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AUDIO - HSP #259 - Jim Bennett
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VIDEO - HSP #259 - Jim Bennett
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NOW CFO is a premier provider of outsourced Chief Financial Officer (CFO) services to companies undergoing rapid and significant change. Working on an interim, part-time, or project basis, NOW CFO provides companies with the opportunity to work with senior finance executives for a fraction of the cost of a full-time employee.
Our employees have a wealth of operational experience. In this complicated economy, many small and emerging companies are finding the need for an experienced chief financial officer and accounting team for the first time.
The burdensome cost of paying a full-time chief financial officer and accounting staff is a significant barrier. Let NOW CFO fulfill your needs in a cost effective manner.
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I founded the consulting firm NOW CFO in 2005. NOW CFO has offices in nine markets in six states with plans for continued strong growth. The NOW CFO consulting practice has 75 employees who provide outsourced CFO, Controller services and management consulting for many companies across most industries.
I am a certified public accountant (CPA) with nearly 25 years of combined experience in public and private industry finance and accounting. Prior to founding NOW CFO, I was an audit manager at Deloitte & Touche. My private industry experience includes serving as a business founder and owner, Chief Financial Officer, and operations senior manager. I possess significant experience in business accounting/finance and business management. I graduated from Utah State University with a Bachelors of Science in Accounting.
http://www.nowcfo.com
Howard: It is a huge honor for me today to be podcast interviewing Jim Bennett. Who specializes in what dentists and physicians do the worst and that is he is a chief financial officer. He started NOW CFO which is a basically most companies by the time they get to $50 million a year revenue have a full-time financial officer.
Jim: Yeah, most do.
Howard: Most dentists are doing a half million a year or a million. Some might be doing 2 million. There's that spot between 5 million and 50 million where you really should have a chief financial officer but you're not big enough. You recognize that, so you started NOW CFO. Which is basically supplying part-time chief financial officers to small businesses. Did I get that right?
Jim: Yeah you got that right.
Howard: I'm a dentist, he’s an accountant. Dentists are just simply people who didn’t have enough personality to become an accountant. You'll see that [crosstalk 00:01:09].
Jim: You might have that mixed up but …
Howard: You’ll be twice and crazy as I am. I'm going to start with, the bottom line in any industry it’s not just dentists. I have a patient who people deliver him cans and then he fills their cans. It could be paint, aerosol, hair spray. They just deliver him the solvents and the cans and he loads them and he just loves it. If you ask him any specific numbers about his business, they really don’t know. Last night I was eating dinner at a restaurant. I've known this restaurant owner for 20 years. He lives four miles up the street. I’ll throw him an easy enough question, we trust each other. We know each other and I’ll say, “I'm just curious, what is your food cost? They say McDonald's has a food cost of 31%, what is your food costing?” He says, “You know that’s a good question.”
Jim: That’s exactly the kind of thing that we help business owners answer.
Howard: I'm like, “How do you own a restaurant for 20 years and not know your food cost? ”
Jim: I'm shocked they're in business.
Howard: The food must be good or the location. I want to start off with just, I know this sounds elementary, you're probably thinking what is this …
Jim: No let’s talk about basics. Because basics are what matter.
Howard: What is a CFO?
Jim: CFO, chief financial officer. You talked about how small of a business might need a CFO. Let me talk about value proposition that we would provide. Even if you were doing 3 or 400,000 a year. If you could have a CFO come in for two or three hours a month at a very reasonable hourly rate, you would buy all of their knowledge. Can you imagine for a few thousand dollars a year, literally being able to have a really expensive six figure, 25 years of experience accounting, financing knowledge coming in and out of your business? Now look, that is our value proposition. We as a firm, we hire these very well qualified, kind of expensive accounting finance people CPAs, advanced degrees, fancy accounting firms all of that. We bring them on our payroll and then we find them clients.
By doing that we’re able to let small businesses reach an have the resource that they wish they had. I mean if I interview 300 business owners, between a few hundred thousand and 10 million, most of them would not have a CFO. Nearly every one of them would say, “I wish I had a CFO to talk to.” In case your spouse gets tired of it. In fact it’s my understanding especially in the dental world that’s one of the main fall backs for the bookkeeping and the basic accounting is to have the spouse doing that work.
Howard: That’s true because when you were making out with her at the back of the movie theater you were asking her accounting questions.
Jim: Right.
Howard: You were saying, “What is the difference between net income and revenue and profit?” In between kissing so she was qualifying herself.
Jim: You always talked accounting when you were making out. It just always works well.
Howard: I know and the key to the spouse is this, you just ask your spouse the question, “Do you want to work here?” If he or she says no, then she’s at leave. Making your spouse work in the business because you're so busy making hamburgers and fries and steaks and root canal. She just married you so she has to run the business is not good for anybody. It’s not good for your business. Now if she passionately eats, lives and breathes your business and wants to have a career outside the house it’s awesome. Many dentists say, “No you married me so you're going to run my business.”
Jim: Well in my experience having probably sat with 10,000 business owners many of them dentists. Usually marriages and working that closely in the business don’t work. I don’t know what the exact statistics are. My feel is probably 80, 85% of those. It’s a bad thing for you both to be together all day working on business problems, going home. You go home and drag the business problems home with you, it’s tough. Howard as we talked about this, our job as CFOs and controllers and even just doing basic accounting is to create visibility to the business owner. Because then the business owner can make data driven decisions.
If you take your gut feel which makes you a successful business owner and you add some data to it, some valuable data. “Hey we got our financials closed on time. You know what? Heaven forbid, what if we had a few key performance indicators?” I know that’s a big word a KPI, but what if we had a little scorecard? Where we had four, five things that we watch closely and we measure those things? It’s not significant pain to get that data and now we run our business based on those things. Accounting is just one piece of information and that’s history. It’s historical information. We add the history to the operations, to the sales sides of our business. Then what if you could take the historical data and project into the future? Howard, what if you knew that you had enough cash flow and we prepared a bank package so we could go buy another practice and add two more dentists? We could do that every 18 months.
Do you think that would be valuable? I would think that would be valuable. Now not everyone wants to own 20 practices, not everyone wants to do that. It’s so exciting to take historical data, operational data, sales data all these things. Create a little scorecard and start to drive our business. The Japanese have a great word and I’ll probably mispronounce it, [kaizan 00:06:44]. Kaizen is continual improvement. If you can work in your business. Not just in your business but on your business every week by looking at your scorecard knowing your finances, knowing you’ve got the integrity. Or the information you're looking at is there, it’s amazing what you can accomplish. Then you can make little tweaks and changes to your business that add dramatic amounts of profitability. Most business owners are unfortunately owning a job. I think dentists fall into this a little.
Howard: Exactly, explain that concept owning a job.
Jim: Well they're, you know a dentist is a highly trained, highly skilled professional. They should be handsomely rewarded for being highly skilled. Let alone that they're trained, let alone the number of years they spent to get there. Owning a job is kind of a bummer over time. Because you don’t ever feel like you get ahead. You’ve got your spouse in there or a relative doing the books. You just don’t feel like you get ahead. Information visibility gets you of feeling like you're just an employee to yourself. It gets rid of that ball and chain that feel is dragging you down.
Howard: By the way, it’s been walked and talked. You're currently in 16 markets in … You're in 16 states, how much?
Jim: 16 cities, 8 states.
Howard: 16 cities, 8 states rattle off those states. 16 cities in 8 states, rattle those off.
Jim: Yeah, we’re mostly in the western US. We’re in Tennessee, we’re heavy in Texas, we’re in Colorado, Utah, Arizona, California, Oregon, Washington.
Howard: Arizona, Oregon and Washington. As a disclaimer I want to be truly honest, I am your client. I just want that out, you do not pay me to speak. There's no money changing hands in this interview. I want to start at the very beginning. Because you're probably talking about 7,000 dentists and they're all varying degrees. I want to start at the beginning and we’ll work your way up to a chief financial officer. I believe that the SMP, tell me when I'm wrong.
Please tell me where, I'm a dentist, I'm a trained dentist I'm not a CPA. I do have an MBA from Arizona State University which I thought was a game changer. They never taught me anything in dental school. I learned all my business from my dad. I start wondering, what does my dad really know versus a professional. I went back to MBA. It was Monday, Wednesday nights from 6 to 10 for two years. It was the most fun I ever had. Ever since I graduated my business just boomed.
Jim: That’s so exciting when that happens, so exciting.
Howard: Let’s start off from the very beginning because, okay I grew up in [Wichita 00:09:42] Kansas. My family is catholic and we went to church [inaudible 00:09:47]. He told me Dan Carney, that he notices that successful businesses by the time they have first five employees one of them was a full time bookkeeper. They always knew their cost. Then when we were at MBA school that if you take the average for humans, SP500. The average money, if you buy something for a dollar on average, 53 cents of a dollar goes to pay people. When you look at dentistry where the ADA says we average 65% overhead. 35% would go to the dentist and that’s a person. Technically a dentist is a human, technically from a zoologist point of view. Then 25% for [SAS 00:10:33] so that we’re back at that 53%.
Jim: Accountants are like that too.
Howard: Accountants are like that too.
Jim: From a zoologist standpoint.
Howard: The first thing that irks me is that they send out their payroll to a payroll service. I ask them, “What percent of your cost is people?” “I don’t know.” “How much do you pay your [inaudible 00:10:52]?” “You know I'm not sure.” I don’t even like them sending out their money for payroll. They say they have an accountant but when I study their accountant relationship, it’s basically only preparing for the IRS.
Jim: Once a year.
Howard: Once a year.
Jim: There's not even additional meetings.
Howard: The smartest move I ever made was in 1998. I hired my full-time bookkeeper. This is something that I learned at MBA school. her name was Laurie Zaluski. Who now a gazillion years later is the president of my company. She started as a bookkeeper just a little $12 an hour bookkeeper. She sat right next to me for all the information. I could be doing a root canal, I came back and she says, “What's this?” I’d go do a crown and she’s come by and, “What's this?” Slowly but surely she just understood the business and we took it to a whole different level. My question to you is, do you agree should you outsource your number one expense to a payroll service? Then use a CPA who basically calls you up on October 14th at midnight and says, “Tomorrow you owe the IRS a check for 50 grand.” 50 grand? I don’t even have $5,000 in my savings account. How can I owe them 50 grand? I know that’s a ton of questions but take everything I just said under that.
Jim: Howard, you and I hadn’t really sat down until right now. It’s almost like you just knew one of my hot buns. One of the things I like to talk about.
Howard: That’s because he’s a CEO in Utah and I use one of your guys in my city.
Jim: Yeah that’s great. It’s interesting that you bring this up. I want to talk about just for a minute the most efficient way to set up an accounting department. It’s very important you understand that. You want develop, process and procedure for each thing that goes on. In the dental world, we need to make sure that we bill for every procedure that we do. we need to make sure that we collect that. we need to understand the speed that we’re going to get paid. We can have clerical people do a lot of that work if they're properly trained. Our business actually lends itself nicely to that because when you take your most expensive accounting, financing person the CFO. You just use them a little bit on a hourly basis. In a million dollar business you might use a company like ours for one to two days a month or less even.
Now you're getting supervision, you’re putting the least expensive $12 an hour person you talked about on your payroll. Then we can take all of that data, that’s put into your accounting system or your practice management system and bring it to the forefront with financials, with the cash projection. With all of those things and you will get the data and the information you need. The visibility to make better decisions without having this very expensive 100, $150,000 person on your payroll. That’s really how everyone should set up an accounting department. I wish I could get more people to do it. Not just to toot my own horn but that’s the least expensive, most effective, most cost efficient way to have an accounting department set up.
Howard: If you're a single dentist, would you recommend that they marry a dentist in their class or marry a CFO? Which should be the better marriage?
Jim: That’s a good question. I'm an accountant, I have to say marry the CFO then you’ll own 20 practices.
Howard: Let’s be more specific. What accounting software, is just the over the counter quick and good enough or should it be QuickBooks Pro? Then I want to ask you professionally to do what I wanted to do years ago. I went with Peachtree. Is now that a special markets for a bigger company. Then Microsoft didn’t they have back in the day by Great Plains accounting?
Jim: Great Plains.
Howard: Then I noticed the SMP500, they all use the German company.
Jim: SAP.
Howard: Talk about SAP, Microsoft’s Great Plains, QuickBooks Pro.
Jim: A lot of the practice management softwares that are out there if you get enough training can do this work. What we find is many practices are using QuickBooks not Quicken. Quicken is just really just checking account type thing. QuickBooks will do a lot of things. It’s usually used in conjunction with practice management software.
Howard: Is that QuickBooks or QuickBooks Pro or QuickBooks Pro Online?
Jim: There's really four levels of QuickBooks. There's QuickBooks Online which is the starter kit. They get you hooked on it, they want you to use it for a little bit of a fee every month. Then there's QuickBooks pro which goes on a desktop. Then there's QuickBooks Premier which is kind of mid-range software. Then QuickBooks Enterprise. Enterprise is for more than 10 users. Premier is for 3 to 10 users and QuickBooks Pro I think is up to 5 users. Online is just cloud based.
Howard: Which one should a dentist be on if they want to work with long distance advisor like a CPA or a CFO.
Jim: They can really be on any of them. We just got to make sure it works in the background. The simplest one is Online. Problem with QuickBooks Online is intuit, the owner of QuickBooks has taken some of the features out of it. it’s not as robust as the others.
Howard: Quicken is for the consumer for a checking book. QuickBooks is just a …
Jim: Basic accounting software.
Howard: QuickBooks Online is a little more advanced, probably the next tier up?
Jim: Well QuickBooks Pro is less users. A lot of dentists could get by with Online or Pro.
Howard: QuickBooks Pro, how many online users can use that?
Jim: I think you can have three.
Howard: Three and then what would be the next?
Jim: QuickBooks Premier which is up to 10. Then Enterprise is 10 or more.
Howard: How much would Enterprise be?
Jim: Enterprise is 3 to $4,000 to buy the software.
Howard: Is that what you're recommending for me?
Jim: No I think we could get away with probably Premier honestly.
Howard: Well go back, I've been on Peachtree for 15 years.
Jim: Peachtree is fine, actually if you're entrenched with the software, we don’t move you.
Howard: Is Peachtree as good and intuitive as …
Jim: It is as good. It’s just not been marketed nearly as well. QuickBooks is the 800 pound gorilla now.
Howard: You see that in dentistry. Some of the greatest dentists in the world and they have small practices and no one knows about it. Then some of the averages and below averages dental offices in the world crush at marketing. Have these million dollar practices and I think the consumer often thinks that the big successful practices. In Phoenix the guys in Scottsdale do all this marketing at their cosmetic dentist. People drive clear across town to pay twice as much. There's a guy in their backyard in Glendale or Chandler that does it just as well or even better for a lot less money. Peachtree is okay?
Jim: Peachtree is fine.
Howard: What about Great Lines with Microsoft? A lot of people use Microsoft.
Jim: Now you're talking about very expensive software.
Howard: How much is that going to jump up to?
Jim: Great Plains which is actually called Microsoft Dynamics now, it’s been renamed by Microsoft.
Howard: Microsoft Dynamics?
Jim: Dynamics yeah.
Howard: I've given away my age when I call it Great Plains.
Jim: No not really. It’s just after the last few years. It’s very expensive.
Howard: How much is very expensive?
Jim: 250,000 to buy and install.
Howard: Then SAP from Germany.
Jim: 250 to a million.
Howard: Wow and that’s what all the pretty much SMP500. Seems like they all have that.
Jim: Those guys spend even more than that.
Howard: If you're a young dentist listening to this podcast. This dentist has been out for two or three years but has great dreams. Is going to be really successful financially some day, what should they jump into? Enterprise? Premier?
Jim: I think Pro or Premier would be fine. For one office that would be fine.
Howard: You know what I want you to do? This is off topic sorry but my biggest beef with the practice management information system is they can’t make you a statement of income, a statement of cash flow. They can’t do payroll, they do all the insurance and billing and all the CRM and everything. They don’t know their costs so these dentists are signing up for 10 different insurance plans. This insurance PPO says, “I’ll give you a $100 for a filling.” This one says, I’ll give you 150 and this one says 200. They don’t even know the cost of filling. There schedule knows how they long they spent doing the filling.
If all the costs are running through and all the practice management softwares [inaudible 00:19:49] the biggest one is in your backyard Provo , Utah, Dentrix. I've talked until I'm blue in the face, they don’t even respond. Eaglesoft with Patterson, same thing. I've used SoftDent which was owned by Kodak Gershwin whatever, they don’t say anything. There is one company in Oregon where I get the ear of the guy, [Jordan Sparks 00:20:14] is a dentist. Started at Open Dental and his brother Nathan runs the whole show. Jordan and Nathan are this close of being able to say, “Okay we’ll interface it.”
They're this close, I think we can push them over the edge. On Dentaltown where there's 205,000 dentists. The only software where they get raving fans is Open Dental. They have an open format and everything. I think it might be something where if you and I and Jordan and Nathan Sparks at this. Some day some dentist can get a fee schedule from a PPO, enter it and says, “You're cost for a filling, the way you do it when you take an hour is 215.” If the fee schedule was 214, he says I don’t want to lose a dollar every time I do a filling. I got to either lower my cost or I need to raise my fees. Just quit doing dentistry for a loss. I think it would be a game changer in dentistry.
Jim: Howard I would love to do that with you. Because I want to see people succeed. That’s why I do what I do, I want to see people succeed. If we can help them get to visibility. Visibility is how much does it cost me to do that? how much can I make on that procedure? Let’s help them do that.
Howard: I know you have privacy issues but you actually do some other dental offices that are bigger dental offices. Corporate dental offices in multiple locations.
Jim: Yes we do.
Howard: If one of my hommies is listening to you, you can take them on if they're from Tennessee. You went there for Jack Daniel’s I assume right? He’s from Utah so he needed a place to go where they had some good whiskey. You started out jack Daniel’s Tennessee where [Cory Glenn 00:21:50] practices. I think he’s one of the most talented …
Jim: You know why we went to Nashville? I think you might find this interesting.
Howard: It’s Nashville? Probably second street, that’s my favorite street. I say its reliable country western bars.
Jim: That’s one of the reasons. Actually we had a great employee in our Dallas office that needed to move there for some family reasons. We said that’s a great reason, let’s all [crosstalk 00:22:11].
Howard: My three favorite streets are New Orleans, what is that street? Bourbon Street.
Jim: Bourbon Street.
Howard: Just a bar and a band a great restaurant. Then in Memphis Beale Street where I'm actually so old I actually saw B.B King play jazz on the street.
Jim: Oh my goodness.
Howard: Then it’s Second Street, or Second Avenue in Nashville. I don’t think I'm a country western fan. I just say no, I don’t like country music. You like country music when you're in Nashville.
Jim: I would agree.
Howard: It is just amazing.
Jim: It’s a lot of fun.
Howard: Those are the most fun streets in America. If some dentist is listening to you and they're in Tennessee, Texas, Colorado, Utah, Arizona, Oregon, Washington you could take them as a client now?
Jim: Yeah we could take them. Our firm is very dedicated to coming onsite at their practice or practices as much as possible. Because we want to understand their risk profile. What keeps up at night? Even though we could all have this same exact business, we’re all human beings. We have different things we worry about. We like our consultants to get to know them. To become a trusted advisor and really just part of the family there. As part of the family they're working on the problems that, that business has. We actually coined a term, the water cooler effect. Water cooler effect when I'm in a business or one of my consultants is in a business.
We have the owner, CEO comes in and talks to us and tells us what they hear. Then well guess what? The dental hygienist comes in and talks to us about some inefficiency. Then the invoicing, billing person comes in and talks about some issues that they're having and some questions. We’re working on the numbers and pretty soon we know more about the business than the owner. Then we can take that data and we can use that to help them improve the business. That’s where the forecast and the KPIs and all of the things really come together. Because real information isn’t the spreadsheet.
Real information is what's behind it and how we can take that. we can turn it into actionable steps to improve our business. We use a process called strategic link that marries strategy with the tactical plan. You turn it into 13 week tactical plans and you continually improve a business. You do that by having information correct numbers and a plan for the future. That’s where business gets exciting. Then we can realize the hopes and the dreams of the young dentist that we’re talking about.
Howard: Well you're in my home and in my dining room and you asked me what keeps me up at night. It’s my two cats [tiger and Mimi 00:24:48]. I’d like you take them when you leave. Because when one of them starts licking my head in the middle of the night. Or they're scratching [inaudible 00:24:55]. I'm like really? Really it’s 1:00 in the morning you're licking my head. Anyway you can take my cats.
Jim: You keep the cats but I’ll work on the cash flow, how’s that?
Howard: Okay. I still as much as we talk all day long, I still think every dentist thinks a CPA does their tax.
Jim: Can I clarify that difference?
Howard: Yeah.
Jim: I don’t think your operational accounting person CFO or controller should be doing your taxes. Everyone needs an excellent tax person. A tax person spends their life in the code. They spend their lives looking for deductions for you as a business owner or anybody that’s listening. That’s their job, leverage that expertise, pay them what they need to do that. Their job or their perceived job was not typically to come to your business, be at your business and understand all the operational things that happen.
We want to help you with those decisions. We want to help you fix it early, not worry about the $50,000 payment at the end of the year. Because we plan that, we know its coming. We interact closely with that tax person but we don’t want to be that person. Let’s work on the operation, let’s find extra ways to make money. Let’s make sure that every procedure we perform is profitable to us. That matters, that’s data that matters.
Howard: Sometimes things are thrown around loosely and people, if you say it enough times people believe it. Do you think business is business and it doesn’t matter if you're a CFO and you're looking at a place that makes root canals or donuts or pizza? Is business, business?
Jim: Well there are similarities so yes and no in the same sentence. There's similarities whether you're making donuts or you're doing dental work. You need to understand how your cash moves through your business. You need to understand if you can make payroll. You need to understand your key drivers. What are your people [inaudible 00:26:48]? What is your cost of goods sold? Those are important things to everyone. Then from there each industry has nuances and important things to it. That we understand and we can help move you through that.
Howard: You know another thing that I'm just throwing terms around, feel free if you want to look at the camera and just lecture to the dentists on things they should know. It seems like dentists don’t even know the basics. They think all debt is bad. They dint see business debt as leverage. They’ll come out and they’ll complain that they graduated $250,000 on student loans. That’s an evil nightmare that they just can’t get over.
Then they’ll turn around and buy a $400,000 house and you'll never hear them complain about that. they’ll talk about buying an extra machine for a 100 grand. They don’t think twice about buying a condo, or a fishing condo for 100,000. They just seem not to understand that debt for consumption is very different than debt for business. What are your thoughts on debt for business, debt for consumption?
Jim: Well they both happen on all of our lives especially when you start talking about a home. Debt for business should be planned. One of the tools that I like to put together, as a firm we like to put together is a cash flow forecast. We can understand why we’re investing. Because debt for business is an investment. Now you can argue a home is an investment all of those things. All debt should be planned and needs to be planned from the standpoint that we need to understand how we’re going to service that debt. When we buy that x-ray machine, we need to understand what it’s going to produce for us and how it’s going to help us make money.
The fishing cabin, you do that for fun. That’s okay, but you should still plan that that’s going to work in your life. Not long ago I met with a gentleman that had a handful of practices that had not worked out. he was like, “I can’t make my Ferrari payment.” We sat down and we started looking at it. you should just let the Ferrari go. Because there are a lot of other problems here. None of it had been planned, he just willy nilly went out and did those things.
Howard: Because he got a gut feeling. I tell him gut feelings without any data is just, your guts are feeling fickle matter, a gut feeling is a shitty opinion until you have numbers that confirm, your gut feeling ... By the way the reason I'm successful is because I have a 50 pound belly of gut feelings. I combine it with an MBA, accounting, I have full time Stacy and Christie, that's all they do is payables, receivables, accounting all that stuff. There is a difference between doing your payable, receivables, paying the bills verses someone coming in at 30,000 feet that sees many different businesses, many different dental offices and our corporate offices and can provide logic or explain the big picture behind all these numbers.
Jim: Our firm will bring best practices to every business. Because we are fortunate and then we get to see those other businesses and we get to see the things they do correctly and the things that they don't. We want to be careful, everything is very confidential at our firm between clients. We also want to share things that make sense.
Howard: Can you share any dental stories from any of your dental clients over the years?
Jim: Yeah. A couple of things that we've seen. I mean just how we do billing and I've just seen a lot of holes in how that's done and a lot of it has to do with lack of training. Not by the dentists. Dentists know what they're doing but they're busy producing work. Behind the scenes just make sure you create some checks and balances so that you know that every procedure is being billed and billed correctly. Because you brought up the filling 1 to 100, 1 to 150 and 1 to 200 just because they were different carriers. Let’s makes sure that that happens so that we don't leak revenue.
It sounds crazy that revenue would leak. The other thing that I find is huge amounts of receivables in dental offices because we are not following up appropriately with the payer. Because we don't follow up appropriately, then we don't resolve some of the things that maybe weren't received correctly or maybe weren't keyed in right, some of those things. The systems are not forgiving. We've got to make sure that we are on top of all of that or we can tie up mountains and mountains of cash that may be paid very late or not paid at all. Those are the two things that I worry about.
Howard: For years and years there wasn't a single dentist friend I had that I couldn't have met up with after work and just chat what was entered verses what was written up in the charts. In the charts it said you did, you took a PA in [inaudible 00:31:33] you did a root canal, but charged was just a root canal. You didn't charge up the PA, the [inaudible 00:31:38]. The difference in clinical notes and what was billed was always minimum $100 discrepancy. I was like, "Dude, we can go out for dinner and have drinks till midnight for free just from a little simple audit check." I mean just little things like that.
Jim: It’s just creating process and procedure and some checks and balances. The other thing you've brought up several times is just really understanding your cost ... Sometimes it just gets away from you. If you get too many family members involved, you're trying to take care of too many people, if you want to run efficient lay effectively kind of really take some time. I like saying invest your time in all of these stuff. The top thing is you love what you do as a dentist, I'm sure all these people watching love what they do.
They love taking care of people and solving their problems. As business owners, as CEOs, we all have to step back and we have to do some things that aren't the most fun. Looking at the numbers, understanding, like you did. You've invested a lot of time. You hired the book keeper that's now your president. Investing either your personal time or hiring people to do some of these things so that you really know. If you really know and you understand, you make great decisions.
Howard: Yeah, I literally, seriously, I would probably start crying or get [inaudible 00:32:59]. Like I was out at a funeral if you tell me I was never going to pull out a set of wisdom teeth again or do a root canal, I just love that stuff. Everybody likes different things, dentistry that personally I podcast for years of pediatric dentist. I swear to God if I had to be a pediatric dentist, I would leave the country. I would turn in my license and throw a dart on the ... If I had to work with 3-year olds crying every day, I'd quit.
Give me a person with severe pain, wisdom tooth, I love that stuff. They don't like doing numbers. Here's my feeling and my analysis of 20 years of dentistry. They mix this religion philosophy, treat other people like you want to be treated and I want to do the best for you and they build their patient and also [inaudible 00:33:42] or Cadillac. Then the intern comes in and says, "We are only paying for a Chevy or used car," they don't know the difference. Every consultant will tell you, I can even go into a place and cancel 20% of their insurance contracts and dismiss 500 to their patients.
Their gross production will fall 100,000 a year and their net income will go up 50. Because they don't even know that they're subsidizing when they sell a Cadillac and they're taking that profit and fixing this person. Then you sit there and you try to talk logic to him and say, "Well if the in charge is only giving you this much money, you can afford a tooth colored expensive composite filling. You need to do a low cost amalgam." "No, that's not how I do it. If I treat other people like you want to be treated, I won't do that for myself."
It's like dude your philosophy, treat other people like you want to be treated, I can get ... My two older sisters are Catholic nuns, I get it. If you want to do charity dentistry, there's my [yell 00:34:40], if you want to do charity dentistry, you should know that you're doing charity dentistry.
Jim: Call it charity.
Howard: Yeah, I go to Tanzania Africa working in orphanages, I've gone to Mexico and worked in orphanages. Do charity, actually you know what? I have a feeling that a dentist realizes, okay here's all your patients. In all these you lose money every time you see him and all these you make money, they probably start looking at these and say, "Oh treat other people like you want to be treated?" "Yeah." "Learn how to brush two minutes every morning and every night. Floss before you go to bed and quit drinking Mountain Dew." They don't know their cost.
Like a dentist will come out and will say, "I just did a MOD composite. It was $250 and man it turned out great." I say, "Fantastic. Did you make $12 on that filling or $20?" No idea. I've still not met a dentist in my lifetime who can walk out of an operatory and just say, "Did you make or lose money on that?" "I have no idea. I think I'm making money." Here's the thing that's happening in hospitals and dental offices. Hospitals know if they do the big procedures three a day, coronary artery bypass graft known as a bypass is 100 grand.
Colon cancer or prostate cancer and prostrate is number one in men, that's a 70,000-dollar operation. These hospitals know if I do three bypasses a day, we are always making money. When we sit there and we don't have three big surgeries a day, we are losing money. It’s like well how do you do 10,000 billed out procedures in a hospital and you only make money if you did three bypasses? I don't think that's healthy, I don't think we should have the healthcare system that if someone is not getting flayed open for a bypass three times a day, they're losing money.
It's the same thing in dental offices. Here's what I know in dental offices, they have these big procedures, a crown is 1000, a root canal is 1000, a denture is 1000, implant is 1000, and they all know, well if I do four, five of those a day, I'm good. Okay, that's true and that works. That I really wish you would make at least one penny on every procedure you do and know where you're building. It’s kind of like pouring water in a bucket with holes in it. They just don't know where the holes are. If they called you, could you as CFOs help them understand and know what their cost?
Jim: Yeah, absolutely. That's one of the main things we help businesses do, is understand their cost accounting. It’s the same thing whether it’s a manufacture or a dental practice. There's always training involved because the devil is in the details. A lot of times we are going to make sure their staff can help us get that right. Because most of that is going to follow through that detail of that procedure is going to flow though the practice management software. We've got to get good at that and then we coupled that with QuickBooks or Peachtree or whatever else and we should be able to get kind of information. I mean there's lots of businesses that run on weekly cycles and it works much better than a monthly cycle.
Howard: I guarantee if you and me can get Jordan Nathan for you two to work together, its open dental and you work together, I think you would probably be doing only dental in five years.
Jim: I think that would be exciting to do that. That would be very exciting.
Howard: I think it would be probably a single greatest contribution dentistry. It wouldn't be a Dental Town website, it wouldn't be a podcast. I think for dentists to know their costs, if we can pioneer dentists to understand their cost, I think it would be the biggest game changer. That's what needs to happen in healthcare.
Jim: Sure, I totally agree.
Howard: I mean you go to these hospitals; I've got four boys, so when I walk into the emergency room and they know my name. You talk to any of those people; it’s amazing how they just don't know what's going on. Explain what else do you think, I had you here 40 minutes, we are two thirds down, I've got 20 minutes left. Educate them more on accounting CFO stuff. When I was in MBA school, they said accountants make three reports; they're making a statement of income which they call a profit and loss. A statement of income, what is your revenue, expenses, statement of account.
It's mainly for a third part tax collector like the IRS like unless you're probably trade like SE. Then there is the statement of cash flow which I've never ever met a dentist who ever got a statement of cash flow. Then there is a balance sheet, what balances, what you have your asset balance with what you owe your liability verses what you have into your equity. Which you really only need if you're borrowing other people's money or you're getting a divorce, it’s not a management accounting thing.
Jim: I like the practical aspects here.
Howard: Yeah. Basically their accountant is only giving them a third party PNL that has artificial numbers like depreciation, deferred taxes. They don't really make ... I guess there's a long winded way of saying, "No one is giving them data to make managerial decision making." They're giving them data for a third party tax collector who's heard that you need to get a mortgage and a loan for your house. They're not getting managerial data. Does that make sense?
Jim: Absolutely makes sense. You know what's fun to build for a company once we get the historical financials caught up and accurate, is a cash flow forecast. Not a statement of cash flows like I'm sure all of you have suffered through and some ...
Howard: Okay, you're talking to some of those viewers who don't know what a statement cash flow is, so slow downs spunky.
Jim: Okay.
Howard: Slow down. Explain what a statement of cash flow is before you start telling me you're going to make a cash flow forecast.
Jim: Let me tell you the ones that really works, that's useful for business, is not the one that they teach us how to do in accounting. When I worked at Deloitte, worked on large public companies, it’s not that. That's a statement of cash flows; it’s a very defined by the accounting world.
Howard: Most of them think a statement of cash flow is their checking book, their check register.
Jim: Yeah. We can build something similar that helps us actually look at cash in and cash out by category. Now makes your income statement or your profit and loss even more meaningful. Now we can see the timing of cash and the speed that cash moves through our business, those are very critical to success in a business. It sounds really simple to say, well, what cash is going to come in?
I like to sit down with a business owner and it's something that we borrowed from the bankruptcy courts but to do a 13-week cash flow by week. 13 weeks is one quarter and if I sit with you today, today is Wednesday and I say, "Okay, let’s do 13 weeks." We'll sit down next Wednesday for 15 minutes and let’s see how we did in the last seven days, let’s see if your cash in number is accurate. Because I'll bet our expenses is pretty close because we know how many people worked, we know what our rent is, we know what our utility is, we know the cost of all the material that we use. I'll bet you next Wednesday we miss it because we were too optimistic.
We'll learn from that and we go through that process again if we iterate and we learn and we iterate and we learn and over time you can really understand that. That's a good step towards really understanding your cost. Not procedurally understanding your cost, but at least from a fly over to know that we are making money every day and why.
Howard: How can one of my hommies contact NOW CFO to see if you could help them? Will they go to www.nowcfo.com? What's the number?
Speaker 3: 855.
Howard: Its 1-800?
Speaker 3: Uh-huh (affirmative).
Howard: 1-800 ...
Speaker 3: No, 1-855 ...
Howard: 1-855.
Speaker 3: 669.
Howard: 669.
Speaker 3: 2361.
Howard: 2361? An 800 number is now 855?
Speaker 3: Mm-hmm (affirmative).
Howard: Really? I never even heard that before. Must be a Utah thing.
Jim: They're all used up.
Howard: 855-669-2361. What other concepts do you think they would need to know? I've only got you for 15 minutes more.
Jim: A lot of it is from there, we talked about basics and making sure that they're accurate, anything from knowing your cost, understanding your revenue, making sure no revenue leaks that you're invoicing for everything, you're collecting timely. From there, a lot of it comes to style. What I like to do is help, it’s interesting what the millennials, the things that we've seen in accounting is people really like work balance. I would imagine in dentistry you're seeing the same thing. There will be an opportunity for some people to really grow as some of this young professionals turn into employees. We'd love to help people with that, we like to help bring finance into the table and opportunities to grow a cost geographically.
Howard: I always looked at it like this, when you graduate in dental school, it’s like you graduated the [inaudible 00:43:33] lawn mower and they say, "Congratulations, you're a doctor of lawn mowing." Mostly you dentists will say, "Okay, I'm going to push a lawn mower from age 25 to 65." It’s like you should push a lawn mower and right out of gate, I used to push lawn mower. I thought, you know what? I should hire another person to push the lawn mower and I should work a little more on the business of creating a lawn mower business, getting new accounts or marketing or finance and all that stuff.
What's funny is all the biggest dental officers, I know that's not a measure of success, but like Rick [Workman 00:44:03] is a dentist. He owns 1500 offices, he hasn't touched a patient in 20 years, Rick [Crushton 00:44:08] owns 500 offices, he hasn't touched a patient for 20 years. Steven Thorn of Pacific Dental Services, his dad is a dentist. He thought why should I go to dental school for eight years? He said in eight years I can have five offices. Now he has 500. Those are extreme examples.
I'm sure most of you don't want 1000 offices. All the people that have 500-1000 offices, they haven't seen a patient in 20 years, they didn't even go to dental school. The people that made it all the way to the top, they don't touch teeth. One of the reasons you're struggling is because you're dreaming about teeth, and I get it. There's got to be some moderation in there. If you're only interested in fixing teeth, you've got to find some people on your team or outsource a CFO or someone that can say, "Dude, I know you just want to make something, but I'm in charge of watching the numbers and I want you to look at this numbers and think about some things.
Jim: Well some of that is my own desires spreading my business across the country. I started with two clients and here I am now with 150 employees and starting to spread out. A lot of it is what you want to accomplish but everything from one office to a handful of offices should be very doable. Let’s go help people succeed, whatever their dream is, whatever their goal is, lets [inaudible 00:45:29] doing that.
Howard: Now I want to talk about the dark side of your business. That is some day we die, some day we have to sell our practice, some day it’s over. It helps also to have a plan if you're going to transition or sell or you die and there's an estate, whatever, correct?
Jim: Oh yeah.
Howard: Talk about that a little bit. The thing that no one wants to talk about. Some day ...
Jim: Be the funeral planner.
Howard: Yeah. What's the funeral plan side of what you do?
Jim: Well it is planning. I mean you need to think about the loved ones around you ...
Howard: Some people call it the exit strategy.
Jim: Yeah.
Howard: Talk about the exit strategy or dying or retiring or selling or moving [crosstalk 00:46:10].
Jim: Well we spend a lot of time with people helping them sell their business and you want to do that long before we are headed to a funeral. It’s really the last big event that could help you really land fantastically from a financial standpoint. It also monetizes your business. You put in all those years, maybe work in your business maybe 30 years and you build up a really solid practice or a few practices. There's a lot of value there.
If you don't have good information, so that someone from the outside can come and look at it and understand that's what you're telling them and the story is accurate, then they're not going to be interested in buying your client base, your customer base. Because that's really what you've built up. All those relationships. I've spent most of my last Saturday with one of clients in a different industry that is doing 10 million in revenue. That would be a pretty substantial set of dental practices, right?
Didn't really understand the process of selling. Been in business 17 years, we just educated him and his partner for about six hours on the entire process. Well that's valuable to them and I don't know if they're ultimately going to sell, but it became very clear that there are a lot of things that they really don't know the answer to that a third party coming in is going to ask. They're going to ask some tough questions and you've got to prepare for that. If you want to exit or you want to plan your future, you've to make sure that you've got this. It’s really an investment. Whether you're investing in additional book keeping or high level CFO to help you a little bit, whatever. It’s an investment in your business and in your future.
Howard: My mother thinks Frank Sinatra is the greatest singer/song writer in the world because she is not gifted enough to know that Michael Jackson is. My favorite Michael Jackson song was The Man in the Mirror. I'm going to ask you this question and maybe it’s not fare. A lot of dentists blame all their economic woes on the economy, Obama, everything. The man in the mirror says, is it really Obama, the country, the economy or is it really, look in the mirror. In your 20 years experience, when a business is booming or suffering, how much is external factors, exogenous factors like the 2008 melt down recession we had. How much of it is they're just not running their business as well as it could be?
Jim: Well there's always a combination of both things. You're going to be the most prepared for any rough event like the great recession if you run your business properly. You understand your cost structure, you know how much revenue you need to generate each day, you understand when you're going to get paid, all those things matter a lot. It was interesting going through the recession, we helped restructure a lot of businesses. The business that got wiped out had two problems; they had little or no cash reserves and lots of debts.
When we talked earlier about when does that make sense? Well it makes sense when it’s in a bigger plan. You've got to understand our economy cycles every 7-10 years or less, I don't know what the exact number is. You've got to be prepared ... If you're going to work from 25 to 65, that's 40 years. You've got to be prepared to go through a handful of cycles. Everyone has a little different risk profile.
Those are the things that we help highlight, get it out on the table and then work within those parameters so that we can have a cash reserve and we have smart debt and we are prepared and we understand our business. Then if Obama does something or there is a recession, we are the most prepared for that event. It doesn't mean it will be easy, but it will be more ready than the guy down the street.
Howard: In 2008 I was under prepared because during the recession I always thought I could sell all four of my boys off to the adoption agency or the orphanage and I got no money.
Jim: Then you looked at working donation or something like that.
Howard: You said the cycle is every seven years, the last one was 2008, it’s already 2015. Do you believe that was seven years ago? There's a lot of people, I mean you can't predict the future, but there's a lot of people who think right now the economy is not doing too good. What do you think of the overall economy right now for dentists specifically.
Jim: It’s an interesting question because we are in a recovery that doesn't, if they surveyed the American public, they don't feel like there's been a recovery. There's a lot of people that still don't feel like they're backed where they are let alone ahead. Some of the indicators are clearly there, but I interviewed investment bankers almost every week and they're telling me, "We still have some more time," but no one has a crystal ball. The number one thing to do is just be prepared, understand your numbers, run a robust success practice that's going to be the best preparation.
Howard: I think Paul Kirkman nailed it when he said, because it’s something about my memory of 50 years is that, Americans don't think they're doing well unless they're a bubbling economy like the stock market from 93 2000, you just threw a dart the stock went up and real estate bubble. It’s like their expectations are unless you're in a bubble, they don't think they're doing it. When the economy is just slugging along at 3% growth, just slugging along, everybody thinks, oh it’s so lame.
Because they only get excited when there is a bubble. When they buy a rental property for 100,000 and three years later it’s worth 200,000 and its building up to a big pop. I think Kirkman is right that unless it’s a bubble, Americans are always going to complain. You know what I wish you would do and I would so grateful if you do this, I wish you would help me go meet Nathan Jordan Sparks over in Oregon ...
Jim: I'd love to do that.
Howard: He's the most popular deal. They're this close, I mean I've been chewing on everyone's ankle. Dentrix out of Provo Utah owned by Henry Schein, Eaglesoft and [inaudible 00:52:03] owned by Patterson in Minneapolis St. Paul, [Carostream 00:52:10] practices, all of them. I'm not getting any bitters and I've been on them for 20 years. I really think we are close on those, but do you know what I'd really wish you would do, if you find it in your heart, is we put up 350, I saw it at University of Phoenix online and it’s right here in Phoenix every time I drive across town.
First it was like 90, they had one billing. Then there was a second bill and a third bill and then it’s this monstrous billing. In 2004, I thought, well I'm going to steal that idea and do online [inaudible 00:52:40] for dentistry so you don't have to close down your practice, you don't have to fly, plus an 8-hour lecture. No one can stay awake during eight hours. Just little short segments and they were like, I don't have IT, I told them no, because it’s still there you can just go back, you can print it out, you could ...
Jim: Let’s go build something together.
Howard: If you build something like the dental CFO, how to do be a CFO in dentistry, what is a CFO or probably couldn't call it a CFO because none of the dentist could, they could look and go, CFO, what's a CFO? Is that a filling? Is there a new root canal called CFO. If you build an online module, whether it be an hour or a curriculum, I don't know if you could explain to 205,000 dentists what CFO is in one hour or two hours. As long as it took you, I think it would be worth your time because I think you would educate a lot of dentists which will reduce a lot of their stress, a lot of dentists are wearing way too many hats. When they get stressed or family gets stressed, sometimes they deal with that stress by drinking Listerine or being cranky.
Jim: Let’s not do that.
Howard: I think a lot of them would say, "You know what Jim? You just sold me. I think I'm going to hire your services. I think it might be a good expansive plan." Any chance we could look forward to that some day?
Jim: Yeah, I would love to do that. We'll go back and put our heads together and start to put something like they could gather maybe in one hour modules, different things. It could be, I'd like to really explain like you talked about the balance sheet, the income statement, statement of cash flows, some of these different tools that people can just use.
Howard: Not to be an insult to you, you guys are doctors. I mean dentists are rocky smart people.
Jim: Yes they are.
Howard: You can't be a dentist unless you get an A in calculus, algebra, Trig, physics. These guys know how many ATP [inaudible 00:54:26] cycle. I'm a dentist so I can call them on their shit. They couldn't read a statement of cash flow or a balance sheet if you put a gun to their head. None of them know their cost. If someone says to me, over the years, I've done this several times. They'll say, "My labor is 20%." You say, "Does that include FICA matching?" "What?" "Does that include health insurance?" "I don't know."
I mean even when they say they know a number, everyone of my dental consultant friends will tell me that, when a dentist is calling them up and saying, "I need help," and they tell them all the numbers and they get there, none of what they said even matches. Whether it’s to the good or the worst. This will have to be a very elementary program that you could then, you could start out very elementary and then the second hour and build up. Because if you just walk out there, sort of throwing tantrums, you can fly right over their head.
Jim: Well that would be fun because those understand it will be a good review and those that maybe were busy kissing their girlfriend during that class, they could be first on it, it would be a lot of fun. Let’s work on that.
Howard: Thank you so much for coming over my house. By the way I've got to ask you. The most beautiful drive on planet is actually to leave Phoenix and go north 12 hours to Salt Lake. Have you ever made the drive?
Jim: Yes, it’s fantastic.
Howard: Do you go through Vegas on the west or do you go through Leaf Area on the right?
Jim: I've done both.
Howard: Which one do you like better?
Jim: I like Leaf Fairy but ...
Howard: So do I.
Jim: I like being out away from everything.
Howard: God embrace Canyon and all of those. That is just ... There are places along that drive from Sedona all the way up scores of Hollywood movies were filmed. Sedona alone they have a Pink Jeep Tour. Have you ever come down to Phoenix for CE about half an hour north of Sedona and the first time everybody goes there, you think you're on mars. You think you're on a different planet. They have this pink fairy, Pink Jeep Tour and they just stop and say, "This is the scene where they filmed this."
You're like, oh my God. It’s just the weirdest stuff. Then the more close you are at Bryce Canyon it’s like, I don't know what happened on earth, but when you see a rock the size of a house sitting on a rock the size of a dining room table, you're thinking, how did that happen? What the hell happened here? That is just truly God's country. It’s just an unbelievable drive.
Jim: A lot of fun, yeah.
Howard: My dream some day is I want to bike there, I want a bicycle from there to there. I just think that would be fun. I don't know, I said there's tour guides and all that stuff. Hey, thanks for coming by my house.
Jim: It’s really great. Thank you.
Howard: For spending the hour with me and ...
Jim: Thank you everybody.
Howard: I'm going to hold you to ... By the way, you could help me out a lot if you agree with anything I'm saying, start sending emails to Open Dental. The guy is on Dental Town, Jordan posts all the time, Nathan, Jordan is the dentist but his brother Nathan runs the show and I think if we all did this, we could change dentistry.
Jim: Send emails to me I'll work with you closely.
Howard: What's your email?
Jim: My email is jbennett@nowcfo.com.
Howard: Well Jim Bennett thank you for coming over my house for an hour.
Jim: It’s been a pleasure. Thank you.
Howard: All right, thank you very much.
Jim: Have a great day.