THE MILLIONAIRE DENTIST PODCAST

EPISODE 9 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. Now here's your host, Alan Berry.

Alan Berry:

Thanks for joining us again for what is fast becoming Dentist-Go-To podcast for all things in the world of dental finance. I'm your host, Alan Barry and joining me in our beautiful Four-Quadrant state-of-the-art studio, is Jason Smith and Brogan Baxter, president and COO of Four Quadrants Advisory. Gentlemen, how are we doing today?

Jason Smith:

Great.

Brogan Baxter:

Good Alan. Thanks.

Alan Berry:

A lot of people have been emailing me great comments. I'm just curious, have you guys heard anything from any of the clients talking about the podcast?

Brogan Baxter:

Alan I've actually heard from a client regarding the podcast and how that was impactful to her life. And I've also seen some comments, I've seen some of the statistics. It certainly seems like it's starting to catch on very, very well.

Alan Berry:

Yeah, I agree. I looked at the stats the other day and I was really surprised how high they've gone so far. So hopefully we're giving the listeners out there some great information, and that's why it's spreading around.

Jason Smith:

I think I've gotten a lot of feedback, which is exciting even from outside associates, et cetera. Frankly, I think sometimes people are amazed at the money we feel can be made in a dental practice and just what can be when Mannix the right way, et cetera, personal finances and all that fun stuff too. What, what can be squeezed out of there such as the expectation here is saving over $100,000 a year for retirement and that's just hopefully getting started. Things like that are exciting to hear and set a new bar for people on what's achievable.

Alan Berry:

Yeah. And if anyone ever questions, those types of things, they could always go take a look at our testimonial videos. We have a slew of clients that have... They're basically testifying how much money they save and they're real clients. So, yeah. So it looks like today, you guys want to talk about acquiring a practice versus marketing dollars. So basically tell me what that means. I saw the email and I wasn't exactly clear.

Jason Smith:

Yeah. What in the heck does that mean? Great question Alan. A lot of people are probably scratching their head going, "What do you mean marketing dollars versus acquiring a practice?" So this is a subject that I wanted to really approach for some time and I thought it'd be a hell of a podcast for people to listen to. So to give you an example in the marketplace, there's a lot of baby boomers still hanging on in dentistry. And there's a lot of practices out there, Alan, where let's say they've started to erode a little bit. So maybe they're not as expensive as they used to be, but very well there might still be a half a million dollars in production in that practice. And though this is loosened dirty, let's just say the value, if you bought that from a retiring doctor, that the value is probably around, let's just call it 320,000 to $350,000.

Jason Smith:

And as I was thinking about that, I just happened to be looking at some bills that one of our clients was spending for marketing. They were spending $2,000 a month in Google ads. So I was like, hypothetically, what if there was a older doctor down the road that was selling a practice? Because if we're running Google ads, we really want more patients, right? And if we're running Google ads, would it be a better value? Why don't we just go buy a practice and buy a half a million dollars for example, in end production on it, and that's just getting started on an annual basis. What would that look like?

Jason Smith:

So you could either spend money and... Though we're still supporters of marketing, you could spend money on a monthly budget on say, Google ads or something else, maybe running ads in your community, newspaper, et cetera, et cetera, the list goes on. Or what if you just said the heck with it, I'm going to just buy a practice and go buy production, because you're obviously after new patients. So for example, just to get your head spinning a little bit on how do we leverage and how do we leverage dollars the best way? Brogan, if you could, tell me, I know we could probably finance a practice over 15 years if we talked real sweet to a bank, what's that monthly what's that monthly payment look like?

Brogan Baxter:

$350,000 acquisition, 15 years, 5%. You're looking around 27, 70, just off the top of my head.

Alan Berry:

That was pretty good. Was that really off the top of your head?

Brogan Baxter:

Not really.

Alan Berry:

Oh, you could have lied out here.

Brogan Baxter:

Well, that's all right.

Alan Berry:

All right.

Jason Smith:

And like a $2,000 monthly Google budget, that's not that much money. It's 24 grand a year. So we could go buy a practice for 24 grand a year, almost 24 grand a year.

Alan Berry:

So wait a second. If I may interject here. So how do you buy a $300,000 practice for that sort of dollar amount? Shouldn't it be a lot more expensive than that? It's really more about structure than it is about the cost.

Jason Smith:

Totally. It's all about who can give us a proper leveraging proper structure that for example, let's say in your local community, or you don't know any better, you don't have a bank that will do that for you. Maybe no bank will do it for you. How do you know just brainstorming and thinking out loud, what if that doctor that wants to sell says I would be thrilled to do seller financing for you? I would love a personal monthly payment. I trust you. I'd be willing to do for 17 years for you. And we don't need any bank. They might be thrilled. Maybe they tried to sell their practice 10 different times and nobody would buy it or it weren't the right fit, and this is a good fit, and you just never know what they're open to.

Alan Berry:

Would it still be at a 5% annual rate though, or because wouldn't they be able to take their money and get more than 5% out of that money?

Brogan Baxter:

The rate would be set between potentially the seller and the buyer. But no, actually they would probably come out with something pretty comfortable with the actual person that was buying the practice because they want to try to make it easy for them.

Jason Smith:

Well, and that's only one part of it. Let me hear some other things that come into play there. A lot of times in a situation like that, the younger doctor is thinking about, Oh, I couldn't go buy another practice. I can't be in two locations or I can't go have another building. I can't have two facilities. And a lot of that is just not true with a practice that's this size. Or let's call our practice that's for simplicity, 350,000, as far as the list, price or smaller. A Practice of that size and if the logistics, if it's close enough to you, you could just absorb that into your own practice. You don't have to worry about all that. The price is so cheap. Even a lot of the equipment that's in there, frankly, you could just throw away.

Jason Smith:

And very well you might take one or two of those staff people that if the practice is going to grow, maybe some key members, maybe it's a hygienist, maybe it's an office manager. You might not take them all. But what you can do is a practice of that size, or say a half a million in production, you can absorb that into typically your practice real quick, and you're not going and building a new facility. And so that's where there are some incredible magic and proper leveraging there. A lot of times you can make a transition like that fast. And literally you look up in two weeks and pretty much you have another half, a million dollars in production in your practice. It's a big deal.

Alan Berry:

The gear that you throw away, one you'd get a ride off, right?You'd be able to write some of that off your taxes, but what about replacing that gear? So if you're throwing it away, isn't there some costs there to replacing it?

Jason Smith:

There wouldn't be, because you wouldn't replace it. If you absorb it into your existing practice, the chances are you probably already have all the equipment.

Alan Berry:

I apologize. I was confused. So you're not talking about having two physical locations, you said you buy-

Jason Smith:

And absorb.

Alan Berry:

... and take it in and you bring in all their customers?

Jason Smith:

A lot of times people will do. Good question, Alan, kind of. A lot of times people will think, "Oh, I've got to be over there too. And be in that location because Dr. Smith was over there for 30 years." And that's such a misnomer. It's just not true. It's actually a mistake going back and forth or leaving your practice where there's kick-ass production and going 10 miles away to go sit in that practice where maybe at that point in that doctor's career, maybe their daily production isn't even close to your daily production. So for you to go over there and sit and wait is crazy. When with, "Hey, here's a chance to actually do some decent marketing."

Jason Smith:

When you can market, let those patients know that, Hey, you're now their new dentist, et cetera. And Dr. Smith has sold the practice to you. A nice little cover letter and some other little marketing tools that are very, very cheap. And all of a sudden, they'd be glad to just walk five minutes down the road and come to your practice. There's no reason for you to go have two locations and have a logistical nightmare on your hands.

Brogan Baxter:

See, a lot of dentists Alan don't take into consideration when they're looking to grow their practice, they very rarely look at acquisitions. It seems like something unattainable, something that's way too expensive. With the proper structuring, you can get it essentially for the cost of a really good marketing budget. And you can do it with a better return on investment because that's cash flow that's already there. If you throw $70,000 in a year towards an acquisition, there's cashflow already built into that. You know what you're buying. It's a known quantity, take $70,000 and apply it to a marketing budget, there's no guarantee that's going to work.

Jason Smith:

It's very unproven. And as Brogan said, no guarantees. And for example, I will tell you, there are a ton of dentist who are spending on annualized basis, 80 grand a year on marketing.

Alan Berry:

Wow. I did not think that they are spending that kind of money on marketing.

Brogan Baxter:

Yeah, they can. And let me take that even a step further. When it comes to obtaining financing for that, if you don't choose to cash flow it, it's a hell of a lot easier to get a loan for existing cashflow than it is to get what they call soft dollars for something fluffy like marketing, no offense, Alan but that's the truth.

Alan Berry:

None taken, but I do. So people take loans, dentists take loans for marketing costs?

Brogan Baxter:

They could because they want to try to break the payment up. Some of these marketing, I've seen marketing plans, top six figures. Some people really aren't too interested in taking a a hundred thousand dollars leap of faith. So they want to stretch that out. Maybe over a couple years, maybe they put it on a line of credit or whatever, but the fact of the matter is they might want to stretch that payment out a little bit because it can get rather exorbitant. And the issue is it is kind of unproven. Some of it certainly you'll get some, ideally some patients out of it, but is it going to be as much as say an acquisition, certainly worth a comparison?

Jason Smith:

So there's a lot of dentists, even from a cashflow standpoint. We talked about a $2,700 loan and there's a ton of dentists on a monthly basis. And there's a ton of dentists that are spending in marketing 7,000 to $10,000 a month. And if we had a dentist in front of us right now and said, "Hey, have you ever spent or 10 grand on a monthly basis on marketing?" They'd just start laughing. And another thing to talk about in an acquisition like that, especially if you're buying from an older doctor, it's just kind of the life cycle of dentistry. It's not a criticism to the older doctor.

Jason Smith:

It's very, well-known in the world of transitions that most of the time, the older doctor is probably getting to a point of just doing what they call patchwork dentistry. Which means probably a lot of the big procedures doing three or four crowns on a patient, et cetera. He or she probably isn't doing a lot of that big work anymore, or they're putting it off or saying, "Oh, we'll get to it next year." So typically in a situation like that, there's also just a ton of dentistry waiting on those current patients that frankly, where they may be haven't been served the way they could have been served over the last, say three to five years, as a quick example.

Alan Berry:

Is there a way to look at the current dentist practice and see if they are withholding, they've been withholding those procedure?

Brogan Baxter:

Yeah, you can actually. If you're going to go purchase a practice, you could ask to come in and audit some charts, patient charts, and randomly start selecting some patients and look at a couple dozen or so, and see if you're seeing any trends. If you do, maybe pull some more because you want to feel confident about that, because you can do some auditing of patient records. Yes.

Jason Smith:

So going into buying a practice like that, where it's pretty easy to trend out through numbers and financial documents we might collect. You can pretty well find out if, for lack of better terms, if there's just a ton of dentistry waiting on you, because one thing about marketing and that's so much more predictable with what I just gave you as an example, a lot of times with marketing, it doesn't matter if it's say Google ads or doing something on Facebook or something in your local community.

Jason Smith:

One of the things that for sure has proven about marketing is you don't know what the heck it's going to bring in your door and the characteristics of that marketing, or is it... Say you did such and such marketing on Facebook and everybody, for whatever reason, it's bringing in once the cheapest is very possible and they want the deal. And if you're not wanting to give them a great deal, the cheapest crown in town, so to speak, then they're going to walk out he door. Unfortunately, sometimes that type of stuff comes with marketing too in regards to who that message... Who or whom is it attracting?

Brogan Baxter:

And on the patient side of it, if that older dentist can sell his practice to somebody else and really get behind them and introduce them to the patients and say, "I've seen this dentist work. We agree the same way we decide to treat patients. Our philosophies are very similar the way we work with patients." That carries a hell of a lot more weight when it comes from the dentist that you've trusted for decades and decades, as it would be looking at some Facebook ad and taken a random flyer on some dentist.

Jason Smith:

For example, sometimes you'll look at a dental practice, 170 to 200 new patients a year is not a very good new patient number. We would certainly like somebody to be North of 300 new patients a year. Sometimes it can be an awesome dentist with an awesome personality and they're just in a shitty location and they're not going to probably be able to overcome that, or they would have to spend just hundreds and hundreds of thousands of dollars in marketing to overcome that. So that brings a whole nother conversation. Should we move a little bit, et cetera? I don't know. I'd have to know more about the practice.

Jason Smith:

But if I have a client saying, "I don't get enough new patients and I've got struggles with this location and I've spent a lot of money in marketing and the marketing hasn't paid off," more than likely my next question is going to be, "Have you ever tried to merge another practice into your practice? Have you ever looked at that as an example, because that certainly would be another route that is going to produce a lot more predictable revenue."

Jason Smith:

And we want to take any client through an exercise on any level in regards to, if we're spending money in that practice, we better be darn sure why we're spending it and what are the expectations on, how we expect to capitalize on that investment.

Alan Berry:

This is a pretty interesting idea. I never really thought about it in this way, but I'm curious. So let's say that there's a dentist out there listening and is like, "Hey, you know what? They bring up some great points on spending this amount of money on marketing. Why not just go acquire another practice, either absorb it or get the locations for similar pricing?" Where do they start?

Brogan Baxter:

So yeah, if you're sitting in your vehicle or at your house listening to this and you're going, "Well, this sounds like a brilliant idea." Well, there's not all these practices just laying around out there. There are certain things that have to be taken in consideration. First and foremost, geography plays a huge, huge part of this. Patients aren't going to travel a long way. Just because there might not be any practices for sale does not mean they're in might not be somebody that's getting older, a little longer in the tooth, no pun intended, that might be interested in hearing you out about potentially selling their practice or purchasing their practice.

Brogan Baxter:

Because as the older dentists, they don't want to involve the brokerage side of going to sell because there's hefty commissions. So if they could figure out a way to sell it themselves, they would love to do that. So if you know somebody in the area, in your geographic area, that you have some respect for, you like the way they treat patients, you know they're good people, whatever the case may be, take them to lunch. Talk to them.

Jason Smith:

Let me give you another example. Let's say we're talking to a younger doctor, let's just call it Sub 55 and they need more new patients. And we're seeing that and they're a new client and I go, "Is there anybody pretty close to you in your community that you think might be wanting to transition their practice in the next handful of years?" And they say, "I know Edd Smith would love to probably retire in the next three or four years, we've talked about it. He's a good buddy of mine, et cetera, et cetera. And we need to do marketing today though. Our client really needs new patients."

Jason Smith:

Then I would say if we know for a fact that we could strike a deal to buy a practice even two years down the road. And if I looked at that production and that new patient flow very well in that scenario, I'd go, "Don't spend the money on marketing now wait two years and we'll just buy the practice when Dr. Edd's ready to retire. We've got a goldmine waiting on us, so let's just save money or invest it. Put it towards your own retirement for now." People just don't ever think about doing things that way. And that would be a great example of how to help somebody.

Alan Berry:

Wow. It's a pretty interesting idea. It sounds like that you're going to have to put some hustle there. You're going to have to do some leg work and have a little bit of luck, but if you can come across this opportunity, it could be really worth the while of the dentist to look into. Thank you, gentlemen so much for stopping by and thank you to the listener for tuning in. And we will talk to you next time.

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 Dentist podcast is brought to you by Four Quadrants Advisory. To see if they might be a good fit for you and your practice, go 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.