Red Flags & Hidden Risks: Is Your Advisory Team Failing You?

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 a well-dressed Jarrod Bridgeman.

Jarrod Bridgeman:
Hey, Casey, thank you so much. I wanted to dress up to impress you specifically today.

Casey Hiers:
Wow.

Jarrod Bridgeman:
And you took me to lunch, so that seemed to have worked.

Casey Hiers:
Yeah.

Jarrod Bridgeman:
Yeah.

Casey Hiers:
You wear a good suit. What's the color?

Jarrod Bridgeman:
It's kind of sea foam green, maybe.

Casey Hiers:
Yeah. I'm getting Miami Vice vibes.

Jarrod Bridgeman:
I know, that's why I kind of dig it.

Casey Hiers:
Yeah.

Jarrod Bridgeman:
Yeah.

Casey Hiers:
It's unique. It looks great.

Jarrod Bridgeman:
I bought it; it was a prom special.

Casey, thank you so much for coming in today. You've been so busy last year, and this year, really, we're cranking it out right away, starting in January. You and your team are going out to all these events and educating and meeting dentists and practice owners. And I know this week you're going to be in Frisco and the Fort Worth area, your team is. But I wanted to mention that next week, those of you folks are going to be at the Yankee Dental Congress. We have an event the night prior, and we're speaking there.

Casey Hiers:
Yeah, the Yankee Dental Congress has always been a nice show for us. We go and present two hours on the subject matter of the business side of dentistry, which is always good. And then while we're there, we like to do our own event. So we have a standalone event on the Wednesday before the Yankee Dental, very nice, just a southwest suburb, very nice venue. We just give a condensed little 15-minute summary of what we talk about. It's a lot of fun. We'll have some clients, they bring their friends. We have a lot of dentists in the area want to come. Hey, it's a good venue. Let's get some steak and crab, maybe sip some bourbon. But ultimately, see your peers, talk to them. And then yeah, we'll give a little CliffsNotes summary of what we're going to talk about, cash flow, tax, overhead, all the fun things.

Jarrod Bridgeman:
I wanted to ask, how well does crab travel? If you could bring me back some.

Casey Hiers:
I've never tried because I eat it all.

Jarrod Bridgeman:
That's so good. I love crab. Well, I wanted to bring that up because as part of your presentations, when you're at the CE courses that we host, or if you're at the Florida Dental, or if you're at Yankee, you present there as well, and you often will bring up certain red flags in accounting or certain red flags in other areas of the practice. There are a couple of other red flags that you may not super hit on or talk about a lot in the presentation. And I wanted to kind of touch upon some of those, some red flags you've been seeing and been hearing, and kind of be like, "Hey, folks who are listening, you need to start paying attention."

Casey Hiers:
It can be challenging for practice owners because you've got a business, you've got a team and a staff, you're producing dentistry, you've got a life. And when I speak with practice owners, most areas of their lives, they are pursuing excellence, they're achievers, they're doing a lot of really good things. But especially in dentistry, the standard of care with the external services that practice owners need, tax, accounting, investing, planning, a lot of those things, they assume that they're getting a good standard of care because they might know somebody who uses them or they just don't know any better. And so I wanted to talk about what are some signs or what's some smoke. If there's smoke, there's fire sometimes. What are some signs or what's some smoke to be aware of if you're not trained in or educated in analyzing a P&L, or a balance sheet, or insurance adjustments? What are some indicators that can potentially tip our listeners off to go, "You know what? Maybe I should ask some different questions to said person"? If that makes sense.

Jarrod Bridgeman:
It doesn't mean that your external person isn't terrible at their job by any means. It could just mean that they're not dental specific like we are, and didn't know that was a thing that they could do.

Casey Hiers:
A lot of practice owners feel like they fail if they don't find ... If they have a current external service provider or accountant investment, whatever that is, if they're not excellent, they almost feel like that's a bad reflection on them. And so a lot of times people have the mental crossroads of, do I just kind of stick it out because I think they're the best? Or do I really try to find out if I am not receiving the standard of care with these services that I provide to my patients and dentistry, because those two should align, and a lot of times they don't. Practice owners produce great dentistry, and then we'll look at the other side of the practice, the numbers in the busines,s and there's just glaring mistakes. It's not a personal indictment on that practice owner. It's you need to be aware of this because this is costing you money. How long has it been happening, and do you want it to be like this for the rest of your career? It's just knowing it's knowledge. So yeah, we'll give a couple signs.

Jarrod Bridgeman:
So I say one of the big ones I want to mention that might be the more low-hanging fruit in terms of things to talk about, but accounting and taxes. I know one of the ones we've mentioned a few times on other podcasts, we've had Steve Levy on here. We've had Kevin Rhoton and Brodie Hough. And then one of the things you should ask your accountant about is if they know what is a shareholder loan and if you have one.

Casey Hiers:
Yeah. At our courses, many times I will say, if you retain nothing else from this evening, do this one thing: email your CPA and ask them, "Do I have a shareholder loan on my balance sheet?" Hopefully, they reply, "No, what are you talking about?" That's a good sign. Anything less than that is a bad sign. And we find that about 35% of practice owners have shareholder loans on their balance sheets. And we've talked about those in the past, and I won't get into that. But if you have a shareholder loan, you need to be aware of it. A lot of practice owners aren't. And so hopefully it's no. But if there is one, why is it on there? When did it occur, and what is the strategy to get rid of it? But yeah, the shareholder loan is sort of an entry-level-

Jarrod Bridgeman:
I'll say that's a good gateway question to maybe to start the email with.

Casey Hiers:
Yeah.

Jarrod Bridgeman:
Something kind of a softball, like that.

Casey Hiers:
If your CPA gets defensive and starts throwing out excuses just for that one question, again, those are some more signs.

Jarrod Bridgeman:
Yes.

Casey Hiers:
Why are they getting offensive? Because sometimes there are reasons why there are shareholder loans. It's not the kiss of death. IRS isn't going to come knocking at your door because you have a shareholder loan for a year or two. But when you don't know about it and it's there for years and years and years and years and years, that could be an issue. And again, if you don't have a strategy or the awareness of it, that is a sign that the CPA might not be to the level of expertise that you want and deserve.

Jarrod Bridgeman:
I mean, how many practice owners out there realize the shareholder loan when they go to retire and sell their practice, and all of a sudden-

Casey Hiers:
Yeah, we've seen that a few times, but it is incredible. People that are like, "Wait, what's that? Okay, I'm going to email them." And then I'll talk to them a couple weeks later, and they're like, "I am so glad that you mentioned that. And I asked them because I have unpacked just a terrible situation here. I had no idea I had $150,000 shareholder loan." Again-

Jarrod Bridgeman:
I didn't know that can was full of worms.

Casey Hiers:
Yeah.

Jarrod Bridgeman:
I had no idea.

Casey Hiers:
But if you sign those taxes and again, trust that-

Jarrod Bridgeman:
That the person you hired for the job is doing their job.

Casey Hiers:
Yeah, no doubt about it. We were looking at a profit and loss statement from a practice. They're two plus million in collections, nice size practice, great people, great dentistry, and we just glanced at their P&L. And it was interesting because a couple things stood out. And what I asked the practice owner was, "What do you use the P&L for and what does it tell you?" And they laughed and said, "No clue." And furthermore, they said, "We had a lengthy conversation with our CPA, and we asked them, help us with this, and by the end of it, I was more confused than I was when it ended."

I don't care how technical something is. If those people in your life are not educating you at a level that you can comprehend, because let's be honest, you're smart, you graduated dental school, you're smart enough to comprehend it. But sometimes, if people aren't doing a stellar job or they know they're not, they almost want to use the jargon and the technical terms to mislead and misdirect people to distract them.

Jarrod Bridgeman:
And make them sound like they're doing something really intelligent.

Casey Hiers:
Yeah. What should your profit and loss statement have? Well, it should have an executive summary. It should have a couple pages that is basically summarizing in layman's terms what the next six to 10 pages mean, what stands out from a positive way perspective what's negative?" What is my actual overhead for last month and year to date?" That should be right in front of your face. And so many practice owners don't know what the overhead is. And so first off, if you have access to these documents, is there any place that sort of some ... And a lot of places do. A lot of places that have average accounting services, they do have a real pretty cover sheet with some charts and graphs and things, and those can be beneficial, but they have to tell you something.

Jarrod Bridgeman:
I mean, I can make charts and graphs look pretty.

Casey Hiers:
Yeah. I mean, you got Crayons. I see you coloring from time to time.

Jarrod Bridgeman:
I borrow my kids.

Casey Hiers:
And as we dug a little deeper, we also saw that on the P&L, a lot of the line items were under cost of goods sold. And if you are a retail store or in many, many industries or sell comic books or whatever, cost of goods sold is appropriate. In dental, that is a lot of smoke and a huge sign, not doesn't mean you're going to get audited, but it is such a basic way to do accounting because it allows for very little overhead analysis, because it's so convoluted and there's a lot of line items that don't really tell you anything. So if you have cost of goods sold on there, and a lot of people do, again, that's a sign. There's some smoke there. It's like a generic template.

Jarrod Bridgeman:
Right. And if you say cost of goods, I would imagine you're either a goods or your services.

Casey Hiers:
But again, if you see the cost of goods sold, it's just a generic template that isn't custom to your practice that can tell you anything. And it sounds like a very minor thing. But if you start pulling one little string on a sweater, all of a sudden the whole thing unravels, and when you start adding just these little couple things up, all of a sudden you get hit with an $80,000 tax bill that you're pissed about. Were there signs along the way?

Jarrod Bridgeman:
Probably.

Casey Hiers:
You can think about relationships, kids, anything in your life. If something really bad happens, typically, there were signs along the way. You either chose not to look at them, not to admit them, ignore them. Same thing with this.

Jarrod Bridgeman:
That makes me think of one of the things you talk about in your presentation, and it's kind of a big thing that I think is a really smart way to think about things, that some people can skip is like chart of accounts. And instead of just putting all of your costs lumped into-

Casey Hiers:
Supplies.

Jarrod Bridgeman:
Yeah, supplies or whatever it is, like break it down into, "Here was my marketing costs. Here was this kind of specific supply cost and things like this."

Casey Hiers:
Custom and categorized.

Jarrod Bridgeman:
Right. It helps you realize what you might be overspending on.

Casey Hiers:
And what are these pages of numbers trying to tell me? That's what's lacking so often. And then people fall back to, well, CPAs understand it. And maybe they do, or maybe they don't. But regardless, there should be some sort of calls to action every month on these financials where you're telling you something, and those are huge.

And we could even take this a step further. Let's pivot from tax and accounting and go to investing. We see a lot of people with just a lot of mutual funds, a lot of target-based investing, autopilot, a lot of international exposure, or overly risky, and they're older, and people don't know. And again, those investment advisors should be educating you. If they're not, that's a problem; demand it. But you could have somebody go, "Hey, great job." Everybody likes an attaboy.

Jarrod Bridgeman:
Sure.

Casey Hiers:
"Your portfolio was up 13% last year." "That's fantastic. I love that." Well, it probably should have been up 22%. So it's like good compared to what?

Jarrod Bridgeman:
Are your people working to help you, or are you just a number to them?

Casey Hiers:
Well, I hear that a lot too. Their person left whatever firm they were at, and they got somebody else, and they just felt like they're a number getting a transactional piece of data completed versus a comprehensive view of, let's use a dental analogy, looking at the entire mouth, not just one tooth. A lot of these people are looking at one tooth. And as a practice owner, you need somebody looking at your entire situation comprehensively to help with an overarching strategy that's lacking.

Jarrod Bridgeman:
Yeah, this one tooth looks great, and you might have a cavity over there, but I didn't look.

Casey Hiers:
Yeah. Yeah. On the other side, we got to extract four, but this one looks great.

Jarrod Bridgeman:
Oh, you brushed that one so well.

Casey Hiers:
Yeah, the flossing and all of it.

Jarrod Bridgeman:
That's called my chomper. I use it to open tin cans.

Casey Hiers:
Oh my gosh. Here's another sign. Insurance is a lightning rod topic. It's tough. It's challenging. And again, those with fee-for-service practices, they have their own set of unique challenges. But if you're insurance-driven, a lot of times the furthest practice owners take it is, "Well, I renegotiate my reimbursement or my schedule periodically." And that's a good start. It's ultimately a Band-Aid. If you have a lot of insurances and insurances are frustrating, and you're writing off hundreds of thousands of dollars a year, you need to take it many steps further to understand what that is.

And all too often I hear the "Well, I'm going to be renegotiating them or somebody's going to do that for me." And I've talked to somebody that has spent a lot of money for a consultant to do just that. And they basically said, "Yeah, they spent a lot of time on it. " And then they talked to the people, and basically they came back and said, "Well, I don't think we're going to be able to get much changed." And it's like, I could have done that.

But again, if the furthest you're taking an improved insurance strategy is just to renegotiate, nothing wrong with that. That's a good thing. That's a good start. That is not going to help you master your practice and make another $200,000 a year and retire with five more million dollars. And so these things matter, but some of the smoke, it's there, and people are ignoring it. And others, you might have to ask a couple questions to see how these people react.

Jarrod Bridgeman:
Right. If that smoke is there or that small sign is there, that could be an indication of an actual fire, that there's something even worse boiling under the surface. If the most basic things are not being-

Casey Hiers:
The tax part's the easiest example there because at some point you're probably going to get smoked.

Jarrod Bridgeman:
Like a pack of Kools.

Casey Hiers:
And that's going to frustrate you. But again, were there signs? Are you looking for them? Are you asking good questions? What's the reaction from questions? Because these people should be excited you're communicating with them. They should want to follow up within 24 to 48 business hours with a very good explanation as to why to help educate you, not view it as a waste of time. But again, it takes courage, and people have limited amounts of time.

Jarrod Bridgeman:
And depending upon who you have as your external team, you might have a long-extending relationship with that person that can also make the emotional part of it hard.

Casey Hiers:
Yeah. We talk about this quite a bit, but typically, at minimum, people's external team outside of the office that handle the business and financial side of things, they like them, that's at minimum. And again, a lot of times they're patients, neighbors, relatives, friends, people they've known for 20 years. And so it can get convoluted with relationship versus result. And then what I ask people is, if we determine there's a huge gap and there's some opportunity, and like, okay, this is going to cost you like one and a half million dollars over the next eight years. Is that relationship worth one and a half million dollars? Well, probably not. Okay. Well, again, this isn't to point fingers. This is to-

Jarrod Bridgeman:
If you give me a million dollars, I'll stop visiting my mom right now.

Casey Hiers:
Oh boy.

Jarrod Bridgeman:
But no, you're right in that sometimes it's hard for people to ... They don't even think about it that way because it seems so, I wouldn't say small in comparison, but over months, quarters, whatever it is, versus a career of a $5 million difference.

Casey Hiers:
Oh, when you're kicking ass clinically, and you're doing big cases, and you're seeing tons of money go in, things should work out. Unfortunately, as a business owner and a practice owner, you must watch the front door is what you're focused on, and making sure people have a good experience, but what's going out the back door? What's slipping through the cracks? What else is leaking? What other holes in the boat do you have? And again, it's going to take some courage, some questions, and do not ignore things. If it feels like it's not good, chances are you might want to ask a question and sort of find out, versus, well, I guess they're just doing the best they can. $80,000 tax surprise equals they are not worthy of using them for their service.

Jarrod Bridgeman:
I mean, really, just, I want people to remember that you're the boss. It's your company. It's not any different than you being the head of the department. It's not any different than our CEO in that if you guys don't pay attention to some of the things happening underneath you, things can go awry.

Casey Hiers:
Yeah, that inspired thought.

Jarrod Bridgeman:
Sorry. Yeah.

Casey Hiers:
Last point, a lot of practice owners do delegate. And that's hard for some people, but if you delegate, then I'll hear like, "Well, so and-so says we shouldn't do this and," blah, blah. No disrespect, but why would you let an hourly employee or even somebody who may be salary, but is doing great in their role, but that they're not like, "What evidence do they have backing up that we shouldn't do X?" Well, I don't think we should do this because it's going to put stress on the staff. Well, that's one point, but if the decision equals another six digits in the owner's pocket or in the practice's pocket that can get to the employees, they have to buy in again, looking at the entire mouth. And a lot of times that delegation could be a good thing, but then they'll just take what their office manager or trusted employee says and just take it at that. And it's like, "Oh, you're missing out."

Jarrod Bridgeman:
Casey, I'm going to straight up admit to you right now that all the things that we talk about here every week, all these hot tips, all these signs, all these flags to look for, and things like that, it's a lot. And I don't even do the dentistry part or run a business part. You know what I mean? There's so much that people have to keep in mind, and that's why having a strong, trusted external team can help, whether that's us, whether that's whoever you work with. But again, you should be asking these questions and looking for these things that we've mentioned. You can find out even more things to keep an eye on if you attend one of our events. We're going to be in Frisco and Fort Worth. We're going to be in Alabama. We're going to be in Arkansas. We're going to be in ... Oh, this is a new one for us, Bozeman, Montana. I would love to go to that one. I've never been to Montana.

Casey Hiers:
The Alabama Dental Society is having a meeting in Montana.

Jarrod Bridgeman:
Montana.

Casey Hiers:
Yeah. A nice ski area over there. So we're also going to do a ...

Jarrod Bridgeman:
Little event there.

Casey Hiers:
Those are Alabama people flying into Montana. We're also going to do something while we're there, speaking to their meeting for the locals, for people in the Bozeman and surrounding areas. While we're in town, we're going to go to a very nice venue and talk overhead.

Jarrod Bridgeman:
That'll be fun.

Casey Hiers:
Talk tax.

Jarrod Bridgeman:
Talk tax. And folks, please go to fourquadrantsadvisory.com. Visit our events page. We've got all the newer ones listed on there, as well as someone's coming up soon. Feel free to fill out a form, and we'll notify you when an event launches. Otherwise, if you're at one that you can register for now, do it. What are you waiting for? The worst thing that's going to happen is you show up and get a meal and have to look at Casey.

Thanks, Casey.

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.