Joseph (Joe) Jordan is the founder of JPA Dental Transitions. After establishing practice as a dental specific attorney, Joe saw that his skills in the legal profession could easily and valuably translate to the world of Dental Transitions.
VIDEO - DUwHF #1165 - Joseph Jordan
AUDIO - DUwHF #1165 - Joseph Jordan
Now helping dental professionals through their practice transitions is one of the great joys of his job. Law remains one of his first loves and he continues to work and own Jordan Law Group to serve the dental community. Joe also greatly enjoys his time speaking to dental schools, round robins, and on national dental circuits around the United States. He is a proud husband and dad of two kids.
Howard: It's just a huge honor for me today to be podcast interviewing Joseph Daniel Jordan JD he's the founder of JP A dental transitions in Belmont North Carolina it's a suburb of the North Carolina or what city is it in?
Joseph: Right outside of Charlotte
Howard: Charlotte and have you recovered from that Super Bowl with the Denver Broncos yet?
Howard: Yeah I imagine I would still be in therapy I'm so glad I don't bet money on games.
Joseph: That one still hurts a little bit.
Howard: You're young hot quarterback who could do a flip over the line and keep running against that old guy with a broken neck I'm so glad. I knew the Carolina Panthers would just walk away with that game.
Joseph: Yeah thanks for bringing that up early Howard.
Howard: I want to give me an ulcer before we start. Joe you go by Joe right?
Howard: So Joe is the founder of JP a dental transitions after establishing practice as a dental specific attorney Joe saw that his skills in the legal profession could easily and valuably translate to the world of dental transitions now helping dental professionals throughout their practice transitions is one of the great joys of his job, law remains one of his loves and first loves and he continues to work a known Jordan law group to serve the dental community. Joe also greatly enjoys his time speaking to dental schools round robins and on national dental lecture circuits around the United States. He is a proud husband and dad of two kids but I don't know where he gets off those two kids because on your LinkedIn profile it's just you and some little cute guy in the chair, I take it that your son?
Joseph: That's one of them my son that's Jack.
Howard: So he must be the older one?
Joseph: He is the older one yeah I have a little girl.
Howard: Does she know does she know that she's not in the photo on your LinkedIn profile?
Joseph: Not yet not yet she will after she sees this.
Howard: You better you better correct that I have four boys you can't play favorites but my god he is so adorable just my gosh.
Joseph: I appreciate that, he's a smart little one.
Howard: So I wanted here's why I wanted you to bring on the show first of all so many dentists asked for me to podcast you but here's the disconnect, in dental school they say why me I'm you know the average graduates $285,000 student loans they say I don't have the money to start my own and I'm just gonna go be an employee and that's their Nirvana they think teammate what is that Nirvana song...
Joseph: Teen spirit, it smells like teen spirit.
Howard: It smells like teen spirit, they come out they said I know what it smells like the best thing to do is just go get a job at some DSO. Well the turnover what the DSOs is so high that when I meet a dental student five years out of school they've had five or six different jobs and it takes them and usually they don't start their own practice until they're just like I'm so given up and burned out I'm so sick of doing the grind and all that I'm finally gonna open up my own. So I'm like well I graduated May 11 87 I had mine open September 21 87 why do they spend five years chasing it smells like teen spirit when I know what it's gonna smell like at the end and what it smells like them is that dentists, physicians and lawyers make horrible employees because they don't like to be told what to do, every dentist and lawyer has it I mean look at the Supreme Court your lawyer every they're all reading the same Constitution yet every major decision is five to four it's like that they've never when was the last time the Supreme Court voted nine to zero on anything. So lawyers dentists and physicians they're never gonna agree on anything so my specific question is she just walked out of school two hundred and eighty five thousand dollars in debt, can she buy a practice would you even recommend it straight a graduation would you tell her to wait a year talk to that kid who just walked out of school.
Joseph: Yeah that's a that's a great question and I think be the initial gut reaction is absolutely if you think you're an owner profile and that's big for me and my clients is what we tell them and we catch a lot of doctors coming out early or in schools we tell them listen you need to spend a little bit of time first to figure out whether you an owner do you really want to own something or use somebody that really just loves doing dentistry and you want to go in and just do dentistry and that's fine there's nothing wrong with that. There's a huge need for that the dealing industry but if you're truly an owner deep down you know that then you're not going to be happy until you own a practice and so what can we do to get you on that ownership path to find that practice that's right for you and my first quick answer is can they buy something directly out of school do they have the ability physical ability clinically divine run a practice sure I think they probably do the problem is that the money is not there for the young doctor right out of school. So what we see with most of the specialized lenders is they're gonna require at least a year track record of some sort and that really is what we've seen that a so that your associateship that a lot of doctors go into they come out of school they go into an associateship period for a year then they roll out they start looking at ownership options. Partnerships, 100% ownership or something some kind of ownership model that they can get into but that is generally dictated by the lenders. A lot of young doctors think well I have all this student loan debt I can't there's no way I can get a loan and they'll go three four years five years and we're seeing the associateship period that used to just be a year we're seeing an extend its over the past few years it's started getting a little longer a little longer a little long and we asked ourselves why is that and why are the doctor staying associates longer I think there's a number of reasons but the main reason is they feel like they need to be able to make money to float their student loans they do have to have that year to really get the financing from the third-party lenders so those two playing conjunction with each other is pushing the associate out a little more in a little more. So the quickest we can get somebody into ownership with a third-party lender being involved is write out a year now some caveats to that of course is that sometimes I don't know what it is why it is sometimes a third party lender will look at a deal and say okay we can get comfortable with it and if that happens they I've seen I've had clients that have gone into ownership two three weeks after graduating does it happen yes is it the norm absolutely not the norm is that one year production history out in the world of producing clinical dentistry for somebody for somebody else that they can then get the loan by the practice and sometimes residency's can fall into that we've had some lenders that have gotten comfortable with the residency and have lended but if this a normal-size practice you know generating six to seven hundred thousand a year has a five hundred thousand dollar purchase price they're probably gonna have to have at least one year experience before lenders gonna jump in and do it.
Howard: Okay but you have two children now and my four children turned into five grandchildren does that baby dentists at twenty five does she even as she have enough self-awareness to know if she's the owner profile? Talk to her help her self-discovery if she's an owner profile or she's an employee profile.
Joseph: Yeah yeah what I tell our clients is you know that's something that we can advise you to we can say here are the challenges of ownership and that easy saying is you work in your practice from 9:00 to 5:00 and own your practice from 5:00 to 9:00 are you okay with that and do you comprehend that the ownership side of practicing dentistry is really equal to the clinical side with the amount of hours you put in the headaches that you handle and some people are just better fit for that. Somebody that's just coming out going do you're right do they know 100% probably not but I think they've probably had enough experience through school through jobs they've had here there that if they know whether they can be comfortable working under somebody long-term or whether they like the management side they like the business side they like that tied in with the clinical side and they ultimately have to make the decision but I'll tell you this too that one year that they come out that they are kind of spreading their wings a little bit in someone else's practice there's a lot of knowledge that's learned there. So I'm a fan personally of the one year association up getting out and doing something to kind of just get your feet under you a little bit. I can tell you from personal experience when I graduated law school was I legally could I practice law absolutely yeah I could go into the courtroom and I could defend somebody I could do all this stuff how much of it did I really understand, how much of it did I really grasp, how much of running a firm did I really know, zero. I knew very little and that's the way a lot of the doctors come out clinically they were prepared but from the business side they don't quite have the grasp. Now it's getting better I will say that I think in the last five years the graduates that we're seeing come out that are looking to get into ownership or looking at it at some level are better prepared than they were I think that goes to the schools that have realized there's that gap and so with that training with the education in the school changing a little bit more toward the business side with having advisors that are going in and talking and spending some time with the students I think that gives them a little bit of an idea to really be able to understand am I someone that wants to own a dental practice and especially within that year has an associate seeing the way of businesses run figuring that out. Now with the young associate that comes out in his license and talks and gets advisors around them and surrounds themselves with with people that can help them make these right decisions, when they get into ownership or when they get into an associate ship and there is that mentor relationship between the host doctor and the young doctor I think that goes a long way to them developing the idea of whether ownership is right.
Howard: Now I'm gonna ask you a question but I know the minute she hears me ask his questions she's gonna call phony-baloney because you make a living in practice transitions so why would you give her any honest advice on should she start a denovo from scratch or by old man baker's dental office?
Joseph: Well here all day the majority of dents how they are going to get into ownership at some level so if there's an opportunity out there I think it makes a lot of sense to get into that ownership model because the majority are ultimately gonna find themselves there anyway. Now the market itself and this is again something we advise our clients on the lead whether it's the legal side and they just found this because they want something or from the brokerage side is there's not a lot of practices out there I mean if you look the number of doctors that are coming out that are looking actively looking for an acquisition to buy something that's running there are a lot more look then are available. So a lot of times it's a an opportunistic decision something pops up in the town that they want and they know that and they're more willing to go out on a limb a little bit and get into ownership because it's there.
Howard: Do you have to be me you have any macro numbers of how many graduate last year and how many old guys are selling?
Joseph: I do not but what I can tell you just overall is this your number of doctors that we've had this year that have contacted us specifically looking for a practice you know since January we've had probably a hundred to 130 individual new people that are wanting to come into the North Carolina market and there are nowhere near that many practices on the market.
Howard: Yeah so supply and demand so if there's more buyers than more sellers then I want to switch this whole interview around old man McGregor wanting to sell its practice it's a seller's market would you agree?
Joseph: Yeah it's a good time to be a seller it's a good time but it's also you've got more options in front of you than you've ever had. So a seller starting to reach out and talk to people about how do I transition out of ownership how do I what does it look like what's the model what are my options the options now are there are a lot more than there were years even five six years ago where it really was probably just gonna be a changing of the guard in a dental practice, you would you would have the established doctor that sells to the solo doctor that comes in and just trades off. Now of course multi doctor ownership the increase in that has changed it, management groups that are getting into ownership at some level of change that, DSOs have definitely changed that fractional interest ownership again even on a very small level has changed that. So a lot of options are going toward the seller so is it a good time yes absolutely. Do you need to put some thought into what your plans are post closing and how you want it to happen absolutely because there's a lot more a lot more moving parts than there used to be.
Howard: So this is a strange question but back to do demographics matter I mean if you're buying an existing practice it's working I mean the numbers are right there but if you're gonna started de novo you really need good demographics. Do you think demographics matter more in a de novo since it's an unknown and do the demographics matter less in a practice transition because I mean this office is doing it there's no mystery to it?
Joseph: Yeah I think demographic reports are no brainer if you're looking at doing a start-up absolutely because you can think you know an area you can think you know the competition but I can promise you this every time I google an area to just look at how many dentists are there I'm always surprised by how many come up so I think I know an area and I look at the data then I find out there's a lot more competition here than I anticipated and I think that's something that anyone doing a cold start should know they should know the competition in the area they should know the patient demographics and that's an easy thing I mean that's a very inexpensive thing now there's a lot of information on the web and you can just google and find but there are some really good companies out there that do only that for dentist.
Howard: Can you say awesome can you name them?
Joseph: I cannot I cannot but what I can tell you is that I know they're out there and I know they're relatively inexpensive for the reports that they give. I've worked with a number of them I don't have one specifically that I point to because they're really generally pretty geographically located. So if we have a doctor looking in the Charlotte area there are firms that will only do the Charlotte area so it's a good thing to have in a cold start scenario because more information is better than less information.
Howard: Okay how long you been doing dental law?
Joseph: I've been doing dental law since 04.
Howard: So okay so in and so it's let's just say it's basically almost 2020 so you've been doing this for a decade and a half you just add a gut visceral level would it be easier to succeed in the big cities of you know Charlotte and Nashville, in Atlanta or would you advise they go out to smaller towns in North Carolina like Rock Hill, Gastonia, Spartanburg, Hendersonville, I mean is it easy to say rural is easier and more lucrative than urban or not really?
Joseph: I would I always tell doctors at their if location is not the first thing on the list they're looking for and absolutely getting 15 minutes 20 minutes outside of Charlotte is going to be easier in the long run and probably more lucrative in the long run than if you plant yourself in the middle of everything that's going on in a market like Charlotte, Raleigh, Nashville, anywhere across the United States that is heavily dependent on competition heavily driven by PPOs just discount the dentistry because it has to be because the sheer amount of competition that's there. So it doesn't necessarily mean that practice ownership is easier but what it means is your and more in control of your practice when you're outside those high demand areas.
Howard: Well one thing that I'm one thing that was a huge red flag is you have heard of a east west bank right?
Howard: and in 20 I mean that that's where they are they headquartered in Charlotte or where are they out of?
Joseph: I think they were yeah I think they were they still in the market...
Howard: No they exited the dental lending market in 2016 and this is 2019. So three years ago when one of the largest banks in America the East West Bank exits the dental lending market what was the story behind the story? I mean is that is that a red flag that this is not it I mean a lot of people told me they had so many defaults in the DSO space that they were over weighted and stopped is that what you heard?
Joseph: You know I don't want to speak for East West Bank because I don't know the real reason behind why they made the moves that they did but what I can tell you is if you look at dental lending across the board we have shakeups at a lot of the big banks pretty regularly, they're changing their lending model they're changing their underwriting terms. So as a transition advisor on the legal side and a transition adviser on the broker side we're working with these banks all the time so we have those relationships and it's not uncommon that we'll have a really really good year through the year with lending with one specific lender then the next year they change their model and for some reason something's happened they've changed the way they do their underwriting and now all of a sudden our number one go-to lender is no longer really our go-to lender and now we're looking for another lender. So they're it's definitely for the I guess for the regulations for the underwriting for everything that goes into lending at that level there are a lot of moving parts and when they get a little uncomfortable they change the game because they're not willing to take any losses and when I talk to my lenders they tell me all the time they they pair it the same thing acquisition defaults are less than half a percent I mean that's low if you think about that what else what other industry has that kind of safety and low default rate. I mean it is low low so and what was it really that forced East West out I don't know.
Howard: Well like restaurants have a twenty to forty percent failure rate in 12 to 24 months and there's dentists or the half percent but you know the problem when you talk about DSOs is people always think of the biggest players you know your Aspen your Harlan your Pacific but most DSOs are two to three to four to five locations and they were servicing a hundred group practices and they said no more so I don't know what all to make of that.
Joseph: Gut reaction is that those groups are still there you know those groups didn't all roll up and just leave they just got out of a lending of it.
Howard: So where are you getting most of your money is that Bank of America, Wells Fargo, I mean who are your major lenders?
Joseph: Yeah I mean you have the big you have the big players your Wells Fargo your First Citizens your Bank of America they're in the space and they're doing a lot of business you have your PNC's your TD banks there in the space doing a lot then you have some of the smaller specialized lenders that are really good at what they want and I know that sounds kind of weird but you know they have their model that they like to lend and if you have a deal that maybe isn't sticking immediately with one of the big lenders there are a lot of other lenders that have carved out specific niches in dentistry and they'll jump all over those deals. So just knowing where to look for the money half the time is is the hardest part but I would say the vast majority of lending is coming from the those bigger banks. Now within the last year a lot of the local lenders and I'm talking about really local like your your region to small regional banks are getting more and more into deals I can tell you this year the a lot of the deals that we've done there have been more local banks involved that have never done a dental deal before ever I've better involved in that are doing deals and taking them from some of the bigger lenders. I don't know what their endgame is I don't know if they're wanting to develop a dental lending leg or whether they just really want the local business but we're seeing them get more and more involved.
Howard: Do you usually is your first choice usually Bank of America or Wells Fargo first citizens PNC TD is that usually are you are you doing more local regional banks?
Joseph: Well a lot of times I mean we're not gonna pick the bank of course we're gonna tell our clients if you won't lending we would suggest working with somebody that understands the dental industry, so that's really the number one thing and we'll tell them you know here are people that understand dentistry you're they're not going to be surprised by your student loans they're not gonna be surprised by anything else that has to do with the industry talk to them and what I can tell you is just competitively we see them come to the table more than local banks.
Howard: So do you do you mostly see the psychology I'm trying to crawl into the head of a young dentist, she's two to three turns out of school you know it's like football you know you need to learn how to do a basic block a tackle a pass a catch then when they come out of school they need to start learning how to do you know fillings and crowns and simple endo and all that. So they get there they got down there basic block tackle endo x-ray cleaning exam fillings and there's and they're starting to look at right do most of the time do they have a city they want to go back here I mean do they say I would go home to Charlotte that's where my momma is I'm gonna have a puppy and I want my mom there do they usually pick the location emotional reasons first or they usually saying it's calling you for advice saying where's the best economic decision to go?
Joseph: No I would say easily 80% of the people that come through our doors already have a location picked. Now when those doctors those other 20% come in and they say listen we're open those are my favorite because they are more open to the opportunity not the location. So I can help a doctor find a good opportunity but it's finding the location they want sometimes extremely difficult and sometimes the wait a year two years three years for something to pop up in the market they want or they go the cold-start route and do a cold start because this in the market they want. So to answer your question yes it's almost always location driven.
Howard: So what's what's smarter for her to do, she wants to go home to Charlotte, so she gets on the free classified ads a dental town or she goes you lose some on your website practices your website is JPAtransitions what does JPA stand for John Paul and associates?
Joseph: Jordan practice advisors
Howard: Jordan practice advisors okay so it's JP I'm gonna take the so you're the founder of JPA dental transitions and JPA is Jordan practice advisers.Sso here's my succinct question so she goes to your website she sees practices located or she goes on dentaltown classified-ad she wants to go to Charlotte do you should she just go by and visit that dentist that office or should she or is that a bad idea why would that be a good idea why would that be a bad idea?
Joseph: That's a good question here's where I'll tell you you know honestly I would love to sell her practice absolutely that's that's how I make most of my living is selling dental practices but I can also tell you is because of the demand in an area like Charlotte and in most metropolitan areas right now there's just nothing on the market. So knowing that what I do see a lot of doctors doing is that doctor - doctor of communication so they go on and that any Sally goes online and she's looking okay Joe doesn't have anything listen in Charlotte goes and looks at the other brokers okay they don't have anything a listing in Charlotte looks at classifieds I don't really see anything you know maybe an old listing and they calling it sold so there's nothing on the market that they can find what their next natural step, well the next natural step is well shoot I'm just gonna reach out to the doctors myself I'm gonna start contacting them write them letters and doing that kind of thing and the funny thing is it works pretty well and to be honest with you. So when we see those young doctors that are reaching out through study clubs which i think is a really good idea, you go to study clubs get to know the doctors in your area and start talking to them you know is the doctor gonna stand up in the study club and say hey guys I'm selling my practice, probably not but having those getting to know the people having the conversations so I think Sally or that young lady would be better suited if there's nothing in the market and she's let's say she's on a timeline of being an owner within a year I can't guarantee a practice that fits her is gonna come up in a year and neither can anyone else. So Sally can to some degree take the reins herself and start reaching out to people making relationships talking to people in the dental industry to be one of the first to know if a practice comes up and how do I know this works? I know this works because our law office does a lot of transactions in Charlotte that are doctors that have talked to other doctors no broker involved they just got together and they made the deal work and they happen every day there are deals happening. So the market is kind of interesting because if you look at it from the broker side any broker well shoot we'd love to know they're for sale but a lot of times in these high demand areas they never even come up on the brokerage radar because of pre-existing relationships or because the doctor knows they don't need a broker or they think they don't need a broker and that gets into confidentiality issues and how it's how is that doctor gonna market their practice but when we see those kind of hand-in-hand relationships that are made through study clubs or maybe a colleague yeah I mean they happen and they happen a lot. So again I would love to sell our practice and I wish I would have 30 on the market that I could sell a young doctor like that that wants to be in the area and wants to take over practice at home but fact of the matter is there's just not that kind of inventory on the market. So what is Sally gonna do in the meantime she has to decide she's either gonna stay an associate for a long period of time wait waiting for the right opportunity to come up and maybe it will maybe or maybe it won't or she's gonna do a cold start which I think a lot of doctors see as a very difficult undertaking but I mean you have to think all the practices that are on the market right now they were started at some point so that is a very viable option but as you pointed out earlier demographic reports kind of getting your ducks in a row before you do a cold start of course those are important things to do. So there are some options and I think one of those options that she needs to keep in mind is they want a little bit of the foot work herself getting out there and trying to make connections with doctors I don't see any problem.
Howard: Okay well I want you to talk on both sides of the same coin buyer/seller what should a young dentist be looking at when they're looking at acquiring a practice and then the flip side of that if you're an old guy like me and you're thinking you might want to be selling your practice down the road how early should that guy wanting to sell his practice, how long did he be thinking about that and then he's thinking would I you know give me an example in real estate a lot of people say well I'm gonna fix up my house I'm gonna add a pool so it'll be nice myself but a real estate agent say that you won't get your money back.
Joseph: Don't do that.
Howard: If you put a $10,000 pool in there you're not gonna get $10,000 more for your house so a lot of old dentists are saying well should I get new chairs and pay so talk both sides of the coin because it's the same coin you know.
Joseph: Sure yeah I think let's hit the seller first I generally advise my sellers not to go in and make big purchases right before they sell not to go in and repaint or re carpet or do any of that because almost every time buyers gonna come in and do what they want anyway. So the seller made painted green then a buyer's gonna come in next week and repaint it blue because they wanted it blue so all you're really losing is a meet that first gut reaction of walking in and seeing a green wall as opposed to whatever it was now should they clean a little bit should it look inviting and warm yeah absolutely because the buyers gonna walk in and they're gonna and this is their first time really touching it they've been looking at numbers they've been reading reports they've been building this idea of what the practice is in their mind but they haven't touched they haven't seen it so when that buyer walks in you can generally tell very quickly whether the buyer is gonna make a move on this practice or not but again that doesn't necessarily mean it needs to be oh you know good thing they just bought that CEREC because that's what's gonna sell the practice well it probably is not what's gonna sell the practice and this the seller is not gonna recoup dollar for dollar the investment of all this new equipment right before they sell. So what we tell our sellers is listen when we portray this practice to a viral we look at the data the reports the financials and we boil it down into a concise report that we give a buyer to review with their advisors and CPAs and attorneys you know that is the practice as it runs that is the practice as it has run for years and it is a snapshot into the practice as of today. So that's without all the new equipment that's without all the fresh paint that's without all this stuff. So the basic or the vast majority of the information of buyer is going to process to buy our practice is the cash flow the numbers you know what is it doing how healthy of a practice is it that's what they're looking at so for a seller I would always say don't go out and spend a lot of money trying to pretty it up right before you sell it because you're not gonna recapture that and if her in the sell price or what you get for the practice. Now for them the buyer side what should they look for out of what I just said financials, reports, chart audits going in and just looking at the charts seeing how a doctor does dentistry. These are all important things but also having an idea of of course the age of the equipment what updates need to be made from day one going in and all these are things that need to be kept in mind when they make that initial offer but for us and for most buyers and for the lenders and for the other advisors cash flow is really where it's sits, that is the first hurdle that most buyers and lenders have to get through. So they want to know what is the historical revenues of this practice what is the overhead reported overhead of the practice what's the adjusted overhead of the practice and when I say adjusted all we're doing is simply adding back discretionary spending that a seller runs through a practice to find the true really what is it cost for somebody to come in and run this practice. Once we have that number that we can say okay here are the dollars that are left over for new buyer if you buy this practice this is what we assume will be left over for you does that number work for you from a cash flow standpoint from a personal debt service standpoint and the advisers and the buyers are going to look at that and they're gonna make some type of determination as to whether the practice cash flows. If it cash flows well then we're gonna go to the next step and that's gonna be going in seeing the practice poking around looking at the equipment seeing if what the practice looks like what needs to be done to it. So I think for a buyer is important to look at the data of the practice of course revenues staying steady is a good sign, so three years out we want to look well what we tell sellers is three to five years out before you sell and that's not when you want to be slowing down that's not when you really want to be taking a lot of time off that's not when you want to be doing a lot of traveling, those three to five years before you sell is going to be the snapshot the window that any buyer and appraiser and everyone else that is reviewing your practice that's what they're gonna see so we want them to see good numbers we want a seller to exit on the high. Now not all sellers can do that because people sell a lot of different reasons but in the ideal scenario we have a practice that has maintained revenues in the last three years or slightly increased revenues over the last three years, I mean at that point it immediately looks healthy because revenues are staying the same. When we have revenues that are dwindling you know 50 to $100,000 a year over the past three years the first question we get always from the buyer from the lender CPA the attorney why are revenues falling and they always assume it's because patients are leaving or because the market is cooled down in the area or something it's never that well the sellers just really slowed down there they've hit that seller mentality they're thinking more retirement than they're thinking practice and it's starting to slow down and that's really not when we want a seller and getting in and selling their practice but that's what most of them do but things like that that's what a buyer can look at to get a real good just reaction as to whether this practice is going to fit for them or not but it all comes down to cash flow.
Howard: What would scarcely you said cash flow I mean there's you know the PL the profit loss is statement of income that you send to the IRS there's a statement of cash flow and then there's a balance sheet what balances your the equity you have into something minus the liability oh but it's my understanding that there's not a dentist's out there knows the difference knows what a statement of cash flow is or a balance sheet they don't they only talk about P&Ls because they say things all the time like well my practice does seven hundred and fifty thousand a year they they pretty much sell one-time sales and I'm like well what have you have a practice that done 750 a year and only netted fifty thousand and another practice had seven hundred fifty and added two hundred fifty the one that netted two hundred fifty would be worth five times more. So they always talk in sales and they don't know what EBITDA is, earnings before interest tax depreciation amortization so you agree that it's not a multiple of revenue it's a multiple of profit?
Joseph: Yeah definitely profit has to come into it that's when we talk about cash flow you have to know what the practice stat point. So you're right a lot of people will throw out that number and all across the nation set percentage of gross of last year's earnings comes up a lot that's what people hear because it's easy to say it's easy to say oh yeah my practice sold for this number and it was some percentage. Well I give people ranges yeah I see practices all the time from 50 percent to 110 percent of revenues that's a pretty big range yeah it's gonna fall somewhere in there and that's always the first question we get when we sit down with the seller is or what do you think it's gonna sell for and that's a really good question and that's something that we can determine and we could get a real good idea of what it's gonna sell for but I can't just give you a number. So in order to find that number you know the percentage of a sell price really it leans more toward like a market approach valuation and if the practice cash flows if there is enough left over at the end of the day to work well then yeah it might sell for 80 or 90 percent of its gross but that doesn't mean that that is the one indicator that percentage is the indicator of the value of a practice because it's really not the practice being able to support itself there being enough money to pay the debt service for the practice and also pay the debt service of the doctor buying the practice is very important obviously because if they can't afford to pay the debt service they can't afford to buy the practice. That's why you see a lot of people recently you hear more about EBITDA more than ever and a lot of that also comes in because the corporate groups that are buying up group practices that's what they advertise they say we will pay you this multiplier of EBITDA to acquire your practice. So the more the best getting out the more we hear sellers talking getting away from the percentage and getting more into the EBITDA side but it's range is all over the place as well, so to just be able to put a blanket across the board this is what practices sell for you can't because then that will be a very easy thing to do you will see a lot of dental practice appraisers immediately go out of business because you can just rubber-stamp a percentage across the board and that can't happen.
Howard: What is the range of EBITDA that you see them selling?
Joseph: I'm sorry
Howard: What is the range of EBITDA that you're seeing?
Joseph: Four, six, seven, you know somewhere in that range we see them there we hear crazier numbers I mean I've heard people talk about I got a flyer that said they would buy my practice today for ten times EBITDA and you know I haven't personally seen those but I've heard that thrown out a lot maybe it's happening somewhere but it's not happening in my market.
Howard: Well I see what I see is that EBITDA range goes high if you have ten locations because
Joseph: That's right multiple locations.
Howard: If you have you know the sweet spot of bankruptcy is really somewhere between two and four locations because when you set up your own office your crushing it because you live there your team's there you're all started there but you don't know what your weaknesses are and as you go to a second and a third and a fourth location your weaknesses that were a little Doberman Pinscher in your one office have now turned into Godzilla and destroy the price. I mean I've seen so many bankruptcies at the three to four million mark.
Joseph: Yeah that's a good point.
Howard: So if you have five locations six locations or seven locations they're paying a higher multi-EBITDA saying oh my god you figured it out you crossed you crossed the cash. I mean we understand when you're on your way to Vegas you see the Grand Canyon it looks pretty but to go all the way down cross the call river and come back up is a huge achievement it's about the length of a marathon so when they say wow this guy's got it so what they're paying extra for is the management team they're saying this guy this guy could get ran over by a Mack truck but he's got a ton of people in here that know how they're running it. You know I wanted I'm going to tell you I'm not a lawyer you're not gonna do what you do but I'll tell you what I've seen good and bad in buying and selling in practices some dentists will go by a practice and this guy does all these massively big full mouth rehab cases and this little kid doesn't realize that's a diagnosed treatment plan present the treatment case closed he doesn't have that skill. I saw a guy in my backyard who bought an office for 1.2 million it collected about 1.2 million a year and the first year he had it he collected 650 because he simply didn't have those skills. I'll say it again where they'll buy some practice and it's doing 750 year but he did a hundred thousand dollars of molar endo and she just decided out of nowhere that she doesn't like molar endo you know. Same with any of the 10 specialties now where I've seen the goldmine is a guy buys an office doing 750 year and this dentist hates endo, nevers done endo and this kid loves endo so you bought a practice for 750 and the first year it jumps up to 850 or 950 because he did all of his endo. So my first thing to I say if I was analyzing a practice first thing when they broker says they collected 750 I'd want to see a procedural printout it's a procedure mix well what did he do I mean I can do the hygiene I can do the operative I can do the crown and bridge but if you start crossing off I don't do endo and that was a hundred grand well you know you're not buying office collecting 750 if a hundred grand of its endo and you don't do endo do you agree with all that?
Joseph: Yeah absolutely I think what we're seeing that become more of an issue is with ortho with doctors that are doing Invisalign and they're getting a GPs getting into that side of it and have really built a big section under their roof of ortho and then we have a doctor that comes in and says oh by the way I don't do ortho well then this probably is not a good fit for you because we're taking a 30% cut off the revenues immediately by doing that. So buyers absolutely need to see a procedure mix they absolutely need to see a referred out list you know tell me what you're referring out I like production by code production by ADA code so we can go in and look okay exactly what did they do that way we can see if they're doing what our buyer is really set up to do well or whether they're gonna continue sending them out the door because if you think about it from a buyer standpoint a lot of buyers today are coming out with a broader procedure makes than the average seller I would say, so if they're able to come out and do more procedures than the seller that is slowing down and kind of gotten comfortable in their practice well that's immediate revenue that the recapturing that's already under the roof no marketing dollars spent for that nothing they can capture it immediately right there before it's referred out of the practice and it only takes a couple minutes to figure that out but absolutely if they are not going to do something that is a major revenue stream of the practice it's gonna be a problem it's not gonna be a good fit for that buyer or for the seller because it's gonna come back to bite him later.
Howard: The best practice but I've ever seen by and a friend of mine agreed with me that it was the best we've all ever seen. A dentist was doing five hundred thousand a year he patched everything with amalgam he didn't do crown and bridge and he didn't do endo he'd been doing it he was like 70 years old when he sold this guy bought this little practice three operatories for the old equipment and on average every day for modbl amalgams would just crumble and either need a thousand dollar crown or a two thousand dollar root canal buildup and crown he worked four days a week bought this practice for five hundred it did a million five I mean it was the sweetest deal ever. So humans are so complicated some people want to buy your practice and the minute they buy your practice I say okay Joe here's your check bye and then some people are saying no you want him to check a six months worth of recalls and insure everybody and does that affect the value of the practice if I give Joe a check and he cashes it and moves to Hawaii or did I wonder so we'll see a thousand cons of should I should I stay or should I go one that a class song should I stay or should I go.
Joseph: Yeah I think the doctor should definitely stay unless there's some type of extenuating circumstance. Now I'm not talking about staying from a production standpoint I don't necessarily want that seller staying to do productive dentistry because a lot of times if it's a solo doctor practice the doctor that's buying it needs to do 100% of the production but where we do really want the doctor to stay is just from a goodwill standpoint you have to remember a lot of the dollars that you're paying for practice is going to personal goodwill to buy the goodwill of that seller a lot of times up to 80% of the total purchase price is allocated to the personal goodwill to that selling doctor we'll shoot I mean if I'm paying every 80 cents every dollar I'm paying is going to this person's good name and reputation in the community I need to make sure I'm recapturing some of that that is coming back to me as the buyer. So how do we do that well a lot of times we do it by having the doctor stay around at some level post-closing doesn't have to be an everyday thing it can be a couple days this week a couple days next week glad-handing with patients just talking to a meeting with them answering questions the staff has answering questions that the new owner has about certain patients and treatment plans that were put in place before they bought the selling doctor is gonna need to finish up some cases so they need to be there doing that. So yes I like the buyer staying around from a non-productive standpoint post closing to help transfer that goodwill to make sure everything's smooth and everybody understands what's going on. Where I see it get kind of iffy is when we have a single doctor practice and we're trying to shoehorn two producers in the practice so the buyers trying to do dentistry and pay the debt service for the practice they just bought and the seller had a fantasy of staying on and working after selling the practice there's really not room for both of them at that point it's gonna get tough because then you have two people fighting over the same dollar and the sellers already receive their purchase price but they're still wanting to stay around after and you have to remember during the negotiating of all this during the courting between the buyer and the seller they're trying to make this deal work and the buyers really trying to go out and be nice and and help this process move along so when the seller says oh I've thought about staying on after the buyers almost always gonna say oh yeah we'd love to have you stay up and that's just that's what most people do because like you said most people humans are complicated people and they want to please and they they want to help the transition move along so they say that and to the buyer staying on after it means one thing and to the seller staying on after it means a very different thing. So having that conversation up front with your advisors and with everybody involved in the deal is important and what I mean by that is if you're a seller and you think listen I want to sell my practice, I wanna get out of ownership I don't necessarily want to get out of dentistry I still love dentistry I still want to do dentistry I just don't want the management headache of running a dental practice I just want to do dentistry but well if you're going to sell your practice that needs to be very upfront and clear when the practice is being marketed that the seller expects to say on because if it's known upfront well then maybe a buyer will pass on it because they know they need to generate a hundred percent of revenues but there are some other profiles of buyers that need a doctor to stay on the walls the doctor sale and run that practice while they're running maybe these other practices. So there is a good match for that if it's known upfront where we see it become an issue is where we there's that miscommunication up until closing and then we get in closing and we're negotiating how the doctors gonna stay after and it becomes an issue and we're trying to figure it out at the ninth hour before closing because for a lot of these doctors a lot of the sellers for so many years they've run out mean this is a huge asset that they've built over the years their staff is like family members of patients like family members so when they have to take off that owner hat and put on that associate hat sometimes that's a tough mental step for some of the doctors to make and if it doesn't go well it never and the interactions between the new owner and the host owner associate nail are generally very very rough.
Howard: Yeah if you want to have a lot of employ you should have them be 18 years old and high school dropouts or you know who makes the worst employees highly educated older people, dentists physicians lawyers dentists physicians and lawyers make horrible employees because they're too damn smart and they're they're confident and they're highly educated and that's not who you want to just be taking orders and doing stuff. I'm gonna ask you a couple more gunplay so she's listening to you now and she her advice was initially yeah you just graduate you need to go get a job for someone and all that kind of stuff but you also do dental law whenever she applies at a DSO they say well this contract you just gotta sign it there's no negotiation in the contract is that what you're what you're seeing in the real world or do the big DSOs do they make modifications?
Joseph: Sometimes we get a you know just hard across the board we don't make revisions and generally if we get that very early on the next conversation we're gonna have with our client that this probably is not a good move for them because we can't protect you.
Howard: Is that just like the really big ones like over 500 locations?
Joseph: Sometimes it's really hit miss because I've seen some of the big ones that are very willing to be inflexible on the terms because think about this way the biggest thing when I talk to when I talk to her and I haven't explained to her plan for the future yeah think about what you wanted to get an idea of where you want to be in five years because what you do that year out how you bind yourself in a contract is probably going to have some ramifications of what you're able to do after that one-year contract. So they're gonna sign an employment agreement that hazard probably has a restrictive covenant has a termination notice has a lot of different handcuffs on her once she signs it so she's gonna want to negotiate compensation she's gonna want to negotiate days off she's gonna want to negotiate those everything that has to do with the compensation package when I know that she wants to buy a practice in a year only thing I'm worried about arguing with is the restrictive covenant terms and the notice period to get out of the contract and that's not necessarily what's on the front burner for her but for us it is because i know she wants to buy a practice when it pops up well then i need to know that the restrictive covenant is not massive that it's reasonable and it's something that we can carve down to where it really is this as minimal as it can be and still protect the interests of the owning or the host doctor then that the notice period for the termination clause is short 30 days 60 days at most but that's where we see it swing really wildly I'll see 120 days on a notice period and we'll talk to our clients and say listen we know that you want to buy a practice in a year or two years or three years old whatever you decide to do if you have to give a hundred and twenty days notice to gather this contract you're probably gonna miss any opportunity that will come up in the area. So being able to move and have that flexibility to give 30 days notice and get out and to have a restrictive covenant that doesn't find you from where you ultimately want to be in the future that's where we're gonna spend most of our time and if we have somebody that's been very upfront that listen we don't negotiate and it has a very large termination notice it has a very large restrictive covenant or if it's for the area that we know they want to go as a future dental practice owner and there's not a whole lot we're gonna be able to do. You know we're gonna tell them listen we wouldn't advise that you sign this and they've told us that they're not willing to negotiate the contract at all and we would always advise that you maybe look for something else because the biggest mistake I see young doctors make is of course they want to go to where they want to live they immediately come out school they want to go back home but they want to go back to the area and they get an associateship position in that area and the problem with that is they've immediately cut themselves out of the area they want to be in no they then work outside the area for two years - waiting for the restrictive covenant to lapse but then they can come back in and buy and it just complicates things. So if nothing else something in the suit I had future associates you keep in mind is you know maybe negotiate and pick somewhere 15 20 miles outside where you want to be maybe negotiate your restriction covenant down and your termination notice down and take a little bit of cut in the pay if you have to cuz you really only have to do it for a year then you're gonna get out then you're gonna buy your own thing.
Howard: Here's another simple rule of thumb that I've just seen in 31 years, so like Phoenix Arizona yeah you come out here to Phoenix and you meet this girl and she's from Canada and she's moved Arizona for the weather or she moved to Charlotte for the the the Panthers alive also but the minute they drop a frog half them women want to go right back to where their mama lives cuz she knows her deadbeat husband isn't gonna help her babysit and take care of the kids no they just want that that family so if you're married and dental school and your wife's from this town and you're from this town and you don't know what to do how about just cross out those two towns and go get a job as associate anywhere else because there might be a time and a day and a newborn baby where you might want to go back to town and if you want to go back to Salina Kansas well go get a job in Wichita because you go get a job in Salina Kansas and somebody writes a restricted covenant and says you can't practice for five miles in two years you just blew a lot of your options. So the neat thing about an associate job is I loved your quote where you say you know owner profile dentist you know sees patients 9:00 a.m. to 5:00 p.m. but then owns the practice from 5:00 p.m. to 9:00 a.m. the next morning. So you know one good thing about an associate you just work 9:00 to 5:00 and don't have to be where it's on your short list of where you want to live because that could be a really bad idea and the restrictive covenant and then what are you seeing for how long a notice because I know some dentists I see this all the time on dentaltown where someone says you know what I've had it and they walk out on you and then but due to their contract all the money they had coming in they just they just lost all their money coming in or they're charged five hundred dollars a day what do you think is reasonable on a restrictive covenant and time of notification?
Joseph: Notice period yes I see third our 60 to 90 days pretty commonly just at on the first draft that comes across for the notice period so if I have to give you notice to leave and to exit the contract to terminate it I have to give you 60 days written notice or 90 days that's pretty much what we see for an owner associate or somebody knows they want a home I really suggest that they get that down to 30 because then they're able to move a lot quick a lot more quickly if something were to come up in their area. Sometimes it's give and take to get it down to 30 but I think personally it's will I would be more willing knowing they want to own something sooner rather than later to give a little bit to get that shorter notice period to be able to get out and jump and maybe get ahead of the competition that is looking for that practice. Now as far as the restrictive covenant goes for an employee I don't like anything over 18 months I just you know there's a lot of states are they enforce restrictive covenants but they've been very clear to say it would be against public policy for us to not allow people to make a living in the in the career they're trained to do so anything over 18 months I think is what I would call burdensome for an employee but that doesn't necessarily translate over to a seller. So courts have been very clear again they're much more willing to put a long restrictive covenant on a seller that's received value for their their assets as opposed to just a young employee trying to make a living that goes out and you know signs and here's another place they get burned a lot is they'll go and more and more of the market is owned by entrepreneurial groups or DSO groups or whatever it may be and they'll have five practices in their state or maybe more specifically in their area and when they sign that restrictive covenant they don't pay a whole lot of attention to it but it says that it's five miles or ten miles so that doesn't seem that bad five ten miles it's not too much but then is from every location that's owned by the employing group and that five miles then becomes half the state because the practices are located in these different areas so it's an area again that doesn't seem glamorous and nobody really wants to spend a lot of time reading their restrictive covenants but that's where a lot of doctors we see that are looking to transition into ownership hit they hit a stumbling block because yeah absolutely we would love to help you get into ownership and get into this practice but we have contractual restrictions because of the employment agreement that was signed by the potential buyer.
Howard: You know humans are territorial if you let your dog out of the front door the first thing he's gonna do is go pee on all four corners of the yard some dentists you know they can buy a practice for 750 but the owners selling the land and building and that's another you know 750 and the owners willing to have you sign a five-year ten-year lease what do you say to that how do you evaluate that I just want to buy the business of Dentistry and not the land and building because I know what the territorial homosapiens gonna do he's gonna he wants to beat his chest and own the land and dirt is his only land and dirt a good idea a bad idea, how do you advise that?
Joseph: You know I think right now with the lending marketplace interest rates I think owning the real estate if it's possible is a good idea I like it, it gets rid of a couple issues one your payment is almost always less than the rent and two you don't have the seller that is the landlord for the next five to ten years sometimes that's not a problem sometimes it becomes a problem. So knowing early on in the transition as if we always ask ourselves do you own the real estate is it isn't an option in the sell because we do see a lot of buyers that are coming to the table that want the real estate if it's available like you said if it's there it's on the table if they can wrap up both at the same time why not why not go ahead and get it interest rates are low money's pretty cheap let's go and get it but on the flip side of that a lot of the lenders for the solo doctors that are buying their first practices they're not gonna finance the practice and the real estate at the same time. So we might have a doctor that wants to sell the real estate we might have a buyer that wants to buy the real estate but we have a lender that says and you know you're kind of hitting your limit here with how much we can give you by the practice now lease it for two to three years and then we'll look at financing the real estate for you after in some period of time then we have to go to the seller and get them to agree to be a landlord for some period of time hopefully work in some type of option to purchase definitely a first right of refusal because worst thing that could happen for our client is that they buy the practice they didn't try to buy the real estate can't the seller says well shoot I'm just gonna sell them somebody else and then we have a third party landlord come in the mix and it just really throws things into a kind of tailspin. So buy the real estate yeah I think so I think that's an option and you can swing it I think it's generally a better bet.
Howard: I want to ask you a very high-end very elite dental question you know I graduate high school and 80 and that's the worst economy I ever sign I mean a 21% in straights double-digit inflation unemployment then I graduated May of 87 and Black Monday was October of 87 you know and and then there was the longest expansion in the y2k bubble pop March of 2000 and then Lehman's day was you know 2008 and all those plummets and drops I mean you know everybody talks about you know the sky is falling well I've lived through four of them I mean you know okay so everything looks crappy for a year too but now I'm getting a lot of dentist saying Howard everybody knows that stock markets overvalued everybody knows that the corrections around the corner and some of them are thinking should I should I sell all my stock and buy a satellite practice I mean I should I think 750,000 out of my stock portfolio and buy a dental office you know five miles down the street seven miles down the street and a lot of these guys are looking at their 401k and they're looking at a satellite price so I'm asking you do you think it's a better investment to own another dental office or having all your stocks and they all your money in the S&P; 500?
Joseph: You know my my gut reaction would be leave the money where it is and I think if we know anything is that the market comes and goes and being long in the market is better than making rash decisions pulling money out and spinning them on something else do I think dentistry is a safe bet absolutely I think dentistry is a safe bet and I think we advise our clients of that every day and you do what you do because you feel like long-term dentistry is a safe bet and I think that we can look at all the markets to interact with the field of Dentistry and that build their their practice on the field of Dentistry and we can saying that is a safe bet, do I think ownership is safe yes I do do I think you should I sell your your all your cars I'm liquidate everything so that you can get that one other practice and probably not because there is a lot that goes into multi practice ownership. You really need a good model in place there are a lot of people that get into it and realize okay this is not what I thought it was gonna be now I thought we're just gonna run itself and you know the money we're just gonna come in and I was gonna do my thing and maybe hop over there a day week or maybe a day a month and just make sure it's running okay, unfortunately that's not the way it generally works out with satellite locations. So we see a lot of people I mean we have I mean at least a handful a year that come to us and just sell a satellite location because it's not really what they thought it was gonna be or is taking more time than they thought it was going to so you know I think there's a profile for people out there that can do it do it very well and that can get out there and make a very good return on investment in multiple practices but I wouldn't say just go out there and become a multi practice doctor because you can.
Howard: You need three times the management team to have a second location and usually the only good thing to come out of a satellite practice is to expose all the failures in your systems and so you get a second location and then it's just a nightmare and then some people are so bullish because they're emotionally why would I open up one office every year and then the earth goes around the Sun which has no correlation to your management team and then they open a third location and the only good thing to come out of that is now you've leveraged yourself to sink or swim you either got to get the right people on the bus to figure this all out and you survive that that's why your EBITDA starts going up there's at four or five six seven locations you figured out but man it's so brutal.
Joseph: It is and I think one example that really points it out is you can look there are a lot of satellite practices that run of course their associate run always of course because the doctor that holds it they have to run their other practice and when it's only two practices sometimes three you still have that doctor that's spending the majority of their time in one practice and they have associates running the others and one starts falling off and that's when they calls and they say hey look going to solve this practice well then we find a solar doctor to buy that satellite and they go in and they run it like gangbusters numbers go up the the staff loves them everything turns around the practice just on the right track well that's because they got in there and it was their practice and they were running it like it was their own and they the owner mentality was there running the practice, so what that tells me is can you have an associate that runs a practice by themselves solely as the acting like the owner but is not and you're paying them to be there can they run a successful practice and grow up well sure they can and I've seen situations where that happens but what I can tell you is more often than not a satellite run solely by a non owner generally doesn't grow like it does when an owner solo owner holds that practice so they have to also keep that in mind when their thing about multiple locations just because it's there and just because the historical revenues have been good in that practice when you bought it from the person that owned it for 30 years and built it up and ran it every day and you plug an associate in there it doesn't mean that the historical revenues are going to continue like they always have it were then working with a totally different producer totally different ideology totally different personality and all those things are going to translate somehow and they're only going to work till five, they're not gonna hang around and handle the issues afterwards they're going home and so then the owner of those three practices have to pick up the slack across the board and it's tough. We tell people regularly three practices at that point you're having to determine whether you like doing dentistry or not because you're really managing more than you're doing anything and that's three practices is it's a lot but it's really not a lot it's only three locations and a lot of people think they can handle that easily but then they get into it and find out that the management of three is just eating up all the time.
Howard: We went over an hour can I hold you for some overtime questions?
Joseph: Yeah absolutely that was quick.
Howard: When they're out there looking at brokers like yourself there's one brokerage firm and I'd all say its name because dentistry uncensored Affco where they talk about dual brokerage they say we wanted to present the buyer and the seller cuz that not just let's just get the deal done. Then there's other people who say no no no each site needs their own broker but the counter-argument of that is it's more complicated and the lawyers you know fight do you believe in dual brokerage or not really?
Joseph: I will say I'm absolutely biased on this specific issue because of my training as an attorney, you know it is hammered in our heads early that you don't go represent you just don't because there's no way you can adequately represent one party when you're also representing a party across the table so that is deeply ingrained within me. So what I'll say is I don't do it I can see the reasoning behind why there are groups that do and you know they say well it helps us it helps us keep it kind of under our umbrella and it helps us keep it safe from people that will come in and we'll just wreck the deal and that is absolutely true I mean there are I can't tell you how many times we've had a deal that is it's a great deal and this deal is gonna make and I'm not worried about it you know I'm thinking oh doctor or buyer loves the seller, seller loves the buyer we're on easy street we're gonna cruise through and typically where I see it happen more than anything is when another attorney comes in that doesn't know has never done a dental deal doesn't know the industry at all and has done you know domestic work or or some kind of in court defense work and they've never done a deal like this before and they get in and it's usually the sellers brother-in-law or cousin is twice removed that's also an attorney and they're gonna come in and and help them do the deal and it's not that we don't want them to be represented because I always won't know the party to be representative I want somebody there because that takes a little bit off our plate be honest with you to have somebody on the other side but when we get those people that don't know it and they come in and what they'll do is they'll negotiate every single point and what I can tell you about the law practice within dentistry is that we kind of know how deals happen. You know we know that the industry has helped us carve over time that there are there's a pathway to get a buyer and a seller together and to get the transaction done and we know where the negotiating points are within that pathway and we what is just accepted because it's been done forever it's just the way we do it but when those people come in that don't necessarily know the industry they'll negotiate those the outside points and when we then have to negotiate and go back and tell them we don't really negotiate those they're just there we lose a lot of our negotiating muscle because we're wasting it on these things that don't even need to be negotiated. So the biggest threat to a deal in my mind is somebody coming in and advising a buyer or a seller that really has to know I deal with they're advising them to and it sounds great I mean it's really hard to argue against because an attorney is gonna show their client that I say look at all these red lines I made you know they bled all over the page and there's ink just flying everywhere and they say you know look what I'm doing for you I've clocked in 37 hours in the past two days working on your document but when it comes down to it all of those things were really did not go to the end of getting the transaction done and and representing your client in a way that is meaningful in the deal. So yeah going back do I understand why some people push dule rep well sure I understand why they do it to protect the deal but at the end of the day I would I wouldn't I just don't dude or rep their work or solo and what I do tell the parties is we tell a buyer listen you know if you get an attorney that comes in and has never done this before and is new that's fine you can pick that attorney but you just need to know that it may have some ramifications on the deal and most the time they don't I mean again occasionally we'll get people that just don't have a clue they'll come in and they'll just shoot the deal dead four times but.
Howard: I just emailed you my column last month and I wish you'd comment after it really had a lot of comments I'm stay in your own lane. I just want to summarize where I see everything go bad I tell the dentist, stay in your own lane you're a trained dentist you're not an attorney you don't you haven't seen a hundred deals and and then they go pay they're so they're so cute they're adorable I say well why did you pick this attorney oh he's goes to the same Ward as me. well would you rather have a guy who only does dental or a guy goes to the same ward as you, it's cute I love it it sounds right but they'll do things like they'll buy a... Isaw this where a dentist just cried he bought a practice by himself no attorney he's in this huge shopping centre turned out the roof starts leaking he's in a triple net lease the lady next to him is a yoga studio so she just says screwed declares bankruptcy she it's a hobby this guy had to fix the roof of an entire Center and I'm like well did your practice broker. Other people they'll buy a practice they don't know that the lease expires in two years and that the the big-box retailer the big Kroger grocery store wants to knock out that whole wing and expand their grocery store and there's all the and I'm like well what dental classes educated you for this I mean I thought we were taking tooth morphology I didn't know that we were taking how to negotiate a room. So my article is stay in your own lane I wish you would give some examples as I call him but but doc you're a Doctor of Dental Surgery you weren't trained in anything else and here you have a guy sitting here that's been looking at these deals for a you know 15 years and you're a baby you just got out of dental kindergarten school and you just think you know it all I mean stay in your own lane the number one rule of legal, the Devils in the details.
Joseph: Absolutely and there are so many that I mean again out of it sales not to Pat myself on the back or Pat anyone our industry in the back but there are a lot of things that you don't know you what you don't know so you don't know what to negotiate and what not to negotiate is generally those things that you don't know not to that cause issues later so absolutely I mean I'm not going to jump in and do my own root canal but we do see a lot of people that do their own employment agreements that's really where I see it being philippic is employment agreements, we'll get them in there you know copy and paste it and in about 12 different font styles and so we know they've been pieced together and there are generally a lot of things missing and we have to go back and help rebuild it back to a cohesive document that works and you know can it be done yeah but it almost always takes more time to do it that way than a would have if we had just been contacted to begin with but I think a lot of people have the fear of the fee and they're afraid they're gonna call us and we're gonna get on the phone and the clock's ticking and the dollars are flying out their wallet while they're talking to us but I can tell you a lot of people a lot of attorneys in the industry that we work with and you know we know well because we're across the table from them they it's generally a flat fee or it might be an hourly fee but they're generally not charging every two seconds they're on the phone and that's just because again having experience in the industry you know what works and what doesn't work so yeah it it's great when we can be involved and it's great when we're involved early we get a question when should I call you should I wait till after we made the offer or or when we found something well I mean cost as early as you want cause I would much rather be involved early on then to come in later and to have to undo something that's been done and it easily just could have been avoided to begin with.
Howard: Two more questions and I'll let you go, you know it's about partnership versus marriage divorce. I mean you know you go into marriage with all the great reasons and they sell half the time a lot of dentists decide you know why I'm gonna buy this practice my best friend Julie we were drinking buddies all through school we're gonna buy this together do you think marriage success rate versus divorce partnership success rate or do you think they're the same, I mean what do you think?
Joseph: I think that's a good question I think if the two doctors got together and bought a practice because they were good drinking buddies and yeah I think it's probably the same as a divorce rate. Partnerships are difficult because you're spending more time with your partner that you probably are your spouse and that's just the you know the fact of the matter. So going in and being very clear and making an informed decision about who you're getting into ownership with is drastically important so sometimes does it make sense to share the burden to have multiple doctors into practice absolutely you only you know once you get to those top tier practices that are just really running efficiently and really working well it's a lot of times it's multi doctor it's a partnership that has produced that level of practice. So on the one hand do they work yes and can they work very well yes they can but they take a heck of a lot more work than a solo practice does and just owning and running it yourself because you have two highly educated people like you said highly educated people that are together that are trying to make these same decisions not upset their partner still be on that that same level but maybe you have a different idea or you want to grow this way and they want to grow that way then it easily becomes a dispute that has to be resolved and sometimes it's just sitting down and having a conversation that resolves that dispute but it can also turn into litigation that resolves that dispute and partnerships are there not simple things so I'm gonna say they're simple to put together they're actually not they're pretty complicated but once they're together they're a heck of a lot harder to take apart once they're together and you're trying to get back out of it if it didn't work out. So I think one of the heaviest decisions a practitioner can make in today's legal industry in dentistry is whether to take on a partner or not whether to go in and to equally yolk yourself with someone and try to run this practice together or day to day and be together I think it's tough. I think a lot of people go into it not slip Utley but go into it maybe not thinking or putting as much thought into it as they really should and then they find out there maybe their personalities were not as well matched as they thought they were.
Howard: There's a hundred dentist on dentaltown who have posted nightmares that the divorce with their dentist partner was twice as bad as a divorce with their spouse.
Joseph: I can tell you hands down honestly Howard the worst thing that I have done as an attorney ever was dissolve a partnership, it was unbelievable.
Howard: You tell them you tell them a million times don't get married without a prenuptial agreement and I don't I still don't think I've met a dentist I got a prenup before they got married that's how emotional that decision is and I say okay well I get it with your lover because you're lovers you're gonna have kids and dogs and cats but you're not sleeping with this dentist if you don't get a prenuptial agreement and a contract and a conflict resolution and what's the exit strategy and because when it goes nuclear with no contract no prenuptial oh my god it can go for years. I know dentists who tied it up in court for four or five years they spent more on attorneys fees than the divorce. Final question, this is something I really wonder about a lot you're buying a practice let's just say would you agree that the average practice you see for sale is a solo for 750, okay so what 750/50 what is that?
Joseph: I dont know I'll tell ya got my trusty calculator here 75050 15,000.
Howard: Well 750 divided by 50 would be 15 so yeah okay 750 thousand divided by 50,000. So you're buying a $750,000 practice for just one 15th that price you could also sign up a $50,000 practice management consultant to hold your hand the whole first years systems in place everything this dental practice I always say got for just one fifteenth extra price even if it was wouldn't you know so my question is do you think if you're gonna go all the way to the dance you might as well buy a dress and some shoes and get a consultant for the first year, do you think that adds to success or not really?
Joseph: Yeah absolutely I really think it does I believe in practice management I think learning from other people's mistakes is a very real thing and if you can do it then you're you're doing your job as a business owner so yeah and I think there are a lot of lenders that share that because they will actually finance the practice management side of it for the first year or two years or whatever it is if again if it's rolled into the loan and the ownership model and all that but yeah absolutely like the idea of it. I mean at the end of the day spent the money it was an investment your practice you're gonna get something from it there's gonna be some good thing that comes from that practice management side of it and having somebody there to tell you don't do that do this do, do it this way as opposed to this way here's why I think is easily worth it.
Howard: Any names you recommend?
Joseph: Their are a lot of good ones out there out and I'll let people make their own decisions.
Howard: Okay go to dentaltown, we have we have what we have a bunch of forums on dentaltown and one of them is called Octus transitions and it's broken up into associates corner future planning general discussions life after dentistry that's a really neat thread partnerships of associates practice acquisitions practice sells practice startups retirement planning retired and soon-to-be retirement dentists forums. So his website is JPA transitions and J just so they remember this was driving JPS for Jordan practice advisors so JPAdentaltransitions.com seriously Joe it was such an honor for you to come on the show I talk to my homies thank you so much.
Joseph: Howard it was a pleasure.
Howard: and I get that little girl on dads pictures because when she sees that your going to be in trouble.
Joseph: Don't worry she'll be coming up.
Howard: Alright have a great day