’m ready to retire. I’d be happy to stay for six months. You can hear it in their voice, you can hear it in the way they presented it. Some of them say, well, I’d like to sell, bring somebody in and work a little less good on my grandchild’s baseball games. Those are not as good of answers. So what are the things sellers should be cautious about when engaging a broker or thinking about who they’re gonna hire a working with? From what you’ve seen? Good, bad, and indifferent over the years.
Rob: I think that a seller has to realize that the broker they engage is a reflection of them. And if you go out and find somebody who is not reputable or who doesn’t handle themselves in a professional way, that’s a reflection on you as the seller. And uh, different people have different styles and different personalities, but very few people like the, the pushy approach. And, uh, when you have people that, uh, that our brokers that are telling buyers and giving them ultimatums or deadlines and, and really putting their feet to the fire, while, you know, it may seem like that helps to close a deal a lot of times. I don’t think that’s a productive, uh, way to go about trying to sell you.
Paul: I wear a different hat and do some buyer coaching, sort of like a personal trainer just to help the buyer. I would go through the deals and I’m not involved in selling it all. So I’m helping them deal with a broker. And one of the things that’s just interesting to me, and sometimes I guess it just goes back to the way the dental industry works, where a lot of these dentists are working in their own practices by themselves for decades with his staff. They’re nice, charismatic individuals and professionals, but they have been somewhat larger shielded from being in the business world their entire lives. I mean, many of them don’t even use email, which is, you know, I’m sure things like that are going to happen to me as A’s, but they haven’t had to do that. And then they always do a year. Right. That’s true. Yeah. I’m going to try to stay, stay that way. I’m going to be how they’re going to send holograms and say, are you sending text messages then in holograms. But, uh, I’m still telling my younger people hear about facts. Everybody I know documents just to be too long. Just from the firm. It was a big, it was a big part of the, from the movie. No one’s gonna understand that. I love that movie. And it was the back rolled underneath the, underneath the, underneath the copier. And it ruins, you know, uh, Tom Cruise was, was ruined or our children will look at them. I’m like, what’s that? That’s always thinking about Seinfeld that, you know, they just did. The technology is not going to hold up, but the jokes will hold up, but people aren’t gonna understand the technology in it.
Rob: It Paul, this has been a really good conversation I think, but feel like we still have a lot to talk about on the subject. So what do you say? We wrap it up for today and come back next time and uh, talk about one of our favorite subjects, dual representation.
Paul: Sounds great rob. Looking forward to it. Thanks for listening everyone.