158: DEO's Financial Secrets to Grow Dental Organizations

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

You have helped build my marketing mind

to a whole new level.

You have this natural talent, this unique ability.

Hello everyone and welcome to another episode of DSO Secrets. I'm your fearless host, Emmett Scott and today we've got the notorious Ken Kaufman. But you come to us differently now. You look different. You're an author, you're an authority. So I'm so excited to talk about this book. It's been in the works obviously for a long time. I've watched as you've worked on it and what's so cool too is you were able to work on it with your daughter who is the project manager with you on it. And I I saw you gave her credit too on the book, which I thought was awesome. But this book is different and if you don't mind Ken, I'm going to actually read a little bit from it and then let's have a discussion here.

Oh boy, here we go.

All story time. So this is chapter one. Thank you so much Doctor. You have no idea what this will mean for my family. Amelia's voice cracked over the line, tearing through the thick tearing through the thick after hours stillness in my dental practice. Heavy dark clouds hung low and threatening, blocking out the setting sun, but I was still able to glance at my DDS on the wall, written out to Dr. Julia Miller. Somehow that bright eyed graduate hadn't pictured the depth of complications, messiness, stress and overwhelm that would come from owning and running five dental practices. Of course Amelia. It happens to everyone, I reassured her, tracing each stack of bills with the fingertips of my free hand. Amelia had been a friend of mine since high school and considering the long list of financial worries she had just recited, fixing her knocked out tooth for free was the least I could do. If only solving my own financial problems were so easy. After we hung up, I leaned back in the office chair, closed my eyes and let out a groan. Sandra. I lifted my head up so my voice would reach my operations manager's office just down the hall from mine. Sandra was working late, pulling Payroll together for next Friday. Would you come in for a moment? I heard the sound of her chair scraping back and then hesitant footsteps along the vinyl floor. The hallway was darker even than my office due to the rugged 80s paneling that I had yet to replace. And that add that to the list of things I can't pay for. Anyway, such a great start when you think about a financial book. And the title of this book is Financial Secrets to grow Dental organizations. The nine required clarity tools. And that chapter one starts off with you need clarity. Anyway. Just so well written, Ken. Well, thank you. Yeah. I mean, this isn't like EBITDA is this. It really pulls on, like, the emotions that get tied to doing the financial piece. So talk to me a little bit about why you wrote it that way instead of like a textbook.

Yeah. So here's. Here's how it all came together. Ashley, besides being the project manager to get the book done, she actually is the author of this. Of the narrative part of the book. I am the author of all the technical how to stuff. And the joke that we make here is back. It was several years ago when I started thinking about trying to organize thoughts and put this together. The big concern in my family's mind was, why would anybody ever want to buy a book like this? It's so boring.

And. Yeah, don't take it personally, dad.

Yeah, don't take it personally.

But we've heard about it all our life. Trust us, it's boring. That's right.

And then as you think about it, a lot of the business books that have really appealed to me and helped me through my career have been the ones that have the story and the goal, which dates all the way back to when I was in college and had to read that for an assignment. And it's stays in the top five of all the business books I've ever written. The Five Dysfunctions of a Team by Patrick Lencioni. So there was a model out there, and I knew that I could write great technical content, but I would if you left me to write a narrative storyline and really use that character to draw people in, because that was the goal is let's create a real scenario that the readers can relate to. Have them get invested in the characters, and then that'll keep them wanting to go through the book. And then we just sprinkle that technical content in. That helps them see the application and. And how it can actually help them overcome problems or, you know, get their business to the next level.

I love it. One of the superpowers you've always had Ken is being able to take the technical down to the layperson and explain it. So sounds like you were really able to do that with Ashley here. So that by the time it gets to the technical, I have all these mental hooks to put things on to be able to, to apply the application. So, you know, oftentimes when we learn technical things, especially finance, they're almost like sitting over here. But then they don't connect to like my day to day stuff. Right?

That's right. And here's an interesting outcome from now. Having launched the book, there's one reader who actually got my email address and sent me an email and it was pages long and she started it out with how did you know I am Julia. I read your whole book beginning to end and it described me perfectly, which is, I think it's an interesting, huge compliment.

Right.

And it's a combination of me being in the industry and knowing and conveying that to Ashley. And I brought Ashley actually to a DEO conference so she could meet and talk to dental entrepreneurs and learn about. So she got to do some real, you know, live research and hearing her dad talk about this industry and things. And it was so cool because she said not only have I read the book, I'm now going through it for my second time. And this was honestly within about 72 hours of launching the book. Like it. She bought the Kindle version and just. And went with it. And honestly like that, that's, that's the reward for me is we're. I was hoping it would make a difference. I was hoping it would help broaden the scope and help people see where it's at, you know, what they need to do to get their organization to the next level and why finance is often the most neglected early on and why it becomes the biggest Achilles heel when you're trying to get to the next level.

Interesting. I was in DEO Mastermind yesterday and the question was like, how big should my accounting and finance team be? And with what we've been doing at Community Dental Partners and me just talking to other ADSO members, DEO members, one thing I thought was really fascinating is those who have scaled one of their largest departments is finance and accounting, which is, is fascinating when you think about all the clinical and the compliance and the HR we have going on. But I think it speaks to the complexity of the layers that we have. When you say things like, okay, what is my margin? Am I on the right track? By the way, I'm doing this de novo and I did this acquisition by the way, I want to hire an ops person. That's how much DSO expense should I have, what should I be allocating to, where and how. In some ways they're simple answers. In a lot of ways they're complex spreadsheets that.

That's right. I mean just the thought process of having to consolidate a whole bunch of entities. And Emmett, like to, to give you an example, there could be a hundred million dollar software company that has one legal entity and running their financial. They literally. You could run that business in QuickBooks. I wouldn't recommend it because there are some other challenges they'll hit. But you then look at Julia in the book for example. She's got five practices, she has an entity for each one of them and she's trying to do things in QuickBooks like just to be able to run a report to show on a consolidated level how is the business doing and then to be able to parse things out and do some same store growth analysis and you know, these sorts of things. All of a sudden yeah, you, you need an expert in accounting. And if each of those businesses doing a million a year, it's a $5 million business and. And they have more accounting complexity than that hundred million dollar software company.

Totally, totally. So that's where I think when you know, someone says I want to do a group practice or open up multiple locations, they're thinking through their marketing, they're thinking through the clinical standard of care. All of which is important. This financial piece needs to be high and for you to come up with something like you and I have looked in the past for content, we've tried to recommend content and it just didn't exist. Right. So by the way, I love chapter two title Anxiety slayer. I mean there's especially for dentists but I can tell you even as a quick start Colby person not having clarity when you try to scale. I mean the amount of anxiety around that not having things organized. The other thing I was talking through in the DEO mastermind and this works against us too can is we're so reliant early on on the accounting professionals to be our quasi CFO finance guys. And I think it's fair to say that you know, it's just a, a bad use of resource because there's a conflict of interest that the majority of of tax, if not all of those accountants make most of their money through doing your tax return. So getting things allocated in the right place, getting your P L just perfect, helping you with your metrics, etc. Is just not beneficial to them. Which is why oftentimes CPAs are getting your financials, you know, six months later. Right? That's right.

Because it's, it's serving their need. And you're hitting on. Just a couple days ago I put a post out on social media and it was about this, this. And it was the concept of having your tax CPA be the person who is organizing your financial information to help you improve overall performance in your business is the equivalent of asking your framing contractor where to put the wall. Both of them are going to do the thing that's the very easiest for them and not what's actually going to help you see and understand how to build and grow your business and leverage all that information when it's organized correctly to find improvements, ways to build and grow the practices.

And listen, this isn't a knock on CPAs. If I used a dental example, I wouldn't ask someone who's specializing in geriatric all in fours to go take care of a screaming kid and how best to sedate them or vice versa.

Exactly.

I wouldn't ask an attorney who does estate planning to take care of a divorce or an IP or whatever else. Right. There is specialty to this. And I think a lot of CPAs have tried to fill that gap. But the reality is there is a difference between accounting and finance. And I think your book really lays out finally the financial piece that we've been looking for. Is there a chapter that, as you were getting into it, that maybe jumps out at you or, you know, maybe just maybe you could just speak to a couple of them?

Yeah. So actually, and this is one that you've got a lot of energy around too. And I. You and I have haven't talked about this chapter and how I kind of came up with it. I think you'll be fascinated and I love your feedback. It's actually the last chapter and as I was going through the book and getting to getting through these financial clarity tools and in essence we're helping Julia get her business organized and cleaned up and, and things are going. We now find the problem of now how do I make investments? How do I make the decision of what my priorities are? And all my ideas, which ones should I burn and which ones should I execute on? And so it was really interesting, the first draft of that chapter, when I read through it, it was lame. It was horrible. And that made all the ideas start to flow in. And so I actually lay out in chapter 18 how to use IRR or internal rate of return and ROI to do deep analysis. And, Emmett, I realize you haven't read through the whole book, but I actually have a tribute to you in that chapter, and it's about learning how to be disciplined, where you can come up with so many ideas and look at your team and say, why aren't these all done? I told you about all these yesterday and how you've grown as a leader and built up discipline. I used you as actually as an example, and. But I. But along with that, I put all of the key tools that are needed to be able to do that analysis. And then how do you talk to your team about it? And how do you get their feedback? And how do you. How do you go to them and realize that they're not telling you it's a bad idea? They're actually trying to protect you and giving you ideas about, hey, you should think about this, or this could be a problem, or what about this and what about that? So it turned out to be a really fun chapter that, you know, my time at CDP and in other places really helped me realize. And it all came together. Like, I had never put the whole story together. So it was so fun. When I got done writing it and I looked at it and I said, that's actually my best chapter here. I think that may be the best work that I did in the entire book. And so that was a really fun one.

That's super powerful. I mean, if I kind of zoom back, one of the principles Patrick Lencioni actually talks about is companies are easier to manage during a time of crisis. And though the anxiety is super high, the clarity on what everyone needs to work on is super clear. You know, And I think a lot of us right now would say, Covid in 2020 was easier to manage than 2022. Right? Because part of it was like, okay, we're all in this together. We know what we need to do. Like, change management was easy because if we told the team, all right, you can't do this anymore. We have to do it this way. Everyone's like, okay, got it right there Wasn't like, but I like to do it this way. It's like, no, it's total CR mode. Everyone's on the same page. Part of what you're hitting on is, as you're getting your books cleared up, that feels like crisis, but very reactive, very clear on what you need to do. You're following these very strict principles of clarity. P. Ls, et cetera. When you finally get to that point where it's like, okay, we're clear now. What do we want to do with this? Right. Exactly. And how do we make the right investment? Do I just go buy more stuff? Which stuff? And, and, and one of the things you'll find is the more clear you are, the more opportunity you have that you need to figure out how to say no to. Right. And prioritization becomes a really big deal. I think Alex Charfen told us once, you guys are more likely to die from digestion problems than starvation problems. And I think that speaks to your IRR ROI calculation is do you know which. Which foods to eat? Right?

Yeah, that's exactly right. And I'll just mention to those listening in one thing from the book that you wrote, Emmett, one thing that I stole shamelessly from that was the concept of the QR code and how you would, at certain points, you direct the readers to another website and they could access some resources. So I took that concept and there for, for those that have the book, they. The QR code, there's over 25 different resources, including a sample PNL and comparisons. There is a Google sheet in there that I've laid out, and all the formulas are in where you can very simply calculate IRR with the cost of the project. And then the next five years, what is the cash flow that it will create? And it will give you your irr. And then you can do every project through that, and it will tell you what your internal rate of return is, and it will help you start to look at financially what would be the best investments and the best projects for you to invest in.

That's awesome. So literally I can say, okay, based on these assumptions I'm putting in here, this one has a 20% return on my investment. This one's 5%, this one's 50%, right? Yep. And then I can kind of play with the assumption, say, okay, am I. Is that software really going to get done in six months? Is it really going to happen? Right. And then as I play with that and say, well, what if it takes twice as long as then I just see my percent return on that investment.

That's right.

Okay.

The power of IRR is that it, it accounts for the timeline. So if I said, hey, I want to buy a practice for a million dollars, so the million dollars is in that first field of, you know, negative money going out, and then you show what's going to be your return on that and over the next five years versus a de novo. And hey, it takes a minute to get caught up there, but maybe you don't have to spend as much and then. And you can drop all the others in. So IRR is wonderful because

time value of money.

Yeah, it includes the time value of money to say, hey, if you can make the same money in six months, that project is going to have a higher RR than one that it's going to take you five years to actually realize. So it nominalizes it. That was the word I was looking for. It nominalizes those returns to what's actually going to be the most beneficial.

So it's an apples to apples, right?

Yep.

If I can get the same return in six months, then I could do four of those. And the time it takes something. Two years. Right?

That's exactly right.

Yep. That's awesome. Any. Any other. I, I kind of want to just like keep people hanging because they need to like jump in and read this thing. Like, the content's incredible. Having the tools, by the way, that's insane. That's awesome. I mean, how many times have you read a book and you're like, great, now what do I do? You know, it's like I've been inspired. Like Rich Dad, Poor dad is like the classic version of that. So inspiring probably has launched more entrepreneurs than any other book. So give Robert credit for that. But like, there's no action item other than probably go to his website and sign up for his real estate stuff. But anyway, thank you again for putting that in there. Like, of course I could hand this, would you say? I mean, this is obviously for anyone who owns the, the business, CFOs, finance bookkeepers, like, are they going to get value out of this?

Yeah, there's a little bit of, let me give a little bit of the backstory on this. In, in doing it this way, this is what my hope was. And it's because I don't want dental entrepreneurs to try to figure out how to implement these clarity tools because they, those with specialized training and finance are that now every dentist entrepreneur I've ever met, Emmett, by the way, had they gone into finance, they'd be smarter than me at it, probably, and they'd be far, far better at it. But they chose to go into dentistry. And so the goal is, is the book is set up to attract the dental entrepreneurs and help them see how these financial clarity tools can really make a big difference and help them keep trying to accomplish whatever it is their vision is. And then the hope is they will take that book and hand it to either their cfo, their accountant, their bookkeeper, their outsourced firm, give the book to them or keep yours and buy them a copy and tell them this is what I want you to do for me. And hold them accountable to the things, these financial clarity tools that are identified. There are tools and resources they can look at. But the hope is that the dentist entrepreneurs just now know what it is they need so then they can hold somebody accountable to execute on it for them.

So powerful. All right, so to get access to this book here, I'm going to do a little share here. Is that coming up?

Yeah, there it is.

All right. I can get this off of Amazon, correct? All right, well, if you can get off hands on, you can get anywhere.

So in the Kindle version is available, there's a paperback and then there's a hardback copy. And it was really hard, Emmett, because like the kindle version is 8.99. And literally if all you did was buy the Kindle version, get the QR code and download all those resources, that's

lights out right there for nine bucks.

Value. The value and, and what you can hand over to whoever's helping you with your accounting and finance function. Just what they can get out of that is ridiculously helpful and just. It's a bargain.

Ken, thank you. There's a lot of smart people in the space, but very few who are going to take the time to create something that 99.99% of the benefit is for everybody else and especially to take all of this information and organize it this way. So thank you very much for being so kind to put this together. And Tom will keep promoting it because I think everybody needs it. It makes the industry better. So any final things, if somebody wants to reach out to you or best way to contact you?

Yeah, sure. The best way to reach out is Facebook or LinkedIn or even on Twitter. I'm trying to stay fairly active there, so that'd be a great place to reach out and connect with me. And Emmett, I just can't thank you enough for having me on and appreciate our friendship. And you're just, you are, you are the leader in this industry that's helping us get this whole industry to the next level. So I appreciate everything you've done.

Well, thanks so much, Ken. If you want to have more conversation with him, come over to DSO Secrets on our Facebook page. Obviously, check out the book on Amazon and until next time, keep smiling.

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