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EPISODE 160: The Razzle-Dazzle of DSOsP

Back from traveling across the country to multiple dental shows, Four Quadrants' Chad Tothero talks to Casey and Jarrod about how DSOs try to pull out all the stops for their booths.

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EPISODE 160 TRANSCRIPTION

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.

Casey Hiers:
Hello and welcome. This is Casey Hiers, back at the Millionaire Dentist Podcast in studio with co-host Jarrod.

Jarrod Bridgeman:
Hey, Casey H.

Casey Hiers:
Chad's here with us. He helps us in a variety of ways here at the firm, but one of the things he's been doing is representing us at some educational opportunities at different dental shows, recently at an orthodontia show and also at a regional show, but does a variety of things for us and got some insights that we thought would be pertinent to talk about today.

Jarrod Bridgeman:
Chad, Let me ask you when you were at the orthodontia meeting, what's really stuck out to you as something that you weren't expecting to be there? What was something that kind of got your blood boiling?

Chad Tothero:
A lot of the largest flashiest booths at the expo, I've realized have been these orthodontic service organizations, OSOs, DSOs, obviously a lot of money being thrown around, some very-

Jarrod Bridgeman:
Were they there, basically just doing a little razzle-dazzle, trying to get people to-

Chad Tothero:
Lots of razzle-dazzle-free drinks, lots of flashing lights.

Jarrod Bridgeman:
From what I understand, you came back and told me a little bit of a story from that show you, our booth, you were right next to a DSO, weren't you?

Chad Tothero:
Kind of, yes. It was a legal firm that does a lot of the brokering for the deals for DSOs, and had a very interesting chat with an attorney. We got into a chat at the expo about DSOs and the advantages, and he asked what we know about DSOs, and admittedly I know a decent amount, but was really interested to hear his perspective on it. He was explaining to me all the benefits of DSOs, the upfront cash payouts, being able to not have to worry about the business side of the practice, and the HR, and all the purchasing and everything that goes into the nonclinical aspects of running a practice and then being able to count on a reliable salary for the next three to five years or however that partnership is stipulated and he made a lot of interesting points.

Jarrod Bridgeman:
After this, you were dead set, you were going to sell out to a DSO?

Chad Tothero:
Yeah, I was actually considering enrolling in dental school, going through the whole process, and then working for a DSO right away. It was so-

Casey Hiers:
Sounds like he was pretty proud of himself as he was presenting to you. Sounds like he was doing a practice run for what he tells a lot of the orthodontists out there.

Chad Tothero:
Yeah, it sounded like the greatest thing since sliced bread. There was no way you couldn't become rich and everyone should do it.

Casey Hiers:
Well, and as we get into this, listen, this is not a direct indictment on DSOs, it's indirect, it's not direct. Right? We call ourselves the DSO kryptonite. What that means is for some people in some situations selling out to corporate dentistry or a dental service organization, perhaps, makes sense for them in their unique personal and practice situation that-

Jarrod Bridgeman:
Well, what makes us the kryptonite though?

Casey Hiers:
When this gets brought up in education events around the country, ultimately you always have or most often have the option to sell out to a corporate dentistry or a DSO. That is a fairly common option. Us being that kryptonite means we'll get a practice owner who collects million dollars, $2 million, $1.5 million in dentistry, and we can get their practices using systems and processes and our whole comprehensive team mastering everything, incomes doubling on track for 8, 10, 15, 18 million. We can get them insulated and to a place in their practice that it is an absolute cash cow. They are their own boss. They haven't had to sell out, they're still making a lot of money doing it their way.

Jarrod Bridgeman:
They don't have to sell out nor be scared if one moves in across the street.

Casey Hiers:
That's right. You're insulated because your financials show massive success and you can sell to a young dentist anytime you want because a young dentist is going to look at your financials and go, "My gosh, you have a beautiful practice. You're close to a fee for service practice. You're making $700,000 in general dentistry. You're saving 200,000," just on and on and on. That's why we're the kryptonite. When we hear this pitch from the DSOs, we know who they are targeting sometimes, which is that practice owner who has tried to do it themselves. They may be in their late fifties or sixties or God forbid, seventies. Their options are limited, and so that can potentially be the route they take. But you hearing their pitch, if you will, was fascinating, because once you started to ask some questions, some of which you kind of knew the answer, others in which you genuinely wanted to learn. Let's get into that a little bit.

Chad Tothero:
Yeah, I asked several questions. I'm a pretty inquisitive guy, and his attorney was sharp. He had great answers to most of my questions. When finally I got to the point where I just came out and point-blank asked him, "So if you are a successful practice owner running a profitable practice and you don't want to immediately retire, what is the advantage of selling to a DSO versus working with a company such as ours that will still allow you to retain full ownership and make your own decisions in the practice?" After that, it was complete silence.

Casey Hiers:
Crickets, huh?

Chad Tothero:
Wasn't a good answer. I didn't think what I was asking was that poignant, but to me that really signified that there wasn't a good answer.

Casey Hiers:
Did his tone or body language change?

Chad Tothero:
Yeah, shoulder slumped, slight frown, and you can see the wheels turning, but there just wasn't a good comeback to that question. Unless you want to get out of dentistry permanently or you just can't handle being a practice owner, he didn't make very many good points as to why you should sell to a DSO.

Casey Hiers:
What were some of the basic questions you asked him?

Chad Tothero:
We asked a lot of questions, such as what are the benefits? What's the benefit? For him was-

Casey Hiers:
He loved that one. Yeah.

Chad Tothero:
Yeah.

Casey Hiers:
Yeah. You just rattled through those, right?

Chad Tothero:
For sure. But you get that big check right when you sell the practice to him. But then you're also locked into a contract for several years working for a salary or a percent of production. But he really, really highlighted the fact that you're going to get a several million dollar check upfront. "We're going to buy your practice for a hundred percent of revenue versus what you normally get selling it privately 75 or 80%." That was a big point. "Then you get stock, there's stock. When we recapitalize and sell to new private equity groups, you're going to get a hand in all those profits and those shares," but you don't really. He didn't say how many shares you own. He didn't really get into how many shares are outstanding.

Casey Hiers:
But that kind of cocktail party talk really tickles the fancy of the practice owner who is under save for retirement. Then they hear that and they're like, "Oh man," they get lost in the bright lights of "EBITDA and then stocks and..." because they've undersaved.

Jarrod Bridgeman:
No. Start imagining that big old check like Publishers Clearing House type thing right now. "Congrats, you sold to a DSO."
But then as you've pointed out privately offline, you get that big check, but you don't actually get all that money. What happens to that?

Chad Tothero:
There's taxes, [inaudible 00:07:47] wants taxes.

Jarrod Bridgeman:
Casey you want to talk about taxes?

Casey Hiers:
Do I want to talk about taxes?

Jarrod Bridgeman:
No, I'm just-

Casey Hiers:
But it's true. It's easy to just say off a million dollars once you pay your taxes and once you knock out your shareholder loan that your CPA didn't tell you about, God forbid you still have any debt when you do this. But I mean that million dollars turns in the $400 real quick. If you've got some significant debt, it's even less. What we find is typically one to four years worth of cash flow in retirement is what that's worth to you. That doesn't get it done.

Chad Tothero:
Nope.

Casey Hiers:
Doesn't get it done at all. I know you had, after having that conversation, it kind of piqued your interest to do even more of a deeper dive. What are some of the things after fascinating that didn't have an answer to? Well, what if you have a successful practice? Do you even get into with him, the control that the seller gives up? Or kind of get into some of the strings attached?

Chad Tothero:
Yeah, yeah.
In getting into losing control, you flip that as well. "You don't have to worry about any of the business or nonclinical aspects of your practice. We do all of your purchasing, we provide you with software, we provide you with associate dentists and recruiting services."

Casey Hiers:
But whether you want them or not, right?

Chad Tothero:
Exactly. You have no autonomy or authority to choose which software you want to use or which technology you want to implement within your practice. It was spun as not having to worry about all that stuff, but he never really honed into the point that once you sell to a DSO, you are relinquishing all control of every major financial decision to your practice.

Casey Hiers:
I've shared this before, but recently talking to a crowd and getting into that conversation of what's easier selling to corporate dentistry or selling your own practice. We're touching on a lot of the pros and cons of it, but a practice owner raised his hand and said, "I can share with you a personal experience. I just sold to corporate dentistry. My gut told me not to do it, but for a variety of reasons I did it and I was supposed to stay..." I can't remember if it was three years or five years, but that's associated with how much you get. Long story short, he said he couldn't last six months, he couldn't handle it and he was done. He lost a lot of money and he regretted doing it. But his personality, he could not watch his baby get wrecked in the manner in which they were maybe changing it.
They were changing it in a manner in which he did not like it. He didn't feel like it was in the best interest of his staff, of his patients of himself. He was just a number. He screams from a mountaintop to anybody who will listen, "Don't do it, or at least try to find another option." Obviously on this podcast, the other option is have an external team that masters this stuff so you can collect a million, you can make 400, you can save a hundred, you can be on track for 12 million. You don't have to worry about the business and financial side of this in the beginning. To us, that's just, that's a ship shot. But for the purpose of that conversation, it's incredible the things that were left out. It was just, "It's on autopilot and you get a bunch of money." What are some other things you saw that, you might corporate seller beware?

Chad Tothero:
Well, in talking about the expo itself, the biggest flashiest, best looking boosts were these DSOs or OSOs. Me, being the devil's advocate, getting to thinking, "Where's all this cash coming from? Why are they spending so much on these shows to attract young dentists or young orthodontists?" It really got me to thinking just our economic climate that we're currently in. The past several years, the government has been printing money, the stimulus checks from Covid, all of that. There's a lot more money looking for good investments than there are good investments to be found.
When thinking about it, a great investment is a profitable dental practice, but when they have derived their marketing pitch to these dentists, it's all about that catch. It's the upfront payment. But what we all forget is it's not a cache that's valuable now it's owning a productive business, which is the valuable asset they're willing to pay so much for. By selling that, you lose that, and they're going to capitalize on your fears. The economy's going to be taking a turn, practices are going to go down in valuation. But if that is the case, then why are they so desperate to buy? Why are they trying so hard to buy as many practices as they possibly can?

Casey Hiers:
Well, it's sad because there's so many practices that underachieve for decades, and when they do that, they can swoop in and they know they can make them more profitable. But practice owner is not going to get that profit. Jarrod, where's your head at with all this DSO corporate dentistry talk?

Jarrod Bridgeman:
It sucks.

Casey Hiers:
So profound.

Jarrod Bridgeman:
Thank you. We've done several podcasts, and I've even done some with our CEO and president and founder Jason Smith about, you don't need to sell to a DSO. You need to work on yourself and work on your own practice. It makes sense that, Chad, when you are talking to the advocates, they were only selling you on the benefits of it. Of course, yeah, they're not going to want to mention any of the negatives, cause that makes them a terrible salesperson. But I liked your point about if they're trying to spin it as like, "We're doing you a favor, let me take your practice off your hands. It's not doing that well, it's not doing that great. We can do better." I feel like most people know that's not true and they don't like people messing with their babies. Yeah. When you were doing your research, did you come up with anything or were you able to find anything that "Here's a reason or here's a couple of reasons as to why you shouldn't sell your practice to a DSO,"?

Chad Tothero:
I found many reasons I didn't find any on the actual DSOs websites themselves. There were no cons on those websites.

Jarrod Bridgeman:
Interesting.

Chad Tothero:
But yeah, I found a handful. What you mentioned earlier too, just about, I forget exactly what you said, but it was a perfect segue into what it all comes down to. It's greed. They don't want to help you as the practice owner or the dentist. They want to profit from you.

Casey Hiers:
Or the patient.

Jarrod Bridgeman:
Right.

Chad Tothero:
Exactly.

Casey Hiers:
You don't get to pick your supplies anymore.

Chad Tothero:
Exactly. They're making all their money off the labor of all the practicing dentists out there as private equity partners that aren't producing any of that revenue.

Jarrod Bridgeman:
The thing is, I just thought about this, too, is the patient who may have been coming to see you for the last 10, 15, 20 years doesn't know all the history going into, now you're working for somebody else and your supplies are different. Maybe you have some different staff going on and they just see it as, "Oh, I don't like going to Dr. Chad's as much anymore. I might go to somewhere else."

Casey Hiers:
I was talking to a younger dentist earlier this month and after about three years of ownership, they said, "I was going to give it a two more years and then look to sell to DSO because I just felt so overwhelmed with the business and financial side of it. I felt like just my head was in the sand with cash flow and taxes and it was just such an uphill battle." It can be overwhelming. I understand why people would consider it. It's good to educate yourself, but that's what part of today is, educating people on the broader picture of the pros and the cons. For our clients, I guess the rub is you have to be coachable. Like with a DSO, you don't have control. You have no autonomy. For our clients, you have to be coachable. Which goes to the point of, if you're not going to take most of our advice, then you shouldn't pay us. Other than that, there is no rub. We're the real deal. You can have it all. You can have a killer practice that is yours that you enjoy, that as-

Jarrod Bridgeman:
Hey, if you want to take a day off, take a day off. You don't have to get...

Casey Hiers:
You don't get micromanaged by the people that just gave you this big check. Right. No kidding. But yeah, I found it fascinating though, an attorney who does a lot of these deals, you kind of heard his best step forward of what the pitch was and just being sort of astute. You asked some questions, proposed something that he couldn't get out of, and it's not like you're some 20 year veteran of studying DSOs.

Chad Tothero:
I am certainly not, and I think it was interesting, because I don't think he really knew what we, Four Quadrants do.

Casey Hiers:
Clearly.

Chad Tothero:
I think it was trying to sell us on something and when it just came down to the point, "Well, all the positives that you're pitching, we can do the same thing for practice owners without having them sell their souls."

Casey Hiers:
Except the practice owner gets to enjoy the profits of their hard work.

Chad Tothero:
Exactly.

Casey Hiers:
It's incredible. Is there a cherry you want to put on top of this one, pal?

Jarrod Bridgeman:
There is. I would like to say, if you want to hear more about us, just going off about DSOs, but really learning about getting some real dental financial advice from us. We are going to be in El Segundo, California on May 12th at Top Golf.

Casey Hiers:
El Segundo.

Jarrod Bridgeman:
That'll be pretty exciting, right?

Casey Hiers:
I know that place.

Jarrod Bridgeman:
Have you been there?

Casey Hiers:
I used to live about two miles from this. Yeah. Hermosa Beach, Manhattan Beach, Santa Monica, there's a lot of areas that tie into this new Top Golf, right by, it's on Sepulveda or Pacific Coast Highway.

Jarrod Bridgeman:
Pacific Coast Highway, yeah.

Casey Hiers:
Some call it. Used to be a little executive nine hole course. I used to go play out there. There's probably some lost golf balls of mine, but it's a beautiful location. It actually serves a lot of different areas and regions in that geography. Hopefully, we get pull a lot of people in there. These have been really, really good. The folks that attend, they learn much more than they anticipated and then they enjoy getting a little bite to eat and going and smashing the golf ball.

Jarrod Bridgeman:
That's right. We're also going to be in our own backyard in June. We'll be at Fisher's in Indianapolis, Top Golf as well. I know we got some other shows that we're exhibiting at coming up. Guys, don't forget, guys and gals, we are offering a free tax assessment right now. If you received a really large bill or maybe a really large refund, and maybe this isn't even the first year and you're getting fed up with what's going on with that, or even if you're not and you want to hope that we, maybe we can find something your current CPA is not, go to fourquadrantsadvisory.com/taxes for that. Fill out the form and one of our experts will be in touch with you.

Casey Hiers:
Chad, thanks for bringing back that valuable information from that expo in Chicago.

Chad Tothero:
As they say at Chick-fil-A, it was my pleasure, guys. Thanks for having me on the podcast.

Jarrod Bridgeman:
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. Thank you to you, the listener for tuning in. The Millionaire Dentist podcast is brought to you by for 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.