In this episode, Paul and Rob chat about dental practice buy-ins, including their “Top 5 Things to look out for with Buy-ins.” This show contains a lot of useful information for anyone who is considering selling their interest in a practice, as well as those looking to buy-in: issues of control, financing, real estate and more! As always, valuable tips you wish you learned in dental school.
Full Transcript Below:
Intro: The dental amigos are excited to announce the most fun, the most friendly and the most Nacho filled CE course in the history of dentistry. Join Paul and rob on Friday, September 21st and Saturday September 22nd in Philadelphia with Doctor Pasqual even annuity all the way from Italy Pasquale. We’ll be sharing innovative ways to save teeth. They usually need to be extracted along with mind blowing techniques to improve your class to restorations are signature Friday night social event. We’ll bring you face to face with the Amigos as well as dentists from all over the country. Make new friends learn and have fun. Isn’t that what dental CE should be about? We are doing CE right the Amigo way, the Nacho way. Register now at thedentalamigos.com doing CE the right way, the Nacho way, the Amigo way. register at thedentalamigos.com and we’ll see you in September. 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 formerly consult with legal counsel before proceeding with any legal matter. Learn more about the dentalamigos at www.thedentalamigos.com and now here are the Dental Amigos!
Rob Montgomery: Rob Montgomery and I’m joined as always by the head Nacho himself, Dr. Paul Goodman.
Paul Goodman: Hey Rob, great to be here. It’s good to have you Paul. He’s good to see you
Rob Montgomery: Welcome everyone to another episode of the Dental Amigos and today Paul, it’s just us.
Paul Goodman: Yeah, no problem. I could talk for two people. So let’s go, come through.
Rob Montgomery: Hopefully you and I can figure out how to carry a conversation for half an hour. Yeah, yeah, yeah. It’s pretty tough challenge. It hasn’t been yet, but yeah, so, uh, today we’re going to talk about buy ins, which is a topic that could easily take a three or more episodes on its own and buy ins come in all shapes and sizes. And frankly you’ve heard me say number of times Paul, uh, they are probably the most potentially problematic transaction that a dentist can engage in cause, I mean, I’m glad, we’re glad we’re talking about it because as a broker and someone who counsels and helped young dentist, it’s the most popular question to say, you know, I’m going to join him with this dentist who wants me to buy in. And it’s just, it sounds like something that would be good and easy, but I found out learning through you when some of the deals we’ve done that there’s just a lot of challenges. I’m glad we’re going to dig into this.
Paul Goodman: Yeah, definitely. There are a lot of challenges and I think what people don’t realize, you know, when you’re transitioning a practice, when you’re just buying it outright, you’re generally doing that as an asset purchase agreement. You’re only buying the good the assets, not the bad. When you’re doing a buy in typical, you’re buying the stock from a departing doctor. So you’re buying, it’s a stock sale. So you’re buying the assets and the liabilities, you’re stepping into their shoes so away. That in and of itself is, is a trickier situation. I think most young dentists or even older dentists don’t know the first step to start with that. And uh, I, there’ll be able to sort of get a, a roadmap or at least some things to walk look out for today. Yeah, hopefully.
Rob Montgomery: So, you know, just generally, so everybody’s on the same page. When we were talking about buying, we’re really talking about someone who’s buying into an existing practice and they’re becoming a partner with somebody who’s already an established partner that practice.
Paul Goodman: So, you know, I think, you know, let’s, let’s talk about the top five things to look for. Well, with buy-ins and I, I know you can help us with that, rob. So, give us number five.
Rob Montgomery: Number five, I’m going to say, uh, the importance of the valuation. And the cashflow analysis. So what we’re talking about here is really CPA accounting, due diligence. You know, as, as you know, there are, somebody does an evaluation of a practice. It doesn’t necessarily mean that that’s what it’s worth, right?
Paul Goodman: There’s many ways to most of your clients. Where do they start with getting that valuation or the cashflow analysis?
Rob Montgomery: That’s definitely a CPA driven thing. So you want, you know, if the practice has a broker or a consultant or a CPA that’s working with the practice or the uh, the partner that’s that’s selling the stock, they’re probably going to generate evaluation. Just like when you’re doing a, a typical practice transition broker. So then it’s important for, uh, for the associate or the dentist that’s buying in to get their own independent, uh, analysis of that stuff. That doesn’t necessarily mean it has to be a full scale, full blown valuations on 50 page thing. The kind of redoes the practice valuation is, but get somebody to look at it, test it, make sure that it’s, you know, nothing’s really out of whack and that the number that’s being asked here for the, for the purchase is within the range of something that’s reasonable.
Paul Goodman: I have a good question. It will help me, uh, with what I do as a broker in this world of these, I of see there’s two ways, the, where there’s an associate already working in the practice, uh, looking at this or maybe someone who’s coming in new the seller or the owning dentist, do they have a lot of resistance to giving up this, these information to your, to your clients? Are they pretty easy to get?
Rob Montgomery: Usually it’s pretty easy to get, uh, you know, it certainly behooves them to, to give that information, but you know, you see it too, right? We’ll get a little goofy and I, they think that somebody who’s willing to buy something without knowing what it is sort of like, you know, will you buy this practice behind curtain number three, let’s say, let’s make a deal. It’s all it was on when I was home from school when I was like, well, let’s make a deal in prices.
Rob Montgomery: So that’s one aspect of what you’re doing with an accountant. The other thing which you’ve heard me talk about and we’ve done some, uh, some presentations together and this is something that’s less intuitive that people don’t realize as much is to get an accountant to do a cashflow analysis. So when had Johnny Cutout, Juan, he was talking about being basically doing a cashflow analysis with whether or not to participate in certain insurance plans, right? Same kind of thing. When you’re looking at a buy in and you do, you should do this to some extent when you’re buying a practice too, but especially the buy in, how much can you expect to earn after you’ve paid the loan and got into your profit distribution and gotten paid for practicing dentistry? So you know, you need to know kind of what that, what that number is. And there are, you know, a lot of accountants that understand this, this whole space, these dental specific people that are good, you know, we’ll say just because the purchase price is right, the valuation is good. It doesn’t mean that it’s a good deal.
Paul Goodman: I can see that. I mean it’s, I mean just kind of goes to the core message of our podcast, the teaching you the things they didn’t learn in dental school because it’s a, it’s a nice thing we know a lot of dentists don’t realize that some of these deals could wind up with a less cash flow or less money for both parties and it’s not even something good to step into. But as a dentist you think, you know, why wouldn’t you want someone to partner with you and you know, be on the same team as you. But I kind of think of it like a pizza, right? Like, you know, there might not be enough pizza to share and people get very upset when that happens. And in this case, pizza is, money.
Rob Montgomery: And we’ve had people come to us who are not people that we worked with before that said, I did this bad deal, tell me about it. And they say, well, I’m not making as much money as I thought I would. How much money did you think you are going to make? And they’ll throw out a number and I’ll say, well, what was that based on? Well, I don’t know. I just, that’s kind of what I figured without any kind of analysis or scientific process to try to drill down and say, because there are a lot of things that are unpredictable, post transition, but there are a lot of things that are quite predictable, right. You know, and that you should at least have an idea of what you’re getting involved in and not sort of wait and say, well, three months in, wonder how much wow
Paul Goodman: And you know, and it’s just comes going back to early episodes in our podcasts. Just because you can serve us alone doesn’t mean it’s a successful endeavor either. So it’s important for listeners to understand, like, you know, the goal like you have said is, you know, uh, not failing is not the goal. So, you know, someone who was used to making x amount as an associate now as a partner has more responsibilities and doesn’t have more money out of it. It just could be a tough thing for the morale, both parties.
Rob Montgomery: Yeah. Right. You know, it’s like, you know, do you want it to borrow $500,000 to make $15,000 a year more? Right. You know, I don’t know. Right. Maybe not.
Paul Goodman: You know, I, uh, I could see that. Well, that’s a great number five, the importance of evaluation and the cashflow analysis. A what would a number four be?
Rob Montgomery: I’d say, uh, you know, it’s important to understand what a statement in an associate agreement that the practice we’ll consider bringing on the associate as a partner in the future is whether or not that’s enforceable. So what do I’m talking about is commonly what you’ll see it in associate agreement where the practice and the associate addressed this issue. May say if after the anniversary or the second anniversary of the associate’s employment, uh, if things are going well, then the practice and the associate will meet to discuss the possibility of the associate buying in.
Paul Goodman: It’s usually I deal with this a lot with a lot of my, either by our coaching clients or just friends from residency’s where they’re waiting and waiting to buy in. But this conversation has never happened. And it seems like even if there was language in the beginning, it’s hard to get that. Um, or I guess maybe you’re telling me it’s kind of impossible to make that happen.
Rob Montgomery: Yeah, it kind of is. I mean, I tell people, you know, it’s really, it’s nice that the practice put that in there because if they’re acting in good faith, at least it shows that there’s a willingness to do that, which is great. You know, that takes you pretty far. But again, if they don’t do it, you can’t file a lawsuit against them and say, well, Geez, it’s been two years and nobody has sat down with me to discuss this.
Paul Goodman: And I’m assuming it’s a genuine question that the associate can also decide to pursue other endeavors elsewhere. It’s not like the, because that language is in there, the owner could say, oh, hey, you were supposed to wait to buy in. Is that, is that reasonable?
Rob Montgomery: You’re right. I mean it’s, it’s really, it’s like you and I were talking about the outside, it’s like the dating period, right? Yeah. It’s very true that there’s anybody who wants to say like, next, uh, you know, we’re going to get together and we’re going to hire you and a five months from now we’re going to get married. Oh, what if we don’t like each other?
Paul Goodman: Yeah. I was at, you know, say like, you know, it’s better just to see how it goes. And I tell, I tell a dentist on both sides that, you know, for me, when an older dentist comes and says, you know, can you, can you find me a dentist to work with me? I’ve never had an associate before. And also can you find, find out if they would want to buy in because that’s very important to me. I tell them, you know, don’t even say that part. You know, just start with the associate, want to work for because it’s your practice and maybe you’ll find out you don’t even like to have an associate. And what’s interesting, and we’ve talked about that numerous times, is that, you know, a solo dentist, uh, it’s not like they have the work for an associate just by magic cause they want it, right? So it has to be a whole shift in how they operate and how they think and how the team thinks. So it’s much easier to say, let’s see how this goes, like the dating period and decide not to trigger as opposed to put in someone’s mind the expectations that you’re definitely gonna associate and then buy in. Because that’s usually when people, especially dentists, who, you know, I, I, I encouraged them to think more and feel less, but they’re very feeling based. People will just feel almost hurt by the process. So, you know, just wait until that part later when it’s going well. Bring that part up.
Paul Goodman: point. Uh, so we’ve got the importance evaluation in the cashflow analysis and whether a statement in the associate agreement, and I think it’s important for our listeners who weren’t going to be associates, that the practice we’ll consider bringing on an associate as a partners enforceable. Uh, what would be a, a third point in this, uh, things to look at for buy-ins. Okay.
Rob Montgomery: So we’re now we’ve, we’re kind of doing this, we’re getting the things that I think are less obvious, right? Okay. Now this is one that’s always comes as a surprise to people because it’s not necessarily intuitive and it doesn’t necessarily make sense, but it’s just the way it is. And that’s that. If, uh, if an associate is buying into a practice or anybody, if they’re not associate the practice, anybody buying into the practice is going to go to a bank and get alone to finance that purchase price. That bank is going to require a first lien on the assets of the practice that the assumed that the associates buying into. So what, and the lean, what we’re talking about is essentially almost like a mortgage in the law. It’s a security interest in this collateral and the collateral is the practices assets. That doesn’t mean that the practice is going to necessarily guarantee the associates loan, but it means that the practice has assets are up for grabs if the associate doesn’t pay their loan, which you know is a little weird because here it is, we’re the practice, right? This person’s borrowing this money and now we’re basically giving the collateral for his loan or alone, uh, which is a little, a little bit of funding. It’s hard for you to fall now.
Paul Goodman: So what is this in a sort of take home points? The sale to the owning dentist, then we’ll come to, and what does it mean in the owner? Dentist has some risk associated.
Rob Montgomery: Yeah, yeah, yeah. So you have to, you have to understand if you’re going to sell, if your practice is worth $1 million and you’re selling half of it for $500,000 to use easy, easy numbers for the math, uh, you have to realize that this $500,000 you’re getting comes with a lien on your assets for the practice. So if they don’t pay it, you would maybe have to buy those assets back then the bank. So in other words, the seller, the, or, I’m sorry, the seller in that situation shouldn’t take that $500,000 and go to Vegas. Oh, I see. Okay. That’s it. Right? You keep that money. So if the associate defaults, you might have to kind of give it back to the bank to buy back what you have. Um, and so, but this is a conversation that I always like for people to have at the outset. And you know when I’m representing somebody and typically we’re on the buyer side in these types of deals, but I always like to have that conversation at the outset and say, hey, does this seller, do, they realize that there’s going to be a lien on the practice is assets because that’s a deal killer. And a lot of situations where people do they say, Hey, I’ve never had a dead on this practice in the last 25 years. It’s free and clear now all of a sudden I’m going to have liens on my practice. I don’t want to do that.
Paul Goodman: I mean to some degree and it’s an, it’s interesting, there’s two really does mirror the dating marriage work cause I feel like you know, the banks and the people almost need like a, a psychologist involved or at least, I mean is this actually a genuine question to do today? Does the bank giving the loan as to see that these two are getting along or is there, is there such thing as that or like you know, is there or how do they prove that? You know, it’s, it’s, you know, when you, when I’m just doing a traditional sale, there’s cashflow. Someone buys it, the bank assumes they’re good at the same thing. It’s, it seems to be much less subjective. But now it’s like these two not only have to do dentistry wealth together, they have to get along well, uh, throughout the process. So it’s like you, I could see how a seller would be resistant to that, but it also seems like the seller is sort of saying, well, Hey, I really want a partner then if they would be willing to do that. So it was like a hurdle to jump over to, to say, Hey, I’m ready for this.
Rob Montgomery: Huge litmus test. Then the other sort of species of that that is even trickier is where you have, let’s just say two partners where one is leaving and a new person is coming in and buying that person out who’s exiting. So now you may have the situation where the practice is free and clear and now unlike, we’re used to have one partner who’s selling half of their interest. Now, the person who’s leaving is getting the money. But the guy who was left behind with the new partner has this practice with a Lien for this loan. That’s that, that is that his partner paid to his former partner. That’s a funky thank you.
Paul Goodman: Yeah, I could see that. See that. Did you recommend, not recommend, but do you see, you know, an air in partnerships where one partner wants to depart and retire and then there’s a partner 10 years younger. Does that partner usually purchased the whole practice and then find an associate or is it, or you do deals where it’s a real switcheroo where there’s a young person coming in buying the older person out and cause it might, my question maybe it’s hard to understand is, is that young person working in the practice for a period of time with the two people? You know, like usually not. Okay.
Rob Montgomery: Usually not. Um, you know, occasionally we’ll see them come in for some short period of time as an associate, but oftentimes those opportunities may just be the way that their market it, you know, that somebody wants to sell half of their practice. Um, but uh, yeah, it’s, it’s a tricky thing. That’s the ultimate blind date, right? Yeah. Right. Yeah. It can. Behind the guy that’s leaving doesn’t care.
Paul Goodman: And you know, if we’ve talked about just what, you know, point of our podcast and for listeners to understand whether you’re a seller, whether you’re midway through your careers, that, you know, for me for who helps young dentists find a lot of jobs that, you know, if, uh, if the middle aged partner purchased the entire practice and only needed to find an associate to work there for a period of time, it’s almost like that’s an easier ask. Sometimes they can kind of test out and they can handle it. Cause you know, sometimes these younger dentists need, need geographic flexibility. You know, sometimes you’ll say, I want someone to come in and buy this practice. Well, maybe if it’s in Philadelphia or New York or even you know, Conshohocken, that’s easy. But if it’s sometimes it’s an area where they’re not sure they’re going to want to live longterm. That’s a tough one too. And uh, now that I see this and I learned myself with the lean here, that’s, that’s just really important point. I can see how that is less obvious.
Rob Montgomery: So one more thing I’ll say that’s another nuance. So people need to kind of think about sometimes with this is if the practice, we were talking to the situation where the practice doesn’t have debt at the time that this happens. If the practice does have alone, right? They have a lender who has a first lien on all the assets. If the, if the buying in doctor’s bank once a first lien on those same assets, well that doesn’t work, right? So in that situation, one of two things kind of needs to happen. Either the associate who’s buying in needs to borrow that money from the same lender that already has the existing loan with the practice or the practice has to go out and refinance that loan with the same bank that the doctor buying in, uh, is using for their purchase so that the same lender has both of those loans and they’re the ones, they have the lean on the, on the, uh, the assets. Otherwise you get in the situation where if they’re two different lenders, they both are competing to be in the first position. And the same thing, you know. So sometimes, and this is again, really important to get your arms around this stuff early on because if the practice needs to go and refinance their debt, you want to find that out when you are 60 days out from closing. Instead of, Hey, guess what? We’ve got the loan papers and here’s this, here’s this document. Oh, guess what? The bank’s got a problem with this, uh, not being a first position here. And now we’re going to have to start at that point to think about maybe refinancing and as you know, and the transition world, Paul, once you get to those sorts of bumps in the road, when you get too far along the deal, that’s a good way to create her.
Paul Goodman: Yeah, no, I can see, I mean, I get to see from your, your, um, so unwinding this are peeking behind the curtain and this, it’s just, it’s much more complex than that, you know, traditional transitions. Where I see a lot of things is, what’s interesting about it is, you know, if you’re the broker in a traditional transition, everybody’s talking and doing a lot for a period of time. This is called four months. Everybody knows each other. But then once the closing happens, a lot of people never speak to each other again. You know, the, the seller has moved Arizona, the bank has the relationship with them. But in this situation you’re saying where the, you know, the, the owner and the, the new partner half track to have the same bank. So it’s, you know, there’s, there’s just a lot of, um, uh, nuances to it, like you said. Well, uh, so do, if we’re keeping track here, we’ve got the importance of the valuation, the cashflow analysis, uh, whether a statement and an associate agreement, uh, that the practice we’ll consider bringing on an associate partners enforceable. And then our third here we have financing and the lender’s requirement that if, uh, that if they have a first lien on the practice assets, it can be a deal killer, a problem with the practices, a free and clear. And now we’re, as we move down a, what’s the, uh, second thing you should look for?
Rob Montgomery: Number two, the countdown here, right? Yeah, I like that. Uh, deals with real estate, you know, will the, uh, the buyer, the associates buying in be permitted to buy into the real estate entity if the practice or the owners of the practice also owned the building or the office.
Paul Goodman: What, what do you see most commonly with that? Or what, what, what’s happens?
Rob Montgomery: Yeah, I, I said really it’s kind of 50, 50. And when I represent a buyer and I see a seller who doesn’t want their future partner in the practice to be their partner in the real estate, I immediately ask why.
Paul Goodman: Yeah, I mean that, that me, you know, that seems to be a, a tough, uh, expectation setting of the, uh, new of the, of the owner or the existing owner to theirs who was a new partner to his or her new partner. Because I’m trying to think of a good marriage comparison and I can’t, but it’d be like, I’d like to do all of this, but when we go on vacation, I don’t want you to come, you know, or something, you know, like this, Paul, I’d like to marry you half the time. Right. You’re right. You really want to be your partner. You know, that, why such a good, good, good question. Because what do they usually say? I mean, I’m, I’m totally curious what, when they say, I don’t want the new owner be part of it, what’s their why for that?
Rob Montgomery: Usually I rarely hear a good reason. It’s just really comes down to they want the control or you know, they want to continue to make the money off of that asset. And it’s, you know, they’re quote unquote investment, uh, you know, not good reasons. I can tell you.
Paul Goodman: And one of the things, you know, as we’re the Amigos and help each other understand each other’s world in this way. And I, you know, I’m lucky enough to spend time in, in the, the law office here and see, you know, it’s a lot calmer than a dental office and what happens every day. And that, you know, when you’re in a dental office together, there’s so much face time and talk time with your partner over stuff that’s happening in that building. Right. Unhappy Patient, unhappy staff member that under the best of scenarios, it’s very difficult. So I couldn’t imagine if, you know, there was some sort of unequal footing with the real estate. It just feels like it would be a, a real challenge to overcome from a personal perspective, from the new, the new person buying in.
Rob Montgomery: Absolutely. Yeah. And that’s, that’s a problem I have because typically what you’re going to see when the practice or the the owners also on the real estate, is there going to be two entities, there’s going to be the real estate entity and the practice entity and the practice entity is going to pay the real estate entity rent. Well, for tax reasons and business planning purposes, the rent may, it might be better if the rent is higher, right? You know, which, right? Yes. If your partners or if you’re 50/50 on both sides, you don’t really care about the right if the rent’s a dollar or a $10,000 right. Because you know, it’s just, you’re, you’re going from your left pocket to your right pocket, but if you’re 50/50 on the practice and the rent is too high and you’re not on the receiving end of that, the real estate entity, then you know, you could have, you could have a problem there.
Paul Goodman: And even if it’s, even if it’s not a dramatic, it’s like that pizza example. No one likes when someone takes the extra slice behind their back. So it’s like you could see it, you might not even be something ultra dramatic from a, from a financial standpoint, you know. But, uh, that’s why I’ve just being on the same page and just having the shared goals of, you know, hey, if the rent, if we’re going to make the rent of the hires to be both of our benefits, right? We want to pay unemployment tax on that piece of, it’s something to that nature. And it just, I tried to put myself in the mind of the, of the selling dentist said to me, it also would be nice. They could just get 50% of their real estate value too, right? Which is just there in a different life situation than this young person. So that’s what sometimes I think the, in these generational with these buyers and sellers, they’re just that their life situations are so different. So the younger person’s thinking, you know, I’ve taken on all this debt, they would want to have this real estate piece as to something to look forward to. And then the older Dennis is, he’s the guy who’s getting the thing to look forward to your buildings with 550 $500,000 you get $250 I think you would appreciate that part of it
Rob Montgomery: This is the same in your transition world too and we see this a lot. You know where you have an older dentist who doesn’t want to sell the real estate as part of the deal, want to sell the practice is not the real estate and I just scratched my head Paul and say, well who are you going to sell to? Like do you think some, some commercial real estate investor is going to come along and buy this standalone single unit building that’s 2000 square feet has one tenant who was a dentist. Like the only, the only audience for this is the owner operator and the divide.
Paul Goodman: Completely agree and that’s why they were sending like usually these, these dentists are in their late mid sixties to the early seventies like this was the time to do it. Right. It’s like staying at a Vegas blackjack table for too long, right? I mean, you could be left with nothing at the end and whatever rental income you may make for a few years, I mean at their advisers should be telling them, take this, take it from, take the money from the person because what if they, what if they’d had said, you know, and especially in this New Jersey, Philadelphia, New York area, it can be a four operatory practice. And what if the guy buying in is just, it’s just the star and buying the practice is a star and he’s going to move the whole thing in five years. Right. Then you know, you’re left with an older place like you said, and the audience is, there isn’t an audience because I’m dealing with that where a guy, I real estate, commercial real estate broker and our towns as you know, don’t you want this space and open up in their practice? I’m like, no, I don’t want it. I mean, it’s just a risk for me to purchase it. And like we kind of goes back to all of these episodes you have, you can’t just do a startup for fun or it has to be calculated, paid. So, you know, that’s why these dentists, I see that. Uh, so, um, that’s it.
Rob Montgomery: And that’s what I say to the sellers. You know, it’s, it’s an entirely illiquid asset. You could say, my building is worth $1 million. Well, it’s only worth $1 million if you could sell it to somebody for $1 million. And if you’re not selling it to the person who’s, who’s buying your practice, who are you going to sell it to? And I’m a big fan of, hey, if you like real estate as an investment, awesome, I think it’s cool. Then sell the real estate for the building and take that money and go buy some real estate that is more liquid, right? They’ll buy a five unit apartment building that you could trade like a commodity basically and say, Hey, guess what? I’m at a point in my retirement and my life now and what to draw on some of that money, you know, let’s sell the building and, and do something with that. You don’t have that luxury. If, if there’s really a pool of buyers of, we’ll have one quickly.
Paul Goodman: I totally agree. Me, it’s the same as if it shows a real estate complicates the, complicates it. But if people look at it in a positive way, I’m just positive and complicated sometimes for a good reason. There’s an extra asset, but both parties can partake of the upside of it. Sure. They just have to get the same page with expectations. And once again, I mean, this is just perfect. It’s, I’m the dentist here. It’s like there’s, there’s such little about business in dental school and there’s nothing about this, which is what you’re telling us. And I see it’s just becomes a big piece of these transitions, you know, whether it’s a buy in or traditional sale, and you know, my take on real estate, you know, it’s, it’s crucial, right? Yeah. Right up the dental office. An office you have no dental. Yeah, right. I know that’s just dental. And as we, uh, move down towards the finish, what is the top reason or the first thing that dentists should look out look out for when they’re doing a buy in?
Rob Montgomery: All right, so this is some of manifests itself. It can in a, in a written documentation way and also from a personality and cultural way. And that is control, right? Right. And, and control comes up in a lot of different ways, a lot of different contexts. So, you know, as somebody who’s buying in, if you’re merely buying in 25% and you’re buying your owning, owning 25%, where if somebody else owns 75%, you do not have control of what happens in that practice. The practical reality is even when you buy 50% from somebody who’s been there for 30 years and who staff is loyal to them and who’s been used to running the place on their own, it’s gonna be very hard for that person to step aside and truly allow the, the dentist who is buying in to be able to make decisions and effectuate change in that practice and to put their personality and their stamp on it.
Paul Goodman: Yeah, I actually can give some value. I really believe strongly that they should, both parties should have higher like a management or a personnel consultant maybe outside of dentistry to give both of them some behind the scenes coaching. Cause I’ve had that in my own practice where I was just trying to get our patient care coordinator who’s wonderful to handle all the vacation requests and we got a lot of cons. You know, our consultant came and told me, you know, you just got to say, you got to ask Kate about that. . And I said it enough times where I changed our culture where nobody tries to do an end around like in football and get to me and say, Hey, can I have a Cinco de my off my favorite holiday? But of course you can know. But uh, and I really believe from the, and that’s a very difficult thing because the dentist has been there as the main guy for 30 years. It’s tough on him. It’s tough on the new person and the, and the team just like, you know, a lot of times we see with, with, with kids, you know, uh, they’re very crafty and there they can, uh, they can sense how to get their way sometimes when two people are on the same page, you know, I have a daughter, Daphne, and she’s like, can I have this ice cream? And I want to say yes, but I’m like, did you ask Mommy? And she’s like, no. And that now I’m in a weird scenario, but we’re on the same page in a dental office. What happens to the dental office is usually one person just distracted. They’re working on patients. They’re doing this and something happens behind the scenes. They come out from their patients. Why did you let Jenny have a Christmas Eve off? He said, well, it sounded like a good thing to say. Oh No, she’s not her turn to do it. So that’s actually, I think such a great point you bring up. But as someone who’s worked in a multi partnership type of scenario, I think the person who’s not used to that, especially the older dentist needs to get some coaching so that they can present themselves in the same page.
Rob Montgomery: Yeah. I have a, if you want to be coached, a lot of people don’t, a lot of people here’s a, here’s a big surprise here Paul. They want to get the money, but they don’t actually want to give up any of that. And we will see, and this is the way it manifests itself. And, uh, you know, in the legal documents where the dentist is buying in, you know, specifically you said like they do or don’t have the ability to make decisions. You know, it’s like, well wait, if you’re paying for half of the value of this practice, why aren’t you allowed to make decisions? Like what are you doing here? So you know, you need the ability and you want to be careful in from a legal standpoint and a document standpoint, but only just also from a personality standpoint. If I buy into this practice and I buy half of it, am I, am I really going to be able to have say in this, is this really going to be partially my practice or is this just a really expensive associateship? Right. So then what goes along with that too is when you talk about control is the ability to buy the rest of it. The be able to buy out that doc. You don’t want to be in a situation where you’re 50/50 partners with somebody who, you know from the ages of 65 to 82 right? Yeah. That’ll like, hey, I thought I thought she was going to retire and wow, that’s 10 years and we’re still chugging here. You know? And I wish I had the ability, you know, when I bought into this, it was my understanding that this would be mine someday.
Paul Goodman: It’s just such an important point and they realize it. Cause I, especially for the older dentist, like what you said is like they’re not ready to change but they want the upside part and they have to, you know, sometimes I’ll get a call from someone who’s wants to sell their practice in three years. They said, should I bring a partner on now and then sell it? I said, why would you do that to yourself? Right. I mean, you know, it requires such a shift in how they operate every day that, you know, the, I, I think you’ve delivered a lot of great value to our listeners because these things to watch out for the things that people don’t really talk about. They talk about the good part, you know, sheer covering vacation or having someone to ask questions too, which is a good part of having partners. I have a partner, I’m related to them and you know that, uh, we have an awesome partnership, but it’s, it’s not easy to just like running a family, you’re running something that’s not easy to run and being on the same page. And also life situations are important too. Like, you know, if somebody is single and someone has a family, that could be an issue when you want the single person always work every holiday, that might not be fair, you know? So there’s just so many little nuances to look into.
Rob Montgomery: Yeah. And there’s the expectation I think, and I’ve had this conversation recently with a few clients and it’s funny how things kind of cycle through and the similarities where they thought bringing somebody else on would make their life easier and because that person could cover for them. And the same thing. Well, it’s nice that they’re there, but both of you might want off at the same time. But you know, I think we’ve both seen this in our own businesses. When you just add people, it doesn’t necessarily mean that those people are going to take things off your, it means that now you are a part of something that has just got bigger. Right? And so some in some respects, some things get taken off your plate, but now new and bigger things landed on your plate. So it’s not always a a, you know, a zero sum game, you know, plug this person in and I’ve got half the responsibility, I work half the time and I make the same money.
Paul Goodman: And it’s just goes back to being purposeful, uh, making good decisions. Like you say, in consulting with some good advisors before you make anything, you can’t walk back. Right? So before you say to somebody, Hey, no one forgets what you say, we started to see all the time. So before you say to an associate, I definitely want someone to buy in here. Maybe, you know, talk with your accountant, talk with your attorney, talk with the consultant so that you really understand what you’re getting yourself into before you offer to somebody.
Rob Montgomery: Yeah, that’s great. Great Advice. And that’s uh, I think we can leave everybody on those terms and thanks for tuning in and hope everyone comes back next time.
Paul Goodman: Yeah, thanks guys. See you next episode.
Outro: 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 and migos.com if you’re looking for Paul, you can find Paul www.drpaulgoodman.com and if you’re looking for rob, you can find him at www.yourdentallawyer.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.dotorangelinemg.com.