The #1 Mistake Dentist’s Make Leading Up to Retirement – featuring Dr. Bob Marcus, DMD

Doctors who are thinking about selling. Here's the thing. Stay strong until the end, pick a day and practice 100% till that day. Because somebody's gonna hand you a very nice check to walk away and that'll all have been worth it.

Welcome everybody to an episode of the Practice Orbit podcast. I am extremely excited today and I am very selective on who I want to bring into this particular podcast because Practice Orbit means a lot to me and the content needs to be really, really good. And so I'm setting the expectations here.

I think there's been a mistake for.

Somebody who was on a previous podcast of mine on my other podcast, which is called the Dental Boardroom, formerly called the Associates on Fire. Sorry for all the names. You know, we do a number of things for dentists here at Practice. CFO is the name of my main company, but I also have a tech side to what I do and that's called Practice Orbit. And Practice Orbit is a newly released, what's called a multi sided platform, which is a technology like Uber or Amazon or OpenTable which brings together buyers, sellers and parties in a transaction and helps them to find each other and then consummate a transaction within the platform and Practice Orbit. By way of introduction, everybody, Practice Orbit is sort of a Redfin meets Uber, where the Redfin is consolidating the supply and demand of dental practices. So sellers have a single place to list their practice when it's time to sell. And they can do it in a very inexpensive way and a very tech driven, smooth, beautiful way. Think in the way the technology is outlined and how it helps the practice appear so, so nice. And then for the buyer they have a single place to go to because right now the marketplace is incredibly fragmented. Where do you go? It's sort of a who do you know? It's a who do you know industry right now when it comes to buying and selling dental practices. Now there are some listing sites that help out, but there's not really a single sort of Redfin or Zillow out there. There's no MLS for the sale of dental practices. Practice Orbit is designed to help solve this problem and create a centralized marketplace for for buying and selling of dental practices and help transact part of that transition inside the platform through built in, non disclosure agreements, chat rooms on the practice, notifications, email notifications, filters, and ultimately submitting a letter of intent by a buyer to purchase a practice which is then received by the seller and accepted and then it moves on to accountants, attorneys, bankers to consummate that dental transaction.

Sale.

So I'm very excited for the launch of this new technology. It's been two years in the making and a decent amount of dollars out of my personal pockets. So I am invested in the success of this. But more than anything, I'm just invested and excited about doing something that I believe the marketplace needs. And that's why I'm very, very excited to have Bob come on. Because Bob sold his practice four years ago.

Bob, almost exactly four years ago.

So this is Dr. Bob Marcus. I'm going to give you a quick intro. Fill in the gap. Bob, you had a practice here in Poway, California, which is a part of the San Diego county and Poway is a part of San Diego county, right?

Yeah.

And you were in that practice for, I'm thinking like 30 years.

I was there 20.

Something years.

20 something years as a very successful dentist. Now I have over a lot of time and heartache come to forgive Bob for not being a practice CFO client. But I met Bob. We met at the point in time when you were going to sell your practice. And Bob is a very loyal person. He's very likable. He likes to have a good team around him. And he had a good team serving him all those years as a CPA and a financial advisor in his life. So I was really, I would say, grateful and lucky to have met Bob when he came and said, I'm ready to sell my dental practice. I heard about you practice CFO and you, Wes, can you help me sell my practice? And as you know, Bob, we have a traditional broker, a dental broker who is a wonderful guy. His name is John Hale. And John Hale is here in San Diego and does dental practice sales. And we sell somewhere around, I don't know, 10 to 15 practices per year. And he helps what I call make the market here in San Diego for sellers and buyers of dental practices. And so we helped you through that traditional model with John. Sell your practice. Now I want to go into the details here because this is one of the genres in this podcast of practice orbit that I want to focus on, which is stories. I want to hear sellers stories and their experiences. What were the things that they wish they would have known before selling that would have helped that process go smoother and even perhaps stage a better exit value out of their practice? And what went well? What advice would they give to somebody selling their practice? And also give stories of buyers who are buying practices and what are the things that they're learning that they think other dental buyers should know as well. And I'M sure we'll talk about the consolidation aspect in the industry of DPOs, DSOs, institutional dentistry, corporate dentistry, which is very much a factor in the transition marketplace today of dental practices. And some of the podcasts are very much going to focus on that. So, Bob, let's jump into your story. Can we jump into it? Let me actually say one more thing about Bob, if that's okay. Bob did sell his practice. Bob, you were how old now?

55.

So you were 51 when you sold?

That's right.

You're young, vibrant, healthy. You have more hair on your head than I do. So you sold. And to whatever extent you want to go into your motives, feel free to.

I think that's important to go into a little. Because it's material.

Okay, I want to go into that. Actually, we'll probably do that as the first thing after. I just sort of state what you're doing now. So now Bob is consulting dental practices.

Yeah, I didn't mean to do that. And you'll. You'll see as the story comes out as to why I'm no longer practicing clinically, why I'm even doing this at all, because many people just say, well, I've decided I'm going to retire.

You, meaning while you're doing what, this podcast or doing.

While I'm doing this consulting and stuff like that?

Yeah.

It becomes the story makes sense. I never thought I would do this. In fact, I got to be honest with you, I always thought when I was in practice that the last thing I wanted was some guy to come in and pay him to tell me how to do business. I thought that would be a bad idea. I've changed my mind on that, of course, now seeing it from the other side. But I think to create context, it's important to go backwards a little bit to selling the practice in order to tell the story about what I'm doing now. So. But in a nutshell, yeah, I go to practices, not practices that are hanging on by a thread or, hey, we're terrible, save us. I go into practices that are already doing well, but it's time to be better. Maybe good to great or great to outstanding practices that say, hey, you know, I'm really busy, but I'm too busy for what I'm producing, or I go home every day and I feel stressed, or I don't want to come anymore, or I don't know what to do about my hygiene department. I don't know what to do about the fact that we're not seeing any more Patients come in, we have a lot of cancellations. Whatever the fear, the concern, I need to find that out. So my idea is I go in and kind of get a full on helicopter view. And there's no consultant on earth, maybe on earth, but there's no consultant I know who has the unique perspective of somebody who actually did it for a couple decades. Most people learn how to be a consultant by reading books, by watching videos, by apprenticing with somebody, by learning from their superior. I actually learned it on the job and I made every mistake. So my idea is what do I do to make mistakes happen less in the office? How do I fix it before it happens? So anyway, that's what I'm doing now.

Yeah, I remember you came to us and looking at your profit and loss statement and thinking, all right, Dr. Marcus has it figured out. These are phenomenal numbers.

We had good numbers. I was very proud of what we had created.

So your practice, if I recall, was doing about $2 million, which is excellent. But the thing I noticed about it too, that made it more excellent is your profit margin was at 50%.

Yeah, we were about. It was a little lower. I think it was in the, it varied month by month. I think it was in the, in the high 40s. I think our overhead was running 54, 55% depending on the year.

And here in Southern California, San Diego, we work with a lot of clients as you know, do a lot of P&LS. We're actually creating benchmark studies here in the near future to release that in the marketplace. But it's around 35% plus or minus a few percent is typically where we see your standard GP dental practice. And by the way, Bob is a GP. And so when I saw, saw that, I think it was like 47, 48%. I thought, what, how are we doing this? And tell me, were you a PPO driven practice or.

You had about 60% PPOs in network.

Okay, so it's not like you had this magical fee for service only practice and therefore you could keep your overhead low relative to collections.

We were not in a fancy area. We did some cosmetics, which I really enjoyed, but mostly family day to day restorative dentistry. I did no implant placements, I did no periodontal surgery, I did a little bit of ortho when it was low hanging fruit, the easy cases. But in reality we were basically restorative practice.

A lot of, it's safe to say, if I recall looking at your payroll, which is the biggest expense for any dental practice, usually running around 27 to, say 35% for a GP practice. Your labor was well in line as a percentage of collection, but you didn't underpay anybody on an hourly basis. They were paid.

I think we overed. Well, I don't think we overpaid. I think we paid what they deserved. Very good, experienced staff. And they're, they're making good money. I don't want people to compare their job to the, to the guy down the street and say, why am I making less money? So they were well compensated. We had a very strong bonus program. But, you know, I think a lot of it too, Wes, and you're a numbers guy. So. The way we express overhead in dentistry, I think is sometimes too simple, because in reality there's two components to overhead. There's your fixed base cost that I'm going to spend no matter what. If I'm going to work 40 hours, I got 40 hours of this group here. I'm going to have my rent, I'm going to have my lights, I'm going to have my mortgage, whatever it is you're going to have. And I think that's just a base, fixed overhead. And a lot of the other overhead items that are more variable are like materials, laboratory costs, supplies. Those are a small portion of the overall. It's usually the staff, the taxes, the rent or mortgage, those are the, those are the big boys. So for me, the way of making overhead lower is not by cutting costs. And I've said this a million times, if we look at any profit and loss statement, I'm very good at looking at them, but I don't understand most of it. And the reason I'm good at looking at them because I understand basic math, which is I have a top line, which is all the money I got paid to do dentistry, your collections, and then a bunch of minuses. And I wind up with a bottom line of what I keep. And that, that is my understanding of it. That's not nothing. I'm not bad at math, but that's the simplistic way to view it. And the key isn't minimizing the minuses, Wes. The key is increasing the top line. If I could have my top line be strong, I could have a smaller overhead number. So to me, a lot of people say, hey, I need to save two pennies on every cotton roll. That is not going to make a major change in the practice. A major change in the practice is made when we can truly affect our top line. You said it was a two million dollar practice. That's Correct. It's a heck of a lot easier to have a 50% overhead at 2 million than it is at 1 million because all those base fixed costs aren't that much different for a practice that is in the same demographic as I am and producing half as much. So to me, when we express overhead as a single number, it's something we all do. I do it. But in reality we have to wonder what really am I saying? What I'm saying is, are the minuses too big or is the original top line too small?

One of the things I talk about a lot is what is your break even? And in dentistry, like you're saying, there's a lot of fixed costs. It's usually around 80% or so is fixed. That's your labor. And at the end of the day it's all variable. If you go out far enough, if you double your size and collections, you're going to have to hire more, maybe get more, lease, all that. But month to month it's fixed, it's 80% or so is just the same every month. And then you got your labs and supplies, maybe some office supplies. That's maybe total in total makes up 15 to 20%. And so piercing that fixed cost is everything. And so the break evens that I have, there's actually three. It's when do you have enough collections to cover your fixed costs and those variable costs, that's number one. I call that keep your doors open, break even. Now you've got enough just to keep your doors open, pay all the stuff that runs this practice, but you haven't paid yourself. So then the second break even is now you're going to pay yourself and your taxes. Oh, and in the fixed cost too. Don't forget about debt. You got debt in there? Yeah. What's that? A lot of dentists know what debt is. You were able to eliminate debt earlier in your career, which is incredible.

I got a lot of debt early on from dental school.

Yeah, but that's a big part of it. It's not an expense per se on the P and L other than the interest, but it is a fixed outflow and so you have to pay for that. So that second break even is covering not only your practice overhead to keep your doors open, but then it's paying you and your taxes. And that is what I call your living break even. Your sort of day to day living break even. But then you got to pay for your future self, I. E. You got to set aside money in a savings account and I call that Your goals based breakeven, that's the break even here at practice cfo. As the CPA side of my business and financial planning side of my business, which has been my core business for about 11 years or so, that's what our focus is, is what is that number? And then although we don't consult people to get their collections up, that's your job. My job is to sort of define that based on their life goals and then to help traffic control the dollar once it hits their bank account, through the overhead, through the debt, through the taxes, the 401k, their personal budget, all that stuff, to get the most back to them personally as possible.

But think about what you just said. In the most simplistic of terms. In the most simplistic of terms, you have the various break evens you've defined and named. And I love that. But once I hit those, let's say I hit those and I'm done and I've serviced those, the next procedure I do, the next $1,000 procedure I do to throw a number out is not at a 70% overhead anymore. It's really at a 20% overhead. So the way to get your overhead down, the number we talk about as this global overhead number is by getting above all the break evens you defined. Once I get above all those, now I do a procedure, I'm keeping 80% of that because of what I'm really paying for on that procedure. More than all my fixed costs are done right. Paying for materials and supplies, maybe lab costs and credit card fees, that's all I can think of. That, that and there's my 20%. So once I get above that number, and you got to know that number, you got to know that number. If that number in your office, for example, is 70,000, throwing it out, that's my life break even as you mentioned. I've already funded everything in my life that I needed to at 70,000. When I go to 80, guess what, I'm keeping 8,000 of that 10 exactly. That's where we push the overheads down, is by increasing production. This doesn't mean running people through. This means doing a better job at all the things entailed and keeping getting production up, which is what you know, that's currently my space that I, that I go into with doctors and go, let's talk about this. Let me see what you did last week, last month, last year. Not just in numbers. Let me see what you actually did. Yeah, let's chart your day. Where did you go? What room were you in why did we do that one? Why did that patient get nine appointments for nine different fillings instead of one? Let's figure out what we're doing that we can make ourselves get to that life break even. Was that the word used?

The life we're getting goals based.

How do we get to that? Goals based, break even and then pierce through that? Because once you pierce through that, then the sky's the limit. If we never pierce through that, we're fighting and fighting and fighting the money that we don't get to buy something nice.

Yep. And that's how you accelerate financial independence is you. Is you get to that level of production above your overhead costs so that 80% of what you make is then going and routing back to you for your savings. And we as me as a cpa, when I know when I first came into this world of working with dentists as a numbers guy and not as, say, a practice management consultant, I was very much about how can we save on our merchant processing costs with our processor for taking credit cards, for example, where I thought, how can we shave off a little bit here and there and all that is valuable. I don't want to undervalue looking at your expenses. But almost always the problem isn't that you can save a few bucks for sure. The problem is always how do you simply get more production out of your current set of resources, which is your. Your operatories, your front office, your assistant, your hygiene. How do you get more production out of that? And that's not a space that I'm versed in. So hence we've invited you into a few and just you've done some really, really impressive things with our clients to focus on that one area. And when you're successful at that, my job as a financial advisor for dentists becomes so much easier and funner, to be honest.

It's cool. I had a wife of one of the dentists that I'm working with, happens to be somebody that is also your client. And she came to me. We were almost done with our. We spent a year together. The program I do is a whole year. And she came to me and said, I'm so excited about this. And I said, why are you so excited? She said, because I have money in my bank account now. They have five kids. They have one in college or two in college. They have a lot of expenses coming up, put it that way, for sure. And they are now feeling like they're going to be okay. They're going to pay for college. They can get a different Car. When you add at this 20% overhead. We were describing this marginal overhead, which is probably a word I'm using wrong. But when you add $10,000 at a marginal overhead of 20 to somebody's bottom line, they walk away with eight. Now, that's pre tax. I get that. But let's say even after taxes, they have 5, $5,000 extra a month. To me, that's some money. If you already have everything you want in your life, you could go out and buy yourself a Rolls Royce or a nicer house. This is not play money. This is the real thing. So that's where the focus is. How do we pierce that number you were describing? And then how do we bring in just enough more that we could say, hey, look at this. Play money or a 529 money, or whatever I want to do with it. Money, Vacation. Yep.

There's what I call the wealth ladder. The first thing is any bad credit card debt, boom, gone. Second thing is your emergency reserve fund. Build that up to somewhere between three to six months of your fixed living expenses. Once you've got that in place, make sure that you're funding any IRA accounts that you can't or are eligible to based on taxes, maybe what's called a Roth conversion. Make sure we're maxing our 401k profit share plan, and you sort of move up these stages. Eventually you might get to paying down debt. But tax deductible debt, like home debt or practice debt, I don't like to tackle that right away just because of the tax benefits from that. Now, at the same time, I understand, I know you tackled that very fast.

Which is a beautiful thing, like the emotional aspect of debt, then there is.

A big emotional aspect to it. And I always, at the end of the day, I end up support. Hey, if you're building your personal balance sheet, I'm going to support you no matter what, if you're doing that aggressively. So that wealth ladder becomes such a fun, enjoyable activity to climb when you have that extra 5,000 or that surplus per month. So back on your practice, okay, you had a great. You and I. You and I. Bob, we just came back from lunch. We. We enjoy talking, don't we?

You know, I love the field of dentistry, and I just love it. And so I like chatting about it, like helping doctors. I did a cool study club last night for about 150 people on the technical aspect of using their Cerex. So it was. I just love the field. It's treated me well, and I want to treat it well back.

So then why on your story, whatever you're comfortable with sharing, why did you sell?

So, first of all, my sale was. Was unique. Most people just go, yeah, I think I'm going to sell. And they kind of taper down. They go, I really. I really ought to sell now because I want to do one less day. And they kind of have this slow roll until they eventually sell, and at which time their practice is probably worth less than it was before they started tapering off and they don't want the stress. And now they have new things in their life to deal with. For me, it was completely different. So I had to make things. To make a prolonged, sad story very, very concise. I developed a condition with one of my eyes. It's called retrobulbar optic neuritis, which is idiopathic. In other words, idiopathic is a fancy word for we have no idea where it came from. So after going to multiple. Multiple doctors and specialists and having multiple attempted treatments, it was determined it's not getting better. And the problem affected me in my near vision. So as I look at you across the table from me, four feet away, you look. Everything looks completely normal. But as I look at my right hand in front of me, only a foot in front of my eye, I barely see it on my right side. And so when I put my loops on, I was really screwed up. My. I had terrible headaches. I could barely see it. I wanted to put the Explorer on tooth number three, and I'd land on tooth number two. I knew almost immediately I had to get out. The doctor I went to, I love my doctor, he told me, this is not getting better. You're done. And so, I mean, he didn't say it like that, but that's what he meant. And so I decided we need to sell. We need to sell fast. And that's when I met you guys. And I need to just get out. So I didn't get time to. I didn't have a taper down. There was something good of came of that. What good came of that is when people came in to look at my office. My schedule was still full, my hygiene was full, because I didn't know until two weeks ago I was leaving. So we had outstanding orders coming in of supplies. Most people go, well, screw it. I'm not going to order more supplies. Let the new guy order the supplies. We had everything set up for somebody to literally walk in there, turnkey, change the name on the stationary, and begin working. We had a full staff ready to go. They Were aware of the problem I was having because. Because I told them and we all were. And we all got on board. I said, look, we're on board with this because we live to serve our patients. And that sounds like a giant cliche, but I really do believe that. And if we want to practice what we preach, because all of us dentists, we say this at cocktail parties. Oh, I love my patients and, you know, I love helping people, but you got to live that too. Talk is cheap. I really did live that. I had crappy days just like everybody else. But generally speaking, I liked it and my staff liked it, and we had a good relationship. And we all said, how are we going to carry this forward so our patients are best served. We got a buyer and did the transaction, which is very smooth, through John and Practice cfo. It was a pleasure. Everything went according to plan, and I could walk away. I actually stayed on a little bit. Not in a clinical sense, because I really couldn't, but more of a helping out the buyer sense. You know, how do we change over this? How do I. How do I do this website thing or whatever? Because I was happy to help and walked away. So doctors who are thinking about selling, here's the thing. Stay strong until the end, pick a day and practice 100% till that day, because somebody's gonna hand you a very nice check to walk away, and that'll all have been worth it. You get paid twice. Here's the thing in dentistry, you get paid twice, once to do the procedure and wants to sell the patient to the next guy, which sounds really weird to sell a patient, but I don't mind the word sell.

So it's not like a regular business where I work for General Atomics my whole life and maybe I put into my own retirement, maybe they match it, maybe that. But I don't walk away. And unless I bought a bunch of stock, which I didn't, I don't have this big. This big giant check coming my way. So selling a practice for me was. Was financially gratifying because we came out of it just fine. That was. It was sad, physically. I had a lot of emotions around it. Thankfully, I have a very strong support structure in my wife and my family, and I was fine. I'm not going to sit in bed and cry over this. We just kind of dealt with it, moved on, and here I still am sort of in the profession. Never really got away. But I mean, I don't know if that tells the whole story you're looking for, but that's the way my practice transition worked.

So point number one I'm gleaning from your story is don't let it languish leading into the point of sale. You should have afterburners on. I mean, and don't like Ling. Let the decision linger. Because if you're thinking about it and you're losing steam in that whole thought process, it's going to be felt throughout the practice, and most likely something is going to start to taper off. And one thing banks don't like, and one thing that valuations don't like, is a trend going down. Of course, the opposite is true, too. So if you can turn on those afterburners so that the most recent year is your best year, and that is going to, I think, have a material effect on the sale price of your practice and what banks are willing to lend.

And ours was the best year. Not because I was trying to find some. I was trying to make it ready to sell. I wasn't actually doing that.

And that was 2019.

Yeah, it was exactly four years ago now. 2019, early in the year. And the thing too is, when you think about a sale, a lot of doctors, we do this everywhere. I did this in college when I was a senior. You kind of see the prize at the end and you get this kind of short. Some people call it short timer syndrome. I don't know if I'm saying that right, maybe short termer syndrome. But we see this prize, oh, I'm 63, I'm retiring at 65. And we innately just kind of let it go. We let it languish. We shouldn't do that. If you're going to practice your 65, just freaking do it. If you think that. If you're starting to think, hey, I want to only work two days a week now, great, just sell the practice and make an agreement with the new person to work there two days a week instead of letting your production get cut in half from the prior four. So my advice is, if you're going to do anything in your Life, do it 100%. If you know, dentists are smart people. If you know by looking at yourself in the mirror at a quiet moment when there's nobody there, it's just you in the mirror. Say to yourself, am I doing this 100% anymore? What am I doing? And if the answer is no, then say, how do I either turn up the volume or accelerate the process of getting out?

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Can I ask you about two specific things? Number one, staff. How did you communicate this to your staff? How did they receive it? That's often a delicate subject, but talk about that.

Well, at first I was going to a lot of doctor visits and I wasn't telling anybody anything because I thought. What I thought is you see, we dentists, we see a problem and then we cure it and then it's fixed. Worst case scenario, maybe we pull it and fix it another way. So I thought it would get. The same thing would happen with my vision. I'd go there and they'd offer me some. Some sort of treatment or surgery or medicine. Once I realized that wasn't going to happen and this is not going to get better, then I talked to the staff about it. Now, this is the same staff that had been with me for years. And we had a very open, good relationship where I'd say we were work friends, you know, friendly, but not friends. But we're work friends. I really want them to be part of this process. And so we circled the wagons and we said, look, this is a bad moment. We have a problem, and I need all of us to figure out how we're together going to solve this one. And we discussed it and figured out, okay, the solution is a new doctor's coming in. How do I protect your jobs? How do I protect your salaries? How do I protect our patients? And so that was foremost in our mind. And when the buyer did come in, that was a discussion. We had said, hey, here's the staff. Here's what they're making. And he had asked me, hey, what do you think? Should I. Should I lower their salaries now? And I said, absolutely not. You do what you want, but this is a talented staff. I am a firm believer in that the staff is equally as important as a doctor, him or herself, and the success of the practice. People like to come in and see the same hygienist year after year after year. I don't want to retrain people all the time, so I'm happy to pay extra to have better staff members. So the staff was easy. They helped me. They wanted to. They were on my side.

Yeah, it sounds like you had a good relationship with your staff.

It was an honest relationship.

And which is what sort of a lot of the goodness in a healthy relationship is derived from, is that honesty and that authenticity at the same time. A buyer is a different person. A buyer is not Dr. Marcus. And a lot of times staff are wondering, am I still going to have my job with the new buyer? Is there anything you were able to do? Did you see that fear at all? And if you did, was there any way for you to help settle that fear? Or did you work collaboratively with the buyer? What was your approach?

So I worked with the buyer, and I can't tell him what to do. But I outlined early in the process of selling, it's important to outline the numbers of the office. And so he knew who was working for me. He knew what they were making. He knew Their bonus structure. And I am proud to say that if you looked. If you go back and look at my numbers that you probably have in some file somewhere in this building, you'll find that my staff was well paid. Both of my assistants were making what I would consider to be above average. We had a strong bonus program. I recommended to him that he continue with them. They wondered, what's he going to be like? Am I going to want to stay? Am I going to want to leave right now, sitting here now, in 2023, there are more dental jobs available than there are staff to fill them, particularly in the hygiene world. So any one of them at this moment could just walk away and find something else. I don't remember in 2019. This is pre Covid. I think the economy was doing pretty well at that point before the world shut down. And they had the same idea. Hey, if. I guess if I have to leave, I'm going to be fine. And we even talked about that. One of my assistants really wants to go to hygiene school. She really wants to go back and get a. Become a hygienist. A lot of assistants want to do that. Here's the funny thing. I just saw her yesterday. She happened to be at that same seminar. And I said, how you doing with the hygiene school thing? She said, I'm still working on it four years later. But anyway, we talked about that. So, yeah, you know, you could do that. Let's talk it over. A lot of these staff, especially if they're younger than you, you kind of get almost a mentor role going with them by default. And if you don't, and if you don't take an interest in their lives and how they become better people, I just don't think that you're gonna get their 100% back. You have to give to get. A lot of doctors think, well, you're gonna go to hygiene school. Well, that sucks for me. You're gonna leave me. I don't like that. I would encourage. Yeah, that'd be great. You'd make a great hygienist. I'll find somebody else. So I think a lot of that is. You play this chess match all the time. But a lot of it is just thinking a couple moves ahead of what do they need? What are they gonna want? And recommending it to the buyer. If you're a potential buyer out there, I think the number one thing you can do to screw up your dental practice purchase is alienate the staff you're inheriting or purchasing or adopting or whatever you want to Call it. They're going to be. They're the continuity now. You're the new face.

Well, and so much of the practice that you're buying, so much of the price gets allocated. These transactions in a dental practice are almost always asset sales. They're not buying the stock of your corporation. Bob Marcus, DMD inc. They're buying your assets, which is like a garage sale. You roll up your garage door and you're buying the dental chairs, and you're buying patient records, and you're buying the furniture that's in the waiting room, you're buying the X ray machine, you're buying all that stuff, and then you're paying, let's say, a million dollars for a practice. But all that stuff is only worth $100,000. So the other $900,000 is Goodwill. It's an intangible asset. You can't touch it. And that goodwill is the team. It's the patient records, it's the systems, it's the branding, it's the recognition of the practice. The team is such an important part of the goodwill of that practice that, yeah, at some point, you may need to switch out some staff just to create the culture you want or have a better fit for you in that practice. But in the beginning, I have typically found the best approach is to first just step in, take a lay of the land, get to know the staff. Don't try to change anything. Now, eventually you may do that, but it sounds like that's how it was in your practice.

And it's the same with patients, because when you send that letter out, what we're saying in that letter is, oh, here's an introduction to the new doctor I'm retiring, or whatever you're going to say, don't worry. Your appointments that you already have, we'll keep. If we are already using your insurance, we'll keep. Everything will be the same. Everybody's the same. Because patients, people, staff want continuity. I think when it's. When you come in as the new guy or the new person coming in to own this office, you are upsetting the apple cart. It's you. And so in order to kind of steady that, steady that practice and let it move forward, we want to change as little as possible right off the bat. Now, you may have staff members that say, hey, this is the perfect opportunity for me to quit, because it turns out I didn't want to work here anyway. Fair enough. But you work those out individually. But, yeah, I think that it was easy for me because I was just honest with My staff, from the very beginning, once I found out what was wrong with me, I said, hey, I got something wrong with me. I don't think that's something to be ashamed about that you're going to. Nobody expects you to practice until you step into the grave. I think talking to your practice, going, hey, guys, you know, I wanted to talk to you about the future of the practice. I am now 60, and it's one of my goals to sell this practice within the next two years. And I want to tell you what that means. I want to tell you what that means to you, to our patients, to this facility, so I can make sure that all of our lives are enriched by this change. Get them on board, make them an asset. I see a lot of offices, they hide it from the staff until the last second. They don't want a whisper campaign where people are going to hear about it. But if we talk about it in a positive light, about how we're going to make sure we find the perfect person to come in and take over and do just as good a job as I always tried to do, to me, that is something to be proud of, not ashamed of. And if a patient came to me and said, hey, I hear you're going to sell the practice in a couple years, I'd say, yeah, I can't work forever and I'm going to find the perfect person that's going to take great care of you. And I think that narrative, rather than this whole cloak and dagger type thing that we have a tendency to do, is more healthy for the patient and the staff.

Yeah. One of the objectives of Practice Orbit is to have a broader pool of potential buyers to interview and to choose from. Because I believe one of the most important elements to a successful transition and the continuity of that practice, and therefore the patients and staff, is a doctor who has a similar style. It doesn't have to be perfect, of course, or perfectly aligned, but there should be some sort of natural fit so that that goodwill easily transfers. You lose that goodwill, you're going to struggle. And so practice, Practice Orbit is designed to create this consolidated place where buyers and sellers can meet. And so you have a lot more opportunity to find that buyer that seems to be a great fit for the practice. Okay, last subject, and then we'll finish on this one, is your condo. You owned your condo. Tell me about that experience selling the condo with the practice.

Okay, so we were in a professional building where there, I believe there are 12 or 13 individual condos within. It was all medical. The whole building that's all they allowed. And I didn't want to hold, you know, some people might want to hold the real estate forever and allow that to be an income pride to be a landlord essentially I didn't want that. I could take a half an hour and tell you why but let's suffice to say I just, that wasn't, that wasn't something I wanted for myself. And so I made the sale of the building part of sale of the practice. Now legally and accounting wise I believe it has to be bifurcated because of loans and banks and the way the numbers work. But you know, I, I don't get all that. So I just saw it as package deal. If somebody had come along and said I just want to buy the practice, not the building, I guess if I was getting desperate I would consider it but I wasn't. I thankfully we had several buyers produced almost immediately when we decided to sell. So that was extremely comforting and we sold the building along with it to me considering it was a medical only building. And there's a lot of vacancies in the medical only space these days because a lot of these little hanging a shingle. I'm the dermatologist that hangs a shingle. It doesn't really happen anymore under the the UCSD or the Sharps of the world. Everybody's consolidating and they have a big giant building over there. We're just full of doctors so we're not seeing as much medical space value.

Doctors. Yep.

If I'm going to tie up my money in a as a landlord out rather own a residential condominium than a commercial medical only space. Maybe that's dumb, but that's how my small mind understood real estate.

And some of that can be geography specific too.

However, you don't have to sell a space if you own the building and you want to be that landlord then I would just tell your Wes or tell practice of oh hey, this is my goal, I want to be a landlord. I don't want to sell the building. And that would be your terms. I imagine that would be part of practice orbit to indicate whether the building goes at the transaction or fair game at all.

Yeah. And I know in the sale of the building oftentimes very often they don't sell at the same time which they didn't for you. The practice we had a little different.

It was about a six month difference between the time the practice closed. So I was the landlord but it was in the contract that that my buyer I didn't want to Be the landlord. Do I want to talk about this contract thing?

To the extent that, yeah, you're comfortable.

So my lawyer.

The reason why I want to share this though is because I do have a number of clients who, like you, don't want to be a landlord. They don't want to be sort of tied down with that. They would rather invest their money in different ways and be free. So they want to sell it. It's actually not very common that they sell at the same time. And sometimes the buyer may lose motivation to buy the building because of, you know, they're just busy trying to transition the practice. And it's a different qualifying experience to get a loan to buy the building than it is to buy the practice. They're two different things. You two different types of loans, often two different lenders usually at the same bank, but two different individuals you're often working with. And so how do you keep that buyer interested and committed to buying the building when they've already bought the practice?

I had a couple extra worries on top of that. First of all, our practice was we could have definitely used more space and there was nowhere to grow. The next door neighbor wasn't going anywhere and we were ready. I was already looking to potentially have more space, space for my practice when everything kind of came to a grinding halt. So my worry was, first of all, the buyer might think, well, this is too small for me, I'm going to move. Secondly, in my particular case, the buyer's wife is an orthodontist. Why not the two of them just get a freestanding building and have a DP on one side, an ortho on the other side. That would be something that might happen that would be reasonable to do. So I had a couple worries that the building wasn't going to sell at all, like you just mentioned. So I designed. I actually had my lawyer and I work together and we designed a rental contract where he would rent from me. The bank required to be a long term lease, I think in order to make the transaction. I think it'd be five years or something like that, if I remember right. But we designed the lease with a, with a, it was a triple net lease, which I think I understand what that means. Basically it means they pay for stuff besides the rent. And we designed it that every month after the three month period of he said, I'm going to buy the building in three months. This was, I'm going to buy it in three months. Handshake, handshake, you know, pat you on the back, but I Wanted something stronger than that. So we designed the lease such that in month number four, the base price went up 500, and in month number five, another 500. Month number six, another 500. This started to get painful for him at about month six and he bought the building. I think that was his intention all along. I don't think it was the punishment. But the longer I'm going to hold on to this asset, and I'm using air quotes right now that you can't see, but the longer I'm going to hold on, the more it becomes a pain in my behind. I'd like to get paid for that. So when I asked my lawyer about that, he said, geez, I don't know if I can do that. It's a novel idea. And he did some research and found that that is legal to do. And so that's what we did.

Great. That was creative. I think that was thoughtful and effective as well. Last question, very simple one. How long did it take from the time that you listed the practice to the time that it actually closed?

Well, mine was quick. I don't know the exact number, but I would say, Wes, that it's about four or five weeks.

That's very fast.

Yeah. And I think that the four or five weeks, I think that most of that was the bank getting their stuff in a pile. We had the letter of intent almost immediately. We had a signed contract almost immediately. It was, oh, the bank needs more information. Oh, the bank. The bank is closed today. Oh, the bank requires this. Do you have this? So to me, it was a lot of banking stuff. And I think in practice Orbit, you were mentioning earlier that one thing that you will develop is direct relationship with banks that are already kind of ready for this China transaction. They've already told you everything they need, so there's no question marks. So I think I could have been done in like two weeks if the bankers had really been on their game. That doesn't mean they were bad at what they do. They just don't do it all the time.

Yep. You know, on our dental guys, on our roadmap, A future release of practice Orbit is to build in a transaction room almost like an Amazon Fulfillment, you know, when you put it in your cart and then you go through putting in, make sure you got the right credit card and your address and then you process that. That's a very simple transaction when you're buying, you know, a baseball glove off there or something like that. But if you're buying a dental practice, it's more complicated and you have, you have accountants, you have attorneys, you've got bankers involved, and you've got the buyer and the seller. Sometimes you'll even have a supplier in there or even a consultant looking at some numbers from the practice management software is Practice Orbit will have, once the letter of intent is in a transaction room that invites each of the parties into that room. And it will have a stepper or a workflow inside of it to go from loi to ultimately the purchase and sale document being signed and the funding by the bank occurring and everything being consummated. And it will create a very clear workflow. So everybody involved will know where the ball is, who's up next, and it will move along quicker. Because a lot of times these practice sales take long just because people get confused on where the status is and who's the next person up at bat to do something in that whole confusing process. So we're excited about that. That's going to be a bit of a resource and time commitment to create that sort of feature. Currently we have built in an ability for a seller to choose who is their team, who's their accountant and attorn, and then their team members get an email, they're invited into the system, into a global sort of conversation room. And so it's got some of those features built in there as well.

And I know you have an attorney that you use and he was fantastic. I think it's the same person. Right. So I also had my own personal attorney that I'd known forever. So I had him read things over. I wanted a second layer of, let's say, comfort. And he read things over too. But it was nice to have the attorney kind of do everything that's in common between buyer and seller. A lot of people think it's a confrontational moment where the attorneys are going to battle it out like we're having a divorce. We're not. What we're instead having is a meeting of the minds. And so the attorney in common, so to speak, the one that practice recommended, dual represented. Yeah, he did all of the. Everything that's done in common. He got the whole contract ready. And then my attorney did have some minor changes he wanted that he thought would fit this particular situation. And it was kind of nice. So this, this, this room in common that you describe works beautifully well, especially if somebody can say, I also want to bring my own attorney and fantastic, let's give him access to this and then he can have a direct conversation with as he wants to do. I love the idea because I agree with you. It's who's up next was the confusing part. They're going we need a tax return. From who? Oh, from the, from the seller. Oh, that's me. What year? 2022. Oh, I thought you said you wanted 2021. And there was a lot of kind of time wasted on just not knowing exactly who what step is next in the dance. And I think that that sounds like it would be. Would be great. It would have probably saved me a couple weeks on my transaction even though.

Mine was fast and are actually our very next functional release is going to be a document vault for the seller at the point of signing. The loi for it to be finalized is they have to have their tax returns uploaded, certain production reports uploaded and those basic reports that every buyer, if they do their due diligence accurately and banker are going to want to see and sort of cataloged out very clearly. So that's all ready to go and help facilitate the transaction.

I love. And whoever's important, whoever needs it can log on and put whatever. I love that.

So really, really thrilled about what technology can do in this space of dental transitions to create transparency and just an overall better experience. Final comment on the dual representation by attorney. Different people have different feelings like you said about that and are they being appropriately represented and certain attorneys may not do it and some attorneys will do it. I've always found that if a buyer and seller have trust and they have a good relationship and this is often the case if they had a pre existing knowledge of each other, which I think in your case you knew the buyer a little bit beforehand so that trust was built in and he's a good person which made it a little bit more I think tolerant or accepting to do a dual representation.

He did use his own attorney for his stuff too. Not in a non trusting way so to speak, but a hey, let's have another set of eyes read it. I'm a big believer in that, which.

I think is a good idea too. The value I don't want to say to do it or not to do it. That's not my place. It's a legal issue. I will just say from experience that the transaction usually goes a lot quicker and yours went very quickly in spite of some of those things. You were listening.

He got us 80%, he got us down to the 20 yard line and.

If he's a dental specific he knows there's a set of deal points. There's like 20 deal points plus or minus that every transaction has to address and there's a best practices for all of those. It's not a terribly complicated thing if those deal points are addressed in a fair way for buyer and the seller. So I'm glad that that experience worked out.

Worked out great.

Bob, thanks for joining on this, our first episode of the Practice Orbit podcast. We're actually brainstorming a different name for it. Give it something a little bit more catchy than just the name of the website. Practice orbit.com practiceorbit.com Please go check it out. You'll get a good flavor for what it does for buyers and sellers. And even if you're a broker out there and want to list your practices on there, there's a very marginal fee to do that. But it has beautiful listings, digital listings, it's anonymous until an NDA is signed by a buyer. You can start practices if you're a buyer, just like you start homes on Redfin or Zillow. It's got a number of nice little tools and features like that. It does a verification of every user. So we filter out anybody who's there with bad intentions. I personally interact everybody who signs up on the account with a very short interview. We look up their dental license, make sure it's all legit so that there's trust within the platform. So that's a brief intro to Practice Orbit. And for anybody who is interested, Bob is staying on for another little bit to do. Bob, if you still have time to do a short, probably 20, 30 minute podcast on our Dental Boardroom podcast, which is which is a separate podcast of my Main Company, Practice CFO, which is CPA and financial planning services for dentist, practicecfo.com and the dental boardroom and brings together the CEO, which is the dentist, and us what we like to call ourselves, the CFO of the practice. And we discuss how to make that business a successful one. And we're going to talk about how to thrive within a PPO setting, which is sometimes PPOs get a really bad name. Bob says, hey, there's some pretty cool things we can do within the PPO structure. And so we're going to talk about that here. Head on over to our Dental Boardroom podcast. You can look that up on Apple or itunes or any of your directories, the Dental Boardroom and find that today is February 23, 2023. So it will probably be going live here within a few days of today. Bob, thanks for joining.

Thanks.

We.