Dropping In-Network Delta PPO and Family Partnerships with Dr. Robert Jungman

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 them.

Welcome, everybody, to another podcast of the Associates on Fire program. I've got Dr. Robert Youngeman with me today. Dr. Youngman has been with us here at practice CFO for a few years. Here's what we're going to learn about today in this podcast. Number one, we're going to learn about the process of joining a partnership, in this case, joining a family partnership with mom and dad. Partnerships are, as you've heard me say many times, they are unique, they are challenging, they can be rewarded, rewarding, but they need to be handled correctly. And Dr. Youngman here has gone through that over the past few years as he has bought in. He's very particular on details. So I'm excited to hear about the details that you had to analyze and go through in your own thought process as you emerged with mom and dad in what is an incredibly successful dental practice. Number two is dropping Dental Delta. What a great subject to talk about. And we have in Dr. Youngman somebody who has recently done it and recently done it successfully with a very sort of methodical approach to the whole way of going through that. And so this should be really educational. Dr. Youngman, welcome to the program.

Thank you, Wes. Thanks for having me. This is my, I don't know, first official, like, we'll say, interview, slash, I don't know, speaking venture, if you want to look at it that way. So that's, yeah. Exciting.

Well, you're definitely worthy of it because you've been through a rodeo and learned a lot and built something really cool in your practice. And so I, by the way, for our listeners, I don't work directly with Dr. Youngman, he is a client of ours, but my colleague Greg is his what we call lead CFO advisor and meets with him regularly to go over all of the financial affairs of their practice and even personal finances as well as. And so but I've known Robert, seems like I knew you before Greg and I knew you were going to be successful. So it's really cool here to be with you a few years later and see that success unfolding right before my eyes. So this is great to have you on board. I just want to reiterate to everybody listening about our Associates on Fire program. It's on our website, www.associatesonfire.com. powered by Practice CFO Practice CFO is our firm that provides business and personal financial planning for dentists exclusively and also the CPA side providing accounting and tax overseeing payroll. And it's really an end to end suite of services with one purpose, help our clients accelerate financial independence at a much faster rate than than what is typically seen in dental. So please go sign up, complete your profile online so we can learn more about you. We are trying to help young associates find opportunities in employment and also practice acquisition opportunities to help them stay and preserve in the private practice space. All right, Dr. Youngman, let's jump into some details here. Let's talk about your story first.

Let's not go into too much detail about really the, the just the associate years themselves. I really want to focus on when you decided to move into the partnership and what, what that road looked like, what was hairy about it, what worked out very well, how you thought through it. Tell us, when did you start working with your practice and at what point did you form the partnership? And let's get into that experience.

Sure. So you know, working having parents in the industry, both mom and dad practicing since 1980 and 81, you know, dentistry was just a common household thing for me. It wasn't anything special. It's just kind of what they talked about at the dinner table sometimes. So I didn't really have a lot of exposure to the actual clinical dentistry until I got to undergrad at UCSD and started doing hands on dental assisting. So I didn't really know much what dentistry is all about. But you know, same thing, kind of getting into the dentistry field. Like yeah, my parents are dentists but you know, they didn't exactly teach me dentistry. That's what came from clinical experience. In dental school I did a residency at UCLA for a year in general dentistry. And so, you know, getting into private practice, I think everybody was, all my classmates are excited for me, like, oh, you know, you have your parents, they're going to help mentor you things and you'll help mentor them on, on the new stuff. You know, what's different now and modern materials and technologies and things like that. You know, I'm, I think most people who know me would know that I, like you said, I'm a details guy. I like to know things. That's my brother Nick has a T shirt from Game of Thrones. People who watch that with Tyrion Lanish's famous quote, I drink and I know things. That's kind of my, you know, goals in life.

So your advisor here would definitely vouch for that.

He says I so getting into, you know, private practice and you know, the transition from clinical dentistry to business side of things, it's just pretty much an entirely different ball game. It's not even really dentistry anymore, it's dentistry. There's a clinical side of things and yeah, you need to know that to be able to handle the business side of things. But it's pretty much an entirely different career or occupation almost, you know, wearing different hats. Like today, today's my business day. I work from home. Everything from insurance appeals to finance stuff to PPP stuff. That's the stuff that handles the business side of things. Kind of getting into my story, so to speak or how I got into being on the ownership side of things. I've been practicing with my parents. 2012 is when I graduated dental school. I was just working one Saturday a month while I was in residency and then joining them a little more like two days a week. Starting 2013. I'd worked with them, you know, pretty much two days a week, limited schedule, one assistant or none if you know. I had no schedule. I just kind of working whenever they needed me. I worked a few other jobs, part time stuff. I drove up to Mammoth Lakes, part time ski town, working just one week a month. I'd fill in around other offices doing, you know, endo for some people filling in for vacation, covering Fridays because they didn't want to work Fridays, just stuff like that. Um, but after working at these, we'll say total of seven or eight different offices, kind of realized my parents office at Citrical Dental was really the place that I wanted to be. Like that is the one that I appreciated the most. I got to see the differences in different offices and understand how different businesses run things. You know, when you've only ever worked in one place, you don't really know what you have. So it, I came to appreciate it a lot more and really understand like I like what we have here. This is where I see my future. And just sort of looking back, why that was important to me. One of our senior projects as part of our business management course, the little that we had in dental school was putting together a pretend startup practice, creating a financial plan and your practice loan and how that would go. And it kind of planted that little seed to, like, what if I had my own practice? What if I didn't want what my parents have? You know, I obviously, everybody's got different personalities. You know, I want things to be my way. So in the back of my mind, that was always there, like, cool. My parents have a great practice, but what if I want my own thing? And over time, I realized, you know what this is? This is a pretty good practice. I can do the rest.

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So kind of, I know, digressing a little bit, getting into becoming the ownership side of things, you know, five years into practice, 2017ish, I pretty much just said one time, hey, dad, it's time for me to, like, you know, be an owner and a partner and whatever he says, okay? And that was it. And he's like, well, you know, we'll figure out how to make it work and just make it happen.

Just around the Sunday dinner table when you're visiting mom and dad. What the. What the succession plan was, huh? No, I mean loose and.

Well, I'll Say, there's always been the unwritten, unspoken, like, well, you know, someday we'll transition this practice to you and your brother Nick, who's also getting the dental field.

Do you think that they were ready to, when you proposed that, that they were ready to start to hand the baton? Partially?

That's a good question. I don't think they were mentally ready, but I think once I brought it up, they realized, yeah, it's probably time to start that process. So I didn't.

You had been there for five years. Right. Clearly intelligent, clearly ambitious. It sort of a natural step. But I find that with associates and partnerships, well, let me say associates who become owners of the practice that they're associating in or a part owner through a partnership. It seems to me that most of the time the actual transition is driven by the associate. There's a push element to it more than there's a pull element to it, for sure. And I think the reason why is the sellers a, they're comfortable, everything's sort of moving along. Why disrupt it, you know, when everything's moving, moving along? Number number two, they don't really know what that transition is going to look like. It's a kind of a confusing experience. They know there's going to be some costs associated with it with hiring the team and getting legal documents in place. So let's wait till next year. Or let's wait till next year. Let's wait till next year. And it just keeps going that way. The other reason too is that owners typically are taking home more money when you're an associate than when you're an owner.

Why?

Because as an owner now, you get paid a course according to your production at some level, but then also you will take a share of the profits. That becomes particularly relevant if hygiene is. If you have a really successful hygiene program and hygienes are creating healthy profits to the practice. So there's a number of reasons why I think the owners are a little bit slow to invite or you in or raise that subject. So you just got to take the bull by the horn sometimes. That's an encouragement to all you associates out there who have been associating for three, four, five, six years in a practice and you want to own and you're waiting for the seller or the owner. Well, you may need. You may need to handle that one and press forward. And that happens a lot. I'll just tell you from my experience, I have had associates say, wes, I want to own, but the seller, I mean, the owner hasn't brought anything up with me, and I don't want to be presumptuous. And we have a good relationship. And usually what I say is just bring them in here and let's just talk about it. And you can say, hey, hey, doctor. You know, I love at some point to be an owner of this practice. I feel like this is a great home for me and that we have a good chemistry. And, you know, you're talking about eventually retiring. Well, I think I might have a good solution. My so and so, you know, my CFO advisor, my CPA, financial planner, whatever you want to define us, wanted to offer just a free consult to come in and just have a roundtable, exploratory conversation about it. And then what happens when I get them together face to face? Now we have a real conversation about it. And the inception of the process starts. Then you start putting timelines in place, action items in place. We start understanding expectations, clarifying the process, and it gets, you know, it moves along at that. At that point. Okay, back to you, Robert.

I'll have to agree with a few of those points. I mean, you know, you have much more breadth of experience with people dealing with that. But, you know, colleagues of mine or associates or a good friend of mine who's in optometry, you know, trying to phase into the ownership of her practice, same thing. The owners are comfortable, you know, and they all have different reasons why they don't want to step back. You know, some of it's financial, some of it's just, you know, there's change or there's unknown. You know, in my particular parents case, I think they were not very hesitant to letting me buy in. But the rest of that process is still dragging out with no definitive end in sight, you know, and I know they're not ready to retire just yet. My mom is finally almost hinting, almost with the date maybe later this year. You know, she's slowly, slowly stepping out. And my dad, I don't think he'll ever retire. He'll be one of those guys that practices one day a week till the day he dies at 90, probably because this is just what he loves with his life. But, you know, there needs to be a time and, you know, without having that hard conversation and forcing it to happen, or shouldn't say forcing, you know, structurally encouraging it. It will always take longer than the probably the associate thinks it's going to. So, you know, creating that push, creating some sort of structure, getting that conversation to happen, getting those wheels turning in their head is going to be big.

That's right, just raising that conversation. So at least it's now on the map. Even if it's still down the road, at least it's now on the map, it's in the open and we can talk about a little bit here or there. Eventually you, you kind of formalize it. One of my comments earlier was that one of the reasons.

For them to sell is that, or at least in either sell or part in your case form a partnership is that your parents were able to cash out some element of the equity in their practice before they retired. And that can be a motivating factor for a number of kind of middle aged doctors.

And they're actually, in their case, what worked out well for us is they structured a deferred gain and so they're actually taking it out. I didn't ever have to get a loan with a bank. I'm just paying them monthly for 10 years and now they can retire and they have a fixed income for 10 years, which I think is important for their financial security. You know, they don't need any cash at the moment. They, you know, they're doing fine. Their dental income is going to start going down as they step out. But being able to have that passive income still coming in from me over the next structured period of time provides that sense of confidence for them. So obviously there's a million different ways to do it and that's where structuring the deal to make sense for both parties is really helpful.

Yeah, I find with families it's easier to do a win win scenario. And in this case the win is you don't have to go get it alone yourself and you're able to come, come up with a payment plan that's straightforward, administratively straightforward for everybody to understand. There's not all the provisions in the bank loan and you move forward. And for them they don't have to pay a whole boatload of taxes in the year that they sold their percent interest in the practice. And so that's a win for them. I don't see it happen as often from unrelated parties because the seller will often get be concerned about the viability of the practice long term. Now they're still feeling sort of attached to the practice in the case of a full sellout, even though they want to sort of write off into the sunset. And so they'll usually take the full payout right then, even though they, they pay a bigger chunk in taxes because then they're, they can pivot completely into retirement and that part of their life. But family situations There's a lot of ways to structure that, so it's very much a win win experience.

So, okay, so now you've, you proposed it to, to them and they, they said, yeah, okay, we think we're ready for you for, we're ready for you to join. And now the work of the transaction itself starts. And how did you determine the right buy in price? How did you determine whether you would be taking home more or less after being an owner than an associate? How did you form your team? Tell us about the mechanics of the transaction itself.

I'm just going to recommend that most people don't do it the way we did because it's fraught with lots of issues.

And I'll start by saying if you're listening to this podcast, you're probably already in a better scenario than we might have been. We had a dental CPA at the time that managed everything and did practice transitions. And my parents said, look, we're not listing a practice. We're not looking to pay 10% commission fee here. We just need to change the structures to make our son a part owner. What do we have to do? You know, what's the practice worth? I don't need to get top dollar. I'm not trying to wring it out of him. But what's it worth? I don't even know. So, you know, just ask cpa, get an appraisal, fill out some paperwork. And they already have all of our numbers, so that was relatively straightforward. And then, well, how do we, how do we buy in? How do we, how does this work? Well, we need a CPA to draft some documents. You got to determine a few things. There's a couple, couple last minute conversations that, that were important parts of it. How are you going to structure it? Is it a goodwill sale? Is it a corporate stock sale? And this is where you mentioned the win win for both parties. We're both relatively open to making things work for the other person. I don't need to take maximum depreciation in my first years in practice. I'm okay to defer things out longer if it reduces taxes for them. So structuring it in a way that's a win win was important. We ended up going with a goodwill sale. So there were some tax advantages there for them specifically. But.

The part that became a problem is two things. Number one, you mentioned don't really want to pay a bunch of money the owners leaving out. My dad said, yeah, why does it cost 10 grand to have a dental CPA draft these documents. Can't we just do it for cheaper. It's just my son. Right. Well, we did get a lease agreement for the building, which he owns, formally adopted. We did get a partnership agreement, did get a purchase agreement. And there was a lot of things that went into it. And there are a lot of commerce that we had to have with people over the phone because we did it sort of last minute, wanted it effective like a couple months later. But the biggest problem was we were not. We didn't have a person we could go to that was guiding us through this process. At the time, the dental CPA was in the process of retiring. You're obviously very familiar with our former accountant and he has kind of sold his accounting firm off to someone in the Midwest.

Who.

Great guy. He's really knowledgeable, but he wasn't there physically or, I don't know, emotionally for us to tell us, here's what's going on, here's what you got to do. This comes next. How do you guys want to handle this? It was us asking questions like, so what's next? What do we do now? Oh, you do this. What about now? That is the wrong way to go about it. There's so many questions we don't even know to ask. How are we supposed to ask what's next? So that it was just kind of a terrible timing on our part with the dental CPA firm's part and him not being available and the new guy not knowing what's going on. It just kind of fell apart. I think it could have been a great process, especially with everything that practice CFO offers that all the parts are there that you need to make that transition happen. You just need somebody who's guiding you, who's holding your hand, who's telling you how it's supposed to go. And we didn't have that. And I think that was the crux of the entire issue that made it a struggle for us. So we ended up getting through it. A lot of things had to be later, retroactively dated and we didn't get our. Oh, apparently we have to get a new tax ID number now. Okay, well, now we need a bank account. Oh, well, it's February after the buy in already happened, a month and a half later. So a lot of things happened after the fact. It was a lot of headaches, did get through it eventually. And the nice thing is we're family, so we get along. But I know that's not going to be the case for everybody. So being able to have a lot of those questions answered up front. Case in point, in a situation that will never happen with anybody else, I can almost promise you, is four months into the transition, we find out that Delta Dental is not renewing contracts and we're going to have a new tax ID number and we have to go from Delta Premier to being Delta ppo.

And like, excuse me, like, what do you, what do you mean? Like. No, no, no, just, just change it, just change your taxi number. It's fine. Like, no, no, it's not fine. This is how it's going to be and that is a huge deal breaker that could have changed the entire way we structured the buy in.

But it's only a 60% reduction to your UCR. Come on, what's the problem?

Right? Yeah. As opposed to, I don't know what it was before or let's see, I think it was a 40 or 50% reduction. As opposed to, we were Delta Premier, which was like, you know, 15ish percent. I forget the numbers, but I'm a numbers guy so I have those written somewhere. But this became a panic mode for me. Like, did I just buy into a practice that's going to lose a hundred, like all of its profit? So, you know, I spent hours, like I'm up late at night, I probably spent 40, 50 hours running Excel spreadsheets trying to figure out how to, how is this going to affect me as a buyer? Am I now like buying a practice that has zero profit?

Because what portion of the, what portion of the practice was Delta Premier? What portion of the collections were Delta Premier at the time?

I don't know. Collections. The report. We didn't have run like every report run or I didn't know at the time what reports to run. But on average we have about 30% of patients are Delta and we were Delta Premier providers. So, you know, I ran a bunch of stuff to figure out. Our two options now are literally A, go out of network or B, switch to ppo. And you know, I ran some numbers and said if we switched to PPO and kept everybody. We just lost $200,000 a year in profit. Like it almost disappeared. I just bought a worthless practice. In my mind, you know, I'm panicking. And you talked the question earlier, you know, how much more am I going to make as an owner now than I was as an associate? And nobody could ever give me that answer. Like nobody really told me. And I don't think we even had the numbers set up at the time to figure out how that could have, how that would have calculated. But I'M now panicking. And so that's kind of what brought me to you guys is I'm asking, I'm consulting with people all across the state. I'm calling attorneys with the cda. You know, somebody talk with me what my options are here. Like, I, I'm, I'm really actually worried that I just made a gigantic financial mistake.

Well, it's such a big deal. You would think there would be more ready resources to tap into, but there's actually, there's actually not. And it's even a challenge for us. When we're representing a buyer, we always, always look at the Delta Premier effect, always. We have a spreadsheet, we call it the practice analyzer, and it's got a gazillion tabs on it, and it sort of brings everything together. And we, we put in the prior year, three years P and L data, we bring in what is their equipment listing so we understand what the assets are valued at. We do kind of a valuation. It's not a full valuation, but it's enough. It's definitely enough to kick the tires, to say, what are you going to take home after overhead, debt and taxes. And doesn't make sense for you to do this. But when we do that, we always try to say, what do we believe are the delta is the delta portion of the collections? And then we'll automatically write down those collections by somewhere between 35 and 40%. Maybe 30 and 40%. And a lot of times I'm surprised. I asked the front office, hey, can you tell me what portion of your practice is Delta Premiere? And I don't know. Where do I pull this report? I'm in Eaglesoft, I'm in Dentrix, and, and I don't have experience myself with those practice management softwares.

I'll just say quickly that either they don't know or they guess and their estimates vary widely. Or depending on how patients get entered into the system, you may not be able to run a report that actually tells you that. So, you know, your mileage may vary. And that was a big headache too, trying to figure out, I don't even know how to calculate how much this is going to hurt me.

There are some practice management consultants.

And sort of PPO consultants out there. I think we had Five Lakes was on recently in a podcast, and they do that as a service. They'll go in and uncover sort of what is the delta and can help calculate that. But we will always put in a provision there, even if we're going to overstate it. I Don't want to understate it so that we get a better answer for what are you going to take home after overhead, debt and taxes on this practice, considering that we're factoring in the delta effect there. So now that's going to lead us in just one second to the subject of dropping ppo.

Well, let me pause the last part of that story is why we got lucky and our transition ended up working out and working with family that'll never happen with anybody else is I came back later and said, I just realized that whether we switch to PPO or switch to.

Going out of network and losing some unknown question mark number of patients I will most likely be taking home less than I was before. Like I don't know. It depends. If we manage to miraculously keep 100% of patients, then we're getting paid more. But that's not realistic. And nobody could even guess, nobody could tell me what percentage we would lose. And so I came up with a number, you know, based off interviewing my parents and staff and people and professional resources and guessing and some creating some new numbers. And I said, hey parents, like this is a big deal. I need to change my buy in number. I need to change my purchase price for that thing we did four months ago. And they're like, okay, like you know, and clearly they know at this point that I know more about the problem than they do. And they're like, okay, you tell us. And you know, I tried to get the appraisal redone and he very poorly redid the appraisal. Didn't even use my own research numbers that I gave him and plugged them in wrong. And so who did the appraisal? It was Ken Rubin. Who was it? The broken.

But as a broker, I don't recall was this brokered or was this more of a consulting.

It was more of a consulting type thing. We didn't use an actual like broker. I mean it wasn't listed, it wasn't used as like a brokerage. I don't we formal transition agreements, I think. But he did just provide an appraisal as part of this, I assume as part of the CPA services, I guess. But you know, we had to fill out forms to, you know, interview about what percentage of our patients have insurance and things like that about the practice.

But why I asked that is because a lot of the brokers will provide their own, their own appraisal of it. And of course there's a conflict of interest there when their compensation is a function of the price. So you'll often get inflated value when it comes from a broker appraisal. So carry on. I think I see where you're going with this and what you did to.

Sort of.

Come by later and say, by the way, I need to reduce what I'm paying this paying you for this practice that I bought in four months ago. You know, and I mean, fortunately their parents and they know, they see what's going on in my perspective and they were fortunate to be like, okay, are.

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Will you tell us what you think this should be worth? You know, and it wasn't a huge change, but I said, look, you know, it was valued at this much and I forget the numbers, but I need to reduce it down. Like, I'm guessing it was like 5 to 10% for a question mark. Unknown of. But Delta Hit is going to affect us, and it's not right now, but we're going to be having to deal with this soon as part of the transition. And fortunately we were able to drag it out a few years and for some complex reasons I won't get into. But, but, you know, and I think it worked out okay, but it could have been a huge problem, especially if we didn't manage it well.

So I'll bring up something that, I don't know if it was done in your practice or not, and you can just plead the fifth on this. But when I've dealt with families on occasion, the.

Seller parent will continue to run the Delta Premier through his or her own corporation for a period of time because nothing changes there. Same tax id, same endpoint.

Right. And that's pretty much what we ended up doing because they're, they're still a billing entity. I mean, their corporation still exists. We're still providing dentistry.

You're what's called a partnership of corporations, meaning you have a partnership with a new tax ID that was created, minted when you bought in. But, but each of you, each partner, has their own corporation, which in turn owns their portion of the partnership. And so you can do a structure where the parent, or the, the, in this case, the parents will run the Delta Premier patient collections through the old corporation. And it will just be a reduction or offset to their partnership distribution when you do those distributions every month or every quarter. So it can get a little complicated there.

And for other people who are about to go through a transition, who maybe have been associates in a practice for a while or they're in a different state where the Delta doesn't quite have the same contractual agreements, if you've gotten into a good contract and you know that new contract doesn't exist anymore, you know, you can structure your sale to buy out that corporation and keep existing contracts in such a way, you know, there's, there, there are opportunities for that. So, you know, every, every transition has its own goals and things that are important. We didn't know any of those things. We didn't know it was important. We didn't know what was available at the time. We're just kind of guessing and being told some things and trying to fill in the blanks. So, yeah, you know, a couple really.

Important points on all of this about the buyer process in general. The buyer process into a dental practice is buyers are, generally speaking, underrepresented in these deals, in these transactions. Part of the reason is they don't know who they need and they don't want. Or they don't want to and. Or they don't want to pay for the services. Because you are still relatively low in your income level for a lot of associates, especially if you're living in a place like California or higher cost of living area, you have dental loans, student loans that you are paying off as well. And you're coming off of how many years of having to live very frugally. So your whole mind is conditioned to think that a thousand dollars is a lot of money, a dollar is a lot of money. And you'll find as you start to earn more and more money and your adjusted gross income on your tax return goes up to 300,000 to 400,000 to 600,000, you know, whatever that gets up to. We have some dentists who are doing 1.3 million take home. Suddenly the value of a dollar, economists call it the marginal utility of a dollar, it starts to fall, it starts to go down. And you're thinking, well, I would easily pay $5,000 to be represented when I go buy a business, or 4,000 or 6, whatever that is. We charge usually around $5,000 to do the full buyer rep, which includes due diligence and really more guiding them every step of the way and doing all the analysis and all that stuff. But to an associate, it's a lot of money. And I get. Is a lot of money. But it's also a lot of time to represent correctly and more importantly, the.

Difference that that can make. I mean, like I just said, like I went back and had to adjust the purchase price. Tens of thousands of dollars. You know, if I knew that up front, that would have saved more, more dollars than it could have been worth.

It happens all the time. Happens all the time is I get a lot of. Is I get a listing or I get a buyer come to us and says, hey, Wes, we need some help. So one member of our team will help them. And there's already an appraisal, there's already a broker, there's already a seller. Of course, all that's in place and we look at the price and it doesn't even mention Delta Premier anywhere. And so then you run the numbers and you find out, well, the profits of this, the revenues are going to drop by 10% because of Delta Premier. And that translates into a 30% drop in profits because there's this amplified effect when you go from top line to bottom line because your overhead is the same so your profit drops 30% or more. And the value of a practice ultimately is a function of the cash flow to the buyer. Just like buying anything, you're buying a stock, what are the dividends, what are the projected earnings per share? It's all about the income after the purchase. And now your income just got cut 30% they didn't bring it up. So you go to the seller or the broker and say you have this valued at a million bucks. It really because of Delta this needs to be valued at 800,000 because the value is a function to the cash flow to the buyer, not the pre close cash flow to the seller. Two very different things. It's a function of the cash flow to the buyer after, after buying. So there's always that. Then debate that sort of ensues and ideally you come to a middle ground. If the seller is smart, they're going to realize that whoever they sell to is going to deal with the same thing. Most likely if that buyer gets, you know, sees that the unfortunate thing to the buyers, just some don't see it. And banks, I love banks, great bankers out there do a lot of good things for buyers, but they don't look at Delta Premier even though they're the ones taking the biggest risk of all. The sort of advisors, it's the bank because they're doing the loan and now they have a lot of other attachments to you to sort of secure themselves. So ultimately it's the buyer who's kind of out when they, the analysis is done wrong. So really important to look at that. A couple other things is that I find brokers come in different formats. Now practice CFO has a side of our business that helps our clients make a market or you know, find a buyer. A listing side of it, it's more of a peripheral thing we do for clients who need to find a buyer and don't have one. But I always say if a seller has a buyer already, a good qualified buyer, child or nephew or friend or from the dental society wherever their own network, you probably don't need a broker. And if it's a partnership that's forming, you probably don't need a broker. A number of Brokers out there might get upset at me for saying that.

But we also interrupt you and say, but you still need professional help to get this to happen.

That's what I want to get at exactly is we have a broker, but we don't involve them. When some of our clients are saying, wes, could you help me form this partnership with my existing associate? You don't need a broker, but you're right, you need somebody as a guide. Now some brokers I find are really good guides. And others, once they make the market, once they find a buyer and the letter of intent is in, they sort of step back and let the CPAs and the attorneys and the banks sort of do everything. And then they, they wait for it to be, to be done, to be, to be paid. And. But some brokers really get in, they have great checklists, they guide everybody, they hold hands, they nurture the thing along. Just like in any profession, including CPAs, you're going to have some that are proactive and some that are just reactive. So you definitely want to be working with somebody that's proactive, but get the guidance when it comes to a partnership or a buyer and a seller who already know each other, like an associate arrangement. Then try to find somebody who can consult through that process. We've done that many, many times with both buyer and seller as sort of a dual repping experience to try to find a win, win less conflict and come out with a positive experience for everybody. Great. Yep. Going through that process here, the things that have to get done, the documents just sort of summarizing this transition experience is the legal documents got to be put in place, that's going to be the purchase and sale agreement, that's going to be the lease agreement, which is often just assigned. It's just sort of unplugged from the seller and plugged into the buyer. Unless a new lease agreement needs to be arranged. If you're buying the building, there's of course a purchase contract there. And if the seller is associating back, there might be an associate agreement there. It's important to work out the tax side of it where you decide how much of the purchase price is going to go toward goodwill and how much is going to go toward equipment and supplies, leasehold improvements, non compete agreements, those are all assets and you got to allocate out the price across those things and they have different tax consequences to the buyer and the seller.

And that's something else that didn't quite get handled very well. There was some basic breakdown of this much Goodwill, this much, fixed assets, period. All right, well, like, what about everything else, you know, and so that's why we ended up having to redo the purchase agreement is it's coming to tax time. And Greg's asking me for some numbers and hey, like, we need to report on how you guys are paying taxes on this stuff. And your purchase agreement doesn't even outline how things are being applied. So we then had to redo it to really break it down which dollars of the purchase was going to which part, because they have different tax consequences, you know, getting tax at capital gains versus ordinary rates and et cetera, et cetera. So, you know, it seems like something maybe so minor of, look, here's the dollar amount I'm buying. But how fast you depreciate something. Also it makes a difference of how things are broken down. So little things that you may not realize in the beginning like they do, they do matter. They're important. That's where that professional help needs to tell you and point you in those directions.

Well, it's a big transaction. It's a big transaction. It's one of the most important, if not the most important financial decision you'll make. And there's a lot of. There's a lot of landmines in it that could really cost you down the road. So an ounce of prevention, right? An ounce of prevention. On our Associates on Fire webpage, www.associatesonfire.com, we have video modules on this very subject of price allocation across those different assets, what it means to the buyer and what it means to the seller. I always say, let's allocate to the ideal. Now, theoretically, you're supposed to allocate to the equipment what you would go and sell that for on ebay or someplace, and, you know, the rest goes to an intangible asset known as goodwill. But I think in practice, it ends up being a negotiating part of the process, regardless of what the true value of the equipment is. So I say allocate to the ideal. The ideal is what allocation keeps the most money out of the IRS's hands. And then you adjust the purchase price, if needed, a little bit so that. So that there's not unnecessary friction that goes the way of the irs, because we didn't allocate that well based on the seller's basis in their assets. But that's of course, for bigger discussion. So, yeah, dealing with the taxes is really important and getting your entity in place really important as well. For most doctors, that's going to be an S corporation. Some states Allow you to file as a llc, a limited liability company. Some will allow. It's called a professional association. I think it's called a pa. California is a. It's definitely a professional corporation. But all of those professional corporation, PC, pa, llc, pllc, depending on the state, all of those are just legal designations by the state. You all file a tax return to the same tax return, though it's all an 1120s corporate S corporation tax return is what I recommend. Unless you're a partnership, then you have an entity literally called a partnership. And if in that partnership, we generally recommend that it's a partnership of corporations. So each owner has their own wholly owned 100% S Corporation, which then in turn owns its share of the partnership, like I mentioned earlier. Okay, let's shift over to Delta. We're on part two now, dropping Delta. We've run through the numbers. If you go on to practice, cfo.com I mean you go to our Associates on Fire website, our education platform side, and you go to Fuel Cell, I think two or three, you'll see a video for dropping a ppo. And we also have as a resource a letter that you can use to provide to patients when you go through that process. I want to hear how you did it. Robert, what worked? What could you teach us?

I will start and just tiny little plug for where I feel like I get most of my dental business management information or at least bouncing ideas off of a Facebook group called the Business of Dentistry that, you know, it just seems like some little group. You know, people post stuff, ask questions. But that has ended up being such a, like a giant landmine for me of information and just ideas to bounce off random people and be instantly be able to get, you know, 10 different thoughts or feedback of, from. From people. But that kind of, you know, you see people actually ask the question all the time, hey, can somebody send me a letter or a sample letter that they sent to their Delta patients telling them that you're leaving the network? And I'm going to just stop and actually I comment on this all the time because now that I've been through it, you know, I will stop and say sending a letter your patients is probably the worst thing that you can do short of not telling them at all and just telling them when they check out from the next hygiene visit, by the way, that'll be $100 or 200 or whatever. You know, that's. It's just basically giving them an invitation to leave your practice. It's barely anything more than that. Don't Just send them a letter. Obviously, every practice scenario is going to be different. If you just found out today that you're being out of network today and you have no other option, there's some things you're kind of going to struggle with. But the best, best thing you can do, and this is again after I've called so many legal professional people dealing with this Delta struggle, trying to figure out what to do is the best thing you can do is a slow, phased transition over time. Especially if you have relationships with your patients, letting them know this transition is coming, giving them time to internalize and accept this thing that they don't want to hear, giving them time to understand it's not as scary as they think it's going to be. You're going to hold their hand, you're going to guide them through it. What your practice is going to retain in terms of patience is hugely determined by how well you manage the transition, which is also going to directly affect how much of an impact financially this has on you. Whether you lose 5 patients or lose 1000 patients or whatever percentage of Delta is your practice, that is the biggest financial determination of how, whether this is a success or not. And kind of like you mentioned about the difference between top line and bottom line with profits is that will affect 100% of your take home revenues, your actual net income in your pocket. So we actually ended up going with a consultant in Northern California who, he specializes in helping people exit insurance networks and go out of network, especially with Delta. And that's now becoming more and more of a thing, especially since Delta Premier contracts aren't really offered anymore, especially in California. So there are other consultants that do this now. It's because it's a growing industry, we'll put it that way. But to put it bluntly, the kind of summarize that entire process, we probably paid this guy, I'm guessing 30 or $40,000 over the course of nine months. We met with him monthly. We slowly letting patients know in person, face to face while they're at the checkout counter. By the way, in case you hadn't heard, our relationship with Delta is changing. We're going to be going out of network. Don't worry about it. It's not right now, but it's gonna happen in the future. You know, they get frustrated, irritated. Some people, you know, yell storm off, leave, you don't take my insurance anymore. Like that's, that's not what we said. Like, we still take your insurance, we'll still build Delta for you. Our relationship is changing, yada, yada. And we literally talk about this at our staff retreat we had last week. You sometimes have to tell patients five times before they actually hear you, before they understand. Patients don't know what insurance does is how it works. So when you tell them that you're leaving the network, they like the first thing they think of is, I got to go somewhere else. Yeah. So you have to help hold their hand and gently guide them through it. Let them know you care. Let them know, by the way, you know, we're going to work with you. Here's how. This is what your dollars and cents is going to look like differently. The more you can hold their hand and help them, the more patience you're going to keep sending them. A letter does none of those things. It tells them you're leaving and it says, by the way, don't ever come back kind of thing. Like, if you want, here's a number if you want to call us and cancel your appointment or if you just don't show up next time, we'll know why. But now you have a letter. So I absolutely don't recommend sending a letter unless, you know, you're really out of options. I would rather you stay up all night and call every single Delta patient on your list and tell them, by the way, this is Dr. So and so I wanted to reach out to you personally and let you know we're having a change in our, you know, all those things I just said. So we do know they will get.

A letter from somebody. You know who that's from?

Well, depends on the insurance. And I'll admit I don't actually know, but I don't. I didn't have any patient who actually informed us they got a letter from Delta. It will depend on the insurance company because some insurances do. Our Delta consultant said that patients specifically with Delta of California probably won't get a letter because they're in the Delta database, don't have like their linked provider. But on every EOB that they get, it will say, by the way, here's what you could save if you went to a network provider. So they're going to always be getting these little things, you know, for the patients that actually read an eob. So they're working against you for sure.

I think when you said call all of your patients if you have to. It's got to be face to face. It has to be a personal. Has to be a personal notification. Couldn't agree with you more on that. In the Associates on Fire program, we do have a letter, but it is packaged in this sort of broader step by step phase where you're talking with them in the chair, you're talking with them at the front desk. And, and then if you do send a letter, I always say follow up with a phone campaign from you personally. It's going to take a bunch of time and it's going to eat into your evenings. Even if you're, even if you leave a voicemail, they need to hear your voice, I believe, so that it feels this is personal. My relationship with Dr. Youngman is personal. It's not, it's not a commodity. I don't believe that every dentist will do as good of a job as he does. And, and I think he really cares about me and therefore I trust him. And if you have a reply into.

That or if you are a new buyer into a practice, maybe you haven't been working there before, the staff or the employees, sorry, patients don't know who you are. And you have long term staff that have relationships with patients, leverage that your staff need to be on board with the transition. They need to understand. They also need to be not scared. They need to, you know, you need to tell them, let them know. Patients will be upset, they'll be frustrated, they'll cry and yell and rip up pieces of paper on your desk like we actually had happen. But they need to be the one, the ones who have the relationship with patients, hopefully that's you. But if it's your staff, you know, they need to, the ones connecting straight to the patients. And you made the comment about a letter. We didn't actually send a letter to anybody, but we did have a little printed handout card that explained exactly what's happening. So after you tell them face to face and they walk out and five minutes later they have, they heard nothing except they don't take my insurance anymore. Even those words never came out of your mouth. They now also have a piece of paper that says, yes, we still take your insurance, but because they're going to take it home, the husband's going to give it to the wife and says, I don't know, I guess we can't go there anymore. And the wife calls and cancels the whole family. So, you know, having written stuff can be important to just take it with a grain of salt. It's not the answer of just okay, we told them and magically expect things to work.

People will have questions that come up that a letter can't answer and not even a card can answer that. That's why Those things should be supplements or supports to really the. The relationship, the verbal communication. If questions come up, you can field those. People may leave when they don't understand and their concerns aren't addressed. And personally talking with them is a much more effective way at doing that and helping them feel comfortable about it.

Great. That is, Gosh, that's. If I could get every client to switch out of Delta.

My life would be amazing. Working with Delta just has such a strong hold on people and yet it feels like such a leap of faith to disconnect from the insurance companies, particularly Delta, in that case.

Okay, so Delta being the big bully in the room because they don't take assignment of benefits to other people to their patients. You know, if you need to start with a different insurance or maybe you're caught in the rat race and you're just in network with everybody, you know, start with the lowest paying one, just drop it. You know, however many months later when you realize that your patients, most of them stayed and you know you're actually getting paid your full rate and you're a lot less angry when they come in and complain about a filling it. You know, I'll admit, like with COVID our schedules are not where they should be. I think everything's a little slower. Collections have been down. But you know what? When we're at a network of Delta, you're able to tolerate it a whole lot more. So I mean, kind of like you said, there's. There's so many advantages and it's scary on the front end, but the rewards afterwards and what you can do with, with your practice and the finances that come from those patients is so much more rewarding.

Yeah. And when I run the numbers, a the 1:1 fee for service patient or out of network patient is worth three to five times three to five Delta PPO patients, because of the nature of your overhead, is the same in both scenarios.

But in one scenario, your top line is cut by so much, you know, 50%, 40%, whatever that ends up being that your profits go from on a fee for service patient or out of network on a crown, you might have $600 of profit where you might only have $200 of profit on a PPO patient. And you have all that new free time to take on new patients, focus on your culture in your practice to market or heck, to be out exercising or surfing at the beach, you know, or with your family. So there are a lot of good motivations why to go through that process. Painful though as it is. I love what you are emphasizing, which is it needs to be well thought out. You had a consultant help you. Every step was sort of very meticulously made. And you don't want to go about this loosely and you don't want to just drop it and pray that they'll all stay there. They may. But your probabilities go down dramatically when you don't do it. The do it the right way and.

There'Ll be a lot more headaches that go with it. Things you don't know that somebody who's done this once or twice can tell you what to expect and how to plan it and just so much less, you know, pulling out your hair and trying to figure out what's happening when there's somebody you can actually ask questions to.

How open have your shifting gears just a little bit before we wrap it up here. How open have your parents been to earlier in the podcast you said my way, which you're basically stating I'm coming in. You know, I have a lot of ideas. I've been researching different tools and technologies and ways of doing dentistry and running a dental practice and equipment and whatnot. How willing were they to accept into the practice your way?

I think I'm not the most strong willed slash strong minded in terms of like it has to be my way. I know I've come to appreciate and this is why it was important that I bought in the parents practice. I've come to appreciate the values of their practice and how good things are. So I didn't really feel like I needed to change a whole lot. Honestly. Some of these changes that we're making are just kind of course corrections. Like we have an office vision statement and it's about five star customer service and experience and quality care Delta being in network of Delta PPO does not match that vision statement. And so yeah, I was able to look at the numbers on paper and say this doesn't make sense. There'll be $0 of profit leftover. But you know, when you step back and look at the vision statement, when you have that vision, that's clear. Like the answering the simple questions about, you know, what to do with the practice become a lot easier. You know, are we a fee for service practice or are we a Delta PPO practice that can only get $700 for a crown? Okay, well I mean this is the kind of practice that we are. Yeah, we can make business policy decisions. Like we got a CEREC machine, we got a cone beam. Some of those technology things that I had pushed for and you know, my Parents know that I am pretty familiar with what' you know, I think they know that the technology is coming, you know, and I'm able to basically sit down and explain, even from a we'll say dollars and cents perspective, look, this makes financial sense for our practice, you know, and they, they're, for the most part, they're pretty accommodating. I don't generally rock the boat with a lot of things. You know, yes, periodical bring something up and they'll say, you know, I'm not really looking to do that right now. Or, you know, they want to make a change for some reason, it's like, you know, I don't know, that really makes financial sense for us to do that. So it's still a partnership, like a marriage relationship. There's still back and forth. You both have to be.

Humble, forgiving, you know, provide some leeway, but that it's kind of worked out for us that none of us are being super headstrong and feisty about it. So the, the goose fabric goose or sorry, kumbaya approach of everybody kind of getting along and, you know, making things work.

Yeah, really important if you are a partnership associates, you join into a partnership and make sure you have partnership inventory. I'll call it a timeout where you as a partnership, just meet. It can be off site. It can be doing something fun where you meet and you talk about some of the issues, have, have an agenda, perhaps about the issues in the practice that are coming up. Do it in a. As in an amicable way, in a caring way, and then go have some fun doing something else. Maybe bring your families. Those things really matter to the glue and the health and the culture between you and the partners to do those things. If you just don't talk about it and conflict arises, it just stirs and stirs and stirs and things eventually implode. Because of that, a lot of partnerships dissolve. All right, final parting note, Dr. Youngman. Give me one word of wisdom, one chestnut to associate dentists who are planning to buy and own a dental practice in the next few years.

Be a sponge, soak up every information from every source that you can understand that not everybody knows everything, but you can almost learn something from anybody. You know that business of dentistry page. Like, you know, people post things or ask questions that I don't agree with, but you also get to see a ton of other opinions. So kind of helps round out the perspective. And that's one of the things that I love about it.

One of the hugest benefits for me was Just spending time with the office manager before the partnership buy in and in the first year she ended up retiring about a year after I bought in. And you know, she's obviously she moved to Texas but she's still nice enough to, you know, periodically I ask, ask, answer questions that we ask her. But she, for being the office manager of 20 plus years, you know, knew almost everything about the practice and there are things that I didn't even know to ask. So just kind of hanging around her and seeing the stuff that she does and understanding how she approaches things or who she goes for advice was helpful for me to know how to act. When I became the owner, we went through at least two failed office manager rehires and people who just didn't work out for a number of reasons. So we don't currently have an office manager in the sense of things. But you know, I've kind of taken over a lot of those roles. We've redistributed a few other things, but just, just learn everything you can. You know, if you don't have time to soak stuff up or if you don't know where to go, having professional help is huge. There are people who know the answer to your questions. You just need to find them sometimes or you don't know what questions to ask. So having somebody who can help you find out what questions to ask and know where to go is huge.

Words of wisdom. Thank you Dr. Youngman for being on the program today. We'll have you back another time. Good luck with the new year and carrying the baton to the next step.

Sure appreciate it, Wes, thank you for having me.