Founder, CEO, and President of Four Quadrants, Jason Smith, joins Casey and Jarrod to discuss how some dental practice owners fall into the trap of thinking the only way to become rich and successful is to own multiple practices.
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 on the Millionaire Dentist Podcast. Our co-host, Jarrod Bridgeman, is in studio, along with a very special guest, the founder and CEO of Four Quadrants Advisory, Jason Smith. Jason, thank you for joining us.
Jason Smith:
Thanks for having me, guys. I'm excited to do this podcast today.
Casey Hiers:
This topic is fantastic. It's one that a lot of practice owners struggle with or are confused with, and let's just jump into it, because Jason, your bandwidth of knowledge in finance and dentistry is vast, but let's tackle a topic that too many dentists do fall into the trap of, which is the misnomer that owning several practices is the best path to being successful and a multi, multi-millionaire in dentistry. Jason, why is this topic important and something that we wanted to address?
Jason Smith:
Well, first, thank you for having me, Casey and Jarrod. And this is a subject matter that I wanted to talk about for a long time, but the DSO, or if you will, corporate dentistry model, has created a perception and pressure to the young dentists not only coming out of school, but I see it with dentists and specialists that are frankly been even five to 10 years out that in order to become a multi-millionaire, generational wealth, that you have to own multiple practices in dentistry in order to achieve that, and it's just not true.
Casey Hiers:
I talked to a guy the other day and he has seven or eight practices, and he was going through the issues that he faces, income and overhead and just tons and tons of frustrations. And I asked him, "Why do you have so many practices?" And it got to the point where he basically said, "I'm not achieving what I want to achieve. I'm not making the money I want to make. I'm not saving the money that I want to make and so I just thought that if I [inaudible 00:02:13] practice that it's magically going to happen," and after his seventh and eighth one, he realizes that it's not going to happen. Talk to the fact that it just magnifies issues if you don't have the right systems and processes in place that you can have one practice, but if that one's not humming, it's just going to magnify the problem.
Jarrod Bridgeman:
Well, if I want to quote a philosopher real quick, it's a very famous line, very famous, intelligent speaker who said, "Mo money mo problems," right? Is that kind of the [inaudible 00:02:39] on this too, that mo dental offices can cause mo problems?
Jason Smith:
Well, it does cause more problems. But the biggest thing I want to touch on is the fact that some of that might be even social media pressure that we have today that we didn't have 25 years ago. We see all these great things, the new shiny things. And a lot of times, we don't see the whole truth of whatever we're talking about. As I apply that to dentistry, instead of really having an honest conversation with ourselves or getting the right help, I think a lot of dentists decide to, I call it passing the buck and get another practice and punts versus fixing the practice that they have. And so as Casey mentioned, we buy another practice and that might solve the problem or let alone, we buy a couple of other practices, but it doesn't solve the problem. It makes it a whole lot worse.
Casey Hiers:
Well, and talk about your experience, Jason, with all of the ... we'll call them cheerleaders out there, that when a practice owner starts to consider another practice, all those entities that cheerlead that idea because they're going to potentially ... it's going to benefit them, if you will.
Jason Smith:
Well, and particularly, you get your dental reps and your manufacturers to get real excited about those expansion projects, let alone if you have a dental architect in the mix and whomever else might be helping you, and even maybe your local banker for that matter, and dentists still can get financing relatively easily when it comes to practice-related loans and sometimes it creates just a terrible situation, but nevertheless, those people are excited for those expansion opportunities and they can happen pretty fast.
Casey Hiers:
You've got this DSO model. You had mentioned social media and the idea that more is better. And Jarrod, you alluded to it from a 1990s song that I may have heard, but more practices isn't always better, and then you have all these institutions and entities that are cheerleading this, again, bad idea sometimes, right? If you add a new practice, the right way, it can propel your practice. But if you do it the wrong way, it can set you back five years.
Jarrod Bridgeman:
I was going to say, look at it in terms of a lot of other businesses we see out there. People like the idea of, "Oh, look at" ... I'm not going to name any name brands right now, but, "Look at company X who sells fast food, let's say. Look at how they're able to expand and be in different markets," but they already have their system in place and people are always hungry. Compare that to the last couple of years with the electronic stores and bookstores closing. Things change constantly. If you don't fix or address problems in five years, you said too, you could be really, really hurting at that point.
Jason Smith:
That's part of it, fixing what we have or what could it be, and I want to address that a little bit later in this conversation, but then there's also this dream because people like to flash that acronym around, "That M&A firm is going to come in and buy my multiple practices for 10 times EBITDA," and that's valuation methodology, and it virtually never happens unless you are on the ocean in California and your practices on top of a cliff overlooking mountains and the sun rises and sets there every day perfectly. It just doesn't happen.
Jason Smith:
I can tell you, Case, even some friends of, frankly, some of my family that are not clients here, of people that sold their practice and were told it was going to be a certain way, they are older and it's about time for retirement and they're back to work for another dentist, which is crazy, or I can give you another ... I won't tell you what specialty, but it's a client of ours that's a very successful specialty group in the United States and one of the main partners. His dream was, "What is your retirement dream?" And he said, "Well, I'm going to sell 10 to 20 times EBITDA and I'm going to get out."
Jason Smith:
And Casey, I think you had that conversation with him. We said, "How about we get you to save triple what you're saving today, you and all your partners make a heck of a lot more money, you have more at retirement than they would have paid you to buy even at 10 to 20 times EBITA. And by the way, let's do this for 20 years. You control it and you still have something to sell when you retire." And he about fell over. And I think his partners just got a $600,000 a piece raise last week if I'm correct.
Casey Hiers:
The turtle wins the race sometimes. And those dentists that they're good at producing and they figure out how to get the right systems and processes in place or find the right team versus these practice owners that they want to figure it out, they want to figure out a way to shortcut things and they just think that five, six practices, to your point, they're going to just get some lottery ticket day that they get this big check for all these practices, and you don't see that very often.
Jason Smith:
Well, my question is who is telling them, and I think you know what the answer is, who is telling them if you're qualified to expand or not? If you're not a very good owner, why should you expand?
Casey Hiers:
Well, and I think you hit the nail on the head. The problem is very few practice owners have people in place to tell them something is not a good idea, right? The opposite of these cheerleaders, very few practice owners have those people in place to tell them what they need to hear.
Jason Smith:
No, man.
Casey Hiers:
Not what they want to hear. What they want to hear is, "Yes, you can own 10 practices and be the king of your town and be well-known." Well, how's your P&L and balance sheet looking? How's your tax situation?
Jarrod Bridgeman:
And ask yourself too, if you can't afford the lifestyle you wish you had right now, why do you think adding 10 times as many problems is going to help?
Casey Hiers:
Tripling debt and overhead and staff, that's not a magic bullet for success, Jason?
Jason Smith:
Unfortunately, unless there's some extra things that go into that picture that I'm not aware of. I've never seen that as a magic bullet unless somebody just hits the lottery. I would encourage somebody to pump the brakes before they sign up for that and try to get some really good advice and maybe try it another way.
Casey Hiers:
Let's give our listeners an example of what is possible with let's say one good practice, right? Somebody has one good practice. Give them some of what that looks like and then from there, perhaps a good path to add a practice, if it made sense.
Jason Smith:
Just to give some high notes, when we look at any person that is a candidate to become a client of this firm, I would start with this. Are you able to save with your eyes shut for retirement alone, not cashflow in the practice, cashflow at home? What if you're able to save 100 to $150,000, maybe even plus with your eyes shut out of one practice, only have to manage one staff, can get on track to become a multi-millionaire and go home, have a day off every week and maybe have some hobbies that you've never had time to have, not to mention spend more time with your family?
Casey Hiers:
Now, what would reasonable production for what you just said? What would somebody need to produce and have decent overhead? What's that look like in that scenario?
Jason Smith:
Ultimately, depending on where we start with somebody, we're probably going to have to work on some things, because there's probably some things that are broken, but what's achievable is more what I want to talk about. None of this requires you being an extraordinary producer, but let's say, including hygiene, you can do 1.3 to 1.5 million a year. That seems to be ... I would call it anymore a pretty average to maybe a little bit above average number in general dentistry anymore. There's a lot of people that are producing close to two million in dentistry.
Casey Hiers:
You don't have to be the top producer. And what if we start working on getting your overhead to sub 55% and we start making great decisions every year, and what if you don't do things like try to buy the first CAD/CAM machine because you're feeling that you need to be the first dentist on the block to have that machine to attract patients, which is absolutely not true and has never been true, we started looking at making better decisions ?before you know it, all of a sudden you've got more money in your practice account than you've ever had, we've become cashflow strong.
Casey Hiers:
1.3 million in production with sub 55 overhead, saving 100, 150, $160,000 a year, those benchmarks, you can have a really good life like that. And you see it all the time with our clients. Once that's achieved, if somebody is passionate about a second location, at that point, you would say what?
Jason Smith:
Well, first, I want to ask you a question to share with everybody out there. You virtually touch every person that comes through the front door to become a client here. How many stories do you hear about our current clients that are actually clients here that produce 1.3 to 1.5 million and are going to have millions and millions of dollars at retirement?
Casey Hiers:
All of our clients are almost embarrassed at how much they are going to have at retirement. They don't talk about it. They don't want to talk about it to their friends or family and even reference it.
Jason Smith:
We're probably looking at a range, and I know that is a wide range, 10 to 20 million. Now, here's my next question. How many people do you talk to that are producing over 1.3 million that are not clients here that want to be, and they are in a financially devastating situation at that current time?
Casey Hiers:
Unfortunately, a lot of them.
Jason Smith:
That's right.
Casey Hiers:
A lot of them. And so they think the answer out is-
Jason Smith:
More.
Casey Hiers:
More. No, that's exactly right, and our clients who are achieving that income and that retirement and that stress-free plan and a team, they're not looking for more practices because they've got more than they ever thought they would. They're on track for more than they ever thought they would have. And so the idea of three and four practices and three and staffs and buildings, it's not interesting to them anymore.
Jason Smith:
And probably the worst factor in that whole equation, managing more and more staff is very, very hard to do, but the real one is more of a dependence for PPO plans and becoming a hostage to insurance plans because now we really haven't done what's right in every one of those practices. My go-to solution is to sign up for 10 to 20 insurance plans in all my practices, because I don't have any other bullets or strategies to use on how I know how to get out of this, and so then you become a hostage to these insurance companies. You can't write off 40% on procedures and be successful in dentistry. It's just that simple.
Casey Hiers:
Well, and that that's a recipe for burnout, when people have the staff to keep busy, the locations to keep busy, ultimately to your point, what's their option to be an insurance house and then they just burn out.
Jason Smith:
And your overhead is so high. We've seen people, which is absolutely crazy, on 1.7 million in production be making under $200,000 in dentistry. And really, it almost makes me queasy. And it's sad because you should be able to make over half a million dollars easily.
Jarrod Bridgeman:
Well, and these people's times are worth so much money and yet they're spending all this time trying to manage three, four, five staffs and things like that, so it's not just the cost of having these people. It's the cost of your own time.
Jason Smith:
And even to rewind, people can't get out of that. It's a cyclical cycle that is awful, but people don't think of this, and every one of those practices to get new patients might be spending a ton on marketing. And I do want to rewind for a second. What if we took just one practice and we knew a retiring doctor that was down the street that might want to sell their practice that was a fee for service practice, and what if we merged that practice into your practice, which is probably, the financing of that on a monthly basis would be a payment less than what you're spending on marketing right now? You'd get a ton of new patients, fee for service. What if we took a step like that and made one practice really, really strong first?
Casey Hiers:
That makes all the sense in the world. And again, for whatever reason, it just seems like the sexy thing to do, "I'm going to get three practices," instead of what you just said. Have a relationship with some of the older folks in the community, know what's going on, understand fee for service practices. My goodness, you can bolster your practice with your staff and your building doing just that. That's a good pearl of wisdom right there to our audience.
Jason Smith:
When you look at the amount you are deducting off your true fee that you have to abide by based on that insurance plan, even the deductions on a monthly basis, that alone would probably pay the monthly financing for the new practice, just on a given insurance plan, and you know what the big ones are. But any of those, if you just looked at the math of the write-offs on any given PPO plan, that would probably pay for that, but people don't look at things that way.
Jarrod Bridgeman:
Jason, I'm honestly surprised by the amount of information you're spilling out here today. What made you think today would be the day to spread some of this, I would say almost secret knowledge that 4Q has had [inaudible 00:15:41] just been keeping behind the walls here?
Jason Smith:
I'm kind of surprised I'm spilling out this information, too, Jarrod, but what we wanted to do is get people more educated because it's going to make dentistry better. And the thing about all of this is it's great information, but the truth is it has to correlate to that individual dentist and what his or her financial situation is and what steps do you take at what time. What is the first step? What's the 10th step? That all has to fit them, and what fits Dr. Smith might not work at all for Dr. Jones because everybody's ... It's amazing how much I've seen in the over 20 years that I've done this, this still amazes me, that is still something I've never seen before.
Casey Hiers:
Well, again, you had mentioned the practice owners I get to speak with every year, and so many of them, they tell me that their goal is to own all these practices. And ultimately, the why is because they're not making what they want, saving what they want and their overhead's not near what it needs to be and they think that's the only way. And what Jason Smith has laid out today is that's not the only way. In fact, it's probably going to give you more headaches and you need to achieve a lot of benchmarks and have a really good plan before being a multiple practice owner. I mean, that's just gold. Do you have anything else for our audience before we wind it down today?
Jason Smith:
I think that's great information. You summed it up the best way possible. What marks do we need to hit first and what you have today in order to progress? As you well know, we have several doctors with multiple practices and we're not anti-multiple practices. It just has to be done the right way.
Casey Hiers:
And when it's done the right way, as we mentioned, it can propel you to greater heights, and there's more than one way to be a multi, multi-millionaire in dentistry, but there's a lot of ways to not achieve what you want in dentistry and prematurely opening a bunch of practices and taking a bunch of insurance is one way to keep you on the hamster wheel. Jason, I want to thank you for joining us and sharing with our audience and our listeners, again, something that all too many think is the way and the answer, and it's not necessarily the case. And Jarrod, thank you. I know what song I'm going to listen to later today from the '90s.
Jarrod Bridgeman:
That's right.
Casey Hiers:
We appreciate you guys, and we'll be back again real soon.
Jarrod Bridgeman:
Thank you, Jason.
Jason Smith:
Thanks again.
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 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.
