Our host Jarrod is joined by the CEO and Founder of Four Quadrants Advisory, Jason Smith, to discuss and dispute the hype that has been building in the world of dentistry that you need to own several practices to become wealthy.
Announcer:
Hello everyone. Welcome to the Millionaire Dentist Podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry finances and business practices to help you become the millionaire dentist you deserve to be. Please be advised we do speak with an honest tongue and may not be safe for work.
Jarrod Bridgeman:
Hello and welcome to another episode of The Millionaire Dentist. I am your host, Jarrod Bridgeman. Casey Hiers is actually out speaking at an event right now, and so he will not be on this episode, but I thought this would be a great time to bring in the CEO and founder of Four Quadrants Advisory. This is a super smart dude, and my boss, this is Jason Smith. Jason, how are you today?
Jason Smith:
Jarrod, thanks for the intro. Doing great and looking forward to getting into this topic here.
Jarrod Bridgeman:
Right. And so you came to me with an idea, and it really started getting the gears really turning in my head here, which is rare, I'd well admit that, but-
Jason Smith:
Doesn't happen often.
Jarrod Bridgeman:
So there's a lot of banter and a lot of things out there among dentists, practice owner, associates, and even talking about a lot of these pop-up consulting firms that just seem to be coming out of nowhere trying to train dentists how to sell their practice. Why is there this whole idea that in order to be successful or to be rich, you need to have 8, 9, 10 practices?
Jason Smith:
Jarrod, that's exactly what I wanted to talk about for a while. And as you well know, I don't do a lot of podcasts here, because we have great people around us, with over 25 employees doing those all the time here. But I've just had it with the BS and the propaganda that in order to become a successful dentist or specialist, you're only deemed that by many of these consulting firms that have popped up over the last three years that want to teach you how to own eight practices, leverage your ass off, and then sell for eight times EBITDA to private equity, and then you're going to hit the lottery. And that's how you become rich in dentistry because there's so many fallacies that I'm going to going to get into with that. And you know what we don't do?
Jarrod Bridgeman:
What's that?
Jason Smith:
We don't talk to the doctors who really screwed up and went bankrupt trying that. And they bought the wrong freaking location.
Jarrod Bridgeman:
Right.
Jason Smith:
That no patient wanted to go to.
Jarrod Bridgeman:
Yep.
Jason Smith:
And they made terrible real estate mistakes. Jarrod, have you ever tried to manage 3, 4, 5 at once?
Jarrod Bridgeman:
Managing people, in general's hard, I would say, even for one department or one location.
Jason Smith:
Do you know how hard it is to hire staff at eight different offices? Jarrod, this firm has been in a nonstop hire zone and we have people to do that because we're big enough to do that. But a dental office is not.
Jarrod Bridgeman:
Right.
Jason Smith:
For five years we have several ads for different jobs, as you have well seen, for at least five plus years.
Jarrod Bridgeman:
Right. Well, and with the dentist, with the practice owner, not only are they running the books, are they HR, managing the people, hiring the people, doing all the paperwork, doing all that kind of stuff, there's so much happening. I can see that being hard to handle.
Jason Smith:
It is a nonstop hire zone to be in a situation where you start growing and having several practices. And one of the first moves the average dentist makes is, "Oh, I'm going to buy that next practice and then my premier practice, I'm going to shut that down for a couple days and cut the neck off of that, and go to the practice that doesn't make very much money. And so I just cannibalize my own practice and I'm going to go to the other one." And then even worse is when they find out that, "Oh, I'll take some of my current staff and make them travel with me."
Jarrod Bridgeman:
Yeah.
Jason Smith:
Those staff members do not like to travel 40 minutes away to your newfound practice. I've seen people buy practices an hour and a half away.
Jarrod Bridgeman:
I mean especially if that wasn't in the job description at hire, right?
Jason Smith:
That's right.
Jarrod Bridgeman:
Yeah.
Jason Smith:
Nothing like, "Hey, here's your new job description." People love that when you hire them and you change the deal, right?
Jarrod Bridgeman:
Right, right.
Jason Smith:
That always works out really, really well. And so then even worse is guess what? Because that's just how it works. A lot of times the ladies that you make travel with you, don't like the staff in the other practice because things are done differently.
Jarrod Bridgeman:
For sure.
Jason Smith:
And they kind of have territorial issues and they ultimately do end up liking each other. But in the beginning-
Jarrod Bridgeman:
A lot of growing pains.
Jason Smith:
That can be terrible. Or I've seen people where they're fine when they go socialize, but in the practice itself, they do not get along because this practice has systems and processes and paperwork processes and insurance processes that we don't use over here. But nevertheless, it is this pressure that is coming from social media.
Jarrod Bridgeman:
Right.
Jason Smith:
These consulting firms on why don't you own five plus practices in general dentistry or the specialties, that is just completely out to lunch on how you can really build wealth in dentistry.
Jarrod Bridgeman:
Right, right. I mean, assuming to even be remotely successful in having 1, 2, 3 practices, you would have to be not only a good business owner but a good manager.
Jason Smith:
You have to be a great owner to do it the right way. And that gets me back to question number one. If you want to go buy a bunch of practices, what the hell is missing in your practice that is not successful? What are you running from?
Jarrod Bridgeman:
Right, right.
Jason Smith:
Do you not do well? Because I want to throw some numbers at you here in a little bit, but, yeah, what is the lure for you to have to go buy five to eight practices and totally try to throw a Hail Mary to become wealthy? That's what I'd really get to the bottom of first with any of those people. Why in the hell would you sign up for that, if you are making 700 plus thousand dollars in one practice and saving 150 plus thousand dollars a year with your eyes shut for retirement?
Jarrod Bridgeman:
Yeah.
Jason Smith:
Why would you give up that asset? And why not work three and a half days a week and go home? Dentistry is a wonderful lifestyle if you do it the right way.
Jarrod Bridgeman:
Right.
Jason Smith:
I've got several friends and even spouses of our clients in the 40 states that we have dentists in around the country that are doctors and specialists or OBGYNs. Do you know how much harder doctors work than dentists? It's profound. Most of them are way over 40 hours.
Jarrod Bridgeman:
Yeah.
Jason Smith:
And not to mention when we get to the specialties, they have to be on call all the time.
Jarrod Bridgeman:
Right.
Jason Smith:
They're at the hospital. And we've had people in our financial planning reviews here that have been called away that could not go out and have a celebratory lunch with us after a great review because they had to go deliver a baby.
Jarrod Bridgeman:
So you're telling me with what we do, or what a successful practice owner should be thinking about, is making your main place of business successful, finding ways to be more than content, be happy, with what you have.
Jason Smith:
We should become a great practitioner and a business owner in one practice first before we buy others. Does that make sense?
Jarrod Bridgeman:
I think so. If I wasn't great at something, if something I'm doing is either making some money or I'm losing money or whatever, why would I try to replicate that in other places and just multiply my issues?
Jason Smith:
We have several clients that have other practices and partnerships that have other practices. The difference is here, we did it the right way first.
Jarrod Bridgeman:
Right.
Jason Smith:
I just want to throw a couple ideas at you or why don't we look for a smaller practice from a elderly person getting ready to retire from dentistry and merge it into our practice?
Jarrod Bridgeman:
Oh, yeah.
Jason Smith:
Hey, then we have fixed cost. We don't have two different rents we're now paying if we buy two different practices.
Jarrod Bridgeman:
Dealing with two different landlords.
Jason Smith:
We can merge that patient base in.
Jarrod Bridgeman:
Yep.
Jason Smith:
We can probably handle and have the current staff to handle it so we don't have to have a whole nother practice with different staff and all that overhead. And then we just probably increase the profitability of our current practice by 35, 40%.
Jarrod Bridgeman:
Right.
Jason Smith:
Why would we not try to do something like that as our first move into more entrepreneurship in the field of dentistry before we become Joe Private Equity?
Jarrod Bridgeman:
Outside of the propaganda coming from these other kind of places, what do you think is the reason why somebody may feel, "Hey, to me success means more than one."
Jason Smith:
That's a great, great question. And the reason is because they're not making enough money.
Jarrod Bridgeman:
Okay.
Jason Smith:
They're frustrated, they're probably a little bit bored, they're not challenged, and they're not saving shit.
Jarrod Bridgeman:
Right.
Jason Smith:
So let me give you some facts and figures on a newer client of ours, a female dentist, who is going to work three and a half days a week, okay?
Jarrod Bridgeman:
All right.
Jason Smith:
And has only been here three years, has a spouse that does not practice. And in their third year here, they're going to save $130,000 for retirement. And when we have them here six or seven years, she'll be saving close to 200,000. They want to hang it up at 60, which is really kind of a young age anymore.
Jarrod Bridgeman:
Yep.
Jason Smith:
And just to give you an idea, if you save 150,000 a year for retirement, and let's just have a modest rate of return, 8.5%.
Jarrod Bridgeman:
Okay.
Jason Smith:
Do you have any idea how much money that is?
Jarrod Bridgeman:
There's a reason why I am not on your accounting team.
Jason Smith:
I did not think you were going to be able to answer that question. But for our good, good listeners out there, I thought they'd get a laugh out of that. It's over $16.7 million.
Jarrod Bridgeman:
Wow.
Jason Smith:
And that is free cash available. And so if she goes to 63, 64 and continues to save that, it's exponential growth.
Jarrod Bridgeman:
Right.
Jason Smith:
And this five times EBITDA and figures like that we hear in private equity that you're going to sell your practices for? Well, first of all, a couple things I want to point out. Those type of figures are only available for people that have five plus, if not even eight plus, practices. So where private equity's going to buy that in one big swoop. Because the lure is they want eight practices and that profitability. Does that make sense?
Jarrod Bridgeman:
Right, so I mean-
Jason Smith:
So Johnny with two practices is not getting five times EBITDA.
Jarrod Bridgeman:
Right.
Jason Smith:
It's not happening. Not to mention, then the second part of that is I love to talk about free cash. So to be in a situation where if you are making close to a million dollars a year in income, good income, right?
Jarrod Bridgeman:
Right.
Jason Smith:
To be conservative, so say we're not working anymore and we sold our practice.
Jarrod Bridgeman:
Okay.
Jason Smith:
To have that million dollar income based 5% on our portfolio, you've got to have 20 million invested free and clear cash.
Jarrod Bridgeman:
Wow.
Jason Smith:
To be conservatively producing a million dollars in income back to you and have no worries. Because I got news for you. You better be making over a million dollars and you've probably gotten used to that lifestyle if you own five to eight freaking practices. Because if you're not making way more than that, then that's even worse. You've got eight practices with terrible, terrible overhead. And then when you get into facts and figures like EBITDA and all that and the cash flow off every practice, it's dog crap.
Yeah.
Jarrod Bridgeman:
And we see that all the time. I know we have a ton of general dentists, not to mention the specialists.
Jason Smith:
Right.
Jarrod Bridgeman:
That save with their eyes shut for retirement more than $150,000 a year.
Jason Smith:
Gotcha.
Jarrod Bridgeman:
So if you're going to be on track to have one practice three and a half days a week and walk away with 15 or 20 million and no more headaches and you're able to go lower your handicap playing golf, and your stress level is reasonable, why would you not do that? I have a secret for you.
Jason Smith:
All right.
Jarrod Bridgeman:
Do you know most of these people are scientists and researchers? Most of them have biology and chemistry degrees as undergrad degrees. They love research and it's what makes them great, great dentists. There are such a rare part of the population in dentistry and the specialties that can handle that entrepreneurial spirit and the pressure that comes with it. It's just not for everybody.
Right, right. There's a lot of variables that get thrown in to the mix with that.
Jason Smith:
And a lot of times we don't talk about that preparation and those variables and are you ready to manage all those different locations and the logistics of 5, 6, 7, 8 practices and what goes into that, before we bite off on all the debts that goes into owning 5, 6, 7, 8 practices, and the incredible amount of leverage. Versus how about we have one great practice and we make it just a cash flow producing animal. I just don't understand why you would ever want to sell an asset if you're making, let's just call it, which we see that in general dentistry now all the time, 700 plus thousand in income and you're able to save that kind of money so that practice is spitting off that kind of cash.
Jarrod Bridgeman:
Right.
Jason Smith:
Why would you want to sell that?
Jarrod Bridgeman:
Not until you're actually ready, ready, like you're ready to retire or whatever.
Jason Smith:
And why would you want to take a deal from private equity where those deals usually go like this. "We're going to give you a little bit of cash up front. We're not going to give you the total value of what your practices are worth, and then we're going to give you stock in our company." And do you understand what the bet is if they give you stock in their company, what you're hoping for?
Jarrod Bridgeman:
That they do well?
Jason Smith:
Well, you're hoping for if that matures in five years, all the acquisitions that they add to their private equity firm pan out.
Jarrod Bridgeman:
Yeah.
Jason Smith:
So if the purchases they make don't pan out, or let's say we have another stock market crash, the stock they gave you as a part of the deal, because you didn't get the total value in cash of your practices? Unfortunately the value of that stock just went to shit and so did your dreams.
Jarrod Bridgeman:
Right.
Jason Smith:
And you don't have to do any of that to be a multi, multi multimillionaire in general dentistry. Or if you want to own those five practices and if that's your thing, that's great, but hold them until you retire. Don't sell it early to private equity.
Jarrod Bridgeman:
In your history in the dental world, how many times have you seen a, let's say, a mediocre practice sell to a DSL and make millions?
Jason Smith:
Very, very few. We've had a lot of clients approached by that community, and when push comes to shove, this big multiple figure for their practice, so let's say five times, EBITDA, it never happens. It's all bullshit. And when they get down to brass tacks, because do you know in the real world, if I was using a practice broker to go buy a practice and I was a young dentist all ready to buy a practice, the typical practice is, just a kind of rule of thumb, a raw figure, will sell for, and I think 70 per percent is high, but 65 to 70% of last year's production.
Jarrod Bridgeman:
Okay.
Jason Smith:
But that's a pretty good general rule of thumb. So a million dollar production practice is probably going to sell for about 650.
Jarrod Bridgeman:
Okay.
Jason Smith:
If that makes sense.
Jarrod Bridgeman:
Yep.
Jason Smith:
And a private equity firm isn't paying five times that for one practice.
Jarrod Bridgeman:
No.
Jason Smith:
That's absolutely ridiculous. That's not going to happen. They don't make a lot of money by overpaying. They make a lot of money by leveraging deals and giving you a little bit of cash up front and promising a dream for later on the stuff they buy.
Jarrod Bridgeman:
And sometimes they make you stick around for a couple years too, don't they?
Jason Smith:
That's a great point on your part. Sometimes you have to stick around 2, 3, 4 and five years. And when that happens, that million dollar income that you had is now about 350 because something has to be cut for them to be profitable.
Jarrod Bridgeman:
Right.
Jason Smith:
So then you just cut your income by 65, 70%, and now you are an employee and it's over.
Jarrod Bridgeman:
And you're no longer in control of your own destiny with that.
Jason Smith:
You're no longer in control of your own destiny. And not to mention what happens if you have a couple bad years in the stock market.
Jarrod Bridgeman:
Right.
Jason Smith:
And whatever cash buyout that you did get? I mean if you look at the last couple years, that could have easily happened in the stock market. Let's say that goes down 30%.
Jarrod Bridgeman:
Yeah.
Jason Smith:
My point really with that is if you have a constant asset that is producing 700,000 more a year on an annual basis, and if your schedule isn't that hard, here again, why would you sell that asset in the prime of your career?
Jarrod Bridgeman:
Right.
Jason Smith:
That makes no sense to me whatsoever. Or why would you not make it a great, great practice first before you go leverage up and increase your debt five times? Student loan? We have husband and wife practitioners all the time. That is so common anymore. Do you know they have over a half a million dollars in student loan debt. We have couples that pay 4,000 a month in just loan payments. We didn't even talk about their home mortgage or the practice debt.
Jarrod Bridgeman:
Right.
Jason Smith:
And so it becomes a high risk game if you want to go own multiple practices. And I just think a lot of times it's not well thought out.
Jarrod Bridgeman:
Right.
Jason Smith:
There's a lot of propaganda and rah-rah people that will tell you they're going to show you how to do it, and then when the house falls, they're not there for you.
Jarrod Bridgeman:
Right.
Jason Smith:
We need to take a little responsibility and look at ourselves in the mirror and go, "What do I need to fix first to become great at this before I get any deeper into debt?" And it's such a safer way to do it, and you can still become a multi, multi millionaire doing it that way.
Jarrod Bridgeman:
Right, because as you said, let's say your practice does about a million in collections, you may sell it for 650, 700,000. That to me, based upon a lot of lifestyle choices, 700,000's not going to last too long.
Jason Smith:
No.
Jarrod Bridgeman:
If that was your main goal for retirement.
Jason Smith:
The sale of your practice should be icing on the cake.
Jarrod Bridgeman:
Right.
Jason Smith:
Not that's how you're going to get rich.
Jarrod Bridgeman:
Yeah.
Jason Smith:
And it should be treated that way. And if you are saving a lot of money along the way, then it shouldn't be a problem, and there's no pressure to sell. So owning the several practices is a situation where you must get rich from doing that.
Jarrod Bridgeman:
Yeah.
Jason Smith:
Or your professional career was ruined.
Jarrod Bridgeman:
Wow. Yep.
Jason Smith:
And it's over. So it's a high, high stakes game for people. And understanding some of those things need to be really talked about more, before we go down that road. Because dental is really great about we all tell each other when we go to the dental show. Shout out to the mid-winter meeting.
Jarrod Bridgeman:
That's right.
Jason Smith:
We've got a couple salespeople up at the mid-winter meeting in Chicago.
Jarrod Bridgeman:
That's right.
Jason Smith:
Setting up right now. And dentists, even good friends that were in dental class together, when they see each other once, twice, a year, are great about telling everybody how great everything is in their practice.
Jarrod Bridgeman:
Right.
Jason Smith:
But they don't talk about the screw-ups. And that's a little bit why we wanted to open up this today to talk about the other side of what does happen.
Jarrod Bridgeman:
Jason, another great place, I would think, for people to learn more about this topic or things kind of around it in the business side of dentistry is if you have not been to one of our CE events, that is definitely something for you to check out. We're popping up all over the country. We're visiting all kinds of places. Don't forget, guys, I've mentioned this on several podcasts before, but go to fourquadrantsadvisory.com/events and you'll find us there. We were going to be in Tampa in April, we're coming to Cincinnati. We've all kinds of things going on.
Jason Smith:
Becoming better at how do I get great cash flow, excuse me, out of my practice and how do I make it efficient and how do I make it provide what I want it to provide me? You're going to learn a ton about that, and you're going to have a lot of fun at our events.
Jarrod Bridgeman:
Right. Well, thank you, Jason, for stopping by. Next week Casey should be back unless we've got him schlepping around the country again, doing some great CE to everybody. So thanks, Jason.
Jason Smith:
Thank you.
Announcer:
That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you, the listener, for tuning in. The Millionaire Dennis Podcast is brought to you by Four Quadrants Advisory. To see if they might be a good fit for you and your practice, go on over to fourquadrantsadvisory.com, and see why year after year they retain over 95% of their clients. Thank you again for joining us and we'll see you next time.
