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AUDIO - HSP #147 - Jonathan VanHorn
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VIDEO - HSP #147 - Jonathan VanHorn
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Learn why it's important to understand your financial reports, track your performance. And how to get your team on board with improving your metrics.
Jonathan is the founder of DentistMetrics, a professional accounting and performance tracking firm for dentists.
He is also the creator of The Journey to Dental Practice Ownership, an interview series where he interviews dentists who have started their own dental practice as well as world-class consultants.
The interviews focus on the challenges the practice owners had to overcome on their journey to ownership, how they got past the obstacles, and what they feel they did right. The consultants share best practices for new practice owners to help get any new practices on the right track.
website: http://dentistmetrics.com
email: jonathan@dentistmetrics.com
toll free phone: 877-265-2121
Howard: It is a huge honor for me today to be podcast interviewing the founder of DentistMetrics.com Jonathan VanHorn who's a CPA an ABV, which is a business valuation specialist.
Jonathan: Correct. Yes.
Howard: Thank you for spending an hour with me today because you only manage people, time and money. Money could be metrics. It's probably a better word, I think metrics is a better word than money. I should've titled my book People, Time and Metrics. The old adage you can't manage anything you don't measure. How did you get into dentist metrics. How did a CPA to business evaluator of all the industries why did you pick dentistry?
Jonathan: There's a long story involved with my path to dentistry. The short version of it, I've always been a contrarian to a lot of things. I don't like trying to do things just because that's the way things have always been done. I think that's true of a lot of entrepreneurial people. They like to break things down and build them back up in their own way. Being a CPA, the reason I entered the CPA profession was because my parents were small business owners, my grandparents were small business owners, my grandfather was the CFO accountant of the business that they owned. It was a bottling company, Dr. Pepper bottling company. He actually helped my parents start their small business which was a furniture store. About 5 years in to the furniture store being owned by my parents, my grandfather died. About 10 years later my parents went through bankruptcy and just had a really tough time.
I remember my dad sitting on our fireplace having the discussion saying we were bankrupt, we were going to have to move where there was a job he could take and being just distraught about it. They always said if my grandfather had been alive they'd have been able to make it because of just his business acumen through accounting. That's what led me into the accounting profession in general. I started out working with the largest CPA firm in the state at the time of Arkansas, which was BKD at the time. I really quickly found out I didn't like being in the corporate environment. I went to accounting for small business, that's where I wanted to be, those are the people I'd grown up with and that I wanted to connect with. I moved to a smaller accounting firm and jumped across a few different places because again as an entrepreneur you're typically not the best employee. You always have better ways of doing things.
The last place I was in I was a manager of a tax firm. We had about 150 small businesses a month that we were doing compilation or accounting services for. Payroll services, tax claiming and preparation for business owners. We were a general CPA firm. We would do a mechanic, with a hair salon owner with a dentist or pool company even. I was doing all these people's work. It was a bill by the hour deal. You basically got lucky to be able to get me on the phone for 15 minutes every 3 months. I hated doing that because I felt like we had so much more to give to our clients than, you're going to save money on taxes. You'll save 20,000 dollars in taxes if you spend 50,000 dollars on this piece of equipment. That's literally the tax money that was issued to you.
You'd set up different entities and you'd set up little ideas for doing different things for payroll and retirement planning and all of these different other things. But I just felt like there was more that we could offer being in the business of talking to businesses basically. So I really wanted to narrow down and find who I wanted to work with so I looked over at the clients that I enjoyed being with over the past 7 or 8 years and I had some people that I had considered friends as business as well that were either leaving dental school or had been out of dental school for a while.
I approached them and was like, "Hey, does this sound like something that the dentistry needs, that people would need?" And the answer I got was, "Yeah, absolutely." The way I always took it was, if whenever I got out of business school, 6 years of business school to be able to be a CPA learning all about business and if I, whenever I got out of school had to take out about a million dollars in debt, had to have 8 or 9 employees, all who had more experience actually doing the business of dentistry than I did, I would be pretty scared. I would be looking for help.
So I was like, "Hey, they've got the need, I've got the want so let me go and try to do that." I had a business partner at the time and we went off and did it together. And we originally started out being CFO's, outsource CFO's for dental practices. The way we were going to learn how to do that is we let the people know, "Hey this is what we're trying to do. We both then ... he'd owned his own firm for a long time. We actually went into practices everyday and learned as much as we could about the practices. How they were handling their payabels, how they were handling their cashflow, we were looking at insurances, we were looking at AR, we were looking at pretty much everything that we could in order to learn as much about the business as we could so that we could give as good of advice as we could.
And quickly we found out that that wasn't the best use of our time for the clients. We figured out maybe it would be better if we could just teach them a little bit more. Because a lot of the times we would find these answers of what was wrong and there was a problem I guess with execution, I guess is a way of saying it. We could line up the problem but if we told someone a solution, even if we gave them all the steps for success they may not follow through with all of them and that just didn't work for that reason.
So we said, "Okay, let's step back and let's look at how we can do this better so more people would be allowed better impact on it." And that's really where Dentist Metrics came from. Again, we said in a pre-interview, we had some audio issues, but we originally started off as a company called The Dentist Accountant which was incredibly uncreative. And we were like, "What's the most easy name to figure out to remember?" It was The Dentist Accountant and our state board actually said we had to change the name because it was too confusing that it might be a dentist that is an accountant or am I an accountant that's trying to be a dentist? So we changed it to Dentist Metrics at that point.
Howard: Well, I've always said that Dentists use a CPA and the way CPA's are ran in the United States for the most part for small businesses is they're just preparing the reports for a 3rd party tax collector, the IRS. If they were a little bigger or publicly traded, it would be for the FCC. But they're not giving them managerial accounting. They're not giving them financial accounting, they're just giving them tax planning and you nailed it. That's not the core of Metrics, that's not the core of your accounting. What do you also think of the fact that dentists all run their business with this so-called management information system that doesn't even include accounting?
Jonathan: It's ridiculous. Practice management software in dentistry ... I feel like open dental is coming down the line for being a little more intuitive.
Howard: Right. I'm this close to converting the owner. The owner is a dentist and his brother runs it and I'm this close to selling him to add an accounting package. Have you ever met him?
Jonathan: No I haven't.
Howard: Pick up the phone and call him because this dentist, he owns the whole deal. All he's got to do is make the decision and he's going to do it and I told him I'll be his chief marketing officer for free the rest of my life. Wouldn't that be amazingly important?
Jonathan: Oh yeah.
Howard: The schedule is saying when I see Jonathan VanHorn and I do this filling, it's going to take me an hour. Well the computer should know what that hour costs you. And if it costs you $200 and you just signed up for a PPO plan that's going to pay you $180 for that filling, ba-lah, the schedule could turn to red and it says, "Okay you're going to lose $20 on this procedure." So then the receptionist could move it down to $4 minutes and now it turns green and it says, "Now we're going to make $20." Dentists are smart people. They're wickedly smart. They just don't have the metrics that you would have if you owned a franchise.
Jonathan: Absolutely. It's ridiculous that in today's day and age the big practice management software is considered themselves so proprietary that they don't allow this type of open access between softwares. But we use a different accounting software than any dental CPA's that I know of really use. We exclusively use a software that's called Xero which is X-E-R-O and they are built on this openness platform of they're this really great, simple to use accounting software that plugs into all these other different API's. API's is basically a way for one software to talk to another software basically.
Howard: Okay so you e-mail me howard@dentaltown.com, I'll reply to the open dental people, maybe we can all meet in Phoenix or at his place in Portland. I wouldn't mind going to Arkansas because my sister Kelly actually lives in Fayetteville so I've been down there a lot of times, yeah. Where are you, Littlerock?
Jonathan: Littlerock.
Howard: And how far is Fayetteville from you?
Jonathan: About 2 1/2 hours.
Howard: 2 1/2 hours? So we'll get a 12 pack and you can drive me. (laughs) I'm just kidding.
Jonathan: I was going to say, is there going to be left for me?
Howard: I'm telling you this would be the most important thing that we ever did in dentistry. I mean talk about trying to leave a legacy in dentistry. Just to get this dentist to see for the first time. How are they going to compete with corporate dentistry when they don't even know their costs. And I'll tell you another thing being 52, of all of the multi millionaires I met where they own a big dental company or it was was Dan Carne, one of my childhood friends who's the founder of [inaudible 00:10:15]. They always say, "Well what's the secret to success?" They go, "Well most of your millionaires and multi millionaires and 100% of your billionaires, by the time they have 5 employees, one of them was a full-time book keeper or accountant. They always knew their costs."
And you walked 1,000 dental offices the last 28 years and see a person walk out of the room and he just did an MOD composite and I'll say, "Hey doc, did you just net $20 after taxes or did you just lose $18?" Every one of them, "I have no idea." So there's about 7,000 dentists listed in this, they're all alone. If they log onto Dentistmetrics.com, what are they going to find? What do you do for them? How do I become a client? What are you going to measure? Walk through what you're doing to these dentist?
Jonathan: Sure, Dentistmetrics.com, it's not like a software or anything like that, it's a common misnomer we get because I named it as a techie name. Again, I'm not a creative person so I just thought hey, we're measuring things, so that they can be improved and the counter to that is what's not measured is not improved. But the way that we go about the accountant/CPA relationships with our clients is that we are going to help track what's important in your practice. We try to keep it on a simplified level.
Because there's thousands of different metrics you could be tracking in a practice, it's really the ones that are important to your practice at that point in time are the ones that you need to be worried about. So for example, if you have a start-up practice, it's not going to be that great of a return on your time and your energy to be researching how to save 10% on your dental supplies. Because if you're only spending let's say $10,000 a month on dental supplies which is really high probably for a start-up, you're going to be saving $1,000 a month.
If you're spending all of this time, energy and effort and you probably don't even have an assistant there that's able to help you at this point in time if you're a start-up, then you're better off focusing your time, energy and effort to be focusing on the marketing metrics. You need to be focusing on getting the practices name out there. Getting brand recognition, getting the phones ringing, getting better at scheduling, getting better at case presentation. Getting better on all of these things whereas if you were to be just focusing on your costs, you're expenses, you're not going to be able to build the practices well.
The counter to that is that if you are a really big practice and you're at capacity or you feel like you're at capacity, maybe you should be focusing on optimizing your schedule? Maybe you should be focused on optimizing your expenses? We have one practice that was a fairly big group practice and they were spending close to 10% of their revenue on dental supplies and they were like, "Look, let's just make these really easy, core confident changes to your buying process and we can save you significant amounts of money." And literally the next day the doctor called me and was like ... he was very skeptical at first because he has a great rep that I know personally and he's a local person and he was like, "I didn't think I was going to find anything." He says, "Literally, of the 12 items that I looked up, I immediately found 10 savings on 12 of those that were at least 20%."
Yeah, just by doing a Google check is what we call it and just looking at the numbers. And he was like, "If I were to save 20%," and this is a practice doing almost $3 million a year in revenue and collections. And saving 20% on 10% meaning it goes from 10% to 8% on $300,000 save 20%, that's $60,000 a year. That's a significant sum of money over just changing some protocols on a practice. So we help people come up with those, figure out what we're looking at through your practice because not every practice is the same. And if we were to track every single number, really the only way to do that is with some type of proprietary software. And that gets over complicated.
In a perfect world we would have that window between Dentrics, Eaglesoft, Open Dental and accounting softwares where we could track inventory, supply cost per service. We could look at your productivity per hour as a measurement of your employees ROI. We could do all of these different things that if we over complicate it, we're not going to be focusing on the right areas. It would be great if you had some type of sensor and alert that says, "This is way under performing versus the standard." So to go back into what you were talking about, just go on the website. You'll see a picture of me very cheesily, and a very poor image that I put up there. The site needs to be revised but we help practices by tracking those numbers, doing an analysis over what the dentist's goals are over the next short term, mid term, long term. And we really try to get a game plan together to where we can make those goals come to fruition.
So we do that through benchmarking. We use industry standards plus we use peer groups. So if you are a dental practice in a rural area that does bread and butter dentistry, we can actually show you other rural areas that do bread and butter dentistry and look at your expense ratios as a percentage of revenue just to give us an idea of what you could be doing from a expense ratio standard. We don't do any type of zero sum consulting which is typically saying advertising and marketing. Now we can give ideas of what we've seen work but we're not ever going to say, "Use this type of copier," or anything like that because like I said, we're woefully uncreative so us giving marketing advice would be a bad idea.
And then we help people try and go towards a better practice, a better net income so they can then go off and reach any goals they have that are not monetary. Like I said, we're a little bit different. Whenever I came into this I assumed that I was going to be somewhat different from the CPA world and then I realized there's quite a few dental CPA's that are fantastic. And the only real difference that I feel like we do in that respect is number one, we're completely cloud-based so we're very technologically savvy from using different tools to make things more efficient from an accounting standard. And we only focus on the business. We don't do any financial planning or personal financial planning of any sort because we feel like the business is what fuels all of those personal investments.
I'm not saying that there are CPA's out there that are biased like this but the way we structured the firm, we felt like it would be better for us to be able to say, "Okay let's get this money into the practice," rather than saying, "Hey let's put this money into this type of investment in your personal side." We thought that would be a little bit difficult for us to do and frankly I just like the business side more than I like the personal investment side. So that's the reason we set it up like that.
Howard: Now do you do the tax work too?
Jonathan: Absolutely.
Howard: Okay, so you do the tax work and stuff. Yeah, I've always ... well you know it's funny because every financial investor talks about a diversified portfolio and wants you to have 16 stocks in 8 different vertical sectors and all that stuff. But if you look at the 1800 billionaires in the world they had all their money in their own company. So if you want to be a billionaire that advice doesn't work and I've always thought that. Look at the Chinese stock market. It's down what, 38% in the last 6 weeks? I've always thought, well invest in your own business, that's your greatest return. That's where you have the control.
So how much does it cost to be your client? Are your clients all around the United States or are you more a local Arkansas play or how does that work?
Jonathan: My local network got going a lot faster than a broader reach. So about 75% of our clients are in central Arkansas but we're in about 12 states now.
Howard: 12 states. Do you have any in Arizona?
Jonathan: We just signed on a client a couple weeks ago.
Howard: My gosh, you might have found a client with me. I've always wanted a ... what you do I've always wanted someone like that full-time. I have 2 full-time bookkeepers in house. If this dentist calls you up today and says, "I really don't know my overhead. I used Dentrix, Eagle Soft, [Soft ed 00:18:50], I don't know my costs. I don't know if I'm making money or losing on a filling." 9 out of 10 dentists participate in insurance plans. They don't know which plans are making money or losing money but I just think my overhead's too high. So I call up Jonathan VanHorn, I go to Dental Metrics or I just call the 877-265-2121 or I e-mail you, jonathan@dentistmetrics.com.
How does this conversation work? How much does this cost me? Do you fly out and come to my office? And what accounting software? Do I need to have the Xero? What if I'm on the Quicken or Quickbooks pro or Peachtree? Walk me through how this works and what you're going to do, how much it's going to cost and what are you going to measure and how you're going to add value.
Jonathan: Sure. I'll talk first of-
Howard: Was that enough questions in one question?
Jonathan: You know, I am really good about going off into rabbit trails so you're going to have to probably remind me in about 10 minutes when I come off of this conversation.
Howard: Is this the Matrix or the Metrics?
Jonathan: Exactly. When we have a phone call with a new person that's coming on, we always like to find out about the practice itself. Find out more about the dentist about what their practice does, who they serve, what their demographics look like. Are you the bread and butter dentistry, do you do high-end cosmetics, do you do implants, do you refer out anything, what do you do? Because that really gives us a baseline for us to be able to give accurate advice because if we don't think into context what you're doing or what you want to do, then we're not going to be able to have a good conversation of where you're going to go right?
So we start off with that, we then craft a proposal of what you need versus what we can give. Some practices don't need as much as other people. We'll have people that have MBA's from undergrads or something like that and then they don't need us to go over their financials with them every month. So we might talk to them once every 6 months and we might talk to them about their performance a little bit more often. We might give them reports that they can decipher pretty quickly. But we've found whenever we actually talk to our dentists, that came on from other accountants or CPA's and even some from dental CPA's that about 90% of them never had their CPA actually sit down with them and say, "Okay, these are your numbers and this is what they mean." Other than, "These are you numbers, here's your net income and you're going to have this much in taxes."
Howard: I've never met a single dentist that could tell you statement of income, profit and losses for the IRS versus a statement of cash flow versus a balance sheet. I've never met one and I'm 52.
Jonathan: Mm-hmm (affirmative). It's confusing. It's confusing for both sides of that because we live in this world but this is as simple to us as reading a patient chart is. But at the same time, if you flip the script on that, it would be like you trying to explain a patient chart to us. You would just assume that we know the majority and you give us the highlights, but we might actually need a little bit more of an explanation for us to ever understand that. And it might take us 10 or 12 times to actually be able to read that.
I always tell people that accounting is the language of business. It's a really great saying I like to say. So if that holds true than the financials are basically like the book. They're the story of whatever business you're looking at at that point in time. So it's telling us what happens. It's a history at that point for the most part. And then if we look into it, we can actually look for foreshadowing events keeping in mind the language of business to say that we can divine out what's going to happen if things don't change.
And then we can try and do our little choose your own adventure with the language part of writing our story by setting up these paths and goals for us to try and meet and then whenever we actually focus on those goals we tend to see that they actually happen a lot more often than they don't happen. If you just go blindly into something, you're typically not going to have a lot of success. If you have a focused horizon to a path you're going on, it's a lot easier to meet those milestones and keep going for pretty much anything in your life.
If you think back to something like when you're in dental school and you're trying to study for a big test. You don't focus on the areas that you know really well. You focus on the areas that you're really worried about. You're focused on the areas that aren't as familiar. So we're trying to find the areas where they don't realize they may not look familiar, they may not realize they're not doing well because dentistry is such an interesting business model that a lot of people can make a lot of money and just leave money on the table but not realize it because they're comfortable.
So we try to make sure that doesn't happen. That was probably the story 10, 15, 20 years ago than it is today with as much competition as there is. There's an expanding retirement age, there's more dentists that are graduating from school, there's less people with the expanding retirement age, there's less people selling. So if there's less people selling, that means there's more start-ups happening which means there's more competition, there's more corporate dentistry going on. So it's just a more competitive environment and I think it was Bill Gates that said, "We always overestimate the amount of change that's going to happen in 2 years but we always underestimate the amount of change that's going to occur over the next 10 years."
So keeping along with that saying, in 10 years, is dentistry going to look like it is today? I really don't think it is. I think it's going to just continue to be more competitive and that's true with any good business model right? If it's a good business model that that's going to have more people flocking to it because it's a good model. Until there become a point of cannibalization a lot of times unless you can do these things to where you can really set yourself apart as a professional practitioner and a professional service provider and make that personal connection with people to where they have brand loyalty.
We can probably talk about this stuff all day long as far as from a general business theory, model of marketing type aspect. But to go back to what you were saying about the cost, we typically see that we are structured to be cost ... depending on where you are in the country, we benefit that we are from Central Arkansas in [Lastaf 00:25:09] which I have 2 full-time employees. I'm sorry, 1 full-time employee and 1 person that's transitioning into full-time. And I have my office here but they both work from home. They come into the office when they need to.
I'm not that interesting of a guy to hang out with whenever I'm entering K1's in tax software or digging through accounting data to do meetings and things like that so they don't come in very often. But we typically see that we're charged somewhere around 1 1/2 to 2x what the local guy is but we're typically less than most strictly dental CPA's as far as cost goes.
Howard: So I call you up and say, "I really don't know my cost." Do you recommend that if they're starting their practice, that they start with Zero accounting? Or do you dial into their Quicken or Quickbooks Pro? Am I so old, am I the only guy using Peachtree or do you have any other clients? Do you have any other clients on Peachtree?
Jonathan: We have no one on Peachtree, we have of all of our clients, and I'm not ashamed of how many clients we have. We have less than 30 clients and that's on purpose because we like having personal discussions with people. You ask if I fly out. No we don't fly out. We actually do exactly what we're doing right now. We have face-to-face meetings through the magic of the Internet.
Howard: And do you like Skype or GoToMeeting?
Jonathan: I like Skype. I like it because it's more personal, we can share a screen and just be able to talk back and forth. I can show them what I'm looking at, they can show me what they're looking at. If they're looking at some type of marketing projection or some type of proposal then we can go over it together and they can just show it to me and it's super simple. Everybody can download it. It's easy to use. GoToMeeting you end up having a lot of issues with things like that. I like to keep it simple. It's what I try to do as much as possible because I think that's usually the easiest thing to do for most people.
Howard: So you have 30 clients and do you dial into their accounting software? Or do you dial into the projects management system?
Jonathan: For some people we do. For some people we do the ... not everyone has us do as high a level of service as other people. And it's because they ... it's not because they don't see the value in it. Typically they're growing and they're more worried about growth than they are of optimization, I guess is a way of saying it. For the accounting software, it's all cloud-based so we're a user on their accounting software that's on the Internet basically. And they hook their bank feeds up to the accounting software, it automatically pulls the data in and they print their checks off of there, they do their day-in close for deposits. Their front office can enter the deposits in.
Or we can set up a form for them to use online to where they just go in and at the end of the day they'll enter in their cash deposits there, their insurance checks, their patient checks and any EOB's in for direct deposit or anything like that, credit card deposits. Just enter it into a form on the Internet, we have it hooked up to actually send to the accounting software again, through the magic of the Internet and that's a way for us to be able to look value add of saying, "Hey, your person in the front who entered a deposit for this amount of money, this deposit never cleared. Why didn't it ever clear?" Is there something wrong with what they did out of the practice management software? Did the close not work?
Because they'll submit that to us too, some of them. Again, we have an al a carte type service so we can do whatever you need us to do or not do. And we actually hook up to their accountant software online. Some clients, we're in there 2 or 3 times a week just cleaning their transactions for them so we actually work as kind of an outsource bookkeeper in that respect so that we're clearing and reconciling the transactions as they come in. If anything come up we can look at it. That way the owner has a good idea of where their [catch 00:29:18] is at that day. If they go and decide to try and do a check, they'll know exactly how much is in there minus the outstanding checks. They'll know it is accurate because we're the ones managing it for them. And again, that's not how we do everybody but that's the typical way that we do it.
Howard: And have you ever found embezzlement?
Jonathan: Not from a point of someone messing with the practice management software. We've found it from personal credit card payments asking somebody, "Why did you guys go to Walmart? Or what did you buy from WalMart?" "It was office expenses." "But we don't shop at Walmart." "Well somebody is." And it was somebody taking a company card basically.
Howard: Now if they gave you the access to this, do they have to worry about you embezzling from them? I mean, could you?
Jonathan: No, it's only a bank feed so it only pulls information. They go into the accounting software, they'll have the username and the password. It's as easy as logging into an e-mail account. And you go in and you set up a bank feed. So let's say you use the Bank of America. You go in, we set it up to say that it's a Bank of America account, you go in, you enter in your online username and password and the software lot will pull the data feed out of that bank to where it will just come across as different data feed lines for us.
So we'll see if it's a direct payment for a debit card out of that account, then we'll see, like I said with the Walmart, we'll see "Walmart Payment," and it will have the date, the amount that was paid and things like that. And we can reconcile that on our end if we need to. Or if someone's on the other side as a bookkeeper, they'll enter that payment in on their own. So that's a way for us to do it. Specifically, Bank of America, most of our clients actually do set us up a separate user account for online access but we have them set it up as a view only so we don't have any power or control over the account. So that's how we do it.
Howard: My biggest pet peeve after getting my MBA was the fact that the management information [inaudible 00:31:32] doesn't have accounting software and if you or I can convince Open Dental which has the most raving fans on the Internet. The neatest thing about Dental Town is I get to see what 200,000 dentists are thinking. I've been on that site all day everyday since 1998. If we could get them to put in Xero that would be amazing. But the other issue I have with dentists I they don't believe in transparency. They want it for their government. They don't like Communist countries, they don't like non-transparency in every other issue in life and then I walk into a dental offices and I say to all the staff, they'll have 2 reactions.
I say, "What's our breaking point today? What do we have to do to break even?" "Oh I don't know, the dentist doesn't show us any of those numbers. So I want to ask you, do you believe in transparency of your metrics to the entire team or do you think it's a secret thing?
Jonathan: I absolutely believe in transparency to a certain degree, to a certain level. Should the assistant know how much money is in the bank account? No. Should the assistant understand what numbers we're trying to get to? If they're ahead of ordering supplies, yeah, absolutely. They need to know, hey we need to be underneath say, 6% of net production. That's what we've got scheduled out about this much and on average we have this much of net production for a month. So we need to be shooting for around this amount in your budget. This is how much you have to be able to spend.
Because just like anything else in life, if you have ... I call it expectations. So you've got to set an expectation number 1, whenever you have anything. So you have to be open with why you're setting that expectation. You have to hold somebody accountable for doing it. So if they pass or fail, did they do it right? Did they succeed or did they fail? And then if they failed, was it because of the system or was it because of the person. If it's because of the system, then we fix the system or if it's because of the person, is it because they were trained incorrectly? If that's the case, you train the person? And if it is because the person isn't capable of doing it, then you replace the person.
That's how I go about the management side of it. But as far as the transparency side, I'm a big believer in being open about numbers and things like that. Should you talk about profitability and how much money you're making? Probably not. As far as the trend goes between dentists, most of my clients are younger clients so we came from this openness age of the social media and everyone being in everyone's business I guess. So we're seeing that that's a little bit easier for people nowadays. I definitely see that trend in some of the people that we've talked to about being over clients.
Like I said, typically, the higher the age range gets for me for talking to clients or potential clients, the lower chance of them coming on as a client for multiple different reasons but that's really how we see it. So again, going back to what I said, you have to set an expectation. That's typically going to mean communicating some type of number goal. Some type of quantitative pass/fail. And whether that is how fast you're answering the phone or how many calls you close that scheduled in or how many people hung up on you or how many reminder calls we've made, there's got to be some type of quantitative, pass/fail which is going to come from a communication and transparency level.
And then you've got to hold them accountable for it. You've got to make sure that you track if they did well or not and hold their feet to the fire one way or the other. Does that answer your question?
Howard: Yeah. I'm trying to guess what 7,000 individual dentists, most of them are commuting to work when they're watching the Howard Speaks broadcast so they're on a treadmill or something like that. I like the fact you're exclusive, you hand-hold, you're just 30 clients. If I called you up at 877-265-2121, and I told you ... let's just say is there an average client? We'll reverse it. Describe these 3 people: What is your average client? Why did they call you? Why are they keeping you? Why are you retaining your business? What are you really doing for them on the average? I'm trying to get to the point where this person driving to work knows if this is a fit or not.
Jonathan: Sure. So the average client that I have, they use me because ... or they use my company as a better way of saying that ... because they want to understand the numbers in their business and they want to be able to do it as hands-off as possible. So like I said, we do as much hand-holding as we can. It's all literally automated. All of our clients have access to their accounting software but I can tell you this much, they receive so much communication from us just in form of reports and things like that ... we can when people log into their software and it's not very often.
Howard: Why? Because it's not their interest. I get it. I'm a dentist and I still see patients. If you told me, here's your choice: you can go play 18 holes of golf or pull 4 wisdom teeth. Should I do the 4 wisdom teeth at the end of the week? If you said, "What's your choice? To go to a hockey game or go do a molar or root canal? We love fixing teeth. That's why we studied for 8 years. We work with our hands. You come in, you're in pain and we're a hero. You came in, you couldn't sleep, you're swollen and we fix that stuff.
We didn't go to school 8 years to learn a financial report. In fact, why do you even think it's important for a dentist to be able to read his financial report?
Jonathan: Because it's a way for, what I was telling you about before, the expectation and the accountability. They need someone a lot of the time to be able to sit down with them and say, "We're not doing great in this area. You may be comfortable with this area, but I need you to know that we can do better here. If you want to do better on it, these are 5 ways that we've seen people be able to do this better. Are you interested in doing that?" And a lot of the times they'll say yes because there comes a point in time where the money that's on the table, they feel like they need to come and get it. So we help them with basically we leverage our knowledge in the industry to be able to give them better actionable advice.
Howard: Go through some case studies of these 30 clients. Go through some case studies. Because you were talking earlier how you googled 9 supplies for a guy that had 10% under his cost and you found lower prices for all. So what do you recommend for solving that problem? A dentist thinking, "Yeah, my supplies are 8%, what do you think they should be?"
Jonathan: The number we always shoot for is 5%. Some practices can't do that because they have too big of a reliance on insurances and they have too big of write off percentages. But we tell people to put your eye on the prize at 5%. Continually be moving towards that goal. There's 2 main ways that we find that ... or 3 main ways that we find we can effectively lower that. The first being that they do a certain price check. If they're the ones buying the supplies, we typically say you can set up a system that as long as you have a well trained person up front that can actually do this for you, then you need to set up a system to say, "Okay, if we order something more than say, $100 or an item is going to be over $100 we need to do a price check on that." Just do a quick Google check on it and then create a list of...
Howard: Okay explain to me how to do a Google check for a price. I'm 52, I'm on Dental Time everyday. I've never done that.
Jonathan: A Google check, if you have a supply order that you're about to make, you are about to order a supply. Say it's 5 different supplies, you pick one of those supplies, if it's an online payment way you're doing it, you copy and paste the name of that supply, you pop it into Google and you just hit Enter. You'll typically see about 5 or 10 different websites that come up that offer the same exact thing.
Now some of the big supply companies have these specially branded ones so sometimes you get a little bit creative on those, but typically there's other places to get the same items. Because what the big companies typically do is they are acting as a middle man from the wholesaler. The thing that always comes up with that is the gray market which is where people have got the purchases from the supply company and they're re-selling it or something like that. And that is absolutely out there and each dentist has to look at these different vendors on their own to see if that's a place that they'd like to have it. But what we tell people to do in that situation is to test the vendor prior with a small thing that's not ...
Howard: Explain gray market one more time.
Jonathan: There's a white market and a black market and in between that is the gray market. The white market is whenever you go to say a Henry, Shine, or Patterson and they sell something to you directly. You know that's going to be a white market, direct from that company to you. The black market is whenever somebody steals something from somebody. Like they went to the back of Shine or Patterson and stole their specially branded supplies and they're selling it on eBay for pennies on the dollar. And it may be expired or something. That's the black market.
The gray market is where someone like Henry, Shine or Patterson has bought too much from a wholesaler and they're trying to liquidate it so they can free up inventory costs and they may do that through some other small distribution company or web portal or something like that to where they sell it for a middling price. But the thing that comes up with that is that they say that the ... it's escaping me at this point in time but ... if it's a certain company's ...
Howard: Generic?
Jonathan: Generic item and you get it through a gray market, you're not going to have a special warranty. They're saying that that warranty is voided by buying it through the gray market.
Howard: When these 30 clients signed up with you, what was the most common inefficiencies that you corrected? Was it high supplies? Was it high labor? What were you measuring at DentistMetrics.com where you added the most value? What was the most common problem you helped solve?
Jonathan: We say that there's 3 areas that really come to light. Staffing is always an issue. That's typically the biggest problem we have. We're trying to get to that 25% number. We found that there's the problem with being overstaffed, there's the problem with being understaffed. There's a problem of not having the production numbers to meet what is going on in your practice but you have the right number of staff to the administrative work. So that number changes a little bit but we always try and say, your at this percentage for an example. Say 25% after benefits, payable taxes, etc. but if you're over that, here's what we have to get to in production in order for us to be at this level given our current staffing costs.
In order for us to do that, how many days are you going to be open in the next 3 months. So if that's the case, this is your average write-off so we've got to get to this production level per day. That would mean that these hygienists would be doing these production levels, the doctor would be doing these production levels. And that's what we have to get to in order for us to be...
Howard: And when these 30 people called you, how many of them already know their daily break even point or their BAM number? Bare Ass Minimum?
Jonathan: Very, very few, uh...
Howard: And so of their 30 clients, how many of them have you given a breaking point BAM number to?
Jonathan: They all understand what they ...
Howard: Yeah, what I don't understand is your team, they want to be winners. No one wants to play on a losing team. And what so many great CEO's said, if you give your team the problem, don't tell them how to solve it, just tell them what the problem is because you'll always be surprised how they solve it. And gosh, when everybody says, "Okay we have to get to this number," and then a cancellation will come their way and they're all talking and they're working it. They always want to drive home and say, "We won. And we had a bunch of curve balls, we had some no-shows, some cancellations but we worked in this and we pulled this off hygiene," and I just can't comprehend why a dental office doesn't start with as staff meeting everyday, talk about the numbers and just make it everyday.
Jonathan: That pulls me to a saying I like to have to clients a lot of times. While I'm obviously vested in the importance of numbers in a practice, at the end of the day, really any business is about 85% people and 15% numbers. Because the people are the people that are your patients that are coming in. It's the employees that are working it. It's the leader that's there. It's the community that surrounds you. The numbers are really just reflecting the performance of those people. So that's the score card if you will.
So you've got to have a great team in order to be able to make these things happen. If you have a bad team you're never going to make it. And when I say 'team' I mean that literally. It's got to be about people that are invested in your practice's growth to do better. They've got to understand what a good day and a bad day looks like. They've got to be wanting to make your team a better place and that is really the filtering system for crappy employees to be honest with you.
Whenever you set systems up to be like that, if you've got that guy or gal over there that they're just worried about what time they get to go home rather than how everybody else is doing in the practice that person's probably a bad apple that's going to spoil the whole barrel. You've got to make sure that those things don't happen. And if we see that happening over and over again then we have talks about the hiring process, the training process and things like that to see if that's what is going wrong.
Howard: I think the problem is that humans, apes, monkeys, dogs, cats, they're pack animals. They're social animals so they're hard-wired not to confront you or tell you anything bad. So the dentist will just coughing up blood clots because he just can't have an uncomfortable conversation with his hygienist or receptionist or whatever and he's wanting to fire her for a year and then she walks in and wants a dollar an hour raise and he says 'yes.' So you just have to work against biology.
Speaking of staff, do you see any bonus systems? Do you think staff bonus systems help an office financially or is that not a game changer?
Jonathan: I don't think it's a game changer because like I said, human mentality. Bonuses are once appreciated, then expected basically. It just becomes a social norm for them at that point. They don't think that they can ... if they don't receive a bonus, it's not because they didn't do something well. It's because the person giving them the paycheck is a jerk.
Howard: Right, and then they give a Christmas bonus. How does a year-end bonus ... like right now, today, July 30th, how could a Christmas bonus be affecting my behavior today at work on July 30th?
Jonathan: It's not. It's going to end up taking maybe the 2 to 3 weeks before that bonus gets calculated is the one that's going to be making the difference. I am big on rewarding people for performance. But in order to do that you've got to set something up that makes sense right? You need to say, use that in line with where you want to go. So say you're at a 35% take home pay after all the add backs for discretionary expenses in your practice and you want to increase your gross collections by another $200,000 next year and reduce your overhead by another 10% so you'd go from 35% to 45% plus add another couple hundred thousand dollars at the end of the year.
Set up your goals and performance metrics based off of those goals, not based off of what's going on right now so that you can all be moving towards the same thing and then whenever you get to those goals, whether you get there or you don't get there, re-evaluate at that time and then set your next goal. I'm a big believer in goals and systems, of receiving those types of goals. I have goals for my company, I talk a lot about it with my clients and where they want to go. And a lot of times people have these ... I talk about monetary goals and a lot of people blank out because they feel like they're already earning more than the people they grew up with. They earn more than some of the people in the community, the people they go to church with, the people they're friends with, the people they network with. Whomever they are. So they don't have any income goals because they feel like they're already meeting them.
So then we have to say, "Okay, all this money is great but what do you want to do outside of the money?" And then if that's the case, if it's something else, say I want to be able to spend an extra 3 weeks doing mission projects next year in South America. If that's your goal, then you're going to have to make your schedule that much more productive, you're going to have to reduce costs, you've got to do something to get to that point. So go that route rather than just being a numbers-based gross productions and collections and net take home and things like that.
So if anyone is out there listening and you're one of those people that say, "Well I'll probably make enough. I would like to make more but I don't really have something driving me to do that." Look on the outside of your business of what really moves you as a person. What makes you want to be something different, what makes you want to be able to go out and do something different in the world because in the end, that's going to drive you way, way more than saying "I want to make a little bit more money next year."
And then that's going to help you set these systems up and actually lead your team to a certain area because ... if you fail, then what you're looking for in that goal will not happen.
Howard: How does a dentist know if his labor is too high that it needs to be solved by producing more or if it's because he just has too many staff?
Jonathan: Yes, that's a super, super difficult question.
Howard: Thank you, thank you I take that as a compliment.
Jonathan: No, but it's really good and the reason is, it's so difficult for every type of practice right? Some practices, they have no idea. I empathize with this completely. The doc's in the back office and they're not able to keep up with ... they can't go up to the front office and handle all that. All they're hearing about is the fact that they're super busy up there and there's patients coming in. So it's hard for them to be able to look at their systems and say, "Hey, this makes sense, this doesn't make sense," from the front office perspective and the back office perspective.
I will say this, if you have a small hygiene team and you have a small amount of doctor production a day, it's probably going to be harder to get up through the 25% level because you're going to have additional overhead. There's just a certain amount of people you've got to be able to process through it. Sandy Purdue is big on Dental Town and she talks a lot about the front office systems and I think she has a number on there, I think it's something like 20 to 30 patients a day ... I don't remember off the top of my head ... per front office person or something like that.
And i think that's a great metric to use as a way to give yourself a baseline understanding of does this make sense or not? From the assistant standpoint, most doc's know if their assistants are pulling their weight or not in that area. So we break everything down into ...
Howard: But I can say something being a dentist. A lot of these dentists ... I think a lot of them are lazy. They'll sit there and they'll get down to packing the chord. Hey, I can pack the core in one minute. And they'll say, "Well I believe in delegating so I'm going to let my assistant pack the chord and they'll get up and leave the lavatory, take off their gloves, masks, throw it away, go get on Facebook, go waste 10, 15 minutes while they're packing a chord. And they've got all these assistants because they don't work hard.
So a lot if it, if you're using Isolite, your assistant can be doing far other things then just standing there suctioning. So sometimes they think their dental assistants are pulling their weight but it's because they're sitting on their but half an hour of every hour in their private office surfing the Internet when they could actually be working.
You're the creator of the Journey to Dental Practice Ownership. An interview series where you interviewed dentists that have have started their own dental practices as well as world-class consultants. Talk about that. Is that sound only or sound/video? Is it a podcast or is it video?
Jonathan: It's a video podcast much like what we're doing now. We use Google Hangout to interview people. We actually changed the name since I submitted it. It's actually not out yet, it's July 30th. It's starting next week is the launch day.
Howard: You know, we've got 200,000 people on Dental Town. You can put that on Dental Town too because the app, we have 35,000 downloads. What I don't understand about podcasts is a lot of people will put their podcast on iTunes which is free. But why would they put it on iTunes and not Dental Town when you've got 200,000 focused people. But the people that have been uploading it on Dental Town podcasts, it's free and they're views are exploding.
Because a lot of these dentists, they're just driving to work and and they plug in their iPhone or their smart phone and then they just hit a podcast and then they're listening to that while they're cruising to work. And also, I'm a big fan of your almost 200 posts on Dental Town. I wish you would do an online CE course for us with examples and numbers. Because again, I have empathy for the dentists because I want to pull a wisdom tooth, I want to place an implant. They're not naturally gravitating to the numbers.
And I think you would have to spell it out to them and show them forms. I think if you did an online CE course, and really spelled it out for them also, I think that would be great marketing for you.
Jonathan: Yeah, absolutely. I like speaking, I like talking to people. And the reason ... we renamed it, it says, "Start your Dental Practice," so if you're listening on a podcast right now whether it's a Dental Town podcast or the iTunes store, whenever you finish with this one you can just look up "Start your Dental Practice," because it should be out by the time you hear this and you can subscribe there. So there's a little plug for me.
Howard: No, and my job is to find the great minds and you came highly referenced. I sought out you, you didn't seek out me. You were highly referenced and it's an honor to have you on here and it's my job to take the dentist and nose and stick it into where he or she needs to be focusing on. And you just can't spend you're whole live in occlusion and root canal classes. You have to do that.
And you know a thing I found, I was wondering if you found this: when I look at a lot of the most successful dentists, it's because while she's doing dentistry, her husband is the office manager or they have a marriage support system. The same thing in Kansas. The most rocking hot wheat farms, while dad was driving a combine, mom was in there doing the payables and the receivables and running the business. Of your 30 clients, how many of them is a spouse involved. Like when you're holding their hands, how many of clients are you talking to the dentist or the spouse or both?
Jonathan: We almost pretty exclusively talk to the dentists. I don't think we have anybody that we talk to the spouse more often.
Howard: And when you talk about divorce, what are the 3 reasons they divorce? Money, sex and substance abuse. Money, and sex and substance abuse and they're not transparent with their staff and then they get mad when they're losing money and their staff want a raise and then they go home to their stay at home wife who thinks she's married to a rich dentist and she's spending a lot. And if that dentist was just dentist was just transparent and the spouse and staff all knew what was going on, that's 1/3 of your divorce, that's 1/3 of all your stuff.
And a lot of the substance abuse where they used to think you were bad and needed to be punished, they're starting to find out that a lot of that is you're self-medicating because you're in a highly stressful environment. And a lot of that stress comes from it. So maybe you're going home and drinking beer after work and not talking to your spouse because you're not showing them the numbers and I just think that the best way to solve any problem is to get it transparent with all your friends and family and loved ones.
And if you're stressed out about making payroll and you think you're going under, well the first people that need to know this is your team and your family. And they call you and get transparent and get everybody involved, it's all going to get worked out if you've got the right players on your team. And if you show them all of these problems and they're like, "Well, it's not my problem," then you've got the wrong employee.
Jonathan: Absolutely. Addictive personalities in general, it may not be substance abuse. You can be addicted to business. I've met people like that as well that their marriages have failed because they're being addicted to the business, to the high of getting a little bit more money each month. So I definitely understand that. As far as what you said about the dental practices of who I find to be successful or not, the trend that I always see is number 1, they've always got a fantastic leader at the helm. Someone who really understands.
Maybe competitiveness a little bit. It has a little bit to an edge to them, can actually go forward with things, put people in their place, but is the best person, would always give you the shirt off their back. Same type of person right? And then people that can build lasting relationships with patients is the people that we typically see do the best. Again, it all starts with the dentist.
But there's all these things about demographics and things like that which I think are incredibly fascinating, but in the end, the guy at the helm is the one who's going to be making that pledge to success or not.
Howard: But do you think that leader is naturally born or do you think they can be developed? Listening to you say that, how would a dentist become more like that?
Jonathan: It's constant self-improvement. I think every person, business people aside should be focused on self-improvement in some fashion. Being aware of what you're doing everyday. Especially in today's technologies society. It's so easy to go to dinner and you see entire families sitting at the table, they're eating out and every one of them, the mom, the dad, the kids, everybody, if the dog was there he'd probably have an iPad too, are on their phones.
It's so easy to get distracted in this day and age. Being connected to another person is really, really difficult for a lot of people and actually being in conversations, for a lot of people is getting more and more difficult because everyone's attention span is shrinking. So that is the first step to me of becoming a good leader is being aware of who you are, where your strengths are and where your weaknesses are and it's just like the business.
You look at the areas that you're deficient in and then you work at getting better at them. It's not going to be something that changes over night. I don't know where I heard it, but there's a really great analogy about climbing Mount Everest. No one wakes up in the morning and says, "I'm going to climb Mount Everest." And then the next day, they get on a plane to go climb Mount Everest. It's a process, it's long, it's not easy. You have to be constantly self-improving.
And even the best leaders in the world, I'm sure if you were to ask them, they would say, "Yeah, I've got tons of flaws, I've got tons of things I need to work on and I'm constantly trying to do that." So if you're listening out there and you feel like, I always said that you've got to be a leader, you've got to be decisive, you've got to be willing to make decisions, you've got to be willing to have difficult conversations. Not everybody naturally has those personality traits or have been in there. But over time you get better at it. Do you feel like you're better at business now than you were when you started out in it?
Howard: I think I'm better every quarter. Every quarter for 20 years I'm better than I was 3 months ago.
Jonathan: Mm-hmm (affirmative). And how long ago was it?
Howard: 1980.
Jonathan: You did the Dental MBA session for the first time.
Howard: Well I graduated dental school in 1987. I went back to MBA school a decade later.
Jonathan: Yeah.
Howard: A decade later. Because I thought, "I need to focus more on this." And a lot of people say, "Well I don't have the time to go back and get an MBA, I can't." An MBA for me was Monday and Wednesday 6 to 10 for 2 years. Number 1, it was the most fun 2 evenings of the week. I'm going to go sit with 200 kids at ASU and talk about the greatest companies that ever existed of all time and wondering what does this apply do dentistry?
When it was over, I drove home I was sad that I wasn't going to see these 200 kids every Monday and Wednesday night. And every dentist says, "Well I don't have time to do that." And what do they do Monday night? They watch Monday night football for 4 hours. What do they do Wednesday night? They're watching Dance with the Stars or The Amish show or whatever. It's all reality TV and it's like, you have the time. There's 168 hours in a week and you just decided there is no time but you can make time for anything that's important to you.
And it's why I also think successful people are the ones who, when they wake up in the morning, they look at all their problems and they always go after the Godzilla. Not the little termite and the ant and the cock roach. And most people look at the Godzilla and put that on the back burner and then they go and try to clean up some dirt and squash an ant and a termite and go to Godzilla and then all of the sudden, they never even got to Godzilla.
And I always believed that when you start the day, you go after the biggest damned problem. Because if you just solve that one thing that would be an awesome day. But we are out of time. We are an hour and 2 minutes on an hour long program. Seriously Jonathan, I just think you're a rock star. I actually have friends that know you and use you and I was probably told by 5 or 6 different people, "Oh you've got to interview this guy for your podcast series. You'll love him, he's awesome." And I really do hope, if you're going to put it on iTunes for free, I hope you put it on Dental Town for free.
I also really hope some day, I don't know if you could explain what you do in a 1-hour course or if it should be a 3 part series, but my job is to get dentist focused on what they need to be focused on and financial accounting, manager accounting, statement of cash flow, balance sheet. They don't know any of this stuff. And the biggest contribution I think we could both make to dentistry is if we got Open Dental to put out that outsource Xero.com. If we got dentistry an accounting package, we could literally retire tomorrow and say, "I left the background better than I found it, I was a good corporate citizen, I added value to dentistry. That would be the most amazing thing I could think of.
Jonathan: I would love to remark on the project. One thing, I'd also love to do the continuing education. One thing, if anyone out there listening needs some of these KPI's that we've talked about ...
Howard: What's a KPI?
Jonathan: Key Performance Indicator which is like the 25% number for staff and things like that. I actually create a report I call "The 15 numbers that will make or break your dental practice." It's been downloaded about 1,000 times from different dentists.
Howard: Have you started a thread with it where that's the title of the thread?
Jonathan: I think it's in my signature I believe.
Howard: Why don't you start a thread on Dental Town that has that with a link back to your website? And it's not promotion when you say, "Howard told me to do it." And post that because with Dental Town, no one out there practices alone, if they're on your website, they're alone. You can have links to it. But then if a community could discuss what this means.
Jonathan: Sure, I never thought about doing that. It's always been just a report I've given to clients as honestly it's also as bonuses for being on people's interviews is a way to give back to their listeners. But if I'm being interviewed on this, I'm sure it will probably come up if anyone wants to look at it. I'll do that but also if you want to go to DentistMetrics.com/dentaltown, I'll just put a link up there so you can just download it.
Howard: And why did you go "Dentist Metrics?" Wouldn't it have been better "The Dentist Matrix?"
Jonathan: And you could have Neo there.
Howard: Yeah, what was he saying? "Do you want to take the red pill or the blue pill?" What was that signature line?
Jonathan: Yeah, it's the red pill or the blue pill and then I could probably have a mouse over of someone picking the red pill which is going with me or the blue pill as not going with me.
Howard: Well hey it was fun. It was fun being in the Matrix with the founder of DentistMetrics.com. DentistMetrics.com. Jonathan, thank you so much for giving me an hour of your time today.
Jonathan: Absolutely, anytime. I appreciate it.
Howard: All right, have a rocking good day buddy.
Jonathan: You too.
Howard: And next time I visit my sister in Fayetteville, I'll swing over and see you in Little Rock.
Jonathan: Absolutely, absolutely. And if you ever want to come on "Start Your Dental Practice," we'd like to hear your stories.
Howard: Oh, please, E-mail me howard@dentaltown.com. It's the only e-mail I have. Tell me when and I'll be there. It will be an honor.
Jonathan: Fantastic. Thanks so much.
Howard: All right buddy take care.
Jonathan: Bye.