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VIDEO - DUwHF #723 - David Cohen
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AUDIO - DUwHF #723 - David Cohen
David Cohen, owner of Cohen Law Firm, PLLC, specializes in helping dentists and specialists with their legal business transactional needs, including practice purchases, sales, partnerships, associateships and business structuring and formation. He speaks extensively to dental audiences across the country on these topics. Cohen Law Firm serves clients nationally and understands the unique nature of the law as it relates to dentistry.
Howard Farran: And it's just a huge honor for me today to be podcast interviewing David S. Cohen with Cohen Law Firm. It's www.cohenlawfirmpllc.com. David Cohen is the owner of Cohen Law Firm specializing in helping dentists and specialists with their legal business transactional needs including practices, sales partnerships, associates, and business structuring and formation. He speaks extensively to dental audiences across the country on these topics. Cohen Law Firm serves clients nationally and understands the unique nature of the laws that relates to dentistry. My interest ... Well, there's so many questions I could ask you. Did you block out a whole hour for me?
David S. Cohen: Absolutely.
Howard Farran: God, there's so many questions. I mean, the kids that come outta dental school and they don't even go look at practices cause they think I got $350,000 in student loans, no ones gonna want to loan me a dime. Then you got all these old guys who think they're gonna sell their office for a million dollars and live off that for retirement and then when they go to sell it, they find out that's high in the sky. What is your typical bread and butter case? Who's calling you mostly for what? I do root canals, fillings, crowns, what are you mostly doing?
David S. Cohen: What I'm mostly doing is practice transitions. I'm helping doctors buy and sell practices and partner together, drafting the contracts, or reviewing the contracts in connection with the transactions.
Howard Farran: Okay. A lot of dentists are confused because way back in the day when I got outta school, the biggest practice broker transition deal was Allen F. Thornburg and his company was Afco. And he recommended dual representation. And then a lot of people on the message board said, "Well, if they're representing the buyer and the seller, who are they representing?" So when you said you help people buy and sell practices, are you representing buyers and sellers or do you recommend just representing the buyer or the seller?
David S. Cohen: My recommendation is to represent the buyer or the seller. I don't do dual representations. On very limited circumstances I will do a dual representation when it's a father, son transaction. They'll have to sign a waiver of a conflict of interest but it is a conflict of interest that needs to be disclosed. It's very rare that I do that. I do represent one side in the transaction whether it's the buyer or the seller.
Howard Farran: Yeah. I'm trying to get Ryan to buy my car for $400,000 and he won't pay. Ryan, it's worth it. It's worth is. So are you mostly representing old guys like me selling their practice or young kids coming out of school buying one?
David S. Cohen: I'm representing both and I'm also representing a lot of experienced doctors that own practices that are gonna acquire additional locations that may buy other practices to add to what they have. So really, a diverse aray of doctors.
Howard Farran: Now, when you say add to what they have, you mean a merger acquisition where the old man across the street's gonna retire and instead of letting some 30 year old, high energy kid come in and buy it and crush it for 30 years, you just buy the practice, roll the charts into your office and typical merger and acquisition or are you talking about dentists who say, "Well, I'm in the south side of town, I'll have better scales of economy if I had one on the north, the east, and west and then kinda have a layer of management? Which one?
David S. Cohen: A little bit of both. Some doctors decide hey, I'm just gonna buy the records from across the street, bring them over to my office. I just finished a transaction today doing exactly that. Other doctors decide that they want to expand what they're doing and they want to bring in partners and have other practice locations, identify other locations across town or in other places in the state where they may have another location to have more options and bring in associates to own those practices.
Howard Farran: When you ...
David S. Cohen: Miniature VSO for the doctors can have for themselves.
Howard Farran: When you are doing these deals where they're buying the charts and rolling them into an existing ... Because M and A activity is huge on Wall Street and I've always thought our little cottage industry needs to follow Wall Street. And every time I meet a dentist, I mean every time, if there at the three to four million mark what they've done is when every old guy within five miles of their practice has retired over the last 40 years, they brought the practice, rolled in the charts. But I want to put things into perspective, when these guys buy those charts and roll it in, what is the average price that they're paying per chart? Because they can look at their own marketing and say, well, with Google ads and Facebook ads and direct mail and Yellow Pages, billboards, they might be paying $150 a new patient for an acquisition cost.
David S. Cohen: It's tough for me to say the average price that a chart is being bought for because it can vary. In fact, I just had a transaction we finished today where it was pretty rare it wasn't a price per chart it was actually a flat fixed purchase price. I typically recommend paying per chart because that's really what you're buying. And you're buying the fact these patients are gonna come over to your office and if they don't then it's really not worth anything to you. I do recommend the model where you perhaps some money upfront as good faith and then because obviously the buyer has some culpability and accountability as well to ensure that those patients do come to their office and they're treated well. But it's a huge accountability factor as well for the seller to ensure that they transfer the good will and get those patients over to the other office. I typically see, I would say, maybe a $100 per chart but it can really ... It's hard for me to say in average because it can vary significantly based upon the specialty and based upon the circumstances that they're dealing with the seller.
Howard Farran: Well, everything in business is supply and demand and I can't tell you how insane it is when you go into these small towns and they've got 10,000 people, they've got 10 dentists and the old man's retiring. If the other 9 buys it, now you've gone from 10 offices to 9. And when you sell ... I look at the energy I had. I got outta Dental School at 24. My God, I was bouncing off the walls for ten years. I worked seven a.m. to seven p.m., Monday through Saturday and wasn't tired. Sometimes we'd get ready to leave at seven and a toothache would walk in and I'd do a root canal build up and crown from 7 to 9:30. Nobody 50 or 60 years old is going to do that. So M and A activity, in fact, you should write an article for Dental Times sometime explaining the advantages of M and A activity.
I want to ask you another question, when you're putting partners together, not to dis you or disrespect you, but it seems like people who are making money, putting together partnerships talk about them like they're great, but the bottom line is marriage. When you get married, you have sex, children, holidays, and that fails half the time. Why would anybody want to marry a male dentist that they don't have sex with or have children with? Isn't that just a bad idea right out of the gate?
David S. Cohen: Well, I think it's a bad idea for some people and I think it's a great idea for other people. And obviously the advantages are when you do have a partner, you increase production but decrease the overhead because you share that and so that also can help make money obviously. You also have different specialties sometimes combining with each other like peodortho which can be very successful. But really, a partnership and it's success, I think really depends on the partners themselves and the personalities in the relationships. A lot of people have a misconception that partnerships fail because of money. And I don't see that quite as often, I see partnerships fail because the personalities conflict. And so I often recommend personality testing going into a partnership to begin with and also having very good legal documents to outline the relationship between the parties moving forward because you gotta get into the deal, you have to operate through the deal, and you have to get outta the deal. There's three key phases and if you don't thoroughly govern all three of the phases in the contract, there could be issues.
Now, granted the best partnerships ever are those where people don't ever pick up the contracts ever again. They sign it, never pick it up because the relationship is so solid, there's no need to. The people understand each other but if you have to go back to that contract, God forbid, then it's important to have everything thoroughly outlined. How you're gonna split the money, how you're gonna split the costs, management decision making, and then how you get out of the deal like death, disability, disagreement, retirement, default. It's really important to have a good agreement in place but it can be successful if the relationships are right. But some people are just not wired or made for partnerships and that's okay. I think it works for some and not for others.
Howard Farran: You said there were three parts of that contract?
David S. Cohen: Three parts, three phases of a partnership which is getting into the deal which often consists of either one person buying into the other person's practice. It can be a merger where doctors decide they're gonna merge their practices. And it can just be a startup of doctors together. Now startups have a little bit more of a failure rate in my personal experience because often times those partners haven't worked together before maybe they don't undergo the personality testing, etcetera. But those are the three main ways to get in. Most often I see getting in being through a purchase such as an associate buying in to the practice that they're working.
And then once you get through phase one of getting into the deal, you then get to phase two which is operation through the deal. And operation through the deal mainly consists of how everyone is splitting the money and the costs, how management decisions are being made and transfer of interest. Are there restrictions on whether a party can transfer their interests or not? And there are many different ways to do that.
And then getting outta the deal, is critical and it's probably the most non governed area or non thoroughly governed area that there is. And that's the most important because everybody gets out of a deal. They either retire or they God forbid, die or God forbid, become disabled, or God forbid have a disagreement with their partner or God forbid have a default. Now of course, four out of those five, 80% of those are God forbid you never want to get involved with but you have to govern those areas because everybody gets out of a deal. Those are the three phases. And obviously, I do lectures and I go into more detail on that but I also don't want to do an entire legal thesis right now.
Howard Farran: We'll do the thesis. You're ... I'd listen to you all day long. My job is to guess the questions, right? So I've been on Dental Town everyday since 1998. They young kids some of the things they're always talking about so I come work for you. I come work for David Cohen and you're paying me 25% and you're doing a half million dollars a year. I work for you for three or four years, build this thing up for a million and then when he goes to sell it to me, now he's saying it's worth a million dollars. And was like dude, it was worth 500,000 when you hired me. So it's kinda like they graduate school, they go in the kitchen, and they make this big ole pie and then they have to pay for it. Agree or disagree?
David S. Cohen: I agree to a degree. I think there's arguments on both sides. The established doctor is going to argue that anybody can come in and do dental work but the business is based on getting business and getting out in the community, having relationships, having good will, and bringing in the business. So even though a doctor may come in as an associate and contribute to the value of the practice because they are producing, they are hired and they are paid to produce. They're paid the 25% and that's their job is to produce but that's something that they could get somebody else in there to also do. Bringing in the business is where the business is. That's what the established doctor that would be selling would argue.
Now on the flip side of that, if the younger doctor that's buying in is actually marketing and help bring in patients, they may have a better argument to say they have contributed to the appreciated value of the practice. The seller may argue in that instance well a lot of that was based upon the good will that I have of my practice that has allowed you to go out with a good name and get and help market and again, I've been paying you to market. So it is a delicate territory. I think there's arguments to be made on both sides. I will say that I don't think it's as cut and dry for the younger docs to simply say the practice is now worth more because I've been producing because there's a lot more that goes into it. And what I do lecture at the schools, I do speak on that because I think it's important that the people coming out of school have a realistic view of what they're getting into. Again, not to say that their work and contributions don't contribute to that, and there can be great dental CPA's are out there that can help create formulas to find what's fair both there are certainly both sides of the claim there.
Howard Farran: So podcasting is killing radio. Most everyone that emails me howardatdentaltown.com tell me ... They all say the same thing. [inaudible 00:14:56] commute to work, it's an hour long or they're on a treadmill, and they're ... When you're talking to these kids, if I'm working for an old man right now and I've been working there a year and he's telling me that the plan is when I retire, I'm selling it to you. At what point in that relationship should they call you and start getting some type of legal advice even though it might be two or three years away? The typical case is he's somewhere between 58 and 62 and they always say they're gonna retire at 65.
David S. Cohen: So from my standpoint ... I can't speak for others but from my standpoint, I became an attorney to help people. I have no issues ... I wouldn't ... When people come out of school or they're younger or they've been working in the field for a bit and have a plan to potentially buy something and do something in a couple years, an endeavor, it's never too early to start talking. Really, the work comes in when the legal documents are produced for a lawyer, to say okay, now we're gonna review a letter of intent or now we're gonna review purchase documents and partnership agreements but it's really never too early for me to chat with someone and just bounce ideas off of them and tell them what options may be out there. So it's never too early would be the answer for me.
Howard Farran: Okay. This is dentistry uncensored so I get more brutal. How much would it cost to call you? You say it's never too early, a lot of people are afraid to talk to a lawyer.
David S. Cohen: Yeah, great question. And what I alluded to when I was saying I did this to help people, I don't charge people to call me and have a brief conversation that says here's who I am. Introduce themselves and let's talk for a few minutes about what your plans are and then here's how you may be able to do something or this may be a good idea for you in your circumstance. Let's continue to chat about this down the road. And then if it's a good fit, then certainly we can start chatting and if we're getting into some work, then I would charge them legal fees. But initially, I'm here to help and be a resource and I don't typically charge people to just give a chat before we get going on things.
Howard Farran: So if you're on ... So they're driving so I'm trying to remember notes so a lot of people just follow me on Twitter. So I'm on Twitter, David Cohen is at dcohenlawfirm and I just retweeted his last tweet "Happy first day of autumn. Time to get back to business. Starting a new dental practice. Let's talk, Cohen Law Firm." So I just retweeted that if you want to get to work and find the contact there. But I'm on your website right now, Cohen Law Firm PLLC. What's the PLLC stand for? Professional liability corporation?
David S. Cohen: Close, professional limited liability company.
Howard Farran: Okay. What do my homies find if they go to Cohen Law Firm PLLC, Professional Limited Liability Corporation? Cohen Law Firm PLLC. What are my homies going to find there? Is that a good way ... I see your phone number. You got a phone number for Dallas and Seattle. I see your kind of fighting internally between being a Seahawks fan or a Dallas Cowboy fan. Your just trying to find yourself. Which NFL team do you worship?
David S. Cohen: I worship the Seattle Seahawks. That's where I'm originally from and so as you mentioned, have an office up there and continued ties up there. Definitely a Seattle Seahawks fan but I do love sports and I love checking out the Dallas scene as well.
Howard Farran: Well, you're six foot, four and played basketball in college, so you're a Dallas Mavericks fan and what's that guy's name? Who's the owner of the ...
David S. Cohen: Mark Hubin.
Howard Farran: Mark Hubin. Is he your idol since you played college basketball? Did you try to talk to him to let him let you play for the Mavericks?
David S. Cohen: No. The glory days are over for me, too many broken bones. But I love basketball. I have tickets to the Maverick games and enjoy going. I wouldn't clarify them as my team. Seattle was always my team and I'm still holding out that hope they get a team back up there. I know people are working hard in the northwest to try to get a team up there. But I love the game and I love attending games.
Howard Farran: You know what, I love Mark Hubin because I wish dentists would watch [inaudible 00:19:42]. I get dentistry. I totally get it. Extracting a wisdom tooth, doing dentistry is so fun and they just don't want to do the business. They didn't go to business school, they didn't go to law school, they went to dental school. They want to be a surgeon, they want to work with their hands on people. But like Hubin on Shark Tank, first question he'd ask is what is your new customer acquisition cost? What's it cost you to find a new customer? Almost every question they ask in Shark Tank, dentists are just looking at you like a deer in headlight and it's like I just wish dentists ...
In fact, someone needs to write an article of the most common questions asked on Shark Tank that every dentist should answer. And one of the things Hubin is always saying is what are you gonna do with the money? And these kids are saying, well Howard, should I do a denovo practice or should I start one up and then if I do a denovo, since I'm in a practice in the same place from age 25 to 65, 40 years, wouldn't I be a fool to pay rent? So if I'm going to do a denovo, should I do land building, start a practice? I know that's like five questions at once but I'm sure you're a lawyer so you can remember them all. Denovo or buy? And even if it's Denovo or buying, do I want to buy the real estate? Some people say I don't want the real estate. What's your thoughts on all those questions? So my questions are so horrible, I ask like 10 so maybe one of them is good enough that you'll bite on it.
David S. Cohen: No worries. I'm happy to answer them. The ones that I can remember and if I didn't, you can obviously prompt me. There is a dilemma with doctors as to whether to start a denovo or buy a practice. And I'm seen some really successful situations where doctors will buy a practice and save 2, 300,000 dollar range where it is essentially a denovo. There are issues with the practice so to speak, or maybe there isn't a whole lot of good will, but they're able to still have some equipment which may be good or they're able to have some good will and some patient flow that's already there. They can't do a startup for less than $300,000 usually. You can get a practice that has a lot of promise that you buy low with ultimately sell high and buy that practice and now you've got patients and you have some other things in place, that can be a real sweet spot and an ideal situation. Obviously, depending on the geography. A denovo is great as well. Obviously, the biggest issue is building good will in the community to get patients in there. And so it's really important to understand where you're doing that and whether it's a good situation and good place to get a lot of patient flow.
I just had a conversation with somebody who was looking to potentially do a startup in the Frisco area of Texas and according to them in the Frisco area of Texas, there is just so much concentration, it was going to be difficult in their mind to do a startup because of getting the patients in there and all the other options that were immediately surrounding that. And so I think whether to do the startup or whether to do the purchase, often times depends on the good will and your ability to get patients in there. As far as the real estate is concerned, like you said, if someone's going to own this practice for a significant amount of time, if the deal is right and they can buy the building, I think that's a great idea. Often times, banks will only lend so much. Sometimes, they won't lend enough for a doctor, particularly someone right out of school to do the building and the practice both at the same time. And sometimes they will, a lot of factors come into that, the person's credit, all that kind of stuff.
I guess to summarize everything in the most lawyerly way that I unintentionally did this but it depends on the circumstance. And that's your typical lawyer answer but I really think it's true. I do find that people are finding a niche in these practices they can buy for maybe a 100, 200,000 where it's less than even a startup and yet they still have some patient flow and they have a start. And they can if they feel like there's a lot of potential, it can grow it significantly.
Howard Farran: An immediate stress that I get emailed fairly regularly and I see on Dental Town is let's say I want to go to Frisco, because I wasn't smart enough to go to San Francisco. No, I'm just kidding. Where is Frisco by the way? Is that a suburb of Dallas?
David S. Cohen: Frisco, yeah. It's about 30 minutes north of Dallas.
Howard Farran: Okay, let's say that I was born and raised in Frisco and I really want to live there. When I came out of school, I looked for a job in Frisco. And so I find this nice guy name David Cohen and I want to work for him and then all of a sudden he slides out a piece of paper saying you work for me, you gotta sign a non compete clause and if you ever leave my practice, you cannot work in Frisco or you can't work within five miles of my practice for two years. What do you say? Do those hold up in court? Should you have a lawyer look at those before you sign that? I know that the boundary is totally different in a real rural area versus downtown Manhattan where you might have 10,000 people living on every city block. But what would you say to her if she stressed out because she's trying to get a job and they want her to sign a non compete clause?
David S. Cohen: So the first thing that I would say is yes, absolutely the document should be reviewed by legal council because not only does it govern the non compete, but it also governs other restricted areas such as protection of intellectual property, confidentiality. There's often contracts that are drafter that say that any works made by that ... Or inventions or discoveries by a doctor during the course of their employment belong to the employer. And so it's important to review that. Also, all the material terms of the deal, the schedule. The schedule is critical cause when you speak of a non compete, if they're only getting three days a week, they probably need to work some where else. And so if they're restricted, that can be a really big problem. Parts of the contract link to others. So schedule is critical. The pay. Be clear about the pay and knowing if its based on collections, what that actually consists of and when that will paid. Particularly when a contract terminates, cause the associates don't get their collections after termination in terms of work they did prior to the contract terminating, a lot of the corporate dental groups out there will have clauses in their contract that say no. Once you stop, you stop. So it's important to have it reviewed for those reasons.
But going back to the non compete, which was your original question, the non compete does differ from state to state. Every state has their own standard on non competes. And in most states, non competes are enforceable as long as the parameters of the non compete comply with the law. And in most states, there's a reasonability standard that says the parameters have to be the smallest that can legitimately protect the employer without prejudice to the employee. And obviously in English, that has to be reasonable based upon the circumstances. So in your example, one mile in New York City can be significant whereas one mile in rural Arizona could be nothing. So it does depend on the circumstance and then you do have some states that are very tough on non competes and do have exceptions such as if someone sells good will in a practice, often times in those tough states non competes can be enforceable but for an associateship, often times, they're not at all. In certain states like California and Colorado, just as examples, are very difficult on non competes for associates. And that's just because states just don't like restraint on trade. They don't like saying so and so you can't go make a living somewhere.
So the non compete does vary from state to state. My recommendation often, if you're in a state where non competes are enforceable for an associate, let's say it's in Frisco, that they grew up there, they want to be there. It is to perhaps have a clause that says for the first three months, four months if things don't work out, the non compete is non applicable because I won't build up enough good will in your practice to hurt you, yet if you fire me on day two and I didn't build up any good will here, I have all these restrictions. And so that's one solution for people. But non competes can be enforceable and it just depends on if they meet the parameters of what the law says in the state that they're in.
Howard Farran: I get this question a lot where they say I really want to get a job and I got $350,000 in student loans. They're upset with their parents for them not being rich and paying for their dental school and so now they got student loans. They can't sue their parents for being poor and they really want this job at corporate. And they say here's the employee agreement, sign it. And they say, well should I least review this and they go we have 50 offices, there's no negotiation. Sign that. Is that generally true? Cause I get conflicting deals. I see head hunters emailing me all the time saying they'll pay me $2,000 if I find a dentist that will go to anyone of these ten locations. The classified ads on Dental Town have exploded and in fact, on the Dental Town app, the next update is gonna put the classifieds on the iPhone and the smartphone because we have like 6,000 ads. And the ads are like half of them are people looking for an associate. Half of them are I'm looking for a job and then you got all the practices for sale. I kinda call bull shit that this contracts non negotiable. The whole thing is non negotiable yet you're paying people $2,000 for a finders fee to find a dentist. What are you seeing in the real world?
David S. Cohen: Well, like you mentioned, a lot of the corporate contracts are not as negotiable because ... And in those circumstances, that's because they have 10, 20, 30, people lined and if you don't want to take it, too bad. They'll go on to the next. Other contracts are negotiable. Really negotiability is based upon leverage. And if it's a practice that really wants you, then you're gonna have more leverage than if they say I've got 30 different people lined up and if it ain't you, it's gonna be the next person. We don't really care. I think that ... I do find that the more corporate groups do negotiate much less. And maybe because they don't want to set up a slippery slope where they make an exception for one person, they have to do it for others. I don't know the rationality, depends on the group. I do think it's true in some circumstances that associates are handed agreements and they say sign this or not. And associates have to be very careful when they see those agreements because there can be things as gregarious as massive penalties if you want to voluntarily get out of a deal. There could be massive restrictions on non competes, which could be encompassing mileage from every location that these corporate groups have, even those that the associate doesn't work at which is completely unreasonable and most of the time in most states, they wouldn't even be enforceable.
But the problem with enforceability, there's a legal reality and then there's a practical reality. And the legal reality is the parameters may not be enforceable but the practical reality is if an associate violates it, that employer is probably gonna come after them. And if they come after them right or wrong, that associate who probably has debt coming out of school, etcetera, they're not gonna ... It's not in their best interest to hire an attorney, to pay a bunch of fees to defend that, those claims that are being brought by the employer. Realistically from a practical standpoint, you want to make sure that you get those documents reviewed and know what you're getting into. And if you decide that you just have to sign on to one of these agreements, the money is too good, it helps you pay off the debt, then there are strings attached that come with it. And often times, those could be penalties, egregious non competes, etcetera.
Howard Farran: Does your law firm actively find the practices and list them or do these ... Or are you independent? Are you like promoting practices for sale and market advertises?
David S. Cohen: No. My law firm does not perform brokerage services. We're strictly a law firm. So we help doctors that are locating a practice. We help them buy that practice with the documents to effectuate that purchase ...
Howard Farran: So a practice broker is completely different than the legal law firm?
David S. Cohen: Correct, exactly. There are some brokers that happen to be attorneys but we are strictly a law firm like I mentioned to you, we do not do dual representation. And most in all cases, we strictly preform legal work for people that are entering into transactions.
Howard Farran: What is the typical practice brokers commission? Like if you sell a house in Phoenix, the typical commission is what, 7%? Or what is the typical real estate agents commission versus a practice brokers commission?
David S. Cohen: I typically see in real estate about a 6% commission, which is often typically split between buyers broker, and sellers broker at 3% each. That's kind of the traditional model. But in practical sales, usually there's a broker on the seller side, there's not typically a broker on the buyer side. There can be but it's pretty rare that I see brokers on both sides. And the broker fee is typically paid by the seller. There are some groups out there that do try to do dual representation and will take a fee from both sides. To me, that's a conflict of interest. As long as that's disclosed and the client is okay with that, then that's something they can move forward with, otherwise, it's a problem if it's not legally disclosed. It is a conflict of interest. Those brokers typically charge ... I've seen anywhere between 5 and 10% of the sale price and that is charged to the seller client. But that's the range of fees that I'm typically seeing when I see broker fees.
Howard Farran: And I mean you're a well connected man, you've been doing this a long time. Right now today, is it a buyer market or a seller's market? Where's the supply and demand curve right now?
David S. Cohen: I mostly see this as a seller's market. Obviously, there are exceptions. Every area of the country is different in geographies and if you're in the middle of nowhere, it may be tougher to sell a practice and it could be a buyer's market but for the most part, I'm seeing this as a seller's market. In fact, we have clients all over the country and we do transactions all over the country, and when we do in most of the more metropolitan areas, if a buyer isn't quick to accept terms on a letter of content, a lot of times it's gone because it is a seller's market. There's a lot of demand and the seller takes the best offer and runs.
Howard Farran: And in real estate right now ... I don't know the Dallas market. But a three bedroom two house is the middle market. And you list those in Phoenix, they're gone in a day. Whereas once you get over a million dollars, you kinda got liquid asset and every home in Phoenix that's over a million dollars ... A lot of them can sit there for years. What is the three bedroom, two bath house in a dental practice, in the sweet spot, and what is so big it's kinda an liquid asset?
David S. Cohen: That's a great question. I think that question often times depends on the threshold of what banks are willing to loan. I find that ... It's not impossible. But I'm finding that doctors have more of a difficult time getting loans for practices that are in excess of 1.5 million or even over the one million dollar range. It doesn't mean it's impossible it's just banks in their risk management often ... It's more difficult for them to get the loans. If it's more difficult to get the money over those monetary thresholds, than obviously it's gonna be more difficult for a seller to sell. And actually I've seen a lot of my clients ... The top ten, top five percentile, a lot of them have had issues with potentially with selling because their practice has a high value and those often look to the venture capital groups and the corporate groups to sell to because those often are the ones that have the capacity to make those purchases.
Howard Farran: I agree. Everybody that I know that was over two million, like two to four million, the only person they could sell to was Heartland. I mean Rick [inaudible 00:38:00] come in write you a check at lunch while you're eating a Subway sandwich but going after that graduation class with a two to four million dollar practice is not really gonna happen. I want to ask you the same question, as far as liquidity, rural versus urban. Sometimes you hear stories ... I have heard stories maybe one a year for the last 30 years where some guy's out in the middle of nowhere, nowhere Arkansas, New Mexico, Arizona, a town of 800 and after he listed it for three years, he retired at 65 and finally at 68 he had no buyers, they had no health and he just shut the doors and went home. How much more illiquid are rural practices than downtown Dallas, Phoenix, Seattle?
David S. Cohen: I don't know the direct answer to that question. I do know that the rural practices can be very successful. I think what I found with the rural practices is its more difficult to find somebody that wants to work in those practices. But if you can find someone that will work in those practices or if you can bring on a partner, I have clients that have decided there are going to expand. We talked at the beginning of this interview about certain people that have a practice but they want to buy additional locations. Well, one thing that I'm seeing is doctors that will have a practice and they'll bring in a partner to add a location that is willing to work at that location. There's less volatility because they're an actual partner. They're an owner. They're gonna be there. So the rural practice can actually be pretty successful because if you have someone that wants to be there and they're locked in there and they're committed, you often have a really large community to pull from even to 50 miles out cause there aren't that many practices that all could come to see you.
I've seen that side of it and I've also seen the rural practices that are less liquid that are not as successful as well. And a lot of that has to do with geography.
Howard Farran: This is May 23rd, so the dental schools are all graduation and if they call ... Who's gonna find them ... Who's gonna preapprove their credit? Is the practice broker gonna do that or do you do that? Can you hook them up with banks or is that something the practice broker does?
David S. Cohen: I have a lot of relationships with banks that I'm happy to provide contacts for people that have questions about that or want to connect with a bank. I'm always happy to provide recommendations just like you and being in the industry, we meet a lot of people and we have a lot of relationships and it's always great to connect them with relationships, with great people. Brokers can do that as well. Brokers are great at connecting people with banks. I don't think there's a wrong answer there. They can come to me, they can go to a broker, a CPA, a consultant who has relationships in connecting. I will say this, I think it's important to connect with banks that do dental loans because the banks that don't sometimes don't understand loans. They don't understand that dental loans are incredibly low risk and incredibly successful if they understand the full scope of it. I do think it's important to connect with banks that do, do dental loans and understand dental loans.
Howard Farran: I'm not smart enough to ask you the questions because I'm a dentist. I've been in dentistry. I never bought my practice. I did a denovo. I'm not interested in selling a practice. I'm gonna have my practice sold after the funeral, that's my exit strategy. Well did you see it today? I posted on social media in Dental Town, it was in Evansville, Indiana, they did a newspaper story on who they think is the oldest practicing dentist in the United States. He's 93. And I knew another guy, George Rouy, in St Jones, Missouri who practiced until he was 92 and I can't make this up. I was lecturing and LA and a 91 year old dentist came to my lecture and he's the only dentist who's a holocaust. He's from Auschwitz and he was so excited. At 90 years old, he decided to upgrade his two dimensional pano to a three dimensional CBCTD and he's already placed like 9 implants and he was talking about it so fast, I thought he was gonna hyperventilate. I'm like you're 90 years old and you sunk your first implant. And he's like hell yeah. And I said, "You need to write a book from Auschwitz to placing implants."
In your world, what questions am I not smart enough to ask? What do you think that the sellers, what are their common top mistakes or where they come to you and they realize that's not what they do for a living? And then the buyer? So ask yourself your own question since I'm really not in your space. I'm not in your market. We're the sellers, not thinking right and need to think about. And then they buyers, what are they not thinking of that they need to think about?
David S. Cohen: So unequivocally, the first thing that both buyer and sellers make mistakes on is not forming a team, thinking they can do things their selves. And there are two main reasons why it's not a good idea to not form a team and to do it yourself. Number one, a doctor typically doesn't have the requisite expertise in an area to do things themselves. And number two, even if they have the requisite expertise they don't have the time. They have to practice dentistry, they have to run a practice. And so it's really important to surround themselves with a team. And that team can consist of a lawyer to review or draft contracts, an accountant that can help with the numbers, consultants, bankers, insurance agents, form a team. That doesn't mean they have to hire a team of employees to do this. These are outsourced people that are there to help them with their team to make the right decisions. And delving deeper into it, once they find a team, sellers, their biggest mistake in my opinion, that are selling partnership interest is not getting the personality testing that I talked about earlier and making sure that it's a good fit because again, I think the biggest issue with partnership failings is the fact that the relationship crumbles.
Howard Farran: So how do you get a personality test? Is there one specific one you recommend?
David S. Cohen: There are sources out there that do personality testing. I have a couple that I can recommend. I don't have them in front of me but there are a couple recommendations that I can provide to do those personality tests. They're not necessarily the cheapest. They can be a couple grand but it's definitely worth ...
Howard Farran: So it's not an online test?
David S. Cohen: I don't think it's an online test. I think it's a pretty extensive process to make sure that the personalities do match. I've had ... It's not 100% right but it's right most of the time.
Howard Farran: What percent of the dentists take the test and find out that they don't have a personality?
David S. Cohen: I don't know the answer to that. But that they don't have a personality.
Howard Farran: That they don't have a personality.
David S. Cohen: Probably 99% but I'm just kidding.
Howard Farran: They are a different bunch because of natural selection. You can't get into dental school, med school, or law school unless you sat in a library while everyone else was in a frat, dating, having fun, going to parties, and I mean when I was at Clayton, it was the same people in libraries. All the pre med, pre dep, pre law. And then when you went back to the dorm all the communications majors and business majors were drunk. That was just ... I don't think I ever saw a business major study at Clayton like a pre dental, pre med, pre law. So you're getting a bunch of intense people that got A's in calculus, physics, and geometry. They're just intense people. You agree?
David S. Cohen: Yeah. I do think there's an intensity there but I think the personalities have to match. If someone's more intense, often times, opposites attract and the partners feed off each other and their personalities. Often times when you have two really strong personalities that clash, it doesn't always work out in the best way. But it can. But that's why it's important to get that testing to make sure that you optimize your chance of success. The biggest mistake that I see is that from a selling doctor and not forming a team as well. If they're just gonna sell their practice in totality and not bring in a partner, again, I would say the biggest mistake is not hiring a team. A lot of these sellers just have a broker representing them. And brokers are great and brokers have purpose but they're not attorneys and they will profess to not be attorneys. I do think that it's important that a seller get an attorney. I can't tell you how many deals I'm on where sellers don't have an attorney to accompany their broker. I do think that's important.
And from a buyer's perspective I also think it's important to have a council on their end to make sure that they are doing things the proper way. Often times they will want to save some money because maybe they're right outta school but a bad decision can take somebody back years. It can take years to recover if you make a mistake. So it's really important I think to surround yourself with a team, have an attorney review documents, have a CPA on your side. And I think those are probably the biggest mistakes.
Howard Farran: So ...
David S. Cohen: Real quick there, I just want to intervene. For whatever reason the plug on my computer is not working and it's about to die. I'm gonna grab a different charger for thirty seconds. I apologize.
Howard Farran: You want to do it now?
David S. Cohen: Yeah. I'm just gonna run and grab it.
Howard Farran: Yeah, no worries buddy.
David S. Cohen: We're set now. We're good to go.
Howard Farran: It was Allen ... I forgot the economist. It wasn't Allen Greenspan but they were talking about irrational exuberance. Is there any irrational exuberance on the side of the buyer and sellers? Do sellers think they're gonna get more money than they do? Do buyers think they're gonna get it for a less price? What are irrational expectations from the buyer's side versus the seller's sides that you have to deal with? Talk about it, educate my homies.
David S. Cohen: All right. Well I think the sellers ... There's a lot of emotion with the seller because often times the seller has operated their practice for a significant amount of time 20, 30, 40 years. And they've put their heart and soul into it. Obviously, they may place a higher value on the practice than maybe an evaluation says. And then buyers also may obviously think the opposite. You mentioned a great example earlier of a buyer who maybe was an associate in the practice and wants to claim that they added to the increase in value of the practice. And so the practice evaluation should be lesser. I've heard a saying by people that say that if the buyer's not happy and the seller's not happy with the evaluation, then they probably nailed it because it's down the middle somewhere of where they both accept it. If one party's ecstatic then usually one party is getting screwed. Obviously if there's a huge generality is not always the case. But I do think there is some delusion with that.
And also, when I lecture at the schools, I also find that the doctors are being told that they should have some sort of entitlement to ownership right when they come out of school in somebody's practices or they associate and they should automatically be guaranteed the offer to buy in at some point. And I think that's completely delusional because people right out of school that are going into a practice, how do they know that's somewhere they want to be? And how does the seller know that's someone they want to be with? If it's a partnership or to carry on their legacy if they're selling the whole practice. I know that people coming right out of school have an expectation that they want to own and they're entrepreneurial and that's great but it's also important for them to understand that it's okay to not be guaranteed before you're first day in an office even starts that you're gonna be able to buy that office. Those are things that I see that I think need to be more realistic.
Howard Farran: When in those schools tell me what you're sensing because ... I graduated 30 years ago this month. Today's May 23rd, I graduated May 11th, 30 years ago. And I know what you're thinking, I only look like I'm 28 but I'm actually 54. I'm a grandpa. They told all the girls in our class that they were only gonna practice 5 or 6 years, get married, have babies blah blah blah. And 30 years later, all them girls are still working. And those girls had monster practices. When I look at the only practices that were like one and half million or higher, it was almost all the girls that did that. No I'm hearing more girl ... I don't know what you call it, comments, sexism where they're saying that they just want to be a soccer mom. These girls want to go work at corporate, they don't want to be their on boss. They just want to leave at five o'clock and not worry about the business. They just want to go home and be a soccer mom. Is that what you're reading? What percent of the ...
When you're in these dental school classes, what percent of them kids are telling you no, I want to own my own place someday versus how many are telling you no, I do not want ... I don't know business, don't like business, I just want to be an employee the rest of my life. What are you feeling in the dental schools?
David S. Cohen: I'm feeling the majority of the people that I talk to want to own. The millennial generation is very entrepreneurial very business minded and that they want to have ownership. That's the sense that I get. Obviously, there are exceptions to that. But that's what I'm finding. But some of these corporate models are actually really good for a certain type of person because they can often associate for one of these corporate groups and then buy in with one of these corporate groups but still have the management preformed by that corporate group so that they have the ownership. They're maybe paid more than they would when they were an employee but they don't have to deal with the management of that side of the practice. I actually had a client recently who wanted to do somethings at home and be with her family and it was an actual perfect model for because she could be an owner but she didn't have to do all the things that came with ownership.
For some people, that is not a great model because they want to partake in that management. They want to control their own destiny and they want to run the practice.
Howard Farran: What percent are you seeing now? What percent say that I want to be an employee? What percent say I want to own someday?
David S. Cohen: I don't know exactly. If I had to estimate based upon my experience, I would say that 80% of the people that I come across want to own.
Howard Farran: Yeah. You were born and raised in Seattle, right?
David S. Cohen: Correct.
Howard Farran: And Jeff Besnos had the best talk ever. He said, "Nobody can predict the future so don't try to." But look back at the history of man for the last two million years and focus on what's not going to change. Homos apian doesn't want to share a cave with you. They don't like anybody controlling them. They don't like to be under anyone's thumb. That shits never gonna go away. When they go into college, they want their own dorm room. Even if they move ... Here's another reason I'm against partnerships, not only have I seen of them fail, but remember in college there'd be like two guys that were like best friends in the gym or on the basketball court and say, "Hey, let's room together." What is the fastest way to destroy a friendship in college? Go room with your best friend. I told all four of my boys if you go to college just do me a favor please don't room with your best friend cause he's your best friend because you've never lived with him. You don't know what he does with his towels and his clothes and ... He could be the biggest disaster and that's why you're probably saying the personality test is huge.
But I don't think homos apian changed or evolved in the last 30 years. So you keep hearing all these things that how different millennials are. Millennials aren't any different. They got the same chromosomes as their mom and dad and that animal behavior of I want my own farm. I ain't listening to you. Look at Americans. They hate checks and balances. They hate big government, they hate anyone telling them what to do but supposedly this person who is so ambitious, they went through 8 years of college now they just want to be an employee. I call bull shit on that from the word go. And the other thing that I call bull shit on is they sat they want to be a soccer mom. They just want to leave at five like every other place. You know what a real soccer mom is? A real soccer mom is when you get a call from the school saying your son just fell off a swing set and busted his face. She just tells the staff cancel all my patients and grabs her car keys and leaves. She don't want to ask the office manager or the regional director. That's just not how she rolls. I don't think a millennial is gonna be any different than their great grandparents on al the fundamental stuff that matters. That was a long rant.
You been so generous of your time. Are there any other issues you want to talk about? And by the way, on that personality test, they're driving to work. There's 50 categories on Dental Town. There's a quarter million dentists on Dental Town. 50,000 of them have the app. There's 50 categories. I'm trying to think where you should post this. A very active thread is Practice Transitions and under Practice Transitions the sub groups are Associates Corner, Future Planning General Discussions, Partnerships and Associates, Practice Acquisitions, Practice Sells, Practice Startups, Retirement Planning, Retired, and Soon to be Retired. Could you start a post with any of the things we're talking about because she's driving right now. Like that personality test or any lead or notes.
I know you've been a towny for a long time but you've never made a post yet. This would be your virgin post and then after that post, I'll post the podcast. And if you feel like you're embarrassed because you feel like you're promoting yourself, just say I just did a podcast with Howard and he made me do it. He wants me to post. Because she's driving to work and ... The first thing I was thinking about on that personality test is number one, you don't know who you're dealing with when you're buying a practice. They could be insane. And what's even more scary, talking about personality tests, is a lot of these, about one third of the class has a dentist in the family, mom, dad, uncle or whatever and a lot of them are going back to the family member. And that kinda makes it weird and creepy cause how do you go tell your dad ... How do you talk to him straight when you got a sit across the table with him at Sunday dinner or Thanksgiving? What do you recommend on that?
David S. Cohen: About ... I'm sorry. Can you ...
Howard Farran: Do you really think she should tell dad, "Dad I want you to take a personality test?"
David S. Cohen: Oh. Right. It often is not well received. And I know that there are circumstances where it has not been well received and the mentality there has been well maybe the person who wanted to propel the other person to have the personality test learned everything they needed to know by simply asking if the other would be willing to do that. Because if the other person would not be willing to, that may tell them well this really may not be someone that I want to work if they're not on the same page as me because this isn't a one way street. It's not just me figuring out if I should be working with you, it's you figuring out too if you should be working with me. If they're not amendable to doing that, it might tell that other person something. They may get their answer right there without having to spend money for the test.
Howard Farran: What if she's 25 and she has her old man take the test and it comes back and it says you have a border line personality disorder with a touch of history on narcissism?
David S. Cohen: Well I think when you have family situations ... Again, the personality tests are not 100% accurate and there are people that are out there that have not been compatible through those tests that have still had success by working together so it's not the only thing to look at. It's just something that should be in the arsenal.
Howard Farran: Well where I see that it's an issue is not the first 5 years, not the first 7, but say 10 or 15 years later, and one guy starts going to Panky, Coy, Spear. Joins the Seattle Study Club and wants to do this drop all the PPO and buy a CBCT and do all this high end stuff. The other persons more infatuated with Ikea, Southwest Airlines, Wal-Mart, Costco. The big market says no. We're 80% PPO's and we're going that ... You know what I mean? A direction of ... It's cool if two dentists and one says well I want to place implants and the other one says okay, I don't. Well, that's cool. And then I want to place in this line and the other guy doesn't. So when the associates expand the menu by doing different things, that's amazing. I've seen it that the problems 10, 20 years later of wanting to do different market segments of the same economy. Is that what you see or not?
David S. Cohen: Yeah. I do see a lot of that as well. Well, that was the fastest hour I've ever done. I think you're an amazing man. You're in Dallas. If you could drive over to Mark Hubin's house and tell him I want to podcast him, and tell Mark Hubin ... Ryan we need to do that. We need to Google and find the top questions asked on Shark Tank because I just think that would be ... Because every time you watch Shark Tank, I'm just sitting here thinking if a dentist was standing there saying, "Hey there, Mark Hubin. I want you to give me $750,000. I'm gonna buy a dental practice." Great. And then couldn't answer any question that you know Mark Hubin's gonna say, Mr. Wonderful is gonna say. They're all gonna ask the same dozen ... How many questions really are there? There's no that many. And it's tough because I love my homies. I love dentistry but they didn't go to business school. They didn't go to law school.
And I want to make one final comment before I let David go. And that is dentists seem to be kind of more of a know it all personality. And they'll go start a denovo and they'll go sign a 3,000 square foot lease for ten years and didn't have a professional read it. And there's all this stuff. You know that almost none of them read their PPO contract when they sign it. They they find out that you signed this PPO and now they have the right to start enrolling you into medicaid or medicare or some other thing. And then to get out of it, they need a written certified letter and then you're not out of it for like one year. They just ... Gosh darn it, you're a dentist. And when you graduate from dental school next week, they should say, "Congratulations you're a doctor of dental surgery. And you don't know shit about anything else." And what you were talking about is get a team. You need lawyers. You need a good CPA. You need bankers, you need insurance agents. Develop that team. So how do my homies contact you? They go to Cohenlawfirmpllc.com. Can they email you?
David S. Cohen: Yeah. I'd love to get emails. My email address is davidatcohenlawfirmpllc.com. So it's the website which is cohenlawfirmpllc.com and it's just my David at C O H ...
Howard Farran: What about if they want to call you?
David S. Cohen: What do they want to call me?
Howard Farran: No, what if they want to call you?
David S. Cohen: Oh, yeah. And then I was going to get to that. Phone number 972 379 7513.
Howard Farran: So if you're in a public restroom right now, write on the wall for a good time dial 972 379 7513.
David S. Cohen: Right.
Howard Farran: David, the only reason this show is a success is because I'm able to get amazing to come on the show like you. Thank you so much today for coming and talking to my homies.
David S. Cohen: Oh, absolutely. And I want to express my gratitude to you for having me on the show. You're awesome, it was fun. And like you said, it was definitely the fastest hour that I've done when I've done an interview. I really appreciate that.
Howard Farran: I want you to know it was hard for me to interview you cause being an Arizona Cardinals fan, I hate the Seahawks more than just about anything on Earth. That is the one team ... But my God, even when they have an amazing year, they still go up to Seattle and get their ass kicked. It's like ...
David S. Cohen: Well, if it makes you feel better, you guys knocked Seattle outta the first round by last year when you won in Seattle toward the end of the year there. So Seattle had to go on the road and they ended up losing at Atlanta. Maybe it would have been different for Seattle had they gotten the 2 C in the first round by in. Hey, you can at least hang your hat on knocking us out. You've been to a recent Superbowl too so you guys are still strong.
Howard Farran: So how do you think the Seattle team is going to be this year?
David S. Cohen: I think they'll be solid. They've got great talent on both sides of the ball and a lot of times you've got to have the ball bounced your way which ...
Howard Farran: The one I'm wanting to see if he comes back is that Oakland Raiders quarterback who was just crushing it and then broke his leg at the end of the season.
David S. Cohen: Yeah, he's great. Carr.
Howard Farran: You think he'll be back on the field strong?
David S. Cohen: Yeah, I think he should be. I think with science and medical now, they're getting guys back and going. He should be good.
Howard Farran: My heart hurt for him so bad.
David S. Cohen: I know, it was tough.
Howard Farran: That's like climbing. Almost got to the top of Mount Everest and rolled all the way back down to base camp.
David S. Cohen: Yeah, it was tough. It's the nature of the NFL unfortunately. Any play, something can happen.
Howard Farran: Yeah. Anytime some dentist is bitching about how hard their job is, I always say go be a coal miner. Go play for the NFL and have 300 pound men run into you as fast as they can with a helmet on when you compare to other jobs. Thanks a lot, so much for coming on the show.
David S. Cohen: Oh thank you so much, I really appreciate it. Thanks for your time.