2611: What Should You Ask Before Selling to a DSO?

On today's episode, Dr. Mark Costes and Dental Success Network co-founder Michael Lomotan answer questions from DSN members. They start with a challenge many practice owners know well: how to hold a team accountable without becoming everyone's reminder system. Mark then looks back at his decision to grow to 16 practices and explains why he would focus on profitability, location, and room to expand if he were starting over. They close with questions to ask before selling to a DSO, including how the deal is structured and what happens to the portion of the practice's value that isn't paid at closing. Be sure to check out the full episode from the Dentalpreneur Podcast! EPISODE RESOURCES https://www.truedentalsuccess.com https://www.truedentalsuccess.com/ Dental Success Network https://www.dentalsuccessnetwork.com/ Subscribe to The Dentalpreneur Podcast https://itunes.apple.com/us/podcast/dentalpreneur-podcast-become/id983666208?mt=2&ls=1

• 0:09Speaker 00

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• 0:53Speaker 00

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• 1:30Speaker 00

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• 2:13Speaker 00

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• 2:46Speaker 01

  The Dentalpreneur Podcast. Okay, Doctor, it's time to put down that handpiece. You're listening to the show dedicated to helping dentists get their lives back. It's time to decrease your stress, increase your profitability, and regain your passion. Now introducing your host, Dr. Mark Costes.

• 3:08Speaker 00

  Hello everyone, welcome to another episode of the Dentalpreneur Podcast. I'm your host, Dr. Mark Costes. What's up friends? How are you today? I hope you're doing great out there today. We have this tradition inside DSN where people submit questions. It's called the Ask Me Anything segment. And I sit in front of a camera and I just answer questions. It's a lot of fun, but actually can get kind of boring when you're just looking at like five or six questions and you're staring at a camera and talking to yourself for like 45 minutes straight. So I decided to bring in one of my favorite co-hosts to answer some of these questions with me and talk through some of the things that DSN is thinking about. So co-founder of the Dental Success Network, Michael Lomotan. What's happening today, buddy?

• 3:53Speaker 02

  Hey guys, I thought this was titled "Make Up Anything", but I looked closer, it was, "Oh, let's ask Mark anything." So I'm going to put my name in, like, "Ask Mark anything", and then Mike will add some color if he has some domain knowledge on the question.

• 4:07Speaker 00

  Or it could be A-M-M-A, "Ask Mark or Mike Anything."

• 4:11Speaker 02

  Yeah.

• 4:15Speaker 00

  I'm trying to eliminate key man risk here, so.

• 4:18Speaker 02

  Yeah, let's just add more letters to this, right?

• 4:20Speaker 00

  And then it could be A-M-M-B-A, it could be "Ask Mike, Bill, or Mark Anything."

• 4:28Speaker 02

  We could, right. "Momba" I think is what it spells out, right? When you throw on Addison in there too, we're at it.

• 4:33Speaker 00

  There you go, Addison too. All right.

• 4:35Speaker 02

  "Mark, Mike, and Bill, Ask Anything."

• 4:38Speaker 00

  How you doing?

• 4:39Speaker 02

  I'm good, man. Yeah, it's just this busy where we have, actually, since our last recording, I think we're adding on like two or three new vendors. So it's going to be exciting. We have some new stuff rolling out in the next couple of weeks.

• 4:52Speaker 00

  Awesome, awesome. I'm excited to hear that. Yeah, we'll make the formal announcements in due time. That'll be great.

• 5:00Speaker 02

  Yeah, let's do it.

• 5:02Speaker 00

  Cool, cool. So let's get into this. You have the list in front of you as well.

• 5:06Speaker 02

  I do.

• 5:06Speaker 00

  I'll read this one out first, then you can read the next and then we'll alternate. This is from Dr. Ashley. "How do you create accountability while not being everyone's reminder system?" This is a tough, this is kind of a tough question because accountability is one of the toughest parts of being an effective leader within an organization. I think having a strong leadership team helps. Having strong systems in place helps. But to a certain degree, you're always going to be everybody's reminder system, right? And you can eliminate yourself from the practice by having a good leadership in place.

• 5:47Speaker 00

  But the bottom line is everybody is going to be accountable to somebody else within the organization. Always, right? Your number two is going to be accountable to you. The office manager is going to be accountable to the, you know, Operations Director, if there is one of those. And then all of the team leads are going to be accountable to the office manager. And then all of the people under the team leads are going to be accountable to the team lead. So the organizational chart is in there for a reason. That is for accountability and to make sure that people aren't having direct access to people that they shouldn't have direct access to, just for the sake of being efficient

• 6:30Speaker 00

  and being able to keep everybody in their lane. So how would you answer this question, Michael? How do you structure accountability so that you're not that hovering micromanager?

• 6:46Speaker 02

  You know, I wish I had a perfect answer for that. Actually, I have a funny answer for that. No matter what, yesterday was a good example of a system that broke in our office, where basically it was a patient who is a friend. And sometimes we realize that when it's a friend, you treat that friend differently. And you tend to be a lot less rigid with the way things are done.

• 7:11Speaker 00

  Yeah.

• 7:12Speaker 02

  But something broke and there was an important thing that was missed. And we held a meeting, so Katrina, we all had a meeting with the team. And it was about accountability, like who's going to be accountable for what? And you reiterate the systems, you look at the checklist, and they're only as good as the people that adhere to them. But when you talk about the accountability, there's a pain chain, right? So you have the front desk accountable for X, the assistant accountable for Y. Those two have to work together. Ultimately, it boils to the top where if you're going to talk about extreme ownership, the accountability lies on the owner or the operating manager to make sure that all, everything was done along the way. So when we realized something was broken, we actually put that accountability on your boy Bryce, right?

• 7:57Speaker 00

  Oh yeah, my son Bryce is working at your practice now, yeah.

• 7:59Speaker 02

  He's working in the office. So we said, "Okay, Bryce, take a look at the big picture. Since you're new to this whole thing, broke, who should be accountable for what? And right out revise the systems and the checklist so that he can now float and almost be the enforcer of the accountability in the systems." I hate having to have another person do that. But what we found is when you rely too much on technology. And you expect things to work like you, as soon as the procedure is done, it stands on a consent

• 8:43Speaker 02

  form. Sometimes that breaks, but because you trusted it, you don't check it. So now we be basically a dedicated person for now, checking to make sure that every step is done along the way, keeping everybody accountable. And eventually, ideally, he'll be able to remove himself from that position and everyone will just fall in line until it breaks again. But that's the way we do it. But ultimately, you, Mark or the doc, has to be, is responsible. You're at the top, right? Just like a CEO is responsible for everything that happens underneath them, no matter how far removed from the process they are. They're the ultimate owner.

• 9:24Speaker 00

  I love that. So that brings up like an interesting point. When something breaks, or you have a stressful situation, do you often meet immediately after, like at the end of the day? Or do you wait till the next team meeting? Was this such a big deal that you guys decided, hey, guys, at the end of this day, we got to talk through this to make sure it never happens again? What prompted that?

• 9:47Speaker 02

  Yeah, we, I mean, it was a big enough deal where it wasn't anything clinically wrong, but it was finance, there was a financial mistake. And so we just looked at the schedule and we saw that there was a break that we could utilize and just had it immediately. And Katrina was actually had admin days, so she was working from home and just drove to the office. I was already there and quickly just had a meeting and just addressed it. And sometimes that's, if you, if you wait, it can be an efficiency miser if you just have a meeting every time something goes wrong. But you have, it's not gonna have, but you have to, like, what's the impact and what's the scale of it? If it's a simple mistake, you kind of let it go. But if the mistake is going to cost more than, let's just say $500, we set that boundary and say,

• 10:31Speaker 02

  this is something we got to meet about now. Or if it's something that has any kind of legal ramifications, you got to meet right now. So we'll literally pull the stops and just have a meeting.

• 10:41Speaker 00

  Okay, cool. I like that. I like that. It is funny when, you know, when something happens, like a patient is scheduled and the lab case actually isn't there, or you're going to sink an implant and you don't have the driver, you know, or just something big like that happens and it just throws a whammy into your day and you get furious. And sometimes we let that fester for an entire week or a month, and then you forget how important it was at the time. So, or that's one option. Or the other option is you just get so irritated that you start stuffing all that stuff down and one tiny little thing happens by the end

• 11:25Speaker 00

  of the week and you explode. And you're like, why did, why did that little thing make me so mad? Well, it was because a number of things went unaddressed. And you let, you became a pressure cooker that just popped.

• 11:38Speaker 02

  Yeah, you waited, you waited the whole week to address it the following week. And either it's going to de-escalate or it's going to, to pressure cook. And it feels like, especially when you're trying to remind people to do something and a mistake happens, we want it to be perfect. We're all human. We forget things. I think sometimes you're using it as an excuse of, do I replace this person? And is it them? But I don't know. It's, it's an honest mistake when you're in a busy office and things happen. You can only have, you have a systems in place to follow it, but there's going to be, the answer I want from the team is, I'm, it was an oversight. I made a mistake. Don't make excuses. And this is what I'm going to do to fix it.

• 12:22Speaker 00

  Right, right. Such a great point. If you have the right culture where people feel safe, and there is an extreme ownership mentality within the organization, nobody's going to try to, try to escape blame. Nobody's going to throw somebody else under the bus. They're going to be the first people to raise their hands and say, I own this. Next time, it won't happen again. Next time, I'm going to do it this way, the correct way. And you commend them for taking ownership for it and you move on. And you build a new system around it. You build assurances and that that will never happen again. I do think like from a leadership

• 13:04Speaker 00

  perspective, when you're talking about accountability, I think that this comes down to being super clear about what success looks like for each role, being sure that everybody's role is crystal clear. And also for each system, there should be an owner of that system, right? So I am, I own this financial system. So you are actually held responsible for this entire chunk of tasks that leads up to collecting money, or this chunk of tasks that leads up to presenting treatment with, you know, with the insurance breakdown or whatever. So accountability becomes very easy when a chunk of tasks belongs to somebody. And it's just not a system that is not owned by anybody.

• 13:49Speaker 02

  Right. And I think we'll boil it down to one thing. The way that you keep people accountable and the way you stop being the reminder system is a checklist. Old school, check it off, was it done? And can that be reviewed at the end of the day? And I actually, although we can do this electronically, I kind of like pen and paper, because you can just quickly look at it, see what's not checked out. Whereas just like if you file things in an electronic folder on your desktop, you so much forget where you put it. You don't check it. So having, having sort of a lot of physical action and being able to see it may not be the most time efficient, but it's very effective in uncovering what's not done.

• 14:30Speaker 00

  Yeah, for sure. I mean, with all the advent of new technology, since I graduated in 2002, when, and starting in 2003, that our checklists were on a laminated piece, a quarter piece of paper per, per role. And everybody would have an end of day checklist and they'd check it off and they'd hand it to their supervisor. Nowadays, our big technological shift is that they, they fill out their end of day checklist, they take a picture of it and text it to their, to their supervisor, and that's it. And we've, I've still found that that is the most effective way with all the technology and all the different ways that you can hold people accountable, the physical checklist, checking it off with a dry erase paper, pen, taking a picture of

• 15:14Speaker 00

  it, sending it to your supervisor, that supervisor sending their checklist to their supervisor, et cetera. Things just get done. Things get done. And those are, you do have to modify those checklists from time to time as you add new technology and there's new systems that are put in place. But it's the simplest and most effective way to do things, I think, as far as accountability for the big picture in an office. Yeah. Cool. All right. I think we beat that one to death. This one's from Dr. Mitch in New York. He says, what's your favorite thing to chat about with non-dental entrepreneurs? Gosh, do I talk to anybody that's non-dental nowadays? Not really that much. No, I mean, like at cocktail parties

• 15:57Speaker 00

  and stuff, if I'm talking to somebody interesting, we always get down to the basics of business. And, and if it's, if it's a brick and mortar business, it's always, it always goes to humans and it always goes to leadership and it always goes to operations within a business. And people would be surprised how similar operations in any small business and any brick and mortar are throughout business in general, and not just dentistry. You know that I started with a roach coach. And, you know, I drove a truck and I sold burritos and nachos and Marlboro

• 16:37Speaker 00

  Lights and diet cokes. And I had two employees and we drove from stop to stop. And at the end of the day, we had cash. I had to pay all of my, all of my vendors, I had to pay for all of my supplies. I had to pay for my two employees and whatever was left over, I had to keep for myself. And a portion of it had to go to taxes. And that's basically dental office 101 as well. I mean, it's, it's, yeah. Business is business, dude.

• 17:11Speaker 02

  And if, I guess the question can land two ways, right? If you're talking about a non-dental entrepreneur, you're talking about business. For me, it always gets narrowed down to investments, like, you know, where are you putting, where are you putting your cash? Where are you making it work for you? And also, what different tax strategies do you employ? That's always a fun one and something that I think all entrepreneurs try to tackle. And I think I've learned a lot getting out of the dental industry and understanding what other people are doing, where they're investing, how they're strategizing with taxes and cash flow. That I found pretty interesting because we tend to be in a little bubble with, with dental.

• 17:51Speaker 00

  Yeah, for sure. And of course, I mean, pretty much anybody that I know, whether or not they're in dental or not, are talking about, you know, tax advantage strategies.

• 18:01Speaker 00

  Alternative investments is a big thing. A lot of people are talking about the stock market versus, you know, oil and gas versus physical gold versus, you know, Bitcoin and and those sorts of things, real estate. So, I mean, I think that people that have kind of an entrepreneurial slant to them will always have something to talk about. And it's very interesting, dude. Like, if you talk to somebody that is...

• 18:33Speaker 00

  A career employee slash part of the, a part of a corporation or climbing the corporate ladder. What you talk to them about is totally different because it's, it's interesting how different their points of reference are in comparison to people that own their own businesses.

• 18:51Speaker 02

  Right.

• 18:51Speaker 00

  It's weird.

• 18:52Speaker 02

  Right.

• 18:53Speaker 00

  They're, they're talking about like corporate structure and um, their frustrations with having to deal with an idiot boss or

• 19:03Speaker 02

  Right.

• 19:04Speaker 00

  The bad decisions that

• 19:05Speaker 02

  Yeah, the W2, right.

• 19:06Speaker 00

  The bad decisions that their CEO is making or the fact that their stock options have decreased. It's a totally different discussion than somebody that's like building something from scratch.

• 19:18Speaker 02

  Right, right, exactly. And look, let's cite our own life. I have, you and I have gone to parties in Austin where there are some kind of heavy hitters out there where there are no dentists, right? Very extremely successful entrepreneurs that are, that are, I guess, level, you know, we laugh. There are levels to this and we've gone to these things that are extreme levels to this. And what do we talk to them about? It kind of boils down to, hey, what's your workout routine? What are you doing for fun? Right? You know, some people like racing or some people like watches and just these different things that, that, that boil down to sort of how are they benefiting personally

• 20:01Speaker 02

  from the business that they created and how are they scaling? I mean, we think about how we can apply that to our own.

• 20:06Speaker 00

  Yeah, it's very interesting, isn't it? It's, it's

• 20:09Speaker 02

  Yeah.

• 20:09Speaker 00

  It's pretty cool. Um, but yeah, there's no shortage of stuff to talk about. I mean, shoot. I talk every single day on a podcast and other people's podcasts and I never run out of things to say. I'm constantly curious about everybody else's perspective. So lots of things. All right. Uh, should we read this? Mike's question is kind of inside baseball question.

• 20:31Speaker 02

  I have not seen Colin's office. You're the only one that can answer that.

• 20:33Speaker 00

  Yeah. Um,

• 20:37Speaker 00

  Dr. Mike McKay says, is Colin's office as nice in person as it looks in the photo? So Dr. Colin Mierich has four offices, 70 total operatories and four offices. Um, he's a young guy, not even 40 yet, not even in his mid 30s yet. And he's got a huge operation, but his flagship office is in Florida on the Panhandle, um, a Destin area. And uh, it's, the main floor has 16 operatories, I believe. And he's also building out a six or seven operatory ortho suite. And I think a 10 operatory pedo suite upstairs. It looks like the White House, dude. It's the most beautiful thing I've ever seen. It is gigantic.

• 21:21Speaker 00

  Like you walk in there and you're like, all right, this is, there, there are levels to this, you know? And uh, yes, uh, Mike, it's, I would say that the, the pictures don't do it justice. And if you guys haven't heard Colin's story, he was uh, the co-winner of the Golden Rhino Award this year at the, the Dental Success Summit. Uh, the other winner was Blake Hamlin, who's in Houston, Texas. But uh, yeah, we got some young guns inside DSN. They're both, they're, they're both mentors inside DSN, helping out some of our newer members. And uh, yeah, pretty incredible facility, dude.

• 21:56Speaker 02

  All right. So there's dental office envy.

• 21:59Speaker 00

  Oh my

• 21:59Speaker 02

  Right now.

• 22:00Speaker 00

  It's, it's unbelievable. And it's like, there's always somebody that's building a bigger office, you know? It's like, I remember Bill Keith, 23 operatories, Bill.

• 22:08Speaker 02

  Right.

• 22:08Speaker 00

  And now all of a sudden, you know, you got this young kid Colin that's like, whoa dude, that's like

• 22:13Speaker 02

  Hold my beer.

• 22:14Speaker 00

  That's like 30, that's like 30 operatories. And then Jason Tornor is like, oh, excuse me, guys. 45 over here in the, in the Finger Lakes, you know, New York. It's like, all right, guys, like, what are we doing? This is huge. These are, these are monstrosities, but uh,

• 22:29Speaker 02

  All right.

• 22:30Speaker 00

  It's crazy. It's crazy how they're able to

• 22:32Speaker 02

  Set up a challenge. Someone out there has got to have a hundred op, operatory. We want to see it.

• 22:39Speaker 00

  Yeah. I've, geez. Uh, yeah. Congratulations to all of those guys. And you just got to tip your hat to um, the vision and their ability to scale something as mom and pop is dentistry. Uh, their ability to have systems in place and a leadership team in place to be able to pull this off and manage it. Uh, there's just so many levels of complexity to, to doing something like that. But uh,

• 23:03Speaker 02

  Yeah.

• 23:03Speaker 00

  I'm just proud to know all these guys, man, and pick their brain and, and see what they're doing. Look behind the, look behind the curtain.

• 23:19Speaker 00

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• 24:02Speaker 00

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• 24:51Speaker 02

  And you know, being in the same proximity with um, at these mastermind meetings and DSN and DSI meetings, it's pretty incredible. And actually that leads perfectly into the next question, right? So if you were to build it from scratch, so we can, we can look back and say, hey, those guys did it from scratch, right? But they did it with the knowledge of all of the mistakes made by the rest of us.

• 25:19Speaker 00

  Yeah, that's true.

• 25:20Speaker 02

  And how to do it right, right? So what's that? What's the second one? If you could read that question to follow the second.

• 25:25Speaker 00

  It says, if you could build your dental career again from scratch, but only had five years to do it, what would you do differently? What would be your new playbook for success if you were 30 years old today? Okay. Well, I'm not one that like, like, looks, likes to look back and say, geez, I regret this or that because everything that I've done in the past, all the mistakes I've made have kind of led me to where I am right now. That's, that's kind of always been my philosophy. But I made some very, very big mistakes that if I was to do it all over again, I would definitely

• 26:04Speaker 00

  avoid. Um, I had 16 dental practices. A lot of my practices in the beginning were based on just this vanity number that I was trying to achieve. Um, my, my original goal was just to have 10 dental practices because I didn't know anybody that had that many. So 10 sounded like a nice round number. So I started off pretty hot. I had three right in my second year of, of dentistry. And then within my sixth year of dentistry, I had my first six dental practices. Actually, it was closer to seven years. I had six dental practices. And you know, I think people run into the same problem today that I did back then, is there's a certain level of borrowing um, that there's,

• 26:48Speaker 00

  there's a, there's a ceiling that you reach pretty quickly with the private lenders as far as acquiring practices. Because the typical default rate on a dental practice owner is less than 1% and it goes up significantly with every practice that you purchase beyond that. So, so banks want to lend to people that have one or two practices because the default rate stays really, really low and they get really squeamish after three, four, five, six practices. So you have to get really creative about what you're picking up as far as practices. And the only way that you can do that really is if you have either private money, which is very high interest, if you can find it, or seller financing, or distressed assets.

• 27:32Speaker 00

  So distressed assets and seller financing usually goes together. So what I, what I would do is I would get a phone call from one of the reps or from a landlord because everybody kind of knew that I was buying distressed practices. They're like, hey, this guy's going bankrupt. Um, we're about to seize his equipment. Would you like to take over his lease? And you get the equipment for $25,000. And I go look at it and I'd be like, all right, sounds good. Uh, $25,000. I just got a new practice. And so I'd purchase, I'd, I'd pick one up. And then there'd be like a nowhere town in the middle of central Arizona, over by the Grand Canyon, Williams, Arizona. Their dentist died two years

• 28:14Speaker 00

  ago. There's 5,000 people in that, in that community. They're driving two hours to one of my other, to one of my other practices. Hey, man, I'm just going to find a place in this little town, put a, put a, put a dental practice there, a little four operatory dental practice. And then I'd buy these distressed practices all over in these remote areas that didn't make much sense. The demographics would either support it or not. So I ended up with these, this ragtag bunch of practices that was like, okay, yeah, we're cash flowing really good, but I can't get associates to go out into the middle of nowhere. I can't get a good office manager out there. There's no way I'm going to get a hygienist to, to drive out to the middle of nowhere. And then when it came to like selling these practices, I figured out that I had to sell them

• 28:56Speaker 00

  in clusters because like two strong practices, I'd cluster on this, this weak practice with it just to get rid of it, right? So if I was to do it all over again, obviously I would focus more on EBITDA, not the number of, of, of locations. I would find a really good location and I had some really, really great locations where I could have done a, a really big four-wall

• 29:20Speaker 00

  16 operatory practice, but I was so focused on my model at the time, which was multiple practices that that didn't even occur to me. So I probably would have gone for less number of practices in better demographics, focus on EBITDA and not a vanity number of number of practices that I would that I would purchase.

• 29:43Speaker 02

  Right. Well, like only multiple is great on paper. It's a lot. It's a different work where you queue. Like I remember you were floating around these different offices in between and doing clinical, doing clinical in multiple cities.

• 29:59Speaker 00

  In a day.

• 29:59Speaker 02

  Jumping around in a day.

• 30:01Speaker 00

  Yeah. Sometimes I work three practices in a day, like literally, I'd like.

• 30:04Speaker 02

  That's madness.

• 30:05Speaker 00

  Place two implants, go do a full mouth extraction in a different practice and then do hygiene checks to end the day at a different practice. It's just stupid. That's just dumb. Like that's not, that's not an appropriate use of anybody's time. And who can maintain that?

• 30:21Speaker 02

  Hey, but you had multiple practices.

• 30:24Speaker 00

  It was nuts. It was nuts. But I mean, shoot, dude, I mean, it gave me such a depth of understanding of what not to do.

• 30:31Speaker 02

  Right.

• 30:32Speaker 00

  And, and, and a depth of, of a battery, a catalog really of, of mistakes to help people navigate around.

• 30:42Speaker 02

  And you look, the, that experience that you're able to, you know, we know Bill, we know Colin, right? We know Blake and especially Bill, we talked to Bill all the time. It's like these type of lessons get sort of paid forward. And that type of story is perfect for someone who wants to look, go back in time and say, okay, this is what I would do. I would build a much larger practice and scale that way. That way your time can be dedicated in one space and you're just not spending your time on a plane bouncing around different practices. And look, I'm, I'm different, right? So I'm married to Dennis. And so I can't look back like 30 years and say, well, what I would do differently. I think if I say from a business standpoint, I probably would have got involved earlier.

• 31:25Speaker 02

  I was busy with my own career, the biotic industry, managing large sales organization. And, and when your time is divided that way, I realized you, I wasn't paying attention to what the family business was and mistakes were made. And you can always look back and say, my involvement early on probably would have prevented a lot of those mistakes and a lot of that, that, you know, like bad partnerships or risk mitigation. But it wasn't until things got hairy, did I step in and say, let's try to fix this. So a lot of things could have, could have, could have been avoided. So that's the only thing that I would look at and probably would have thought bigger because back, I think back then it was really thinking about, it was, it was a fear of failure. So you did things, we did things

• 32:10Speaker 02

  safely. But it would be nice to have the balls to say, hey, we have the capability to do this. Let's just go big. Let's just go bigger off the bat and, and think that way.

• 32:23Speaker 00

  Yeah. I mean, I've seen it both ways. I've seen people that did have the guts to do that and regretted it.

• 32:30Speaker 02

  And true and failed. Yeah.

• 32:31Speaker 00

  And failed. But you know, that just comes with, they're asking me when I was 30 years old. First of all, I didn't graduate dental school until I was 31, but man, I was fearless, dude. I would have walked through anything to, to accomplish my goals. I would have worked any number of hours. I would have, I would have put my house more of my, my house at risk. Like I was fearless back then. But you know, with, with time, that, that, that reckless ambition kind of gets tempered a little bit. And now I understand kind of, especially because I coach hundreds of people. Now I see the, the risk of that type of recklessness. I've seen both sides. I've seen the upside to that and I've seen

• 33:15Speaker 00

  the downside to that. And both sides are, both sides are equally accessible, we'll say, if the planning isn't done correctly.

• 33:23Speaker 02

  So if we were to summarize it, what would be the new playbook? The, I guess for me, the playbook would be to, to think risk mitigation first and find out where the holes are at. Be very systematic and have documentation and be well organized as opposed to trial by fire. I think that would be the simple playbook and also talk to people early and talk to others that have done it before you so that you're just not making the same mistakes. Sounds very cliched. It's very simple, but the, at that time, you just thought you could do everything on your, your own and you listen to the reps or you listen to sales reps or those people have network, but they have their best interests for themselves as opposed for you.

• 34:06Speaker 00

  Yep. Yeah. Everything you just said, I agree with a hundred percent. I think that the model that I like the best right now is to buy a very profitable practice with, with room to expand in that physical facility. It's kind of the, the, the, the model of a lot of our more successful members and coaches inside DSN and DSI right now. Buy a practice that is already very profitable, even if you have to pay a premium for it, knowing that you could still continue to grow it. Expand slowly as capacity needs it and then start acquiring practices within a two mile radius, bringing those retiring

• 34:51Speaker 00

  doctors on for six months to a year, bringing their maybe best hygienist and maybe an office manager and 700 to a thousand patients with them and do that over and over and over again. Yeah. I don't, I think that that model works very, very well.

• 35:10Speaker 02

  All right. We've got one more question. This is a, this is a deep one.

• 35:14Speaker 00

  Okay. Let's see if we can do it in six minutes or less because that's how much I'm.

• 35:18Speaker 02

  All right.

• 35:19Speaker 00

  Okay.

• 35:19Speaker 02

  Yeah. That I can both be perfect for a lead into the next episode.

• 35:22Speaker 00

  Yeah. Yeah.

• 35:23Speaker 02

  All right.

• 35:23Speaker 00

  Go for it.

• 35:24Speaker 02

  All right. It says, I've talked to a few reps from this PE firm and they're saying all the right things, but I've heard mixed reviews from other docs. What specific questions should I ask those who have already sold to this group to really understand what life is like after the deal? All right. Can I start with this?

• 35:44Speaker 00

  Yes, please. And first of all, first I would say, good on you for doing your research, asking these questions and talking to people that have already sold to them because a number of people have not. That's very, very, that's a very big key thing to do. Talk to people that have already sold to them. Ask what their experience has been. But go ahead.

• 36:02Speaker 02

  Yep. And I look, and this will tie into the most, the previous question. If you can think back then, I actually would have put exit in mind early.

• 36:12Speaker 00

  Yes.

• 36:12Speaker 02

  Because then that allows you to structure everything to think about EBITDA and profitability as opposed to, so that way you, you, and you know, do your books correctly. So you have a plan of exit. And when you do want to sell, whether it's for a family emergency or just needing to move, everything is structured in a way to make that transaction easier, right? That, that I would do. But to answer this question, so talking to other people who have sold to that same group is, is, I don't know if you're going to get the most honest feedback because as much as like you say, they have a vested interest in bringing you in because if they're going to, if you join that private equity group, the EBITDA, overall EBITDA values of the group goes up and they have a better chance of a recap

• 36:55Speaker 02

  and growing and an exit.

• 36:58Speaker 00

  And a lot of times they get, they get a finder's fee to bring their friends on.

• 37:03Speaker 02

  That's true.

• 37:03Speaker 00

  And they want to justify in their own head that they made the right decision.

• 37:07Speaker 02

  That's the big one.

• 37:07Speaker 00

  Yeah. Right.

• 37:09Speaker 02

  Right. So nobody wants to, nobody wants to admit that they may have made a mistake. So they're going to get other people on board. Now, the questions I would be asking, there's, there's a ton of questions. We've learned a lot from just talking to different people in the industry. You have the traditional private equity where they buy a hundred percent. And then, you know, you get a certain amount of cash and you roll the equity into the holdco. You have JVs where a portion of the business gets bought and you retain a minority interest in it, which is a good mix of both. You have something new coming out, which is like ESOPs, which is the employee stock owners practice, which I don't fully understand. It sounds weird to me to sell your practice to your staff and think that they can keep

• 37:51Speaker 02

  it running without you. But if you were to talk about this straight private equity and the standard DSO, what I would ask is, what is their, what is their credit line look like to acquire other offices? Right? What does, what does a debt structure look like if, if you were to get bought? Do you, you know, what are you on the hook for, for the loan to buy you? Because sometimes these are often like a payday loan. These are, this is money that's borrowed to buy you. You get a portion of cash, but then fees are paid back to the private equity company and interest is paid back to the private equity company for the money used to buy you. And I'm not trying to soak anything, but those are things that we now understand.

• 38:35Speaker 02

  It's not always, hey, here's some money and, you know, we're going to recap and we're going to triple our money again. Not always the case.

• 38:44Speaker 00

  Not always the case. Yeah, I think, geez, man, I unfortunately know a lot about this world right now because we've gone down this road a couple of different times with, with many of our members. But I think understanding the model is very, very important. And that's, that's a full out purchase, a JV model, hold co-model, everything, everything is, is you have to understand the nuance to all of that. So if you're a doctor to doctor sale, you're going to get a lower valuation, but you have the ability to get a hundred percent of your money at close and walk away if you want to, right? That's a benefit that you don't get with a private equity DSO sale, right?

• 39:28Speaker 00

  So with a private equity DSO sale, you're going to get some percentage of your money upfront and a higher valuation because they're going to evaluate you based, if you have a profitable practice, they're going to evaluate you based on a multiple of your profitability of your EBITDA. So that's going to be pretty much every time for a larger practice is going to be a higher valuation than a walkaway sale. Walkaway sales typically going to be 80 to 90, I'm sorry, 70, 70 to 90% of trailing 12 months revenue, right? So if you're a million dollar practice, $700,000 to $900,000 is your valuation.

• 40:04Speaker 00

  So you have to understand the model. So if you're getting a portion of that money down, right? So say it's a 60, 40 deal. Okay. So you get evaluated at, they're purchasing you for $2 million. You're going to get 60% of that money down. So you're going to get $1.2 million at close. Okay. So $1.2 million at close. What happens to that other 40%? Do they own it? And you're, you're getting some sort of holding that in hold co-stock? Or is it a joint venture deal where you own 40% of your practice still and you're getting distributions based on 40% of the profitability minus some sort of a service fee?

• 40:50Speaker 00

  I think that understanding the model is really important because if there's no incentive for the, for the practice owner to continue to grow that practice, the overall asset value as a whole of the entire DSO will eventually start to contract. Right? You have to, nowadays you have to be able to show same store growth. You have to show that each of the practices is growing in addition to buying EBITDA, they have to grow EBITDA as well.

• 41:17Speaker 02

  Right.

• 41:18Speaker 00

  Or else you're not going to be an asset that the next private equity company is going to want to purchase. Right? So understanding that model is really, really, really important. And there has to be some mechanism to keep the selling doctor motivated to continue to grow the practice.

• 41:37Speaker 02

  Right. And don't always get caught up in the multiple and don't always get caught up in the promise of a recap.

• 41:48Speaker 00

  Yep. Recaps do happen. Recaps do happen, but we've seen more fail than succeed in the last five, six years.

• 41:58Speaker 02

  But look, personal situations vary. Your, if you can walk in with the expectation, if you're going to get, let's just say a DSO partner and they're going to get a hundred percent buyout, you kind of have to be comfortable with that cash that you receive at that one time might be it. And you're going to make money as a W2 and distributions from whatever, you know, ratio of ownership that you still have. But it's overall, if you were to talk about what goes into your pocket, I think, I think for a doctor looking to partner or looking to take some chips off the table, it's, it's a much better financial windfall than selling privately. But that's, that's the truth. But there's a, there's a, there's a mix.

• 42:39Speaker 02

  Kind of going back to the original question, ask, ask people who have sold to different models and talking to a broker, broker may not give them also the most honest answer because a broker is going to try to move you to, to a buyer that's going to pay them the most because they get paid on the total enterprise value. Nothing wrong with that. That's just the way the business model is. So I'll talk to us. We've, we've, we've seen many of these transactions and kind of know the ins and outs. And I think, I think getting a fiduciary and going some, talking with somebody who's actually looked at every single model and seeing different friends exit to different models would probably be the best approach.

• 43:24Speaker 00

  Yeah, for sure. For sure. Well, hey, man, that was fun. Thanks, Mike. It's a lot more fun doing an AMA with you, AMMA with you than doing it solo staring into a camera. I found myself having a difficult time motivating just to talk straight into a camera without anybody else talking back at me. So I appreciate you doing this. Hopefully we can do this every other week or so.

• 43:46Speaker 02

  Yeah, it looks like I'm on the calendar for some future ones. And hopefully for the listeners, you found this helpful and hope that we can make up some stuff in the future, make up some more slings in the future, right? Don't worry, we, we, we kind of know what we're doing, we've been here before. So thank you, Mark.

• 44:01Speaker 00

  We at least know how to fake it. All right. Thanks, Mike. Appreciate it. All right, ladies and gentlemen, that was AMA with Mike Lomotan. Thanks for coming.

• 44:14Speaker 00

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• 45:11Speaker 00

  This episode is being brought to you by my good friends at McLaren and Associates. The team at McLaren specializes in providing sell site advisory to larger practice owners seeking a DSO affiliation or private equity partner. Their proven DSO affiliation process is designed to educate you regarding your EBITDA, ensure you find the right partner for your practice and maximize your outcome from the sale. McLaren has worked with many of our listeners to achieve amazing results. To learn more about the value of your practice and options available in today's marketplace, just reach out to Brandon Moncrief at 512-660-8505 or go to dentaltransitions.com.

• 45:54Speaker 00

  That's 512-660-8505 or go to dentaltransitions.com. Monetizing your business is one of the most impactful decisions on your life. So make sure you're working with the best. McLaren and Associates.

• 46:16Speaker 00

  And that wraps it up for another episode of the Dentalpreneur Podcast. Look forward to reconnecting on the next episode.

• 46:26Speaker 01

  Thank you so much for joining us today on the Dentalpreneur Podcast. Check out truedentalsuccess.com for full recaps of every show, a schedule of our live events, free video tutorials, and a whole host of practice building resources.