56: Interview with Mark Rudolph CPA Talking Strategy.

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Hello, everyone, and welcome to another episode of DSO Secrets. I'm your fearless host, Emmett Scott, and I'm here with a wonderful guest, Mark Rudolph. Mark, welcome to the show.

Thank you so much, Emmett. It's such a pleasure to be here. And I have to tell you, I'm very pleased we're doing it by podcast instead of on the stage because I don't think I'd be able to dance with you or keep up with you on the dance floor.

Oh, man, we'd have something choreographed together. You know what? Now that's kind of like a personal challenge is getting up on stage with a cpa, two fellow accountants doing a dance that would be record worthy.

You know, that would be scary. You're exactly right.

So, Mark, give us a little bit of your background. Tell us for those who don't know you, you know, where you come from.

Well, I appreciate the opportunity, as I said, to be here. I follow you all the time. I love the podcast. I love when Ken's on. It's great to have a CFO's perspective. I love your story about being in public accounting for one year before making the switch. And I had a similar beginning to my career. I spent really two tax seasons in tax and realized that that's not who I was or what I'd be good at. And fortunately, I had an awesome mentor that introduced me to SEC reporting during a time when the banking industry was going through consolidation. So it's been a great. I'm kind of sort of. I feel very young. I still play basketball, still play tennis, always been a point guard, and I love what I do. And I'm really excited to come to work because I love this industry, but I've been doing it for a long time. It's been about 36 years. And I've actually been involved in four major industry consolidations during my career. And that bank holding company was the first one. When community banks were Consolidating. And there's a lot of similarities in what's going on today in the dental world that we saw then. So I sort of learned from the SEC reporting aspect in dealing with boards of directors who were busy doing other things, having to learn enough about the industry to be able to do their due diligence for mergers and acquisitions. And the SEC required that you always looked forward when you were doing Your reporting, your 10Qs and your 10K, which is very different from an anal accountant. Always living in a world of regret and looking backwards and telling people what they did wrong instead of what they should do. And I found that I really liked that. And that's really what got me into health care. I had a partner who was working with physicians and dentists. And at that time, after I'd become a partner with, doing SEC work, my healthcare partner needed help because the medical industry was going through their consolidation and had a very similar situation there with corporate medicine. And so again, I got to see the same sort of consolidated activity, disruptive activity, owner docs trying to figure out how to compete and whether they should join up and join forces and HIPAA and managed care and all of that. And so I learned a lot from mistakes there. But most importantly, I felt like I learned what a clinician needed in order to make good business decisions and the type of team that they needed to surround themselves with. And if they weren't joining a large corporate group yet, they needed to help through that transition. And so a lot of that was sort of me becoming sort of a part time or fractional business partner or CFO, if you would, to kind of fill in the gaps for him along the way. And then I went on to become a managing partner of our firm in Virginia because I had some background. I was sort of a personnel partner. I had been an audit partner, I had been a tax partner, I had worked with healthcare. And we were 75 years old and had never had a strategic plan or a managing partner. I was on the management group at the time. And so at that time, the CPA industry was going through a lot of consolidation, a lot of mergers and acquisitions. They asked me to do it, so I did it. Same sort of thing. We grew, we grew profitably. And I had to learn to bring in new partners, help them to understand that, help them to understand just how I had to learn how to be transparent and information shared with them, providing the right incentives to encourage behaviors that were consistent with our culture as we expanded and merged practices in. So it was a really really fascinating time for me. And we, we ended up with like 25 partners before I left and so really had to learn how to deal with a group that size and 170 people and keeping the, maintaining a consistent culture. So that's really what I love to do. But that's what led me to the dental industry as managing partner in that firm in Virginia. I met the managing partner from Elliott Davis, which is a top 40 firm. And we had worked together for five or six years in an association of CPAs and we had very similar value systems. And he was in the Carolinas and I was a basketball nut and wanted to be in the ACC country and my kids were grown and out of the house. And he said he had this dental group that he wasn't really sure what to do with. And I said, well, I would love to consider making a change because our firm had grown in profitability and size and really were at a point where our partners didn't really want to continue the rapid growth. They sort of wanted to stick to what we did really well. And that was the absolute right decision for them. They were, they're still an awesome firm, but it wasn't right for me. I love the energy of consolidation and growing practices and so forth. So I joined this firm and we were a small 12 person compliance only private practice firm. And that was not consistent with the culture values of a large top 40 firm. And I happen to know and had known that the dental industry was going through this consolidation as well. So we made a very difficult decision at that point to move from a practice that was serving 500 private practices around the country in 44 states. And we helped to identify, helped them to identify who wanted to grow, who wanted to scale, who to wanted who might be interested in joining bigger groups, that sort of thing, and who just wanted to kind of do what they did. And if they wanted to kind of stay the way they were, then we helped them find another firm that was better suited for that. And so we began to hire management accountants and put together a team that had healthcare experience. We hired many strong, experienced people that had dentists in their family so they understood the industry. And we put together this sort of fractional finance and accounting team. We've got about 30 accountants here that focus 100% of their time on the dental industry. And so we're really having a lot of fun helping practices kind of go through and scale go through that dark tunnel that you talk about all the time, sort of fill in the gaps for them so that they can grow at their pace and have the kind of support that they need, if that makes sense. We still have a great tax department. We still have a great assurance department, but we really are enjoying the disruptive middle market and all the consolidation that's occurring there. Appreciate your leadership. We listen to your podcast all the time. You get great insight, and we love listening to Ken as a CFO and what's important, and that helps us help others as well.

Yeah, thanks, brother. Appreciate that. Well, man, there's a lot there to unpack that think for our listeners is super valuable. First off, I don't think I've ever had anyone on who's been through four consolidations, so just means I'm old Emmett. That was my nice way of saying that. But, you know, having that historical perspective is huge because, you know, for those going through this for the first time, they believe it's the first time, you know, like, consolidation has never happened before. So, you know, I try to help people understand that there actually is a map to this. We actually do know how the story ends, and it can be very positive. And there will continue to be some level of private practice out there, and there will be some amazing players out there, and, you know, the strong will survive. And strong means bringing value to the customer.

Right.

Ultimately, that's what. That's the great decider of success is, you know, are you able to bring value to the customer? And your customer does change. You know, I often say it changes from being the patient to the. To the doctor, and then the patient becomes the customer of your customer. And so how do you do this? But before we get into that, tell me the similarities you see between consolidation and four different industries. How is dental the exact same as banking? Clearly, there's differences, but how is. How is it the same? I mean, what's the. What's the issues that they say, oh, this looks familiar.

So from my perspective, the consistency there between those two specifically, and it's very similar in the other two as well. It's about knowing yourself, knowing your team, having a very consistent, deliberate process. You sort of have to go slow to go fast is the way I would put it. And to me, as you said, it has to start with the people you surround yourself with. And that is, you know, whether it's your advisors in the beginning as you grow and develop a C suite, or just that business clinician partnership that has to form to be able to scale. All of that is so critical. And too often it feels like expansion comes for breadth rather than depth and rather with consistency.

I think that's more tempting in consolidating spaces because the whole roll up concept and hey, we'll just do some financial engineering and throw some things together and hey, I can buy this for cheap, so why not? And all of that, if it's on

a spreadsheet, it's got to be true. Right? So as long as you can put the projection on the spreadsheet, it's going to work. And, and that's the real risk, I think, in expanding too quickly. I mean, you've got to have. So we have trigger points that we look for, obviously. And I think that was the key back in the banking industry as well. I mean, it was a little different with them and a little different with the physicians as well. There's a lot more regulation, a lot more government oversight in both of those. And so capital was king in the banking industry, for example.

What do you mean by that? So you're saying regulation was more intense. How did capital solve regulation?

The regulators insisted on a very strong capital base for them to approve. The mergers had to be approved. You couldn't just agree that you were going to connect. So not only did you have to convince your board and your shareholders for both sides, but you had to convince the regulators that it was good for everybody and they weren't going to be on the hook for a mistake somebody was making. And there were a lot of mistakes made even with regulation.

I am sure dentists everywhere are thrilled that they don't have to go to their local dental board to get approval every.

Unless you're in North Carolina.

Well, that's true. But yeah, for the other states that they don't have to get approval to open a new practice or to buy another dentist. That's. That's painful.

Yeah, yeah. And that's it. I mean, because it's easier to explain sort of your culture and to get a feel for culture between people. When you have to explain that to a government representative, it's a very different story. That's where everything has to be in the numbers. And so a lot of what we're doing right now with EBITDA and ranges, multiples of EBITDA and trying to get adjusted. EBITDA was done under regulatory scrutiny in the banking industry, if you will.

It's actually a lot harder over there than like this is. This actually is a simpler process in some ways than what you had to do on that part.

I certainly wouldn't call it simple, but I agree it feels simpler.

Well, yeah, I mean, let's hit on that. I say it all the time, like it's easy to underestimate how difficult dentistry really is from a business consolidation perspective. I think most people, even entrepreneurs, business people, those who've been supporting maybe a single practice kind of think, oh, this is a local dental practice type concept. And when you get into DSO documents and the way cash flow needs to work under regulatory environments. Dr. Pay compensation, recognizing revenue, you know, with write offs and adjustments, et cetera, expenses, fairly simple and straightforward unless you're trying to do some accrual, you know, magic over there. But revenue side, pretty complex. The human component. Right. Like at least in banking you didn't have, you know, you were dealing with dollars. Right. You didn't, you weren't drilling on people's bones while they were awake. And so.

Right. There's nothing like that, that's for sure.

So, yeah, this is, it's always great to hear somebody else say, hey guys, this is hard. Like if you're struggling, it probably means in the beginning you're doing it. Right. Right.

Yeah. Well, I mean, to me, I mean, I'm a big proponent of accrual bas of transparency and reporting revenue recognition consistencies. So we, I mean we're very careful and we help through quality of earnings type evaluations being done. But frankly, I believe it would be far more important and more valuable if you had a team of psychologists to do a quality of relationships that were going to come out of that. You know, when you have a seller that's rolling equity into a new organization, you know, under some level of trust that this is going to feel better, it's a win win on the backside. There's a lot of faith that goes into that and it really comes down to whatever individuals that are sitting around that table negotiating the deal, if you know what I'm saying.

It's really about quality of relationships. Man, I'm gonna steal that one. That is excellent. Yeah. Q of these all the time, right. Quality earnings. But qor that is, that is so true. You know, I just had Brian Coleo on and he was talking about like at the end of the day, the relationships on his side for the legal is what ends up driving the outcomes. And I love it. Now I've got CPA who says, hey, what really matters is the relationships, that human component, you know, it's just, it's where you make or break it all the time.

It's so true. I mean, it's always been that way for me, every step of the way. Like I said, I was a point guard in basketball when I was 13 years old. My father took me to a religious dinner, and I heard the CEO speak. And I forgot what it was called now, but it had a cool name to it. But the message stuck with me forever. And he said, in any business relationship, in any business deal in life, if you make sure you walk away from the table and having everybody else around the table being a little bit happier than you, you'll be far better off than you ever would have been. Looking out for yourself in the beginning, the richest people in the world made sure everybody else was happy. And so I took that with. I felt the same way in basketball, you know, point guard measures success by assist, by reading defenses and setting things up and surrounding yourself with people who are better shooters and better rebounders and all that. And so I've always done that in my career, and I always have people a lot smarter than I am sitting around me. And for me, it's about sort of a strength. Finders pulling together the right people, understanding what makes people happy and what gets them excited, giving the right incentive. And I think that's really what the deal. The deals that are good deals in any industry are the ones where people complement each other and the culture is a good fit for everybody.

Wow, an accountant just said that, guys, that's amazing. You know. Okay, so since you brought this up previously, I want to hit on this. And it sounds like your firm is actually trying to solve this. So one of the complaints, not just in this industry, every entrepreneur ever has, is they go into the accountant. The accountant says, hey, here's some stuff you should have done, and if you had done it, you know, you wouldn't have paid so much and this would have been better. And, you know, why are you so dumb? You know, that's the general feeling. Right. So the entrepreneur humbly takes all the feedback. Of course, none of it can be solved now because it's in the past.

That's right.

And so the entrepreneur then asks, well, so what do I need to do next year? And the accountant responds, I don't know yet. Come in next year and I'll tell you what you should have done. You know, and so it sounds like with your fractional CFO type stuff and with your experience on some of that future thinking.

Right.

You were trying to adjust some of that.

Absolutely, yes. Several. There's several things that I'd like to point out there. One is, with every new relationship we enter, that we're honored to enter, we begin with strategic sessions. So before we ever dig into your accounting system and Transfer numbers over and start looking at spreadsheets and forecast. We sit down and have strategic sessions together so that we can understand what you're really trying to accomplish and in what timeframe and that sort of thing. And then as we get to know each other, then we have at least quarterly strategic sessions together and we can cover all aspects of finance, accounting, tax, et cetera. And it's, you know, a pre appointed agenda discussion. But our dashboards that we use pull information together from operating systems, from the accounting system that all flows into tax and cash flow, etc. So that we can be looking forward. There's nothing worse than picking up a phone and calling your doctor and say, congratulations, you had a great year, now you got to stroke a check. You know, we want them to be well prepared for not just tax. I mean that's a small portion of what they do, but, but we want to be part of their strategic team, not the reactionary part, if that makes sense. So our dashboards are forward looking.

Okay. So yeah, let's kind of go deep on this just because one of the challenges I think for CPAs is doing the tax work is so profitable and frankly can be a little bit simpler than trying to do. It's a lot heavier lifting to start looking forward and so takes a unique person that has a desire to even do that work. What drove you to want to take that on?

So I had my high school basketball coach who actually talked me out of going into coaching and talked me into going into public accounting because his best friend was a cpa. He played golf all the time. He was one of the best halftime adjustment coaches that I ever knew and ever heard of. And so he was always talking about what we were going to do rather than what we did and coming down on us. And it just stuck with me for some reason. And so this team that we've put together, again, that are a lot smarter than I am, they all have sort of complementary attributes. But the biggest part of it is most of them are coming from management accounting perspective as opposed to a CPA firm trying to move auditors into this world or tax people into this world who are always looking backwards and opining on the past. Management accountants, you know how it is, you're always budgeting and forecasting and you know, have to have to present what's going to happen, not what did happen. And so that's how, that's how and why we're different.

Why don't you define that for our listeners? Because like all of us, we all kind, you know, attorney, we just kind of say, oh, there's one type of attorney. Right. And dentist, you know, we don't really say, oh, there's guys who do implants and veneers. There's guys that do, you know, more fillings. There's, you know, their specialty within anything. So you use this term management accounting versus more historical accounting, tax accounting work. So kind of define that so that if someone's out looking for the right mix, because I think you just hit on something that we can give our listeners some jargon to kind of flesh some of this out. So in fairness to even their accountants, they can have the right expectations.

Absolutely. And I'm not, again, I'm not comparing myself or our team to anybody else. I'm sure there's a lot of great groups out there doing wonderful things. I'm just saying for us, the important component, the thing that was the driving force for us is to be moving forward. This industry is changing too quickly. It's too disruptive to figure out what happened last year and let that be our strategy. So I needed to be looking forward. So the very first sort of key hire, who's my partner in crime, if you will, is Brandon Culp. And he had, I always give him too much credit, he says, but he had 11 or 12, I always say 15 or 16. It seems like he's wiser than he is. He had 11 or 12 years with a Fortune 500 company and they had locations all over the country. And so he was in finance and accounting, but his job was forecasting. And so they were forecasting, adapting. That's what he did. And so his analytical skills are incredible. But more importantly, it translates very effective in a very practical way. He offsets me. I'm a, I'm a visionary, I'm a dreamer. I love the long term strategy. He's very grounded and he has developed trigger points. The clients that we work with, they know how he feels about, well, this is how much you should be doing per op before you expand in your location or to a new location or add on another practice. This is how efficient you should be and smoothing those steps out of the next strategic hire. He's very good at doing that. And so together then we hired a team, a supporting cast and other people with 10 plus years experience and similar, whether it's healthcare backgrounds or management accounting backgrounds. But management accounting is management reporting. It's not the traditional cpa, tax, CPA auditor, that sort of thing. So the industry is very specialized, just like dentistry. And our firm's a Top four firm. We've got specialists in every area and you know, we got 800 people and a lot of resources to draw upon. But Our team of 30 is focused 100% on this industry and we specialize here. But even with our team we have specialists, if that makes sense.

It does. And I think to simplify it, if we're standing in the present day, there's people who specialize in looking backwards and there's people who specialize in looking forward. Right. And I think where most people feel frustration that they are primarily working with firms who are very good at looking backwards and you need those people and they're asking them forward looking questions and you just need to be able to distinguish and I think using the term management accounting and you know, who do you have that can help with forecasting type components? Even just using some of that basic jargon can help people start to distinguish if they're in the right place or if they need another resource.

Right. We use budget budgeting very effectively, but we call it forecasting, not budgeting. Everything is where we're going because I mean, it's just changing too quickly. I mean, the next this 2020 is not going to look anything like 2019 for, you know, a large percentage of the clients that we work with, obviously.

So since you've been in the healthcare world, tell us how the story ends because, you know, because basically, you know, our big brother, if you will, of healthcare has already been this through this, not just one time, but many, many times. Right? Yeah. And so what do you see or how does that, you know, change how your perspective on where dental is going to be?

Right. So we try really hard to look at hard and soft trends within our firm and within our team. And, and one of the disadvantages of seeing a lot of change in the industries is that it's hard for me not to let that put the guardrails too tightly together for me because I did see that pendulum swing both with banks and with healthcare. And so I'm expecting it to swing back again here. It's hot, there's plenty of the economy strong, you know, resources are scarce, everybody's trying to build as quickly as they can because there's not enough to choose from necessarily. And so I think, you know, it could swing back and moderate a little bit. But clearly all of you, it's not me, this is, I'm hearing all of you saying the same thing. The opportunity for consolidation is still dramatic in the space. I mean, we're not anywhere near where our brethren are in the rest of the healthcare industry. And so it's clearly going to happen. It's just a matter at what pace, but it seems fairly consistent and sustainable to me. And I think it's going to continue to happen. I think you're going to see Even the bigger DSOs start to consolidate some, which always changes things. And I think that pendulum that we saw, that I saw in the other industries that we will see, there'll still be people who are more comfortable and they want to get out of what they got into and they'll go out and they'll start their community practice again. There'll be a space for that.

I mean, there's still a community bank getting popped up everywhere. You know, it's like that story's not over, right?

Absolutely.

Wells Fargo and Bank of America do not control, you know, 100% of the market.

Precisely. That's exactly right. And so yeah, the interesting thing to me is how closely aligned will dental and medical become and you know, will dentists become more and more of the gatekeeper on preventive and that sort of thing and how will that change things? Because we still don't have nearly as much third party payer pressure in this industry as we have in the other. So that's going to be an interesting component, I think.

All right, so here's my two predictions. Tell me what your thoughts are with a little more experience than me. So number one is you don't really the leading indicator, I think that there's a slowdown ready to happen, which means consolidation is not quite as fast, is when the bigger providers start slamming into each other and consolidating because it means they're having a harder time maybe finding some blue ocean and greenfield. And so the best thing that they can do with their capital now is to start consolidating. I don't think that that means it's over because that just might be there at such a size that to move their EBITDA at all they have to buy something big. Otherwise everything else just so non consequential to them. But once the bigger ones start consolidating, then that might be an indicator that maybe things are slowing down some though in the banking side you still saw guys building up small regional banks and then reselling them up and then they'd walk away and build another niche where the, where the bigger guys couldn't get to those niches fast enough. You could walk into a niche, build some value and then hand it off to them and really do well again.

It's about to Me, it's about relationships. I mean, you get bigger and bigger, you have more to offer, you can do more for people, but there's a relationship component. So there's still the ultimate customer, the ultimate patient that's going to prefer that small town feel or that connection or what have you. And so there's always going to be room for both. But I agree with you. I think, I think that you're likely to see a slowdown, you know, in terms of gross numbers, but I think you're still going to have the activity. It's still going to be, it just be more and more steady. I believe as we go forward, maybe a little more sustainable, but there's still an awful lot of capital out there. As you know that if, you know, if you could put deals together quickly and profitably and efficiently, it would continue to happen. But everybody, I think, is learning to be a little more selective and a little more deliberate in the approach.

I, you know, kind of mathematically I say no one ever pays more than four times, five times for a business. And people say, no, that's not true. So and so is getting 14 times, etc. But you and I know on the back end of that spreadsheet, they're expecting to open up so many de Novos at two times or do additional acquisitions at three or four, that will average that 14 right back down to that five times.

That forecast still shows that four or five, whatever they expect to happen, you get seller, you get what you think you got. But this is what we're getting. We're only really only paying four or five times what we expect. It's the only way it works, right?

Yeah, that's right. So I think to your point, when there's not any more blue ocean to be able to open up de novos or to acquire things that at three or four times and you can't average out that 12 or 14, then that number is going to have to come down just because the spreadsheet doesn't work anymore. But as long as someone can say, hey, I've got this opportunity and they're only going to be at two to three times, then someone's like, oh, well then on the front end I can pay quite a bit more for that.

Right. And I think a big, you mentioned earlier in the conversation that who is your customer? And a lot of times when you're in a DSO seat, the dentist are your customers. And so I think as long as the big sort of hard and soft trend for me, the soft trend for me Is as long as DSOs continue to do this profitably and do it well so that dentists can be making the kind of money they need to make, then you'll continue to have a strong supply of your customer coming in there as opposed to what you saw. A lot of people who probably would have been physicians made the switch to dentist to become a dentist because they saw income levels, profitability dropping in the physician world, if you will, especially at certain levels.

That's interesting. You know, when I look at the physician world, one of the things that I think they really miss, that they could have actually learned from, from dentistry, is they never fully embraced the customer. I mean, when was the last time you got a phone call that said, hey, I just wanted to follow up with your next physical? And it looks like this, this and this. Like there's no proactive component on the health care side. And I think that could have saved that industry had they been more patient centric. And I knew there was, you know, there was like a vip, Maryland and some other solutions that tried to get there, but that industry was just kind of so stubborn. And I'm a doctor, they come to me, I won't go to them. Yeah, what's your thoughts on that?

Well, I think it's what gets measured, gets done. And I think once capitation became such a big, big sort of part of the culture with HMOs and third party payers that it changed the mindset. The mindset was to be fast, to get in and out, and you sort of lost that relationship component. And I think that permeated even as they moved away from capitation. You still had the gatekeeper concept and big brother looking over your shoulders, how you were coding, what procedures you were doing and all that. So I think that's very prevalent. Hopefully we won't get to that in dentistry.

Yeah, I mean, that's a really good point. The insurance piece was kind of the tail wagging the dog, right?

Absolutely.

And I think as consumers, we did that to ourselves when we said, hey, listen, I want to pay some third party to take this risk and then, you know, I'll let them decide what the relationship's going to be. In dentistry, it's a little bit more difficult to insure the same way. I mean, on, on medical, I'm nervous because, man, I could get a brain tumor tomorrow. I need like $2 million worth of coverage.

Right. It's not discretionary.

Yeah. In dentistry you have a little bit more flexibility. So, yeah, I wonder if healthcare will ever get its teeth Quite into dentistry. I'm sorry, Health care, health insurance will ever get its teeth in. I've wondered if on some ways, it could be very beneficial, because if health insurance realized that they have a physician out there called a dentist who sees the patient consistently, who, if they gave them some additional billing codes, could actually get ahead of some of the major healthcare issues that are happening, could get ahead of diabetes. Could it get ahead of even some of these cancer components that they put out so much money for? If they could pull that data together, would they come flooding into the market and start buying up that data and buying up dentists and saying, hey, we want to get you ahead? Which would be awesome for the dentist. We'd be at the top of the stack for healthcare.

Yeah.

And I think that's very possible, but it takes some innovative thinking and a bunch of walls to break down.

Yeah, well, you know, there's some analysts out there that are putting that. I mean, it's. It's on a paper somewhere where that's being projected and seen, so it's clearly possible. It would be interesting to see what the magnitude of that would be, because it's still, as you said, there's still a large percentage of the population that's unserved. And it's very discretionary. It's not. It's not. It's a little different. It's very preventive. Very, very discretionary. So they won't. I don't think they could have the heavy hand that they have, you know, with physicians, but who knows? Once they get enough of it, they would.

It does. You know, just talking through this, the dentists, if. If they can stop fighting within themselves, which I think that story's finally coming to an end where they were arguing over which business model between themselves was the right one. And it's like, hey, you know, you're all dentists. Stop throwing spears at each other. Just march forward, you know, supporting one another. But I think now that that story, I hope, is coming to an end, that they can look out and go, holy crap, 60% of patients aren't even coming to the dentist. They've gotten distracted in the last 20 years with technology, and I don't know anything else I want to do other than go get a root canal. So I think we're going to need to step up and start. Not fall into the same trap that physicians did and really bring value to the customer.

Well, I think, to me, one of the big reasons that I've always loved working with Dennis and the reason that I made this career life changing move for myself was because I always felt by and large I had plenty of physicians who were wonderful clients and great friends. But when I compared dentists to accountants and to bankers and to physicians, dentists really are very entrepreneurial and they're very willing to leverage themselves with process and people and technology and all of that. And so if you help them to see the forecast and what's possible, I feel like they, they will work together and solve the riddle as we go forward. It's hard right now because there's so much disruptive and it's disruption. It's happening so quickly. You know, everybody wants to time the market. Well, I better not wait, I better, I better buy this practice before somebody else does, or I better sell before the multiples come down or whatever. And that's what, that's why we're trying to get people to just, you know, go slow, to go fast, take your time. Let's look at the numbers and project them out. You got plenty of time. We're gonna be fine.

You know, that's such great advice. Dr. Evans and I got lucky early on that we had a mentor who had been in other health care and he said, if you'll approach this as if you're gonna hold this for the next 25 years, build an organization that you're proud of, it'll all play out fine. And if you missed this timing, you can catch it on the other side. But just build something of quality and you won't have a problem.

And then you don't have to worry about the recessions or the change in the market. You're still solid and you're going to be more valuable anyway. You're going to be more profitable, better cash flow, very efficient. And so all of that's what drives value anyhow, right?

Yeah, man, this is awesome. This has been a great discussion, I have to admit, a lot deeper than I usually can have with an accountant. So I appreciate your perspective. Okay, so I want to give our listeners some, some trigger points, some things that, with your experience and frankly with the value that your firms bring into the marketplace, like what are some things they need to be conscious of and when they hit that constraint or run into that problem, when should they maybe think of you as a possible solution for that?

Yeah, so, you know, there's a couple of things that go into that, Emmett, for us and you know, really the dark tunnel begins very early and we talk about, you know, whatever it is, two to 25 locations, you can, you're in that dark Tunnel waiting, trying to, you can see where you want to be, but it's awfully hard to get there because you need resources you can't afford yet. And so when we typically get the first call, it's when somebody is in great pain and they're already there and they're already in a cash flow crunch. The bank's already talking to them about debt service covenants. They didn't realize the bank wouldn't lend for the fifth location after they had the fourth and they're not sure what to do. They've already scaled up in terms of investment, but they've got to get to location 7 or 8 for it to make sense and get a return. And they can't get the financing for, et cetera, whatever it would be. There's something that they haven't really had an opportunity to prepare themselves for. So that's usually the call we get. And so again, we start with strategy and we start moving forward. So certainly as you start to feel cash flow pain, you start to feel frustration as to, you know, we know we've got the right plan from a clinical perspective, we know we've got a good basic model and a long term vision, but we just can't make the numbers work, the finance and the accounting work. That's where we come in. We're not strategic consultants and we're going to come in and tell you how to run a clinical side of the practice. That's not what we do in operations and so forth. It's strictly, let us be your accounting and finance partners. Whether that's again, like we said earlier, the fractional accounting and finance program can help whether you have two locations or 25 locations, because you still have those steps where you need the extra senior accountant but you don't need them yet, or you need, you know, you've got the control, you're not quite ready for a cfo, whatever it is, all along. There's five steps along the way where you're going to need people, but you're going to have to over invest and we can fill in the gaps there. And that's what we do. We sort of work ourselves in and out of a job, all the way up the staircase, if you will.

No, that's huge. I mean, 99% of what people are looking for is just some clarity. Right. Like, and you know, Ken did a podcast on this, but so many early on are just using the bank account as their measuring stick of hey, things are going well, things aren't going well, et cetera. And the reality is it very quickly gets more complex than what that measuring stick can actually tell you. Cash might be tight, but you might be doing excellent. You just need to know how long you need to wait it out. Other times, cash could be excellent and you could be driving off a cliff. And you need to know that, hey, we're going in the wrong direction right now.

Well, we try really hard to simplify that and try to bridge the gap between operational systems, accounting systems, bridge the gap between clinical and business, help sort of mesh that language together, that vision together, so that they're speaking the same language. We use scoreboards that have numbers for the numbers people, and they have pictures for the picture people, and they're pulling key performance indicators from, you know, both sides of the house. They go to cash flow. We can do accrual basis, we can do a buy locations, we can do it consolidated by specialty all. We can do it separately and pull it together whenever they want to. It's all done by Brandon. He's, you know, the analyst that can pull all the stuff together that way. And we do normalized EBITDA right from the start so that they can always know where they stand there, how that's going to be calculated and what they're driving for, et cetera, Help them determine, you know, what that MSA should look like, what should be covered, what should be centralized, and when. More importantly, when should you. When you scale up your centralization in each area and what that's going to do, how long it'll take to get a return. Anyway, point is to make that as simple as possible and have that information available while they're scaling with the ability to look forward, if that makes sense.

Yeah, that's huge. Okay, so ideal customer, you mentioned kind of early on, if the dentist has kind of got a single practice, really has no interest of ever scaling, just hopes to kind of work the practice for the next 30 years and then give it to his son or daughter or whatever. Not as ideal of a customer for you, right?

That's right.

But somebody who's looking forward, who's thinking about additional locations. Maybe they're already in to 2, 3 or 10, and they're going, man, the bazooka I'm using, you know, is a pea shooter. And I need some additional firepower and some clarity around some of this finance stuff. And I need more than just my tax return being done. Well, I need some additional things they need to be thinking about. Okay, this is a resource I could use.

That's a great. Yeah, that was excellent. Emmett, thank you. I wish I had recorded that. Essentially, that's it. I mean, it's really about the scaling practice. The one who wants to scale. We can help with finance, we can help with financing, we can help put them in contact with the right people to get the right partners, et cetera. We can help them put the incentive programs together. We can, you know, drive, help drive profitability by working with them to put, you know, incentive pay together for the team, et cetera, that whatever we still have. I'll mention though, we do still have 200 private practices. Now they might be 1, 2, 3 docs, couple associates or whatever, private practices. But the reason that we're still well connected is they are preparing to sell. You know, they're the baby boomers that are, you know, they want to drive.

So yeah, if retirement or some transaction transition is line of sight, another great resource there because you kind of want to optimize things before doing that transaction.

That's right, yeah. And then on the other end of the scale, I mean, again, you know, that scaling up process we, I didn't mention, I'll quickly mention this to you. One of the other industry specialties we have is banking. And so we work with lots of banks. Not our team, not my team, but another team. And so we're great at connecting the right people who want to go beyond that fourth location, et cetera, that sort of thing, and aren't ready yet for private equity or strategic or, you know, financial partner. But the ones that are, we're all there. We're ready to help them, you know, present themselves in the right light. We love working with the larger DSOs in every other way. You know, that could be, you know, buy side due diligence. It can be, you know, the quality of earnings. It can be assurance work. Maybe they need audits, you know, reviews or, you know, help with debt covenant, revenue recognition, cash accrual consolidation, systems analysis, accounting systems analysis, all that stuff. Fraud prevention, cybersecurity, we have teams that work through all that. So that's the best sales pitch. I'm not a good salesperson.

That's great.

Yeah.

Now the only thing right now that I'm going to be waiting for is the team of psychologists for the. That's the last thing and then you'll be complete. So this has been awesome. Now we're going to have to do this in a separate podcast, but I'd love to talk through the banking piece and I know that a lot of people are struggling with that again in a consolidating industry, that's still something that's figuring itself out. Right. You've got banks. You got banks who were really built to do real estate and hard assets. And yet they look at this industry that has a 0.5, 0.3% default rate and they're like, I want to lend into it. Yeah. But there's no assets. And so they don't know how to, how to do it except slowly. And most of us never want to go slowly.

Well, we've got some banks that really, they think the right way and some, and some relationships therein. But it's, it's. I mean, you got to really present it appropriately because they love, they're either asset lenders or the cash flow lenders. And when you're scaling up, it's hard to show a consistent cash flow as you're taking those steps. And so, but we've been pretty successful at helping them to see that. So that is something we could talk about whenever you like.

Okay, great. Yeah, I know lots of listeners are interested in solving that. Man, this has been super rich, I have to admit. Even better than I thought. And I thought it was going to be good. And I think there's a lot of resources here that, you know, if no one ever called you, they still have such a better understanding. So thank you for being so generous about that and sharing your experience. I think with confidence we can say, okay, story is going to keep moving this way. Right. And we need to build a quality shop. But if people are finding themselves in some of those trigger points, let's give them your information. So what's the best way to find out about you or contact you?

Sure. Yeah. Thank you. Just reach out to me directly, Mark Rudolph. And you can email me@mark rudolphiottdavis.com Elliot Davis. Well, Elliot has two L's and two T's, which is often missed. So the website's www.elliottdavis2l's2t's.com My direct number, 7043-4325-8270-4343-2582. Love to have a conversation because I always learn from conversations. No obligation.

Doesn't cost anything for that first couple call. Right?

Exactly right.

Get some clarity. So, yeah, ask a lot of questions when you first call Mark. That will be fun. Well, Mark, again, thank you so much. Thanks for your time today and I just really appreciate it.

Thank you. And I really appreciate you.

If you want to continue this conversation, come over on our website, over on Facebook, DSO Secrets. And until next time, keep smiling.

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