118: Taming the DSO Audit with CFO Hollie Williams

Welcome to DSO Secrets. I know what it's like to be an entrepreneur in the dental industry. I've had my ups and downs, just like you. There's so much opportunity to be excited about, but so few resources to get answers. From here on DSO Secrets, we get you those answers so you can change the lives you're meant to bless and achieve your personal success.

When I was working as an associate rat at a school, I never imagined I could own these many practices with this amount of support. So thank you.

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to a whole new level. You have this natural talent, this unique ability. Happy day to you and welcome to another episode of DSO Secrets. I'm Ken Kaufman, your guest host today, filling in for the illustrious Emmett Scott. I'm excited to introduce our guest today, CFO Holly Williams. She is the CFO at Rodeo Dental and Orthodontics. Prior to joining Rodeo, she was the CFO at Choice Cancer Care for more than a decade and has held CFO roles prior to that. She got a BBA in accounting from TCU and has been a CPA since 1994. The first six years of her career was in audit with Deloitte. Holly, we're grateful to have you on the show today.

Thank you for having me.

Awesome. All right, I'm going to get started with the same question. I started off with everybody. What led you into this DSO industry and why in the world are you still here?

Well, actually, it was interesting. I was contacted by a recruiter off of LinkedIn and introduced to the idea of coming into the DSO space. Very attracted to Rodeo Dental and its mission. So open the conversations and here I am. But the oncology practice that I was in for close to 12 years was in MSOS, so I was in the medical field running an MSO. So it was a very similar concept. So that's what brought me over.

Great. And you're still here why?

Oh, the team here is incredible. Dental is incredible. And coming from oncology, oncology, you have. There's such empathy for the patients and such a patient service focus. And in the dental space, I see the same thing. It's a really refreshing but much more energetic and happy patient base to serve.

Yeah, I can understand that. We probably could dive into that and unpack it, but that's not what we're about today. But definitely there's some unique things about the dental space and how it's generally a happy, positive do, do what's best for the patient, serve the patient mentality. So it's awesome. All right. So I want to start by you walking us through and talking to us about being an auditor. So you came out of college and it's a normal route, right? You want to earn your, get your CPA license and work in a firm so you can get your hours and those sorts of things. But you spent six hours auditing other companies. Walk us through that experience, the types of things you learned and how you feel like that prepared you to then jump over into industry and ultimately become a CFO of several successful companies over the, you know, last many years.

Well, actually I spent the first eight years of my career in public accounting. So I started off with Ernst and Young and I went to a smaller firm, job relocation for my spouse, it went to a smaller firm down in the Waco area. And then when I came back to the Dallas Fort Worth metroplex, I went with Deloitte and Touche. And one of the things that really kept me in the field was when you come out of college, it's all about what I would call taking and tying. Does this expense match with the record, you know, the invoice, and you kind of get real focused on that. But as you elevate through the career of public accounting, you become kind of that sounding board or that consultant to the, to the client. And most of my clients were middle market. They were being audited for bank compliance reasons. I did not have publicly traded clients in my portfolio and so I was very close to the leadership, spoke with them several times a year. We would just, you know, client relationship was very important to me and, and it was a very rewarding career. I did leave eventually when it was time to start my family and actually needed to have a little bit more time to focus on that. But when I left, I left and established my own firm. And so I actually came back as a woman owned firm and helped the bigger KPMG, DeWitt and Touche with their government audits because they were required to subcontract a portion of those audits out to either minority or women owned firms. So I stayed in the field, but albeit in a much lesser capacity for several years after I left Elantouche.

So what was it that motivated you then to move from public accountant to being in industry in one company as an executive or finance leader?

So what happened is I actually had a client that I actually did an audit on, you know, as the Holly Williams CPA firm that was a franchise he had. The franchise was starting to grow pretty rapidly and franchising is very regulated as well. And so in order to Have a franchise offering document. In several of the states you have to have audited financial statements. It was a small company. They were, like I said, growing very fast, very rapid trajectory. And after I did the audit and we kind of took that consulting role. And again, as an auditor, you have to keep your independence. And so you really can't help them create the financial statements. You have to audit those financial statements. But it was very apparent with his growth trajectory that he needed leadership in the finance department. So he asked me if I'd be willing to come in and be their cfo. It took me a little bit of time to make that decision, but I did make that decision and that was the first CFO role that I accepted and very happy with that. I was there for about five years and then I went into the medical field and was there about 12. And now I'm in dental.

Outstanding. And being in industry, working inside one company at a time, compare and contrast. What do you like better? What do you like least about that compared to being in public accounting?

Well, you know, what I actually like better is being in the CFO seat. You're more involved in the strategy of the company. You're looking out. A lot of companies don't realize how important it is to be able to look out on the path of five years and say, where do I want to be in five years and what do I need to do today to get there? And as an operator, it's, you know, real easy sometimes to get focused on next week or next month and have a goal and have a plan. But to have that financial leader there with you to show you, okay, this dream is going to cost you this much money. We can do it, but we've got a plan now for how we're going to get there. Most owners are very, very appreciative of that. Look.

Yeah, the five year model is to some degree the bible of the cfo. It's that document that's referred to regularly and it governs and drives behaviors, thought processes and really other strategic direction that may try to sneak into the organization as to whether or not it fits with where you're trying to help lead the company. It's great point.

Well, and without it, you want to be able to see things before you feel them. Because if you're feeling it in cash flow, it probably started happening anywhere 90 days to six months ago. Yep.

No question. No question. Awesome. Well, maybe at some point we'll unpack the five year model and cash forecasting, but we want to jump into the audit Side today, a lot of listeners have heard that at some point they may need to get audited for bank purposes or they're thinking about doing it for other purposes. Maybe they have partners that want to have transparency and have a third party review things. So let's jump into this and let's talk about when you came to Rodeo, it had not been audited and you were quickly in charge of getting two years worth of audit done in order to help the company continue on the growth trajectory and satisfy banking requirements and all of that. Maybe just walk us through. You came in and. And what were you looking at and what were some of the major challenges that you saw that were going to need to be overcome in order to successfully have the firm audited?

Well, I want to step back a little bit too, just to point out that to be audited, you actually have to have your financials on an accrual basis or on the GAAP basis of accounting. So a lot of firms will do compiled reports and they'll let you be on modified cash, they'll let you be on cash basis, they'll tax basis and they'll report it that way. But to have an audit done, you cannot be on a different basis of accounting. And so Rodeo had already recognized the fact that it needed to be on accrual basis accounting and Gap accounting. And I started my conversations with Rodeo in March, started working on June 1, and they did have a consultant in that was trying to help them get to GAAP basis. And so I didn't completely take Rodeo over to gaap. However, I did take the medical practice I was with previously completely from Cash to Gap. So it did the same thing for the franchise. Well, I didn't do the same thing for the franchise. I helped their person understand what Gap was before we were able to do the audit. So the big thing is with a medical practice in someone like Rodeo Dental is that it is so hard to recognize revenue on a GAAP basis given the volume of the transaction and the volume of the information that comes through the revenue cycle department.

And so real quick, Colleen, I just want to insert something for those that aren't familiar with that term.

Gaap.

It is an acronym. GAAP stands for Generally Accepted Accounting Principles. And this matching principle of getting revenue recognized in the period when the services were delivered and the costs associated with that into the same period. It's kind of underlying element of GAAP and it's extensive. There's volumes and volumes of books that Holly had to read to get her CPA or just a continuing education courses in order to keep that license active. But it governs and creates a standard platform that everybody should be operating from. And when you get to Gap and you're looking at a company that's Gap and you're comparing you really, that should be an apples to apples comparison from that level moving forward. So sorry, I wanted to interrupt there. Just make sure our listeners were familiar GAAP and this case they hear the term accrual. Getting to accrual accounting is how you get compliant with gaap.

Correct. And you know, I don't know, I've had to explain it several times to providers and to doctors. And the best way that I explain it is let's just pretend that we're not in the business of providing services to patients and we're selling couches and you know, we're only open for one month. And so if I sell a couch in January and the sales price of that couch is $3,000 and then the patient pays for it in March, if I were on cash basis, I would have a 3000 or in my cost was $1500. If I were on cash basis, my loss in January would be $1,500 because I paid for the couch and let it go out the door. And my gain in March would be 3,000, but with an accrual basis I've matched them together. I record a receivable from that customer in January for $3,000 and I record the cost of the couch for 1,500. And so my January financial statement is a positive $1,500. And then my revenue cycle is did I really collect the money in March? The patient owes or the customer owes it to me. But did I really, you know, come back and follow up and get the money in March? And so that it's oversimplified, but it, you know, it gets the point across of exactly what I'm trying to do.

Yeah, you're doing that transaction tens of thousands, hundreds of thousands, millions of times a year.

Right.

And you've got insurance payers that complicate things. Obviously the patient pay side complicates things. So yeah, there's a lot to it. So yeah, walk us through. Or I should say this. So if you were to split up and say how much of the effort to get through an audit is toward revenue cycle and getting your revenue recognition correctly versus all the rest of your profit and loss and balance sheet, what percentage would you say is really it's focused on. And you just got to get that revenue cycle. Right.

So I would say it's probably the biggest item on the balance sheet. Your AR and then your revenue recognition is related to your AR and then your allowances for contractual adjustments and bad debt expense that you expect to incur. If I had to guess, I would say it's 80% of the auditor's time, if not more, simply because there's so many transactions. There are things they'll come in to do, to test. They'll select. So without even talking about the reserve model yet, they'll come in and they'll select multiple patient transactions. They'll look at your medical records to make sure that you actually perform those services. They'll start with looking at patient schedules and they'll trace in from the patient schedule into the medical record to make sure that services were performed. And then they'll trace it into a claim and that the claim actually was submitted. They'll look at dates of service. They'll want to make sure that there's proper cutoff. So, you know, if a patient came in December 31 versus January 1, which typically most offices are closed, but they'll look at that cutoff at the beginning and the end of the year, and there's just a lot of those transactions that go on, then they'll actually go through and look at some of their selections and say, okay, I'm going to look at some of this. The accounts that are sitting in, your accounts receivable, how old are the claims? Are you going to collect them? If you're not going to collect them, did you include them in what we call a reserve for bad debt expense? And there's so many transactions. And I will say that one of the challenges here at Rodeo is, you know, they, they have been open, They've had several, several locations open since 2008. And they use open dental, and they use open dental for the practice management software. And that's how they submit their claims. And there's a lot of data and a lot of claims that maybe haven't been handled consistently. And so sometimes, you know what will happen when you have such a large volume of transactions is you'll have patient accounts that maybe the insurance paid and the person that posted the insurance payment didn't go ahead and fully adjudicate the claim to zero by. By actually writing off the contractual adjustment in the system. And so you know what I'm talking about there is you have $100 claim go out. You really expect the insurance to pay 80. You get the 80 and you post it, and then you don't open that claim again, because it's resolved. But you forgot to write the 20 off as a contractual adjustment. So open dental is keeping track of it like it's a $20 ar, but you know, it's not going to be an ar.

Not legitimate ar.

Yeah, right, right. So you kind of get this, this big set of data that, you know, maybe, maybe it is true ar, maybe it's not, and the auditors are really going to focus on what is true ar. You know, let's just be ridiculous with examples here. Let's just say that open all of my instances of open dental and says I have $100 million of AR. Well, one of the things that auditors are going to do is they're going to look at the reasonableness of that. They're going to look at, okay, well, if I follow a current claim, it takes about 15 to 20 days to collect. So at any given point, I wouldn't expect much more than a month of service to be sitting in ar.

Month of revenue.

Right. So your $100 million sitting in ar is obviously not going to be collectible. And so, you know, it's something that they're going to do. They're going to look at it from multiple different directions. What makes sense, One of the best tools that I have is what I call a cash waterfall, which I know a lot of the listeners are going to be very familiar with, but this is where you line up the production or the gross charges for the dates of service. And so, like if you have January and you have $100,000 worth of gross charges, and today it's July, and I can look in my system and look at what I received in payments towards those services in January. And so I will be able to say, well, in January I collected $50,000 and February I collected $45,000 and maybe the other $5,000 I'm not going to collect. So that's a really powerful tool to be able to prove to the auditors. You know, number one, they're going to look at the AR balance and does it make sense to your total production? And then they're going to look at your cash waterfall. Did you collect, you know, the amount of money that you think you're going to collect?

This is so critical and it's so it's such a mindset shift from cash basis to this gap accrual basis. Because in cash basis, all you care about is when you get paid, right? In accrual, it doesn't matter when you get paid. It matters what the date of Service is that you're getting paid for. And to the degree over time you can justify improve through your modeling that, hey, I usually end up with 4% insurance write offs and you accrue for that against your gross production for that month and then you can go back six months later and the dust has completely settled and say I said I was going to collect $100 and I collected $100, or I collected 101 or $99.50. And that ultimately is how you get tons and tons of confidence from the auditors around your revenue recognition model what you're claiming revenue is in any given period.

Right.

It's a really interesting mindset change, but the most powerful thing from my perspective is yeah, maybe you have to do an audit for the bank or these things. Getting to GAAP accounting on revenue cycle actually helps you see and understand how the business is running better than any anything else almost.

You can do well. And what I will say too is to have a successful conversion over to GAAP accounting. I mean you can go in and even if you haven't been doing this, you can go in and study. If you can set your production to, you know, if you can look at your data service and your payments against those dates of service, you can study history and you can pretty much come up with a percentage, let's just say 98%. I collect 98% of my gross charges. And so from this day forward I'm going to calculate my gross charges, accrue a 2% write off of that and recognize 98% as my net revenue. That's one way of doing it. But to really operationalize it and really take advantage of the opportunities, you need to be trying to split it out between contractual write offs and bad debt expense.

I completely agree.

And so the contractual write offs, you know, I know open dental has a place where you can put the expected amount to be collected and I don't know the other dental software if you can do that. But if you can get your revenue cycle team or your billers or anyone who's working that claim to get that number filled in, then you can actually see what your expected contractual write offs are. But then the other part that's really important is when you do have denials or you have frequency write offs or things that are not authorized, and you're actually starting to capture those as write offs, you're actually starting to clearly see your data, you can actually start tracking those write offs by data service as well. And then you can actually start to look at what you can do operationally to prevent those write offs. And then another thing that people don't think about very often is if you see payers paying you what you're billing. So like, if you don't have contractual write offs, you might not have a high enough fee schedule because they may be paying you either their fee schedule or whatever you bill, whichever is lower. And so you might actually have a little bit of opportunity there as well. And so the more you can really focus on that front end and getting your data really clear and you start looking at your data service and what's going on within your revenue cycle, you can actually increase your collection rates.

Yeah, no question. So there's a lot of side benefits from getting into this type of mindset and those EOBs posted from the insurance payers and then reconciling patient accounts when it's patient pay to get all that stuff clear. Walk us through now. So you show up at Rodeo Dental, they're just in the process of converting over to gap accrual accounting, and you've got to go through the audit. What, what were some of the, like the biggest, most major hurdles you had to overcome, and what were some of the tips and tricks to help you overcome them?

So again, it was their first audit. And I think the listeners need to understand that when you have your first audit, it's actually an audit of two balance sheets. So it's going to be the audit of the opening balance sheet and the audit of the closing balance sheet. And the balance sheet is a snapshot of what you have and who you owe. And then, you know, the income statement is kind of the movie in between of what happened and how you got there.

I like that analogy. That's great.

And so in order to give an opinion on the income statement, they have to know that the beginning balance sheet was correct. And so they're going to spend a lot of time at the beginning and at the end. So the biggest challenge, of course, is your revenue recognition, but also your liability. So if you're an ortho practice, you have what's called a deferred revenue. And so what you've done is you've signed up a patient for, you know, anywhere from 12 to 24 months of service. Maybe you collected all of it up front, depending on, you know, what type of patient you have, if it's, or if you're billing it quarterly. You know, again, it just depends on your arrangement with the patient. But there is a, there is a, a portion of that at the end of the day that you owe to your patient. And so If I charge $3,500 to put braces on somebody, I owe service to that patient for 24 months. So that patient, I'm going to spend doctor time, I'm going to spend da time, I'm going to spend supplies taking care of that patient. And so I have to recognize that liability, that I owe the patient something. And so that's, that's on my liability section of my balance sheet. And the auditors are very interested in that number because, you know, I have to, if I don't perform those services, I would, you know, likely have to give money back to the patient.

Well, and they also want to make sure that you're not recognizing too much of it too early in the contract life, and there's enough left on relative to the effort and work and any material costs you have to deliver, so.

Exactly, exactly. And then another thing, another real opportunity that we found is we actually are running our lab invoices through our revenue cycle department just simply because we want to make sure that it, you know, if we're paying to create a clown, a crown for a patient, that that patient has an appointment to come back and it's going to get seated and we're going to be able to build a patient for the crown. And so the revenue cycle department does a really good job of reviewing all of those, and we've caught a lot of, you know, just maybe the patient feels like the temporary crown is doing fine. They don't come back. We've really picked up, you know, and closed a gap there as well by doing that.

Yeah. And again, it's really interesting because when you get these accounting practices in place, you actually are delivering better patient care because it's helping you to make sure that you're delivering what you said you would or what you've committed to the patient. And the patient's, you know, committed likewise, either financially or via appointment.

And the reason I bring that up is it's again, back onto that path of trying to match expenses with revenue and just trying to, you know, make sure that we're doing that. And so another area that's, that's kind of an interesting thing that maybe not everyone thinks about is your, your salaries, your pto. So if you're, you know, if you're, you have a workforce and, you know, you pay them bi weekly, you need to think about, okay, they've worked the last week of December, I pay them in January. You need to accrue that amount as owed to them. In December, if I have a workforce that I let them, you know, carry over PTO from one calendar year to the next. So, you know, if I work in the year 2020 and then I take vacation in January of 21, I actually earned that vacation in 2020. And so you have to, you know, think about accruing your PTO back onto your balance sheet as well, because it's who you owe, and if you owe your employees, it needs to be on there as well.

Yeah, that's a great point. So there's. If I were to go back and summarize, maybe 80% of the effort in the lift is getting the revenue recognized correctly in the period. And then, and then the balance sheet properly referencing that, both the opening and then the closing of the period that's being audited, from there, you're going to work your way down. And, you know, they're going to care about what you're booking for inventory, and you need some documentation around that. They're going to test your accounts payable. And then to the degree you have any deferred revenue, which is patient services that have been paid for or revenues been recognized on, but you have not actually delivered that service, you've got that deferred revenue element sitting there as well, that they're going to spend a fair amount of time looking at and making sure that it's accurate and you've recognized your revenue properly. It goes back to revenue recognition. It's just that deferred revenue line down in the liability section is one more representation that you're recognizing it.

Right, right. And so if you, if you're large enough, you know, whether this will be material or not. Your rent is also something that you have to look at. A lot of times when you're on a cash basis, you pay your rent, you know, at the last week of June for July, you book it in June because that's when the money went out. And. But if you do that in December, if you have a calendar year end, you're paying your January rent. December, you know, 25th, of course, you're not going to on that day. But. But if you, if you pay your January rent ahead of time, that's actually going to sit in your prepaids because it's an expense for January. You have other things like that. You know, your security deposits that are on your leases, you have other items that you, you really need to, you know, kind of go down the list. Of course, it all starts with making sure your bank reconciliations are there. If you're Preparing for an audit, I would really pay attention to your bank reconciliation. Make sure you don't have a lot of old outstanding items that are going to cost questions. One thing that the auditors do look at and the materiality level is not when I say materiality level, sometimes they'll do a calculation to say, well, there could be adjustments that should be made to make these to the penny perfect. But we're not going to make you make these because to the reader of the financial statements, it wouldn't make a big difference. And so we're going to have what they call a materiality level. Some things don't have a materiality level, and that would be if you're complying with the statement rules. So if you have a large outstanding check to a patient that was supposed to be for a patient refund, say Maybe it was $500 and it's two years old and it's sitting on your bank reconciliation, they're going to tell you, you need to give this money to the state of Texas under this patient's name. And so you need to make sure that you've complied with those rules before the auditors come in. Right. Write them off and get rid of them. I'm saying make sure that you've looked at it and that you've considered and you've complied, because that is going to be something that they test. Another thing that a lot of people don't think about if they've not been audited before, is your internal controls in your accounting department, who has control, access, care, custody and control of your assets, who can sign checks, who can approve vendors?

A lot of times wires, right? Bank wires.

Improve wires. Yeah. So a lot of times in a smaller finance department, it's really hard to get those duties and those controls segregated. And so what you need to do if you know you're going to be audited, you need to make sure you list out your processes because they're going to ask you to write down, start to finish, how checks go out the door, how you recognize revenue, how you approve vendors, how you record expenses. And if you can look at that and you can say that there's one person that can add a vendor, write a check and reconcile the bank account, then you need to make sure that you're bringing in someone else to review, and you have that documented. If it's the CEO that needs to review with you, if it's some, you know, you need to have something in there to show that somebody else could see an error or fraud, not that anyone Here listening would commit it. But you have to make sure that you show the auditors that you've thought about it and that you have things in place that would prevent it. Right.

One other thing I want to throw out too.

Rent.

You talked about rent and the payments being in the right period. But there's, there are also adjustments you have to make to rent if you've negotiated TI credits from landlords and some of those sorts of things. There's a fair amount of work to get your rent recognized according to the full, what's considered liability of that relationship with the landlord.

So a lot of times you also have escalations in your rent. So, you know, let's say that the first year it's, you know, $1,000 a month, the second year it's $2,000 a month. And then, you know, it escalates. And so you really need to, to lay that out all on a spreadsheet. And then, you know, straight, what you call straight line, you look at the total value of the lease and then you look at what would it be if I recognize, you know, this same expense every single month throughout the whole life of the lease. And that's what your expense will look like. And the difference will be either a deferred rent liability, usually a rent liability, you're going to owe the landlord more. Right. And so those are, those are things to think about as well.

Yeah, great, great points. And then it ultimately catches up as you get further into the lease where the escalations are actually realized and so on. So yeah, this is, this is really helpful. So, so insightful. Is there anything that you can think of specific to the DSO besides revenue recognition, the DSO structure with lots of entities and sub DSOs and these different things. Is there anything in addition that our listeners should be thinking about as they're going into an audit? An extra complexity or something that the DSO structure introduces?

Well, that's the variable interest entity, the vie. And so a lot of times the auditors and again, I mean, I am new to the DSO space and so I would love your input on this as well because I know you've dealt with the same issue and I have

strong opinions on this one.

The audit report is going to be reported and rolled up to the highest level entity that has control. And you know, so you may actually have, in our case, we have, right now we have 32 operating clinics. Each of the clinics does have its own tax ID number and its own set of books. We can, they are consolidated into netsuite. We, you know, Functionally, can operate really very well. But from a tax filing standpoint, every entity has its own tax ID number, and they all have their own bank accounts where they collect money from the payers. But our audit report is rolled all the way up through the DSO structure because we have a management agreement in place. We don't practice dentistry at the DSO level, but we do provide a lot of services in those clinics. Have no way out of that. It's a very difficult contract to get out of. And so the auditors spend a lot of time testing the legality of that contract and whether or not, from a financial perspective, it makes sense that all of the entities can be consolidated to together. And there'll be a footnote in your financial statement that says that, you know, they're consolidated under the VIE rule. And they'll also, in that footnote, will specifically say that the DSO is not practicing health care, but they do, you know, have significant control over the operations of, you know, that clinic. So that's.

Well, colleague, just that explanation alone is extremely, extremely helpful to understand, because I've been asked that question before. Well, wait a minute. The DSO doesn't own the dental practices. Why in an audit does everything get rolled up? So just that explanation is so, so helpful. All right, so I'm going to put a pause on our accounting, debits, and credits talk here for a minute, and we're going to jump into our lightning round. And the lightning round is just a set of seven questions everybody who comes on the show has got to answer. So are you ready to jump into that?

I think so.

Okay. What are you currently working on?

We're actually already working on the 2022 budget.

That's amazing. That's right. We talked about that. We usually start that about October 1st, so you guys are really getting after it. That's awesome. All right. What are you most proud of in your life?

Most proud of in my life, Honestly, I think my family.

That's a great answer. Love that. Favorite sports team? I would be surprised if it's not.

Yeah, frogs. Even though they're not doing that great right now, the horn frogs are going to come around.

Tcu. It's a rebuilding year.

That's right.

Awesome. Favorite hobby?

Actually helping train my dogs.

Oh, really? How many do you have?

That's a new hobby. I have two. It's a new hobby, but I'm having success, and it's actually quite fun. Okay.

Are you taking any boarding dogs that I could bring over? Maybe, and you could train mine?

Don't behave well. Enough for that yet. But it's actually a lot of fun because they are maybe, you know, they mind a little better than kids. Honestly,

I like that. Don't have your kids listen to this podcast.

That's right. They would agree with you or they would agree with me.

Okay.

Okay.

Favorite app on your phone.

Favorite app on my phone. Honestly, I thought about this question. You're gonna think it's strange, but it's realtor.com and the reason is I like to kind of scope out houses at places where I might consider retiring.

Oh, really?

Yeah, 20 years from now. Long time, but, you know, just kind of fun to think about.

And so. But what happens if you find the ideal one and you're. But you're not supposed to buy it for 20 years? What's that?

I mean, it's just. It's just a hobby.

Fun hobby. Okay, cool. All right. We may give you a hard time about it, but that's cool. And your favorite spreadsheet function, Pivot tables. Oh, yeah, yeah. We use them extensively and exclusively sometimes. Awesome.

Okay,

so we're now at a place where we want you to kind of sum things up. Holly. We've had a great discussion. I think we've unpacked a lot around the audit. But if you were to put yourself in the shoes of a dentist who. The phrases of vie and gap, and some of these things are new to them and they're still learning and understanding. Not that they aren't smart people. They just focused their professional. Their educational professional lives, becoming amazing clinicians. And let's say they've got 10 or 20 practices and they're being told, hey, to raise the next round of capital or the next senior lender that we bring in, we really need to have audited financial statements. If you think about them and where they're at, and let's say they're cash basis today and haven't invested to really build out this platform, what would be like the top two or three pieces of advice you'd give them to help them get on the road? Get feet firmly planted on the road to completing an audit, and then maybe a couple steps along the way that would help them?

Well, I mean, it would all depend. Are we going to make the assumption that they're going to hire or they do have a.

No, they're going to hire because I want you to explain what type of skill set that individual needs to have, and then if they've got it already, great. Or if they need to augment their existing staff, great.

I think I Think that they need to hire someone who. And when they're interviewing that person and talking to that person, it needs to be more. Yeah, granted, we all started our career with either auditing cash or doing bank reconciliations and creating P. Ls, but it needs to be someone who's really kind of had a little bit of experience really looking at a whole company and the health of a company and maybe helping leaders strategically make decisions. So your perfect example, I think we were at the DEO event was, you know, sometimes you have someone who can close the books and they hand it to you and they tell you everything balances, but they can't tell you what EBITDA is. Right. You know, and so I'm not saying that that person just needs some more experience. It needs to be somebody who can really step back and think about. Okay, you know, if we're going to try to align data service with expenses, what kind of things do we need to think about? Do we need to think about inventory and recognizing our inventory as we use it, or is our inventory consumable in nature and we expense it when we buy it? Needs to be somebody who can think about, you know, we have all these people here that have accumulated these hours, and we're going to have to pay them, and we have to calculate that. It also needs to be someone who can speak with the auditors and just really bring them into the discussions. When you're making, I would say the biggest thing is to be able to make decisions with your auditors. We had several conversations about our method of calculating the deferred revenue with several phone calls and several, several iterations of it. We were running logic, assumptions and thoughts past the auditors before we booked it. Because if the more you can get their buy in ahead of time, the better. And so someone who can kind of have that relationship with the auditors and just, you know, I talked to mine several times throughout the year.

We have certain things that come up through the year. Maybe it's an acquisition or there's something that happens that you want to get it on their radar screen, get their opinion, get their thoughts, because you're really just preparing them for the next year. And perhaps they're going to give you some insight of, hey, I should book this transaction in this manner as opposed to this one, because it's going to create this outcome and especially. And I know the auditor is going to bless that when the time and the opportunity comes.

And so when you're. When you're looking for that finance person, you need to look for someone who's going to be kind of that business partner with you. And granted they are a little bit more expensive, but they can. Like I said, we have identified, you know, when we make the successful transition over to gap recognition of revenue, we can identify opportunities to collect more. You know, and if you're not looking at it, you don't realize what you're not collecting. So it's really that, that idea that you need to really kind of bring someone who's, who's got that relationship ability with the auditors, who's willing to sit and listen to the auditors. You know, a lot of times the auditor will share with you what's worked for another client. While they can't do it and they can't implement it. They can certainly tell you about their experience. And when you're looking for auditors, it's very important to find one that has healthcare experience. Because the last thing you want to do is teach an auditor about your business because it's harder for them to make an opinion and to, to draw an opinion. The questions, you may think that the fee is going to be less, but the questions in just the uncertainty of it is so much worse and it actually takes more hours and sometimes you don't have good results.

Yeah. And I would even, I would push you one step further on that, Holly, and say they need to have DSO experience because there's some unique nuances relative to the traditional MSO model that we're tackling over here and that they're going to have to tackle. So that DSO experience is critical. Okay, so if I were to package up then some of your. The insights and thoughts.

It's.

Got it. You're going to have to make a hire. You don't want this dentist going into this with. Without a strong finance person by their side. Preferably somebody who's been in health care and preferably somebody who's been through audits in the past and they know how to get through that. I was going to add one other thing to it. Data is so critical and getting access to because the practice management systems generally are really, really difficult and don't really organize things the way auditors want them organized or thought about or the way we do in terms of how we want to present financial statements. And so I think having some data savvy and then ultimately you may end up needing to make a hire to help really execute on getting the right financial information in the right place at the right time. Would you, would you agree if I added that in as well, as absolutely.

I mean we do have consultant that we use to kind of groom our data for us. And so one of the things that you can do is you can get a consultant like that who can pull the data out. You can really kind of look at it. So there were a lot of, you know, with 32 instances of open dental, sometimes adjustment codes were different in one versus the other. Payers are in are different one versus the other. And so you can actually standardize it, running it through a standardized mapping table and get it more standard and it's a lot easier for the auditors to review and look at. So.

Yeah, great, Great point. All right, so we didn't get into everything here, Holly. At some point we're going to have to do another one. I think purchase price accounting and how auditors look at that and think about that. I think that's something we'll need to talk about in the future. And I think there's a lot more we didn't unpack around the audit. And then obviously you bring a wide breadth and scope of and a depth and a breadth of information that I think our listeners could really benefit from. So I think this is one of multiple. We'll figure out how to make that one happen, but can't. Thank you enough for joining today. Thank you so much.

Well, thank you for having me.

Yeah, it's been fun. All right, so key takeaways from today. It's really if you're going to go down this road, it's an investment, it's going to cost and the return is going to be very, very strong because with audited financial statements, you're going to be able to do a lot more than without in this industry and you're going to be able to accomplish things that others can't as well as that move from cash to accrual or gaap. Accounting is just going to put you in a better place. The bigger you get, the more locations you have. It's just too hard to look at things on a cash basis. Being accrual ultimately just helps you as a business leader really understand and know the story and then be able to forecast, predict and get out ahead of any problems, as well as make sure you're capturing and maximizing every one of those opportunities at the right time when they come up. So many, many thanks to everybody for joining today. This is a wrap on Taming the DSO audit with Holly Williams. Happy,

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