A Buyers Story Every Dentist Should Listen to with Dr. Tim Garofolo

Hey, dental associates and new practice owners. Welcome to the Associates on Fire podcast, powered by Practice cfo. This is the podcast that teaches you what you never learned in dental school, the financial side of dentistry. We cover topics from planning for ownership, buying a practice, to student loans, taxes, and all things financial for the hungry to learn. Dental associate. So let's light it up.

All right, welcome, everybody. I have with us today Dr. Tim Garofalo, owner of the Dentistry Collective, which is here in San Diego in Rancho Bernardo. Right, Tim.

Yep, yep.

And I Met Tim in 2015, shortly after, actually, I had moved down to San Diego myself and had started practice cfo. And it's been a journey. Could we agree on that?

Yeah. I don't know if you met me or rescued me is how I'd like to say it.

You have a. You have a really cool story. I think one of the. My favorite stories of anybody I've worked with over the past five years. A real story of grit, of learning, of overcoming and ultimately achieving a really successful practice. So I'm going to back up a little bit to when we met back earlier today. I was looking at your balance sheet from 2015, and I even had a balance sheet. We put one together for you.

Okay, good.

And it had 1.4 million of debt on the practice, which isn't unusual, don't get me wrong, it's not unusual to buy a good sized debt. But you have a story of how sort of your debt came to be and about your building. And there's even a lawsuit in there. We want to hear about that. But you were at 1.4 million in debt. And if I recall, life felt like a battle back then.

Yeah.

And now fast forward and I would say sincerely that you're crushing it. And so I want to hear your story from the battle to crushing it. I mean, today you have virtually no debt. I'm going to take off the car debt. We'll call that sort of personal debt, but practice debt. I looked at your balance sheet and I think you only had a little bit on a. On a CAD Cam loan. Or is that all paid off now?

Yeah, I think I. With. You're right. I think there's about maybe 10:12.

Yeah, it was like, it was. It was about $10,000. So you went from 1.4 million in debt, which included practice acquisition, included a CT and included, I think a ceraclone.

Right, right.

Five years. That's it. Five years and it's gone.

Right. Yeah.

I want to hear about, about this. You and I have gone We've gone through quite the experience and even a disagreement at time about how to allocate some of your money.

And that, and the loan to shareholder was also off the charts. I didn't even know what that was. And that was something, thanks to you that you helped because that was from, I think, bad accounting.

Yeah, yeah. Actually we'll take a second talk about that. That's one of the important videos in our Associates on Fire program is explaining what is this thing called a loan to shareholder, that virtually all dentists, I would say 80 to 90% of new dentists fall into this hole called a loan to shareholder, which is simply when you distribute out of your practice into your personal account or you pay for personal expenses on your business account, which is the equivalent of a distribution, and you distribute more than the taxable income in your account. Now a lot of dentists, young dentists, will say, how can I possibly distribute more, more out of my account than my taxable income? Well, the reason why is when you buy a dental practice, you have, you have all of these assets you buy because it's typically an asset purchase. You're not buying the stock of the seller, you're buying their assets, which is their dental chairs, their X ray machines, their furniture and fixtures, all that stuff. And then the difference goes to goodwill, which is an intangible asset. And so you see a lot of deduction from those assets through this thing called depreciation within the first five years. The goodwill is amortized over 15 years. So that's a little bit longer, but it really pushes your taxable income down low. And if you do build outs, you have more of this depreciation. And yet you financed this over a ten year period.

Right.

So you get all these deductions in the first few years. You're not really paying for it right away because you're paying for it over 10 years. And all those deductions push your taxable income down lower than your cash balance, or what I call your cash flow income. And so you have this false sense of security that, wow, I have extra cash, I can go pull it out of the practice. And when that happens, then we end up having this loan to shareholder. Sometimes bad accounting, like you said, can also create this. And I think you had bought the practice in 2007. You and I met about seven, eight years later, 2015 or so, and there was a pretty significant loan to shareholder balance in addition to the debt with the bank of 1.4 million.

It was the highest you've ever seen, right?

Yeah, at that point. It was. I think I've seen one little higher now, even. Okay, if I recall, Wasn't it like 300,000 or so? It was, yeah. Normally these things can stay under 100, and if they standard 100, the IRS doesn't isn't worried too much. The reason why you do it as a loan to you, the shareholder from your practice is instead of calling it a distribution, it's a loan. And the reason why you do that is because a loan isn't taxable, but a distribution that exceeds your taxable income. What's called your tax basis. Right. That has sort of this penalty tax.

Yeah.

It's called an excess distributions tax. And we don't want you to pay an unnecessary tax. We call it a loan.

Yeah. And I remember I just met you, and I could tell you were trying your hardest to not show on your face how bad off I actually was. So I thank you for that. But didn't you say you were on vacation and you were.

I was up in Alaska meeting with a client.

Yep, that's right.

And I remember feeling this moment of, like, despair coming from, like, Wes, is it worth it?

Should I even try to save this guy or what?

So you clearly saved it. Let's now jump into your story. I want to start off with the name of your practice, the Dentistry Collective.

Tell us why the Dentistry Collective. You know, that. That name basically was. You know, we had to change our name. We used to be San Diego Dentistry Studio. And it was funny because since then, there was San Diego Dental Studio. There was, you know, I think there's a couple other dental studios that popped up. And so we wanted to rebrand. I also had kind of a mindset shift a few years ago, and I wanted to, you know, I. I came from the mindset that I'm not the only one that can make my practice a success. It's a team effort, and it really comes down to who's on your team. And, you know, the. I hate using the word culture because it's such an overplayed term anymore, but.

I don't know if you can overplay. Right. It's so differential in practices. Those that are successful and those that struggle.

Right. And there's a. There's a quote that I have on my. In my office. It says culture eats strategy for breakfast. Because it really does. And it's, you know, so we wanted to. I wanted to include the whole team in the name and not just make it, you know, Tim Garfolo's practice or, you know, I didn't want to have my name on the wall. I wanted to have the whole team because, you know, we. I had a new growth mindset, and so it's a team effort. And we also wanted to include, you know, not just us, it's also the patients, and that's what also makes the practice work. And that's something that I think a lot of people overlook, is that gratitude towards who you're serving and the surrounding community. So we were kind of playing with it. We just came up with the Dentistry Collective because it's a complete, you know, co op of people that all come together from various parts of the community to make it all work, and that's who we're trying to serve.

Speaking of that, the community, I know on your website you talk about your charity days, your charity dental work, and you and I have spoken when some of those days have come up, and I've always been impressed by that. How has that affected your culture and experience with your patients? And sort of the brand of the dentistry collective, right?

It's actually, you know, if you can get into the mindset that the more you give, the more you get. And there's. There's just truth to that. And, you know, when I did my residency at the. The Veterans Hospital up in San Francisco, I. I never served, but I. That was my chance to see real life, you know, drama of what war does the people play out in front of us and realize that these vets that I was working on really don't have a lot of other options besides the VA and you have to be 100% service disabled connected to be eligible for dental benefits in the va. So there's a lot of people out there, especially the vets, that aren't 100% service disabled connected to receive benefits, and they don't really have anywhere else to go. So one of our first big events that's turned into, I call it our super bowl of the year is our Smiles for Veterans every year. Where this last year we saw, yeah, we saw 52 vets, and we did almost $50,000 of free dentistry in one day. And it was. It keeps snowballing, and we keep getting more and more volunteers from other offices. We had a couple hygienists come over and a couple other assistants come over from other offices, and friends of friends came and just helped out. And it's turned into such a great event. And then I'm like, you know, that feeling is the reward you get from that is better than any type of monetary payment that you can get. From just dentistry. And that's what.

Keeps the people that, that work on our team motivated to realize who it is that they're working for, who it is that we're serving, which is our community, and kind of keeps me grounded and reminds me what it's all about. Because even though we're a first world country, you know, only about a third to half of Americans even see the dentist every year or have the ability to see the dentist. So there's still a big need out there. So even though it feels like we're just kind of scratching the surface, it feels good knowing that we're doing our part.

So let's go back a little bit, predating our experience of meeting each other. And as you know, this podcast is a part of our Associates on Fire program and we're tailoring all of the content for associates who are either in dental school, coming out of dental school, or maybe earlier in their career, or they're simply not owners yet wanting to become owners and go Back to pre 2007. You're an associate thinking about all the things you've learned over this time. What would you say would help you back then or that you feel would help associates today as they prepare for ownership and acquiring a practice?

Find a mentor immediately. And that's, that's the biggest thing.

I know personally. When I came out, I was always kind of rebellious. I thought I was an associate for a few years and I'm like, I can do this. I can do this on my own. I can. You know, this is, you know, and that's great. That's, that's, you know, you need to have that mindset to become an owner eventually. But make sure that you partner up if you are working for an office with somebody that's willing to spend time with you to help mentor you on things. Because it's funny when you're supposed to be doing your due diligence. When I was buying the practice, I basically was looking at X rays and chart notes and I just, was literally just kicking the tires. And it's good, it's good, good. I had no idea what due diligence even meant. I didn't know what P and L meant. I didn't know what, what anything.

They don't teach it in dental school.

You don't know the guts of the business. And as smart as, you know, most dental students are, you know, we, we've answered a lot of biology questions, we've answered a lot of multiple choice questions, and we have enough dentistry knowledge to really get in Trouble pretty much coming out of school. And so we aren't armed with the business backgrounds or with, you know, just how things work, really with relationships that you have with supply reps, with accountants, with landlords, with all those things you come out and you kind of have a bright red mark on you by seasoned business people. And that was kind of my experience with, you know, I, I probably way overpaid for the practice that I purchased. It was kind of a sinking ship that the more I got into the practice, I realized what all the problems were. And then definitely with the landlord's situation, which turned into a lawsuit, which I can go into a little bit there. But if I had taken the time to find the right mentor and find the right relationship from the beginning, I think that that would have saved me a lot of grief for sure. And a lot of that's dropping your ego immediately. And then, you know, a lot of it is asking for help. And that's hard for a lot of dental students coming out and to realize that we don't know everything, especially business. I mean, business is another four year degree with, you know, MBAs and graduate schools. And how many businesses fail? It's like, so there's a lot. I mean, businesses is itself.

Its own field. And so dentistry is unique, that you need to be.

Just as talented at the business side as you are at the dentistry side.

Yeah. The interesting thing is I'm at dental schools and I've shared this a couple times, probably to the Associates on Fire audience. But I ask people to raise their hands. How many of you want to own your own practice? And it's easily 90% of the hands in the room are go up. But the statistics are dramatically less than that once they're out. And it's because they're facing those challenges of really, I have to, I have to set up an entity, a corporation, a tax id. I have payroll, I have debt, I have taxes, I have to get all this insurance related to liability protection. I have hr, I've got marketing, I've got bank accounts I have to manage now and cash flows. I have to interact with a CPA and an attorney and all of these things. And they're never taught how to handle those interactions. And what is a healthy business from a financial management standpoint and somebody who's been there, I mean, you would be an amazing mentor. Imagine if I came out of dental school and you and I get to know each other And I say, Dr. Garofalo, help me what, Help me get through this. What are some of the pitfalls that I need to be aware of. We talk a little bit in our Associates on Fire program about organizing that team and I personally feel now this is a little bit self serving, so we're dental only, but I feel like when an associate needs to get representation, when they buy a practice, they really need somebody who can decipher the numbers and who has done that hundreds and hundreds of times so that right off the bat they know what they're looking for. For example, today we were help somebody who's doing the due diligence on a practice. They engaged us and the supplies were at about 28% of collections. And the brokers don't indicate why. Normally your supplies, you know, they're around 6 to 8%.

Right.

So why, why was it so high? There's nothing in the broker's prospectus. Nobody knows anything. That's something you've got to ask about and it should stand out right away. The other thing is it's a Delta Premier practice and this doctor is not going to get Delta Premier reimbursement rates. The buyer is going to get Delta pp. And now we need to look under the hood to see what does it mean when this doctor is only going to get $600 as a reimbursement for a crown rather than $1,200 or $1,100 under the Premier structure. And then the seller wants to associate back for a couple years. Well, what does that mean to the cash flow of this practice? Can the doctor pay their overhead, their debt and their taxes? What are they going to take home? And is it enough to cover student loans and the cost of living in Southern California? It's a really important set of or analysis that one needs to go through in deciding is this the right practice for me.

And the big red flag with that I always think of is how many of those patients are truly going to switch over to the new doctor.

Good point.

Versus sticking with the old doctor because they trust them more. So what's that going to do to, you know, you're going to have to pay, pay that doctor more in a percentage of production versus acquiring it yourself. So those are always things that I didn't know then either.

Yeah. And I think with the right analysis and the right team, two things happen. One, the buyer is able to step into ownership much more informed on the language of business. It's almost like that process of buying a practice where you're going through the profit and loss statement. You're talking with your cpa, you're talking with the attorney, it's almost like a Runway of learning. So that when you, after you buy and you step into ownership, now you're in the air. Now it's now it's now it's real. And now you're already speaking some of that, some of that language.

And I think it costs a little bit and I acknowledge that it costs to have a cpa, it costs to have an attorney. So what I always recommend doctors do when they're out of school is to continue living like a dental student. For a while now you've been living like a dental student.

Yeah.

You mean I'm 15 years. Yeah, I mean you're like the epitome of living like a dental student. Which I do have a question for you on how you manage your personal financial affairs and your budgeting. I want to punt that just for a moment, but, but if you can do that in those first few years and save a little bit of money, it's going to create opportunity for you to have the right representation, for example, or to be less risky to a bank and get a better interest rate perhaps when you buy the practice and just give you what I call sleep insurance to have that cushion set aside. But if you come out of dental school and you release all the pent up consumerism as I call it, this demand, and you're always l on the fringes of your, of your bank account, then you never really have that level of comfort and safety and the opportunities that it can afford you as well. Let's actually jump into that now since, since we sort of brought that up naturally in the conversation about budgeting when it comes to managing a business. The way that I look at your business as a dentist is you're not an Apple or a Microsoft or an ExxonMobil. It's really one person and I'm talking about a single practice, single doctor owned practice. And I look at your business bank account as one pocket and your personal bank account as another pocket. Now you have a number of business accounts which I'd love for you to sort of explain your methodology there. But budgeting is a global activity between the two pockets. So how you budget in the practice affects how you, how much income you have personally and how well you budget personally affects how much cash is retained in the business to invest in things like marketing or consulting or growing or hiring or build outs or whatever that is. Share with me because I think you have a really a very nuanced way of handling your finances that I think served you very well, which may not be for everybody. And you and I have discussed the advantages and disadvantages of having multiple accounts within your practice, but I really want you to share with the associates how you've done it and why.

Yeah, you know, that's important that you look at it as two different entities. And you also have to look at the business as the golden goose. And that's like, you want to make sure that.

You know, you are not stealing from the golden goose or, you know, stressing it out by separating the personal and the business. I was in a situation, I think you had mentioned earlier, that I was able to pay off close to $1 million in. What was it about.

By $1.4 million in about five, five and a half years.

And then the last loan that we Consolidated was a $950,000 loan that I paid off in about two and a half years. Right. So the first thing that you need to do is you need to really realize is you aren't entitled to anything. And you. You have to pay yourself what the numbers show you. You can pay yourself. A lot of people think that they're the dentist now. I'm going to live this lifestyle whether the practice supports it or not. So there's a good amount of getting rid of your ego and realizing that you aren't owed anything. And that was something that I had to learn the hard way. And that's one of the biggest lessons, I think, that's helped me to go to that extreme amount of paying down debt at a very fast pace, to get propelled ahead to where I am now. But the way I. I did it was I. I shrunk down. I did personal inventory of exactly what I need to just live. And it wasn't the most glorious lifestyle that I was living. I think you can attest to that. Granted, I am single. I don't have kids and a family, so I'm able to really shrink down.

But the lowest budget by probably a multiple factor of three, really, of any. Of any here in San Diego. That's right.

That's what I paid myself. I kind of pride myself on that. But. And it was out of, kind of necessity because I came in kind of a sinking ship. But after you realize that, it kind of got more interesting to see how. How much further I could take it by. By slimming things down, because I could see what was happening to my net worth and things on the business side that was going way up. And so the way that I. I started organizing my business was, first off, sitting down with you and getting a hold of my numbers, because if you don't know what your numbers are, there's probably still a lot of dentists that are afraid to open up their, their bank accounts and maybe look at them maybe once or twice a month to realize how much money's in there, because they don't know where their money is and would rather not look. But the way I manage it is, as you said, I have about 10 bank accounts, and I've put, I look at them as buckets. And so all the major expenses, supplies, payroll, loans, taxes, all, all that is rent, all those are in different buckets. So I pretty much set a base number of where I want my master account to be. Say it's at 50,000. I wake up in the morning, I see how much money hits the account, and I wash that account down back to 50,000 by dispersing all the money into the other buckets. So that way I'm not sitting there and looking at $180,000 in one account. I'm looking at my only, my master account to see, okay, I'm at 50, I have to protect the 50. It's a psychological thing that you kind of zero out that account every day because that takes away from my.

My will to spend frivolous money. I'm concentrated strictly on keeping that 50, at least at all costs, not to dip below that versus, you know, if I have a hundred, I may have up to like, there may be over $200,000 in all my accounts, But I know that I have payroll due in three days. So I have, you know, I'll have about 45 grand in that payroll for that, for that week. I'll know when those payments are due. And it's just so that I will not mess with that master account. So I definitely have a baseline there that I will not deter from running it that way. I wake up every morning and I, every morning I look at the accounts and I disperse the money. And that's just my way of doing it, to keep it organized so that I know where every dollar is. And it also, when I walk into the office that day, I'm motivated to, to produce. I think if you were to see just two hundred and some thousand dollars in a master account, that's a false sense of security because a lot of that money is there now, but it won't be there a week or two from now. So right this way, it's also a good way to save, which if I know that that money is out of sight and going into the saving accounts or how we had set it up with the 401k with all those things on the money just leaves the account right away. I'm always kind of hungry, but I also know that I'm sticking to the plan.

It's a good engagement of the numbers. It makes me think of how when I'm exercising, which I don't always do, but when I get into exercising, guess what else? I naturally start to think about what I'm eating, and then when I'm not exercising, I don't think about what I'm eating. And it's like if you're looking at your, the way you're doing it, you're doing a daily cash management activity, you're looking at it, and by virtue of you looking at it, the extension is, you're going to think about the way that you spend your money. They go hand in hand. And most of, I would say all of the dentists that I've interacted with over time, the ones that tend to do better financially, they're a little more engaged than I would say, your average dentist with their financial affairs. And some do something daily, some do something throughout the month, but they're, they're looking at their financial statement. They know it's in their bank account. You, for example, said, I've got payroll going to go out. It's $45,000. You know how much is about to go out before it even goes out. A lot of business owners, a lot of dentists aren't quite sure what that number is going to be. And so there's always a little bit of this guessing game. But being very precise about your money management is really important.

A great, a great homework assignment you can do to see how knowledgeable you are is if you can sit out and write out your personal financial statement without looking and be pretty close, which I think I probably could do right now, to maybe the, to the thousand or two thousand of accuracy. I think just having that awareness, you know how much debt you have, you know how much those payments are, you know when they're due, like all those things. And I'm not smarter than anybody else, it's just being constantly aware of the numbers. And that's that way if, you know, a rep walks in and wants to sell you a new laser, you're going to think twice about that because you want to stick to your plan. And so the frivolous spending goes away. Like you said, like you're eating better. You're not going to sit down and pound a bag of chorizo or doritos if you're, you know, you spent all this time working out all week, you know, just. You're right. The more that you're involved, I think the, the easier it gets to stay disciplined because you don't want to throw.

That plan out totally. And I want to emphasize one thing that's worked extremely well in your case, and it's something I try to apply to all clients we work with as their CFOs, is the way we budget is we pull out a specific amount out of your practice into your personal checking account. We do it through payroll. And then, and then we fix that. Doesn't mean you can't pull out more at different times, but there's always a designated purpose when you pull money out. So if your monthly budget is, let's say, $14,000 a month, cover your student loans, cover all Your living expense, $14,000 a month might be twice a month, $7,000 each, and then you live on that.

That's a lot, by the way.

That's a lot for some people, such as yourself.

Well, I was down. I think I was doing four grand a pay period for myself.

Yeah, I think so.

And that was like. That was right when we started. And what's funny is I'm still living in that budget in that perspective.

Yeah.

And, and so it was hard at first, that adjustment. But it's like you, you. I remember you telling me that I have to take a raise. You actually talked me into that.

I remember you were practically living out of your car, eating at McDonald's, and I was like, Dr. Got. Follow me. Yeah. Your practice is doing well. You can give you a little bump here, but ultimately that's sort of a personal decision. What I feel our role is, is to give context. What does this mean? If you're pulling out X out of the practice, personally, what does this mean to your practice? What's going to happen to the cash balance in your practice and for you? Your cash balance was able to go up pretty rapidly because you lived so frequently on the personal side. And then you were able to use that for different things to grow your practice. Let's pivot to that a little bit. The unique thing about you, I think, as a, as a manager of your finances, is that you're very.

I think, frugal in some areas of spending. You really watch it closely. You ask about things if it doesn't make sense. But in other areas, you're willing to. You're a lot more liberal to spend on certain things. Practice management consulting, for example, is an area where you've been very liberal in doing that and you look at it as this investment. And I've seen these very much hit or miss. And I'm going to have some practice management consultants come in, we're going to do some podcasts. So I think very favorably of the, of the important lessons that they teach dentists. Tell me, tell me what, what areas have you felt have been important investments where you've been a little more liberal in the outlay of your cash in your practice?

It's kind of like what I was starting with by saying find a mentor. And that's, that's what these practice management companies can do if you find the right one. But I, I think that you need to educate and surround yourself. Well, let me start off. You need to surround yourself with people that know more than you all the time. And that's where I think when you're a dentist, you're on an island by yourself. You, you kind of have your head down and you're working on patients and you think you're doing the right things, you think you're doing the best practices. But, you know, how do you know? You know, it's like when you surround yourself with an experienced consulting company that has been in thousands of offices and know what's, what works and has, you know, best practices that are, we call evergreen principles that are, you know, true. That's when you need to really just be quiet and soak all that in and really just do what they say. That's what I've done the last four or five years. And I think, you know, that coupled with getting organized financially has really helped me take more of a CEO approach to the practice. And I think that we're almost within the next year, we're already going to be doubling in the matter of three and a half years, four years of doing, just working with a consulting, doubling in size. And you know, you've got to surround yourself with the right people. You cannot do it on your own or you shouldn't. There's very few cases where somebody just figures it out on their own and they're just crushing. I mean, most successful people on earth have coaches and mentors. And that's, that's why I'm, I'm able to see the value in that. And also you got to be there. You have to have a little bit of risk. You. I am more of a quick start type personality where you're right, I am conservative with, with money, with certain types of spending, but I see the value in marketing I see the value in buying the right equipment. I see the value in. And not all equipment, the right equipment.

And then, you know, and, and the right continuing education. You want to make sure that you're doing something that directly results in an increase in cash flow in your office. And finding those right things out will help with. If you have the right consulting and mentors in your one.

There's a documentary, actually, I haven't watched it, but I was talking with a friend about. It's about Tom Brady. And one thing about Tom Brady is that he sought out coaching probably more than any other quarterback and always did. And he would hold his coaches very accountable to their own effectiveness in coaching him and holding him to high standards. And I think there's something to be said about that example that people who want to do something.

Out of the norm, something, something more aggressive, more a faster road to meeting their goals is they seek after the right type of coaching, whether that's practice management coaching, financial coaching, some form of doctor to doctor coaching. They seek learning and then they, then they apply that, that learning. They're not lax in the way they approach their leadership and the way that they innovate within their practice. And we all have blind spots. There's a great book by Ray Dalio called Princip. In fact, you told me about that.

So I bought that book and I read that book.

Insane, isn't it?

Yeah, but he talks about our blind spots.

Right?

And you don't, you don't know what your blind spots are. The only way you're going to learn that is if other people observe you and, and then bring them to light and then you do something about it. Really good comments there. I want to spend a minute on the, the lawsuit experience. Okay, well, and this will, this will be on the subject of what have you learned during your period as an ownership? Tell us about that. And what did you learn?

Well, I'll just tell you, I'll summarize. I was an associate at a practice in 2006, the same practice that I ended up buying. But I was there. I went from working one Friday a week to pretty much buying the practice. Within about six months.

The practice had two or three associates that were part time. There was one permanent temporary assistant on payroll, if that made sense. Every day they just had a temporary assistant coming in. I had no idea why they. There was an office manager that I think had a chemical abuse problem that I found out. And there was just all this stuff that you don't know about. And like I said, I Didn't have the team, I didn't have a mentor. I just, just went in and thought I could, you know, just buy this practice. The numbers looked all right until we realized that he was only. He was running about a 10 margin, 9% I think is what it was. And it was just kind of a nightmare. But right when I bought the practice, it was in a strip mall and I had to get the extension of the lease signed in so that I could buy the practice. So they wrote two five year extensions.

And one of the reasons for that, by the way, is because banks won't lend to you unless there's enough term on the lease that at least equals the term on the loan.

Correct? Correct. And you have to also get a life insurance policy for that.

Right.

So basically they, the, the landlord signed that over. I bought the practice for 1.2 million.

1.15 million, sorry. The selling doctor carried a note for 350,000. And I think I used Wells Fargo, I think, for the, the. But. And then this was the best part. A couple weeks later, I dropped something back off at the landlord and he was like, oh, by the way, that original 10 year lease is up that you're in right now in 13 months. And I want you to know that your new rent is going from two and a quarter a square foot to four and a quarter a square foot plus triple net. And I was like, what's triple net? And so that's how little I knew. And so that's why going back, find a mentor.

Right.

But.

Basically there was 3, 600 square feet. So I was going from about, maybe 8, 500amonth in rent to now 18,000amonth in rent. And I asked him, I said, can we negotiate this? And he's like, we're the hot blonde at prom. We get to pick whoever we want at the end of the night and that type of thing. I was like, what? And pretty much that was it.

Practice was collecting what when you bought it?

I'd say about close to 1.4, 1.5, 1.4. But remember, I didn't realize that it was running at only about a 90% overhead. So that's something I didn't know.

That pretty much soaked up whatever remaining cash flow there is. And that would put your facility costs at around, I think in my head the numbers were at 15% to 17% of your collections. Overhead should be around 7 to 10% of collections. Here in San Diego, it's usually maybe, maybe 8 to 8 to 11%, but high over high, that dramatically Increased your overhead, wiped away the cash flow.

And so I didn't know that though, so, but I thought I was, you know, this goes into that mindset. I have my own practice. I'll make it happen.

Now, is this not something that the, that the attorney reviewing the lease or negotiating with the landlord to get the lease assigned would have been able to spot?

No, because they knew that I was green and they, they didn't say anything about it when they were signing the five year extensions.

So you had the extension, but they had the ability to move the rent to whatever it was going to be.

Right. And so in those extensions, you know, and it's funny because the attorney I was using only represented dentists. So I thought that I was doing everything right. I thought I had a, had an attorney. I felt like a badass. You know, I had my own attorney. How cool is that? I'm only, you know, 20. I got my own intern. Anyway, so. Anyway, so it's funny, like, I just wish I could go back in time and slap myself silly. But you can't. But what Then I had the decision. I was like, well, if I'm going to be paying an extra, you know, $9,000 a month, what's that look like? Versus building out a new spot with new equipment and the limited capacity for crunching numbers that I had. I, and I'm glad I kind of actually did. It was it made more sense to find a new spot. We build out then another practice, it was another 3,200 square foot adopt practice about half a mile away. But that cost me another 650,000. So I was 1.2 pretty much plus the 650. So now I'm at 1.85.

You're approaching 2.

Yeah. And that's my first 13 months of owning a practice. The thing that happened then was my back went out, which is another part of dentistry that a lot of younger dentists don't realize is that is a very fatiguing.

Job on our bodies. We have poor posture. Even though they give us loops and all that, we still have poor posture. And so my back, I started getting sciatic pain. So right when I bought the practice and put a deposit down on the new build out, I started getting severe sciatic pain and I had to go in for an emergency dissectomy surgery on my back. And this was right during all this.

It was also I was buying a townhouse because now that I was an owner, I thought I needed a house right away. That was my entitlement issue that I had So I was building a house, building a brand new office back goes out. I can't take the time off to recover from that 100 because we're the production lines. And so right when I moved into the new place, it was Memorial Day of 08. The old landlord contacted me and said that they wanted me to be on the hook for one year for them to try and. Because I put all new dental equipment in the new office. So they still had all the old equipment over there. They said, well we want to look for a year to try and find another dentist to come into this space. Otherwise after a year I want you to come back and shell out the old space. And that was about another 60, $70,000 in the lease. They only had 30 days to tell me and it just so happened to be the 42nd day after I had moved. So I told them to pound sand and you know, good luck with that.

And about three weeks later I got subpoenaed and they'd sued me for $250,000 at the California Wow High court saying that I was in violation of contract breach. And you know, then I was really felt the, the walls caving in around me because I have, you know, close to $25,000 a month now in debt between a build out and you know, the old practice. Then I had, you know, all these attorney bills. Now because you have to fight that. I ended up short selling my townhouse so that I could fight the four and a half year lawsuit that cost me over 100 and some thousand dollars in attorney bills. Now do you think I was an effective leader? Do you think I was an effective anything at that moment? Because you're treating patients, you're running a team and you know, or then I had a staff. I don't call it, I don't call my team a staff anymore. I always say a staff is an infection, we're a team. But so, but I treated him like a team or like a, like a staff. I mean. And I, I was toxic to be around. I was stressed, couldn't sleep. I was slowly watching the numbers of my practice dwindle, I think down around right before I met you. I, I think we were down to about 1.3. So I just slowly went from about a $1.5 million a year office and just started steadily declining ever since.

And your expenses are going up?

Yeah, I mean it's like I, I had no idea what I was spending. I. And I had an office manager. It was a revolving door at my office because I mean I Had no idea on how to retain any employees. I mean, I was. I was miserable. I was. I was 100%.

Just defeated. And I was. Couldn't believe that I had spent so much money trying to become a dentist when all of a sudden I got put in this life that was just awful. It didn't seem like there was any way out. And literally, it was one day where everyone had either quit or I'd fired him. And it was just like, I finally just drew a line in the sand. I didn't have an office manager. I had one hygienist. And I was answering the phone. I didn't have any assistance. And I'm laughing now because I was just like.

How did I get here? And literally, I had one team member show up. That was a referral from, I think, an ex girlfriend. Somehow she ended up becoming my office manager. She applied as an assistant. And I'm like, how about you want to. You want to just run the office? She's like, I don't know about that, but I'll try. And so I kind of also just drew a line in the sand. I was like, okay, I have one month left. I paid for rent for my office by rolling coins that I had been saving since college. That's how I paid rent for the office for September. And I said, this is it. This is my last. I can't. I can't make ends meet after this month. Luckily, we found an assistant that was really good, and we were able to. To break even that month. And then that's when I looked into some consulting, and I just was like, okay, the only thing that should really change here. I've been the common denominator of all this stuff. So I gotta change me. I gotta change how I look at this practice. I don't want to live this life anymore of being a victim. I don't want to have the worst, you know, team in town. I want to. I want to change that around and take my life back. And it doesn't come back with the, you know, the snap of a finger. It's putting. I met you then. I think that was right when I met you, was when I was coming out of this whirlwind. By the way, I did win the. The lawsuit.

I was gonna ask about that.

I got my money back because it was written in their own contract. And so I won. And the loser had to pay the winner's attorney's fees. But think of that stress, knowing that might. I might only not only lose and lose the 250,000. I'll also lose my hundred and some thousand in attorneys fees, plus their attorney's fees. So I got a chance to lose almost half a million dollars.

That could have been a make or break.

Yeah. And so. And it comes down to one judge, and thank God, you know, the judge saw it my way. And your attorney will never tell you good news ever there. I mean, a good attorney won't. They're gonna always keep it, like, I don't know, it could go anyway, so. But that's when, you know, we dug in. You and I made a plan on the financials. That's when you thought, luckily, you accepted me as a client. You didn't want me to ruin your. Your client list.

But.

And then that's when I took myself more serious by getting myself out of the way and letting people teach me and inspire me. And.

I was able to do what I was told by the right people. You were one of those people. And so I'm.

Well, that's one thing I noticed about you on day one is just your level of engagement. It wasn't halfway. It was all in. Dr. Garfallo was all in. And what he was deciding to do at that moment, and maybe it's because at that point, you were perhaps at your career low. I mean, you had a number of things that just sort of humbled you. And you. I think you always had the grit and the desire, but there was a tremendous amount of learning that went through those first. Roughly seven or so years of practice, ownership, and sometimes those are your best teachers. And so you were very primed, I would say. I remember when I met you, I thought, he. He's in a. He's in a moment. He's clearly in a struggle right now. But he is. He has the attitude, he has the grit, he has the determination. And I felt just knowing you, you know, if I. To invest in a person, you had all those characteristics that I would invest in, because I just. I saw and it happened.

Yeah.

And now, like I said, you've paid off 1.4 million in debt. You recently bought your building as well, with a partner who also is a tenant in the building. And so there's another asset you're now paying down and building equity there. Your practice is doing about $200,000 a month, and it seems to be growing. It's a single location. You have eight operatories. You have the ability to expand that to more operatories, especially now that you own the building. And so there's a. There's still a lot of growth opportunity for you and you have the vision of doing that. You engaged your practice management consultant and I've always found you're with a scheduling institute and I know Jay GE a big influence on you. Right. I've always found that with the practice management consultants, a lot of it isn't the consultant themselves, whether you are going to prove successful or not. It's simply how much you engage them, how deep you go with them and how coachable you are. They can be very expensive. And you know, I remember questioning and I'm like, yeah, Dr. Garfal, are you sure about this?

Just so you know, so that they know it's about 80,000 a year. And that's, that's how I look at it, as just a high level manager in my office. Plus I run my office where we have a management team and he, I'm able to set up my, my office like an actual business, not just, okay, I call the shots, you all do what I say. You know, that's, that's the more you can delegate. That's it is. But if you do get a consultant, prepare to work more than you ever have if you want it to work. Because if you think they're going to come in and do the work for you, you're not going to learn anything first off and then you're going to be wasting your money and be extremely disappointed. So that's like the biggest thing I can tell people that if you do get a consultant, your life should get more difficult because you're going to get challenged and pushed to do things that you either don't want to do because it's hard and you don't know the answers to or it's scary or it goes against whatever you think your mindset was. But remember I was kind of a broken guy and I was like, well, my mindset's wrong, so I need to just realize that. But I guess maybe that's, I also needed to have my nose rubbed in it really hard before I changed myself. But you know, that's, that's the one thing. You're right because I remember you telling me that you're like, I, I'll allow you to do this for a year. But if, you know, I remember you saying like, I need to come in and save you if it's not.

I always say I, I'm okay with investments in a bit. I'm a big believer investing in your business. There have to, there has to be results at some point, right. That show that there's a return on that Investment, and with things like practice management and marketing, also there is a. There's an incubation period, I'll call it, where for a period of time you may not see results. There's a lot of restructuring of rewiring of your hardware and the way you think and the way your team acts. But if it's done right and if you own it as the practice leader, and that's the thing is you're not delegating leadership to anybody. You can't do that. You will always be the leader. And if you approach it that way and the consulting is there to consult you as a leader and help you manage the operations and the culture and the excitement and the purpose within your office, then you can see significant benefits coming out of that.

Yeah, no, that's. That's a extremely good point. And I'd like to talk about also your ability to sit down with me and merge some of the information coming from the practice management into your philosophy. Because there was a few things that, that obviously were a little bit contradictory to how your philosophy was. But I really appreciate the chance that we actually sat down. We didn't throw things at each other. I think we were close for a time or two, but. But we were able to find common ground, though. And I think that we both learned something out of it and that really. I think I told you, you won me over for life. Sorry about that. Sorry. You're stuck with me. But that was some of the things that was. I liked working with you, was that you were flexible and looked at my case individually and didn't just shove me into a box. You know, the second thing that, that through all this stuff, all this work and all the things that you and I have done together was this recent year with the pandemic, I actually was able to capitalize, I think, more than most from being prepared and having my stuff in alignment that the pandemic, I didn't really. During the lockdown, I didn't worry as much because of sticking to the plan that we. We had had put out a couple years ago. And that was something going into this. I don't know. We had this conversation just earlier, but I don't know how many dentists are making it out of this even, you know, so having that plan and having the focus and having all that's so important and just going in it blind and, you know, just like I said, checking your. Your checking account once a month and hoping there's. There's money in there and taking out anything extra and, you know, and putting it. It's just, it's, it's crazy how I used to be Versaille now.

So it's a system. It's setting up a system around your financial affairs, around your office, around your own behavior almost, that can make, and make the difference. One of my favorite quotes from Winston Churchill is, success is the ability to go from one failure to the next with no loss of enthusiasm. It might be a variation of what he actually said, but that concept is, I think, valuable here. And I don't mean in any way to say you were ever a failure, because I don't look at you in any stage of this whole story as ever being a failure. But there's moments where we can feel like a failure that it didn't go as planned. And how you hit the reset button, raise yourself back up and maintain your enthusiasm to the next point where you feel like that and then do the same thing is what oftentimes distinguishes between those who really get ahead and those who sort of plateau pretty early on. What's your final parting words of advice for associates who are now entering the world of dentistry as a career as a business? There are pressures on the industry with lowering reimbursement rates from insurance carriers. The large group practices and dental corporations seem to be gaining a lot of ground. Is private practice ownership still achievable? Should it be feared? What's your advice?

Geez, that's a great question because that kind of goes back to if you had to do it all over again, would you? And if you did, how? Yes, I would do it over again. As a private practice owner, I think there's a lot of freedom in there that you have now. You are competing against the big boys when you are a private practice. The one thing though that I always tell my team that we have that private practices don't is us, our team and that word team. And so I guess my advice is work on yourself first and make sure that you are open to being coached, you're open to, you know, your engagement with your, your team members, with your patience. If you can just win those battles earlier than later, you're going to have a lot easier time succeeding. And that's where your focus should be. Also, don't be in a hurry, because I was in a hurry. I came out and I wanted to own and I was impatient. I'm a quick start. Like I said, I, I wanted all that stuff immediately and I thought I was entitled to it all. I was. I've been through school now I'm ready to make the big bucks, and it doesn't work that way. You got to be realistic in your expectations. Finding the right people to surround yourself with, you know, like people like yourself, the right consulting groups, and just really being open to learning the business aspects is the most important part, I think.

Great context, really great story and journey that you went through, Dr. Go Gerfal. It's been a real pleasure to be a part of that over these past five years or so working together. Thank you for being on our podcast.

You bet. Thanks for having me, Wes. It's been great.