Dental Partnerships: Factors of Success

Hey, everybody. My first podcast show I did was called Associates on Fire, part of my AssociatesOnFire.com program to educate associate dentists on all things financial as they step into ownership. And some of the great episodes I really enjoyed doing were on dentists journey into and out of dental practice ownership. And I've got a handful of these from a few years back that I just think are so valuable and relevant and. And because they were so early on, they didn't get a whole lot of attention. And I want to project them out there because I think they deserve some attention. The stories are so great, and we tend to learn a lot by hearing about our peers and their experiences and the challenges they faced and the opportunities they faced and all of that. I just think it will be super valuable. So I'm going to rebroadcast these. Hope you enjoy.

Welcome, everybody, to a new episode of the Associates on Fire podcast podcast. It's Wes Reed coming at you. And today I have two guest speakers. I have Bob Spiel and Brighton Neild. I'm excited to introduce them to you, but before I do, let me just remind everybody that we have our Associates on fire website@acronesonfire.com that's Associatesonfire.com and we've got our platform of videos and podcasts and downloadable resources to learn all the ABCs relating to finances. As a dental associate and as you phase into ownership of a dental practice, a lot of great content we put out there completely free for you. And we're finding a lot of people really enjoy these podcasts. We're getting great contributors to it, a lot of good industry knowledge, and we hope that this is another successful podcast for you. I feel really confident it's going to be. It's going to be on the subject of partnerships. And these days, partnerships are becoming increasingly relevant as cost structures need to be managed effectively and synergies created. And there's no better way to do that than through partnerships. So if you're interested in partnering either early, middle, or later in your career, this is going to be a great podcast to listen to because we're going to dive into all the details, the nuts and bolts of what it means to be a partner and how to form a dental partnership. So let me introduce first Bob Spiel. Bob, welcome to the program.

Great to be with you, Wes. Thanks so much for the invite.

Bob, here's what I know about you. You've been in industry for over 25 years. You have an MBA. You started off the first 10 years, really in the healthcare space. In, in medical and you're in the hospital and surgical centers and were actually a CEO. And in doing that, you learned a great deal about the importance of systems within a healthcare business. And then you decided to pivot into dental, where you focused full time and have been doing so for 15 years as a practice management consultant, supporting doctors to be successful in their practice. You are also a faculty member for the Dr. Gordon Christensen Program and I know you teach some of his breakthrough courses on leadership. And then you wrote a book called Flip youp Focus Igniting People, Profits and Performance Through Upside Down Leadership. I'd actually love to pivot here in a minute and have you tell me a little bit about that book, if you don't mind. But first, I'd love to let me also introduce your partner, Brighton Neild. Brighton, also welcome to the program.

Thanks, Wes. Excited to be here.

So, Brighton, you've been in dental now for a number of years and you've really been in the trenches, I mean, real deep in the trenches. You've helped some practices go from startup to seven figures in a relatively short period of time. You've applied a lot of business knowledge and insight to make that happen. And in doing so, you've learned a great deal about what it means to be a dentist and to run a dental practice. So I think you're going to have some real good insights to this as well. And then recently you have partnered with Bob to focus on something very specific within dentistry, and it is how to find and bring in a partner into an existing dental practice, probably a solo practice, to move it to a partnership and how to go through that process and, and avoid the landmines that cause so many of these to either never start or to eventually fail. And I'd love to hear some statistics on that from you guys here in just, just a minute. Okay, that's a little background for you. Let's dive into it first. Actually, before we do dive into it, Bob, I want to go back on that book. Tell us a little bit about that book and how you how you apply that within dental practices to create better leaders across your dental clients.

Wes, great question.

The book itself is really all about small business leadership. And I learned over the years from working with some outstanding leaders and then also being in leadership positions myself, that organizations can't run faster than their leader. In fact, I call that Spiel's First Law of leadership.

And given that fact, then for a practice to actually get up to the next level, it's so vital that practice owners who may want to shy away from this whole subject of leadership and thinking. I just want to do dentistry. The reality is that they are leaders by de facto and if they really want to take their practice to the very next level and beyond, that process actually begins with them. And so it teaches a very simple concept of what I call upside down leadership. And it's the idea that my job as a leader is to see that my team succeeds.

And if I have that mindset, then there are three actions that I can dive into very succinctly that help create that type of success. And the first is you set clear expectations and then you create a culture of participation and finally use appreciation to help fuel the whole enterprise. And if you can just zero in on that one mindset and those three actions, you are going to be head and shoulders above most leaders out there that just don't understand what it means to really inspire a group of people to do great things.

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So that's why I wrote the book.

I love it. I'd love to get a copy of that book. To be honest, I'm a eager consumer of good business books. Recently I've started reading one called Traction, the Entrepreneurial Operating System by a guy named Gina Wickman. And we're using that as a framework for a lot of how the organization will be run operationally. And these things are so important. One of the comments I recently read, in fact yesterday was from a business consultant named Peter Drucker. Kind of a famous business consultant, very much. And he, he made the statement that culture eats strategy for lunch, if you've ever heard that statement. And you mentioned, I think your second component there in your igniting or upside down leadership is, is managing that culture successfully. And I have found that too. Culture in a business creates energy, it creates loyalty, it creates excitement. And out of that comes production. Whether you're a financial advisor and CPA like me, a business consultant like you guys, or a dentist, doesn't matter. It just creates that. That energy and zeal that everyone has and they all row aggressively in the same direction.

I love that. Absolutely. I mean, the job of an owner is to create owners throughout his or her total organization. All right? Where people own their roles, they understand their part, and they're all playing together to achieve something that's bigger than any one of them individually. And it's awesome to see when that happens. Yeah. Really exciting when an organization lights on fire and a dentist in particular catches the vision of what they are capable of doing.

And honestly, Wes, that's one of the reasons that I even entered into dentistry for medicine, was because in medicine.

Subjects like leadership and teamwork.

Patient service.

Should.

Matter, but they don't. Sadly, the insurance and the government, both organizations have squoved so much life out of medicine. But the cool thing is in dentistry that the subjects of leadership, teamwork, associateships, partnership, marketing, service, along with volume, billing, collections, it works, it makes money, it takes away stress, and it creates these incredible organizations that change lives. And that, to me is one of the coolest things about dentistry, is that in medicine, a lot is done to save lives. But in dentistry, we spend most of our time changing lives.

And I love talking to others who share that passion of sustaining private practice dentistry and this place of doctors being able to have autonomy over their culture and their people and their patient experience.

Let's now jump into this subject of dental partnerships. Yeah. One I find to be extremely relevant. We here at practice CFO have a number of dental partnerships, and we've seen firsthand successes. And we've also seen firsthand some of the marital discord, I will say, that happens.

Dental divorces.

The dental divorces, yes. So first question is, tell me about the success and failure rates of. Of dental partnerships. Let's just start there. Maybe some statistics for me.

Sure.

Two startling statistics that if you talk to people that have been in the industry for a while, they actually say are low. One Is that the rate of success that we have, for instance, of bringing associates into a practice with the hope of someday they becoming a partner, we actually fail 75% of the time after one year or within one year of that associate joining with partnerships themselves. A startling statistic is that half of them fail within five years of even launching. And one can step back and say, well, man, that really seems high. Why on earth would we be so bad as an industry at being able to create these synergistic relationships that actually lift you to the next level just through economies of scale and having more hands to do more work? And what I found is even unlike medicine, where medical doctors kind of live on parallel tracks and they intersect once in a while, but they have their own or time, they have their own office time, they have their own mid levels, they don't even have this level of failure. But dentists are so unique.

Most unique group of any type of executive level out there. Let's say, because dentists live in each other's sandbox every day. And because they do, this isn't a business relationship. This is the closest thing to a marriage that you can find in a business setting. And so you have to approach it as such in both the formation and also the continuation of the relationship or things as we see start to spin apart. And that's why Brighton and I started our firm, Dentist Hiring Pros, because we're so committed to this whole idea that dentists.

Can achieve incredible success when they find the right person to go together with them or persons.

You know, one of the ways I've always explained it to a dentist who's thinking about a partnership is, is this, I'll say, for a partnership formula to be successful, it requires three things. It requires good chemistry that you get along, that you're okay spending a lot of time shoulder to shoulder in the same walls of a building day in and day out, that you enjoy each other. That's number one chemistry. I mean, the worst thing imaginable is being a partner with somebody that you don't enjoy being around.

Exactly.

That's number one. Number two is that you have a shared and or common clinical focus, that you respect each other clinically. If you don't, that can create, I would believe, a lot of conflict or concern or risk, etc.

Yeah, you have to be able to trust each other's clinical work.

You know, those two usually are the easy check boxes. The third one is finances. How do you split a shared bank account? And as I think about this, I think about how it relates to a. A marriage as well. Do you get along? Is there good chemistry? Is there good passion together? Number two, clinically, how do you view life? How do you view, I don't know, faith, how do you view raising children? How do you view your style? How do you view where you want to live? All of these things.

Are you united in the outcomes that you're both seeking to create?

And then lastly, we know money. Money, Exactly. We know money is like one of the top two or three causes for divorce, is not agreeing on how to allocate money in the household. And between them so very. There are so many similarities between a regular marriage and also a business marriage. And in a partnership like this, what are. I'm going to move to the second question. What are some of the causes for divorce? So I just named what I believe are some of the groundwork items for a successful fit. But you tell me, I mean, you're doing this every day with partnerships. What causes a divorce and what causes a great fit? On your website, you mentioned the term fit indicators. What are those fit indicators?

Well, it's funny to hear, you know, your three, because we've got. We've got the same type of benchmarks that we look for in terms of success.

Fit, in terms of personality fit with the culture. Do they trust each other's dentistry and believe in each other's dentistry? Then do they have similar views on money? And I think the number five point is, are there values in alignment with each other? And when that happens, it creates a great foundation.

But just as we know, in marriage, you can start with all of those elements and yet you still can go sideways and sometimes you can end off the track completely. And so it's also really helpful to have kind of like a third party that can help create or help maintain and keep the partnership pointed in the right direction. And frankly, sometimes come in and do an intervention, AKA as a marriage counselor, to really help clear up misunderstandings, help recreate direction, and also help them find the synergies that they may not have ever known existed. One of the things Brighton and I love to do, for instance, is to use personality tests both in our hiring process, but also in our work with partnerships and help them understand and really appreciate both the similarities and the differences between the different membership of the partnership. But to see how they actually can complement each other instead of conflict with each other. It's fascinating. Once you have some objective information in front of you vis a vis a report that says, well, I'm an si. Okay, and you happen to be a di. Well, what does that mean? Well, you can have some really constructive discussions about, you know what you guys, now we know why you've had conflict, but now we also know why those moments of magic have happened. Because this is how you're really similar, but this is where you rub against each other. How do we try to avoid that in the future?

So the answer to how do you get a dental divorce is how do you. Is the same way how do you have a divorce in real life? And that is that you. Misunderstandings come, money is used differently, trust is dissolved, values are suddenly questioned and alignment starts to become in a real point of contention. And without having.

The ability to have someone who can jump in and help sort through these issues, it gets nasty really fast. Yeah.

And Bob, let me add a even kind of a sub point to that. It's kind of in alignment, but it's also to deal with just expectations.

You know, when you have a real marriage. One of the. Some of my biggest fights I've ever seen is because. Because there was unclear or uncommunicated expectations.

And that, that, that happens all the time in the dentist. In the dentist world. Because people have these unclear uncommunicated expectations that we aren't lived up to. Whether this associate we bring on will eventually become a partner or is it just not talked about it? Is there some expectation of income or finances or is there some expectation of communication patterns or training or ce all these things build up this really, you know, you just disalignment which ends up tearing people apart.

Couple comments on this. I have an uncle who's been very successful in a number of small partnerships, not dental. But he made a statement that I've come to learn is I believe, very true. Which was he said, wes, one of the main causes for breakups of business partnerships is spouses. And what he's saying by that is that when you're a small partnership of two or three doctors, the spouses are indirectly and invariably involved. That's right. And if you're in a state like California, which is a community property state, the spouse literally, unless there's a prenup, is a half owner of your interest in that partnership. And but more practically is the spouse is always looking and they're not being. There's nothing. There's no mal intent here. This just is the way life is. Is what is the other spouse driving? What kind of vacations are they going on? What feels fair, what doesn't feel fair. And then when the doctor goes home, it's like they're going back and they're, they're in the ring, they go back to their corner and their spouse is saying, this doesn't feel fair. It's not right. Especially if one of the spouses is involved in maybe some of the finance administration in the practice, and they're seeing how, how, how cash is allocated and whatnot, and how their spouse is doing this in the practice and that in practice and it's not compensated. And it just starts to feel unfair. And then the spouse gets the doctor worked up and it creates discord. I've seen that. I've seen that a lot. And it's a, It's a delicate thing, and every doctor's got to manage that. A couple other things, Brighton, on your comment about setting expectations, I've always believed that going there needs to be a good Runway going into the formation, the legal formation of the partnership, where you actually move everything into a partnership entity and setting those expectations. One of the most important is how will the money flow to each doctor? How will profits be shared? And how will compensation be distributed to the doctors based on different production scenarios? So if Dr. A is producing a million a year and Dr. B is producing $700,000 a year and your expenses are, let's say, $800,000 a year, how exactly are you allocating? This is me, the accountant, you know, the CPA talk. How are you allocating out money? And there's different ways to structure compensation to the partners and a distribution of profits to the partners. But what happens, I find, is a lot of doctors going into it together. Maybe they were friends in dental school, and they say, I trust you, I believe you. Let's do this. And they, you know, spit and shake on it, and they jump into it and never having really modeled it out, and then what comes back to no.

Documentation, no operating agreement, very little documentation?

That's right, yeah. And then what ends up coming out to them, they don't feel as commensurate with what they're putting into it, and that's. It's impossible to be fully objective about that. Your perception of your input, your contribution, is going to be very unique to you, and it's going to be different than what your partner might think about your input and contribution to it. So I will always tell doctors that they need somebody like you guys, and we've done this as well at some level, but it's not our core focus, because we're doing gps. We're right, you know, we're doing tax and accounting and personal financial planning, and 401ks. You know, that's, you know, that's our bread and butter. But that they need to go through that process of saying if collections look like this, if I collected this much, you collected that much. If the expenses were X, what are we actually going to take home based on that, on that production? And you set, you try to set some expectations there. The second thing I found on a very ground level, sort of practical comment here is, is that doctors bring in different non clinical contributions and talents to running the business. One doctor may be very good at overseeing HR and overseeing marketing and supply ordering and other operational elements in the business. And the other doctor wants to go home and go golf or go surf or watch Netflix or whatever. And that sometimes a doctor will feel like they're not getting paid anything because it's not related to production for the extra eight hours of work they're doing every week for the non clinical work. Let me, let me now put those two things over on your table to talk about for a sec. How do you counsel people through setting expectations around distribution of money? Number one, then how do you help doctors identify what non clinical tasks they'll be doing between themselves once they are in the practice together?

My favorite model as far as dividing the money is to create both a eat what you shoot, but win, win in the end.

And so it's those numbers are going to vary based upon their overhead level. But let's just say typically they're at the 60% these days. It seems to be kind of the norm.

I like to get practices underneath that. But that seems to be kind of the sweet spot these days with insurance companies. Let's say that they have a deal where they collect 30% or 35% of their collections that they've generated.

That is an eat what you shoot, but there's still a little bit left in the end to be able to distribute evenly based upon partnership percentages.

I think that's the most common model. Here's the time where I see it creates a little bit of conflict. That's. And by the way, that's the one that I usually recommend in C because it's simple, it's fairly cut and dry from an accounting standpoint. You can handle that pretty, pretty easily.

Right?

Things will come up. For example, Dr. A uses very expensive labs or if they do implants, they have more, they do maybe more specialty procedure. They have some, some very expensive bone grafting or, or something else. And the other doctor feels like, okay, they're getting paid off gross production. And then we're splitting, you know, the net equally, 50, 50 or based on ownership, it doesn't feel fair that I'm effectively subsidizing the more expensive lab over there of my partner. Things like that come up, I found over time and we have to work.

Through those and they become wedges if, if you don't work through them.

Yeah.

And then resentment creeps in and that begins the beginning of the end.

So what I have found is we for our partnerships that we do, I think we have like 23, 24 partnerships that we do work for. Some have two, some have three doctors. None of them are exactly the same. There's always some nuance. And what we do is we take the information out of the accounting software and we basically export it to a custom built Excel spreadsheet that brings in the production data. Sometimes we got to go and get some data from the practice management software as well around hygiene production or associate non owner production. And we sort of create columns and we, we almost build individual profit and loss statements by provider and we allocate out the expenses in a way that is, is.

Is commensurate with the production or at least makes sense based on which doctor is assuming those costs or getting the benefits of those costs. So the doctor that gets the benefit is the doctor that to the same pro rata pays the cost. And that's more of a, it's more of a, of a full breakout model of expenses. And for some clients we will do that if there's just too many nuances.

Yeah, it's kind of a cost allocation model.

It is, and it takes a little more time to do it that way. But for some doctors we do it that way. For other doctors we do what we call the associate owner model, which is what you just explained that you're paid as sort of as an associate, you get your 30, 35% of production and then you split the difference as an owner based on ownership. Yeah. And then there's, there's different variations of, of that. But one of the key things that I found in successful partnerships is that they don't sweat the small stuff. There's always going to be something that feels a little inequitable here, that a little inequitable there. And you just can't sweat the small stuff. And you just got to know and think big picture about the success of the dental partnership. And if you start getting into all the numbers and looking at specific expenses all the time and saying this doesn't feel fairly allocated, why should I pay for half of that $80 bill when I didn't get any benefit. It just opens up all these little cuts, you know, death by a thousand cuts with these things. And I and I try to emphasize to doctors to think big, think big, don't think small like that. Is that something you find has been a struggle is doctors get too much in the weeds and then they can't see, you know, the big picture outside of it?

Absolutely. I think part of the characteristic of those that succeed in dentistry is that they love to think at that level. But the root cause of that really boils down to lack of trust.

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And.

Getting into too many details, too many weeds, that frankly doesn't do anybody any good. I think that you can try to cut costs to a point, but frankly, there's nothing that beats growing a practice to be able to get your costs in alignment to where they, where they need to be. And all the energy that you can employ in, you know, nickel and diming instead could be used in growing. And suddenly the nickels and dimes fall into place very, very effectively.

I can't tell you how much of a proponent I am of that concept. If doctors please could hear me on this subject, because I've worked with hundreds of dentists and I'm gonna, I'm gonna call out one of my good friends who I love on this subject. His name is Landon Libby and we have a podcast on him. You can, it's one of my favorite podcasts. It's on our Associates on Fire website or you, you can get it to your, your Apple or Android platform. But he is one of the best leaders. He thinks big, he delegates and he motivates people and he doesn't sweat that small stuff. He doesn't try to do everything himself. He knows that his best use of his time is producing great dentistry and high quality dentistry and a great patient experience. And then to motivate his team and create a great culture and all that small stuff is he's just out of it. You know, he has, he has good people to oversee a lot of the administration. He maybe has, I think 12 people in his practice. It's not huge. Yeah, but practice.

You know, he's, he's doing three times the amount of your average dentist per month in collections with a 50 profit margin. Hugely successful because exactly what you just said. His ability to focus on the big picture and the things that matter and then to really delegate, delegate the rest and motivate his team behind him.

We've found over years. For instance, Wes, on the practice management side of things, where I began in dentistry, it's this fascinating development where practices very often plateau and then they stay on those plateaus for a long time. The type of practice owner that you just described who's into all the weeds and has to nickel and dime, everything becomes actually very burnout over time and feels like man, getting into dentistry is just this massive mistake because everything relies on me and I can't Trust anybody to do anything else. Well, it reminds me of a phrase that there are no such thing as bad teams, only bad leaders.

And this is somebody who really needs to step back and realize it's not about what you've outside of you, it's about you. And if you can jump into another world of how you can start to lead instead of just manage.

It'S amazing what can take place with even if.

It'S almost as plateaued, it's almost why I recommend that once doctors sort of get the main clinical skills under their belt, go take a communications class, go take a leadership class, get some leadership coaching, that kind of thing, because that's what takes you from 1x to 4x. Is that not. Not another Spear class or Kois class. Don't get me wrong, those, those can be very helpful at the right time and place. But you. But it's becoming a great leader and motivator, charismatic and inspiring. Let's go to this section on your website where you say you play three roles for partnerships as you're consulting a partnership. And let's say I'm a doctor, Dr. Wes, and I come to you, Bob and Brighton, and I say I would like to form a partnership, but I don't know where to find a partner. I just know that there's economies of scale, there's financial benefits and there can be a lot of fun with having a partnership. So help me do that. On your website, you say you play the role of matchmaker priest and marriage counselor. Can you just explain what each of those roles, what's happening in each of those roles as you interface with dentists?

Absolutely. I think before you we even were to begin that conversation, we would first want to make sure that the practice is even ready to bring on a partner. And so we go through a practice vetting process. We typically want to get them into DI Dental Intelligence and just review some of their numbers with them. And I mean if I were to boil it down to one main thing that we're looking for is we're looking for a practice within a practice. Is this doctor running faster than they have strength? Are they burning the candle at both ends or are they missing opportunities because they are slammed? Are they scheduling three to six months out and not being able to serve their patients appropriately? So we first want to make sure like they're actually prepared, practice wise, numbers wise to actually bring on a partner. And from at that point, then we start to go into what we call the matchmaker phase. And Bob, I'll take the matchmaker phase and then you take the remainder too. So the matchmaker phase is all about making sure that we begin with the end in mind. And we do this by going to the practice on site, wherever it is, and we actually sit down with every single member of the team and interview them. And we're looking for one thing in particular. What is the culture of this practice? What's the type of person that can step into this practice and start seeing success? So we start to come up with these characteristics, these ideals of what this person would look like. We then work with the doctor to come up with these ideal characteristics, or avatar, if you will, of this, of this future applicant or partner. And we actually walk them through an exercise that allows us to just have it on paper. This is what we're looking for. And from that point we start to look for applicants. We send them through a very detailed.

Interview process, application process, we send them through multiple surveys and assessments, multiple interviews, several reference calls, you know, all the works, all the due diligence, we do all that. But the most important thing is that throughout that entire process we're coming back and we're comparing them to what this ideal candidate should look like. Not what if candidate A or candidate B is better, it's is candidate A up to our ideal characteristics? If they're not, then they're not a good fit. And we, and we really work to match make from the very beginning, what is this person going to look like? And we work from that point moving forward once we find the right fit and we've introduced them to the doctor and we've introduced them to the team and everyone is super excited about this new partner. The job's not done, it's just getting started. And that's where we come in to actually help form the marriage through our priest phase.

And so the priest phase, Wes, is one of putting together, as we talked earlier, expectations, but getting them in writing and making sure that both on the compensation side and on the management side, and even on the side of, let's say this doesn't work out, what do we do and how do we leave as friends to have an operating agreement as well as.

Employment agreements that define expectations clearly. And that becomes a win win. That's our whole goal from the start, is that we want this to be something that both partners get really excited about and they love the fact their partners even more five years down the road than the day that they began.

And once, for instance, when we're in the mode of hiring an associate to hopefully eventually become a partner we stay engaged for 18 months once that relationship is formed, to make sure that things stay on track, expectations are being met, mentoring is occurring, and the growth that we anticipate is occurring. And, you know, I mentioned some statistics at the beginning of the podcast in terms of what the normal failure rate is both for partnerships in dentistry and also associateships within dentistry. Well, we're proud to say that our success rate as long as I've done this on the side of my business for the past 10 years is 90%.

And it's not anything other than just having an entirely different paradigm of what this relationship is, how it needs to be formed, who is best fit to be in it, and then to keep it going positively from there. Takes a lot of work, though, to make it happen. Sounds easy.

Phenomenal rate at 90%. Let me pause there between the priest and the marriage counselor, because I think you're going to jump into the marriage counselor. This is the point at which the, the legal formation occurs and, and you create a new tax id. Let me ex. Let me explain how we've done it and how we've recommended it. And then I want to invite your, your feedback. If it's similar or if you have an alternate way of doing it is sure, if you're a, if you're a single doctor, you're most likely an S corporation, maybe a sole proprietor, but you're most likely an S corporation. When you sell half of your business to a partner, I'm going to assume 50 for a second, you sell 50% to the person that now has been vetted. So the matchmaking took place. You jumped in as the priest. You talked about expectations. You talked about what it means. These vows you're about to make, and you're about to marry them. Now you form a new tax id, a new taxable entity, and it's literally called a partnership, a general partnership. There's different types of partnerships, but it's a partnership, and the partnership has its own tax return, just like a S corporation does. And, and that partnership is now where all patient collections come in. All labor is paid out of all lab supplies and facility and marketing. All your core expenses are now paid not out of the S corporation anymore, but out of this new partnership. The, the new associate coming in now that's, that's a buyer that is now an owner, will have his or her own S corporation as well.

Exactly.

Your S corporation, the original doctor, isn't going away, it's just changing. Your S corporation will now own 50% of the partnership, and then new doctors. The new partner will create a new S corporation which will own 50% of the partnership. So you don't own the partnership directly, you own it indirectly through your own what we typically just colloquially call your own personal corporation. And then in the partnership you're running the true business expenses through that. But things that are unique to you, like your car costs, any meals, your maybe some of your own C.E. which is 90% vacation to Hawaii, but you're calling it C.E. expense any of your kids on payroll for tax planning. And a lot of those sort of personal expenses you run through your own personal S corporation. That way it doesn't mix in with the partnership. And your partner isn't feeling like they're paying for your trip to Hawaii. It's no skin off their back. It's very clean that way. And the way the sale occurs is that you're not selling 50% of the stock of your S corporation. You are selling 50% of the assets of your corporation, which is going to be probably 80% an intangible asset called goodwill, and 20 to maybe 30% equipment and furniture and fixtures and things like that.

Right.

And that 50% gets placed in the, in the new partners S corporation. And the new partnership really has no assets in it to start with. Over time, you may buy a CT or a CAD cam or new chairs or whatever. And that could be purchased within the partnership that way, if you want to. Is that typically how you're seeing it and recommending it? Bob and Brighton?

Absolutely. And it's for many reasons, but I think the biggest reason is this, that the partnership pays everything. The distributions are pushed to the respective dentist s corps. They then pay for everything else. And that kind of natural comparison goes away because it doesn't matter that so and so went to Hawaii and the other person went to next door for CE because it comes out of their respective bank accounts. And it eliminates that that wedge that can happen. Yeah.

Sometimes doctors have, and I've seen this and I've seen a few times still a C corporation and they own the business together as a C corporation, which you don't have to have three corporations in that case. So from an entity standpoint, it's simpler, but from an allocation of profits, it's very difficult because you're wanting to run through all this sort of hybrid personal stuff through the corporation, but each partner is running different amounts through and it's and you have to true it up through a W2 payroll to each other. And C corporations don't. They're not flow through so they have to issue dividends every year. And you're double taxed at the corporate level and then at the individual level. So we really don't recommend the C corporation and we also don't recommend an S corporation. It is a partnership of corporations. So the partnership with, owned by each doctor's respective S corporation. There is a little more tax work to it because there's more tax returns, there's more accounting work to it, but it keeps things very, very clean. And so we, and we typically find dental attorneys recommend that as well.

That's, that's exactly what we recommend, Wes. And it's, it's spot on. You know, let me, let me go back for a second though, as far as another scenario I just want to throw out.

About four years ago, I was approached by a doctor in Albuquerque who had been approached by another practice in town. And the whole idea was, you know what? You're on this side of town, I'm on this side of town, let's get married.

And you know, this client who, he became a client, but at the time, they were so excited at the prospect of, you know, what can we do? And all these other things. But we took him through the very same type of.

Funnel, so to speak, as you do with an associate, and suddenly realized, you know what, this sounds really great on paper.

But this is not meant for both of you. And that happens. Okay. It can also happen the opposite. But I would dare say that it's kind of like a mixed marriage. They're difficult to be able to really make happen successfully, and it takes some really special people to pull it off who, again, align across these same points that we brought up earlier. So whether it's bringing somebody in or merging with somebody else, the same principles have to apply.

The other thing I'll mention on that is I'm much more of a proponent of two doctors in one physical building than two doctors in two physical buildings. Because when you have two physical buildings, you effectively have twice the overhead. Maybe it's not twice, maybe it's an extra 50 to 60% overhead, which does defeat some of the purpose of having a lot of production out of one facility.

Yeah.

One question I have for you guys is, and this is a very practical question, it goes back to Brighton's comment about is this practice ready to bring on a partner? And me being the cpa, I'm thinking numerically, at what point of collections, at what collection number does it make sense to say I can justify bringing on another partner? Now, let me tell you why I'm asking that there are sometimes doctors extremely busy. They're working five days a week, they can't get time off to go on vacation with their kids. They feel exhausted and they're doing 900,000 or a million dollars a year and they want to bring on a partner because they're so tired. I'm going to tell that person, don't bring on a partner because you have a different problem. You're not getting enough, you're not getting enough pay enough production monetarily out of the work that you're doing. So are you just an HMO shop? Do you need to negotiate your PPO structure? Do you need to figure out how to move to more fee for service? Because if you're working five days a week and you're constantly in the operatory, you should be doing 1.5, $1.6 million a year. So what do you find? Collection number?

Yeah. To me, Wes, it isn't even so much the number. It's also what is the overhead number itself, which I define real simply as a finance MBA. After everything is paid and the doctor begins to get $1, what's that percentage? And the higher that number is, the less there is to spread around.

So I even take it from the perspective of.

It'S not just what's coming in, but it's what they're diagnosing.

And are they, do they have the skills to diagnose appropriately? What are they producing? Have they upgraded their skills in terms of being able to do more in less time? How do they schedule? How have they delegated across their team? You know, there's so many foundational pieces there. Yes. If they're only producing 900,000 a year, there's not anything left to spread around.

But you have to go back to the root cause of why they're producing at that level instead of producing it. I'd say, you know, the gold, I don't even think it's a gold level. It's just a silver level within the industry of somebody who's actually making money. Their overheads around 60% and they continue to grow. And if they're in that state, we could look at bringing on somebody. If they're producing past a million, it's.

Not unlike going back to a regular marriage and you're wanting to get, to get married. Have, have you established yourself financially? Are you taking care of your own health physically? Are you in, in a good condition to be a of part partner for somebody? How have you staged yourself to be a good partner? And I think that Busyness is one indicator, but there are other indicators whether somebody is ready to take on a partnership. And in many cases, they may need coaching from somebody like you to go into the practice and get the house in order first, and then you bring on a partner. The ideal to bring on a partner is when your practice is revving really well and, and you have extra patients that are now waiting six weeks just to get in for a cleaning or whatever because you're so busy and you're getting appropriate fees on what you're doing and you're hitting 1.5, 1.7 million or so, and there's more capacity, operatorily speaking with your team and your patients. Now let's go bring on a partner.

And that's the whole idea that Brighton brought up. Is there a practice within a practice? Yep.

Great.

Yeah.

Okay, how about this question, and maybe we'll end off on this one, is going back to the, the, the ownership percentage. I've had many doctors come to me with many different ideas over the years. I want to, I want to drip 10% per year until they get to 49%. I've, I've had, I'll give them 10% now and in five years I'll give them another 40%. I've had a lot of different things proposed to me on, on this from doctors, and sometimes it's because a seller doesn't want to give up maybe a sense of control. And if they give up 50% on day one now it feels like they're giving up control to somebody that doesn't even know them or their practice, and it feels very precarious to them. What is your recommendation on, on the, on the amount of the practice to, to sell and how to share the equity?

There's no right or wrong answer to that. From our experience, a lot has to do with the senior doctor's desires, so to speak.

But the principle of this really boils down to how can we create a win win that aligns both partners and puts and pointed it in the same direction? Okay. A phrase that we like to use is being equally yoked, so to speak. I think that the associate who would come in and is told, you know, it's going to take you five to 10 years to be able to have 50% of the practice might feel a little discouraged with that. At the same time, I'm not sure if it's appropriate to say, you know, within two years, you can have half of this baby. Okay. That's where really clear expectations matter.

And knowing a what is even Possible down the road, what is the senior doctor thinking in terms of what he or she wants to make available? But then from the associate side, do you know what it's going to take to get there? And is it clear? And is there a pathway to say, you know, if I deliver X, Y and Z, then I know within 2, 3, 4 years I'm going to have X percent available for me to buy into and if I keep growing further, I'm going to have another x percent available to grow into. But the ultimate goal though is 50, 50.

And do you always recommend an associate to owner pathway or is there ever a direct from the outside into partnership pathway?

Almost always associate to owner, but there may be a few extenuating circumstances where a senior doctor is aged, retiring, has a problem with disability or something else that has precluded and you know, really brought up the timetable to be able to have somebody need to come in now to start to take things over. Kind of like a client of ours who a few years ago, the doctor he was an associate for had motorcycle accident and was instantly disabled.

That suddenly changed the whole shooting match for him and he was able to get in and actually buy the practice in two tranches and merge with another one and everything went great. But typically, just like to think in a marriage there needs to be some cure time to be able to know that this relationship is right, feels right, is working right, and that we're both lining up with each other.

A couple comments on this which I find I think are relevant. Number one is that I rarely see a successful partnership where one doctor is a passive owner and the other one is the active owner. Maybe that happens in other businesses. I just don't see that very much in the dental space where it works because the doctor who's doing all the production and then giving up 50% or more sometimes of the profit feels like, well, what's that doctor doing? And eventually they just, they just want one out. The other comment is given that you recommend, and I agree, the pathway be an associate for a period of time, sort of a dating period, getting to know each other, then into ownership. What do you do about the fact that the associate who's youngblood motivated, growing the practice, then when they go to buy in at 50% now the value of the practice is $400,000 higher than when they started two years ago. Are they going to be paying for the growth that they feel they contributed to? Now let me make one more comment on that. Buyer says, hey, I'm the one doing all this extra Dentistry that's led to a growth in the practice. Why am I not going to go pay for my own growth that I created? The seller's thinking, you would have never created that growth without the platform that I staged for you. So it is my equity and you got to cut your teeth and learn dentistry and have this great experience all the while. And that can be a tug of war in concept between the buyer and the seller. I found a lot. What I usually say is we do evaluation at the beginning, you do evaluation at the end using the exact same multiples, the exact same methodology, and coming up with the price, you just split that difference and keep it simple. Any comment on that? You do you do that similarly or differently?

I think that's a great approach, Wes. The other way to do it is value the practice 24 months out of the expected time frame to be able to buy in. And if the associate has met these expectations, then they're able to buy in at that 24 month rate. Okay, so there's. They're incented, they create some sweat equity, but it's still fair for the seller as well.

I like that. I like that a lot. Guys, this has been really productive. I think any dentist who's considering a partnership, this will have so many points, valuable points of knowledge for them. Tell me a little bit more about your. Your company. Give me your. Just your. Your storyline. How can people learn more about you and contact you?

You bet. Brett, you want to explain that?

Yeah, yeah, absolutely. So the easiest way to contact us is go to dennishhiring pros.com There's a simple contact form. You can fill it out. You can also email us at Brighton B R Y T O N at Spiel Consulting. For now, we're still working on the new emails. We've had some issues, but. So that's S as in Sam P I e l consulting.com so you can either email me there directly or you can just go to our website. The website is definitely going to be the easiest place to just put it really simply, Wes. We are in the business of preventing dental divorces. We want to help form great new marriages that thrive, last and you know, or win, wins and succeed success for many, many years to come. But we're also interested in helping prevent divorces through helping existing partnerships. We love to come in, get into the nitty gritty, create some strategic meetings and find ways to keep an existing partnership moving in the right direction. So that's what we're all about. We're here to apply our methodology.

By Being matchmakers, priests, and marriage counselors in order to help you as, you know, a new thriving dentist or, you know, you're looking to retire and sunset. Whatever your situation is, we're here to help you create a lasting partnership. And that's. That's what we're all about.

Awesome. Thanks, Brian. And you guys are located where?

We're in Utah, but we work nationwide.

Great. Love it. Let me make one final pitch for you guys. Yeah, I've been working with Dennis since 2009. Seen a lot of partnerships, been involved in that a lot. And I'm a. I'm a. I'm a fan of partnerships only if the partnership is done right. If it's not done right, it has been a major headache for me, for them, for their families, for their staff. A major headache. And you don't want a partnership where you're, quote, unquote, sleeping in the other room. You want it. You want to have a successful experience that you just enjoy. And to get that done right, you've got to be willing to bring somebody in to coach you through that experience. There's nothing that. It doesn't mean you're not capable. It doesn't mean you're not smart or skilled. It just means that you're trying to get the do it the right way. Now, you may have a friend who wants to do it. You know, you have confidence in them and all that, but. And you don't want to pay money, but I'm telling you, good advice is worth it. And Brighton and Bob are going to have whatever their standard fee schedule is. I don't even know what that is, but I can tell you, if they can create a successful partnership for you, it will pay itself over and over and over and over every year. Because a partnership that thrives has the best profit margins, because you're sharing cost structures and you're finding synergies, and it's just fun. So that's my pitch for you guys. I really believe in what you guys think do. That's why I invited you on the show. Thank you for being on here and doing this podcast with me.

Thank you, Wes. We enjoyed it. Thanks, Wesley.