Dentistry Uncensored with Howard Farran
Dentistry Uncensored with Howard Farran
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826 Building Wealth with Thomas M. Cooper : Dentistry Uncensored with Howard Farran

826 Building Wealth with Thomas M. Cooper : Dentistry Uncensored with Howard Farran

8/29/2017 11:09:07 AM   |   Comments: 0   |   Views: 372

826 Building Wealth with Thomas M. Cooper : Dentistry Uncensored with Howard Farran

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826 Building Wealth with Thomas M. Cooper : Dentistry Uncensored with Howard Farran

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VIDEO - DUwHF #826 - Thomas Cooper

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AUDIO - DUwHF #826 - Thomas Cooper

Tom is a specialist in dental transitions planning and practice coaching. He is fee-based and NOT a broker. Tom has been coaching dentists, exclusively, for over eighteen years.

The goal at Thomas M. Cooper & Associates is to help doctors increase the wealth in their practices. This doesn't mean just increasing the monetary value of the practice; but increasing the life freedom of the doctor and the team.

Tom co-developed the Mercer Transitions Company; making it the premier transitions planning company. After MTC was acquired by a private equity firm, Tom formed Thomas M. Cooper & Associates and has continued to work with private clients.

Tom earned his BA at the University of Southern California (Phi Beta Kappa) and his law degree from Loyola Law School. He also earned his Chartered Life Underwriter and Chartered Financial Consultant degrees from the American College. 

Howard: It is just a huge honor for me today to be podcasting, interviewing Thomas Cooper of Thomas M. Cooper & Associates. He is a specialist in dental transitions planning and practice coaching. He is fee-based and not a broker. Thomas has been coaching dentists, exclusively for over eighteen years. The goal at Thomas M. Cooper and Associates is to help doctors increase the wealth in their practice. This doesn’t mean just increasing the monetary value of the practice, but increasing the life freedom of the doctor and the team. Tom co-developed the Mercer Transitions Company; making it the Premier Transitions Planning Company. After Mercer Transitions Company was acquired by a private equity firm, Tom formed Thomas M. Cooper & Associates and has continued to work with private clients. Thomas earned his BA at the University of Southern California (Phi Beta Kappa) and his law degree from Loyola Law School. He also earned his Chartered Life Underwriter and Chartered Financial Consultant degrees from the American College. Man, you've had an outstanding career. I've been watching. I'm in Phoenix and you're in Scottsdale and I've been watching you for twenty years. Amazing! How are you doing today?

Thomas: Well, I'm doing great, thank you for saying those things, it's very nice.

Howard: So, what would you say if someone just asked you, what's the state of the dental industry today, especially compared to how it was when I got out of school in 1987, thirty years ago. What is the state of the industry today would you say?

Thomas: I would say that the industry is probably stronger than ever! Yeah, we went through as most industries did, particularly in the South West, but all over the country. My practice is national. We went through 2008, 2009, 2010, 2011 recession and saw some shrinkage in and retraction in the business. I'd say that dentistry, particularly private dentistry has never been stronger.

Howard: Wow! A lot of people are afraid of corporate dentistry. They think that's going to be a game changer; think we're all going to be working at Walgreens. Even a lot of the corporate people think they’re going to get half the market in the next twenty years. Do you see their growth being as robust and linear as they think it is?

Thomas: No, I don’t actually. I disagree with that sentiment. I think corporate dentistry is here to stay. There's a place for that, there's a demographic for it. For a private dentistry which is what we work with, for private practitioners I think corporate dentistry has been a Godsend. If you ask me Howard, say ten years ago, the number one question I got from clients was "how do I find an associate"? There aren’t enough people graduating from dental school. They're all going to medical school etc. The fact is that due to a lot of things that have happened politically over the last ten years, there are fewer people going to medical school, more young people with a good science and math background are going to dental school than ever. Dental schools are opening, there are more people interested in dentistry and I view corporate dentistry really as kind of the farm system. If I can use a baseball analogy for dentistry. We're seeing a lot of great associate candidates who go spend a couple of three years right out of school in corporate. They make a nice salary, make a nice living, they learn their chops and then they want to go do what they got in dentistry for and that is to be a private practitioner. So, they come out of that farm system much more ready than they did before.

Howard: It seems like the business model in dentistry, the only one that's stable is still an individual owning their own practice. It seems like in private practice and in corporate practice associates are just a revolving door. You just very rarely see places that have kept associates eight, ten, twelve years routinely. You agree with that or disagree with that?

Thomas: Well, I agree with it because the vast majority, and not to pat myself on the back but, the vast majority of transitions are done improperly and so you naturally get turnover because they didn’t do the process right. I’m very proud to say that in our practice the vast majority in the range of the 90% of deals that we complete, they stay forever. They stay partners. Now, of course you've got situations where you come in as a trail candidate to see if it's going to work. If it doesn’t work, you want to move, your family's not happy, whatever reason the associate moves on. But in deals that are going to go forward with us, they stay. They stay married as I'd like to say, use that marriage analogy. They stay married, they don’t get divorced. There is turnover, a tremendous amount of turnover Howard, but that's because the deals aren't done properly. Done in a hurry and they don’t do the right groundwork.

Howard: I guess maybe I said that wrong. An associate to transition, that wasn’t what  I'm talking about. I was talking about the business model where one person's always going to be the owner and he's going to have several locations just filled with employees that will be employed associated forever. I just see that business model having huge turnover of their associate dentist.

Thomas: Absolutely! That model does have huge turnover and it's almost like a mini corporate model. So, you're going to lose associates in that situation and in many cases when we see that happening, you're putting associates in the satellite if that owner doctor isn’t spending time in that satellite. You're basically building good will for that associate. So, if practices like that with multiple offices aren't handled properly, if it's not designed properly, you're going to have tremendous turnover.

Howard: So, if my homies go to your website, which is what do they find and what are you doing for them?

Thomas: Yes, it's Thomas M Cooper AND (the A-N-D, not the ampersand) but the A-N-D Well, they'll find out it's not an overly elaborate website. It's basically designed to just provide some testimonials, to tell you what we do. We have a library on there to show. I have a monthly newsletter that I send out to my clients and my business relationships and those articles are on there, and it basically tells a client or prospective client what it is that we do and really distinguishes us from brokers because the vast majority of deals unfortunately for clients, are still done by brokers.

Howard: Well, you're talking to a lot of kids that's flying over their head. Thirty years ago, one of the big pioneers was Avco. Allan at Thorn Boost was talking about how the fast way to get the deal done is have the lawyer, one guy represents both sides at the same time. Then other people come along and said, "wow, who's representing you if he's representing the other guy"? And then you're saying that you're purely fee-based as opposed to a broker. I think you're talking to a lot of kids who don’t know exactly what that means.

Thomas: Well, it's a great question. What we do is, we represent what I call "represent the deal". We're looking to work with, in most cases, not all cases. I still have maybe 10% of my cases where I might do just buyer representation or seller representation. Let’s say a broker comes in, I'll come back to that, but a broker is representing the seller as they always do and the buyer says, "Gee Tom, I want somebody to look out for me. Would you do that?” and a buyer representation say, “We’ll do that.” But that's 5% of my cases. The vast majority of our cases, we're looking at the both sides and representing the deal and the idea being that if we really design the deal, whether is evaluation or financial analysis or the legal documentation or you name it. The whole business design if we're looking at it from the point of view of making this marriage last a lifetime, we're going to do it right. Now the problem with even though legal background and all that stuff, my backgrounds in tax and corporate and all that stuff, but we don’t exclude the lawyers. We actually invite the lawyers and CPA's to be involved. But after we've designed the deal and made it fair for both sides, we don’t want the buyer's lawyer to come in, fight seller's lawyer that go to war, you spend a $100, 00.00 and the deal ends up dying. Now brokerage is entirely a different business model. I don’t begrudge anyone's way of making money but it's for doing what we do, properly design transitions and business partnerships. It's the worst thing because the broker is paid on commission, typically around 10%. Anywhere from 8 to 10% of practice value. They also do the practice value so you've got the guy who's going to get paid a percentage of the practice value, doing the practice evaluation. So right out of the box there’s a conflict of interest and even though they represent themselves as representing both sides it's just not true. So, coming in, buying doctor knows that and is immediately suspicious. So, immediately you're on the wrong foot, you've got people suspicious, you've got the wrong context and they’re doing it, they’re valuing it for the seller, they’re paid by the seller based upon value. Just not the way we do things.

Howard: Everybody's saying it's a seller's market because all the old guys like me selling, were from a class size of about four thousand graduates and now the class size is six thousand. So, if you have six thousand kids who want to buy a practice from four thousand old timers it's got to be a sellers’ market. Do you agree with that?

Thomas: Well, not entirely Howard. You do have the corporate dentistry model so you've got kids who can go be worker bees and work in associate mills like you were describing earlier. Practices that aren’t interested in making you an owner and so on. But for practices that are really and seriously interested in properly designed transition planning, and I can come back to what that means, it's not selling your practice. It's a wealth building strategy. That's what transition is about. Not brokerage, not just selling your practice. The building wealth and for practices that are interested in building freedom and wealth for the owner, this is the only way to go. And so in that respect, it's not just a seller's market. The buyer, their looking for folks, for young people or older folks to come in and partner with them to help build that practice and they need to find the right person. So, I would say it's still a very good market for the buyer.

Howard: So, you're more wealth building of having the associate buy into the practice and be a partner?

Thomas: Yes. So, when I say “wealth building strategy,”  what transitions is all about, I'm not saying that eventually yes, the older doctor's going to sell out his interest or her interest eventually yeah, but we may sell if you want, a piece of this practice, three, four times in a career and what we're doing is, we're building this practice. We're building the wealth in this practice over a period of time by bringing in strategically, bringing in the right partner. So, think of it this way... I am a sole practitioner. I own a pie and this is my pie, this size and I own the whole pie. I take all the profits. If I am going to bring in an associate to partnership, what we're going to do is I'm going to sell a piece of that pie but in the process, we're going to grow this practice into a two-doctor practice, now my pie is like this. Now, I only own half the pie but it's rough on the sides of the original smaller pie. So, we're growing that pie. Now we may bring in a third associate to partnership, four and so on. Eventually maybe take out older doctor and there create a legacy of growth in this practice and it's not just about money. Most of my clients are not about just making more money. They make good money. Sure, they want to maintain their money but it's really about freedom. If I can take this guy, maintain his net and take him from four days to three or from three to two and a half and create freedom both time for his church, time for his family, time for time off etc. I've got a very, very happy client and that's the wealth building strategy.

Howard: So, who's mostly going to your website? Is it mostly older guys like me wanting to find this future partner or is it younger people that are working in corporate and want an upgrade?

Thomas: I don’t have very many people that are as old as you Howard. No, I’m kidding! Unfortunately, most of the guys are upper fifties, sixties and so on. What I want to do is get these guys that are in their thirties. I've got some clients, I write in my monthly article of, gosh, I think it was about probably eight months ago. I wrote a little bit about a client of mine who started with like several, this one in particular that I'm thinking of that I wrote about who started when he was about thirty-six. We've done three or four transitions, actually four. He is now fifty-eight, or fifty-six and now, working as an associate in his practice, we've brought in three other associates to partnership. The three partners on the practice. He's an associate. He works two and a half days a week. He makes as much money as he did when he was a full partner and the guy takes off three months a year.

Howard: Nice!

Thomas: So, you talked about “ideal.” Now, not everything can be ideal, and we got him early and so the moral of the story is “start early.” Sure, the fifty-eight-year-old guy is starting now who's built a tremendous amount of wealth in his practice. We've got to get to him because what's going to happen is over the next five to ten years his practice value is going to plummet because he is simply not ...he's what we call saturated practice. He is not going to be able to maintain and to grow. So, his growth period went from thirty-five to fifty-five and what we ideally get , that thirty-five while he's starting to grow and bring in associates at that point but it's certainly by the time he's hit his mid-fifties, he's saturated his practice is going to start to do what we call “transition by default,” where it’s not by design. It's a transition meaning it's just going to go away and by the time he retires his practice could be worth half of what it was.

Howard: I don’t know. You slow down when you get older. I remember when I was twenty-five, I could do twelve-hour days, six days a week without blinking. Now at fifty-five I'm just like, "you've got to be kidding me".

Thomas: Exactly! You hit the nail on the head and that's why I call it “transition by default.” Whether you're conscious of it or not, you're just going to slow down. Your new patient flow is going to slow down, you're busy, you're booked out six or seven weeks, people perceive you as busy, they go elsewhere you don’t even know it. So, gradually your practice is going to decline and what we're trying to do is capture you before you hit that point and really maintain that growth. Now, you may slow down and be doing just the kind of work you want to do, the comprehensive dentistry you want to do and all that because you've got your other younger partners in there doing all the rest of the dentistry but the practice is continuing to grow.

Howard: So what made you go on to earn your Chartered Life Underwriter and Chartered Financial Consultant Degrees in the American College?

Thomas: Well before I joined Mercer and I was doing consulting like I do now but not just for dentists, but for MD's, for lawyers and CPA's. I was doing the kind of, what we call now, “transition planning” was doing business continuation planning for other professionals and so I was earning those degrees doing financial planning and financial consulting. When I joined Mercer, before we started the transitions company, I ran what we call “the Advanced Services Group or ASG.” And we handled all of the advanced planning issues whether it was pension and profit sharing or asset protection or tax or entity planning. All of the stuff that would hit our financial consultants and be a little bit beyond akin. We would get bounced up to the ASG, the Advanced Services Group and I ran that group. So, it was in that context that I acquired those other designations.

Howard: You and MTS were just amazing pioneers and Glenn Weissel.

Thomas: Yeah!

Howard: Was that pretty much the three musketeers behind that?

Thomas: Yes. Of course, Howard Rochestie was a partner them too and Gene (00:18:34 unclear). But they really weren’t involved in the transition side. It was really Glen and MTS and I that ran the transition. I ran the company, but they really were designing, they started the design in the company.

Howard: Yeah. I really like, there’re so many great articles on your website. Thomas M Cooper, spelt out and A-N-D You really have a lot of good PDF's. What you ought to do is start a thread on Dentaltown. There's a quarter million people on Dentaltown and over fifty thousand of them, mostly the Millennials downloaded the app on the phone and so I know who's on there. So, the ones on the app are usually Millennials and the ones on the desktop are the older guys but you should post all those PDF's. You just start a thread on financial planning. You've written some great articles. I think it would explode your website and a lot of this stuff needs to be read. They always want to take a course on a better bonding agent or how to do the ultimate root canal and then they don’t know anything about transitions. They don’t know tax planning. What do you think dentists need to think more about as far as taxes?

Thomas: Well, the law is an enormously dynamic area and it's one of the reasons that I enjoy it so much just because it changes so much. And that is also the problem, it does change so much and you've got to stay current with it but. We don’t know what's going to happen. Whether we're going to get tax legislation this year or not and most certainly we'll get it in the next couple of years and we don’t know what that's going to look like. But, what we know is what it is today and there are a lot of issues that do impact, directly impact doctors and particularly in the transitions area and I try to write about as many of those as I can whether it's the proper treatment of the sale of goodwill which is a very commonly misunderstood heart of dentistry, or what kind of entity should I be, or how are the entities treated. What's the difference between S Corp and LLC and why should I be one or the other? And so, there are a lot of issues and I do write about those in my articles and I definitely would take you  up on it. I would want to have a thread of those articles.

Howard: Yeah there's fifty categories and one is financial stuff and everybody's allowed to have one thread's that's about themselves or their courses or what they’re doing but you've just got so many great articles written. So, tell my homies. What is a goodwill and what should they set up themselves as entity. Should they be an S Corp or an LLC?

Thomas: Goodwill is the largest asset that's in a dental practice. It is not the equipment, not the technology, it's not the facility. It is the goodwill and the goodwill is basically everything that gets people to sit down in their chair and open their mouth. It's your reputation, it's your CV, it's your education, it’s continuing education, it's all the programs that you take. And so, all of the things that make you a great dentist and have a reputation in the community, that's your goodwill. It's basically your patient fix. So, it's typically when we value your practice, when we really value your practices based upon USPAP, what is the Uniforms Standards of Professional Appraisal Practice which is the National guideline for how to do proper evaluations. Not the way brokers do evaluations. Lest I digress. So, goodwill is the largest component. It's the patient base and so how that's handled from a tax perspective, if the insure revenue code characterizes it since 1986 as a Section 1.97 intangible and that's because it's governed by Section 1.97 of the Internal Revenue Code. It is an asset that when sold as a capital asset, and so you recognize capital gain which is currently the 20% unless you're over a certain income limitation where it can go up but typically 20% as opposed to the highest ordinary income rate of around 39%. So, that's very favorable for the seller to recognize or realize capital gain. It's then amortizable that is depreciable and you can write it off over a twenty-year period of time if you’re the buyer. It's a flat, it’s not accelerated, it's a flat twenty years. One twentieth every year and that's under the code. The real dicey thing about goodwill is, there’re lot of even CPA's and attorneys who don’t specialize in dentistry that they don’t realize, is that goodwill is not a corporate asset. So, if you have a professional corporation, either C Corporation, the old-fashioned kind, or an S Corporation which is more common, or it is not owned by the corporation and this is commonly misunderstood. It is a personal asset of the doctor and that's been decided by many court cases and is pretty much settled law and acquiesced to, not formally, but it essentially acquiesced to by the IRS. So, that's a major issue that some people miss and we don’t run into this as often as we used to. I’d like to think because we’ve educated people on it, but we used to run into it quite a bit where the CPA or the lawyer was treating it as a corporate asset. Now it's going to get taxed at more like 50% instead of 20 and that's a big cost to the doctor if it's not done properly.

Your second question was about entities and probably more than we could do in the time we have but basically, back when you started practice, you would've been poorly advised. Somebody would've been committing malpractice if they didn’t have you to become a professional corporation and that's because there are a lot of things you could do in a CC that you couldn’t do as a sole proprietor. It limited liability, not against malpractice but against the slip and fall and more traditional negligence. But it also allowed you to have tax advantages that you wouldn’t have as a sole proprietor or as a partnership if you have a partner. Then a lot of people started to change into S Corporations because it's simplified things from the C Corporation. Now, over the last ten years the area of the law under limited liability companies are LLC's has come along and so if you were starting a practice today you would certainly become an LLC in any state that allowed it. Not all states allow dentists to practice in LLC's. California for one, Arizona certainly does and most states do but an LLC, to keep it short, is simply has the asset protection of a corporation but the tax of a partnership. So, it has all the simplicity in pass-through things of an S Corp or partnership but it has the liability protection of a corporation. So, it's about as close to having your cake and eating it as you can get.

Howard: Do you think the student loan debt, do you think when these kids are coming out $350,000.00 to $450,000.00 in debt that that almost means they have to be a practice owner someday? That getting a job at an associate mill, working for a percentage is really not the way to repay that large of a debt? Do you almost think if you use other people's money to some number, like say, $400,000.00, at that point you have to be a practice owner?

Thomas: I certainly agree with you on that. I think that the cost of becoming a dentist, not to mention a specialist, is such that you wouldn’t do that to just be a worker bee. Now, that's not to say that there aren't situations where maybe you’re a married couple and you’re both dentists. If one chooses, for family reasons to just be an associate and the other one's going to go down the owner track, fine, but for the vast majority of people who are going through and spending that kind of money in debt, yes, they’re going to want to become owners and that's why I said the market place for quality associates who want to become owners and the market place for current owners to bring in those quality partners, it's just never been better.

Howard: And how much debt would they have to be in before your legal recommendation would be to flee the country and go live in Brazil or Indonesia? And do you have a favorite country they should flee to? Where would they be least likely to have a student loan debtor coming back, get their half million?

Thomas: I wouldn’t have them go to either one of those countries. Brazil or Indonesia! No, I would have to say probably Lichtenstein or Switzerland if you're going to go that...

Howard: I agree, those are great countries, and Austria, I love that one too. A very common question these kids have is when they go get a job, the older dentists wants to just pay them as an independent contractor and then they get on Dentaltown, they read these confusing things that independent contractor has more to do with like say, construction where I'm building a house but I really don’t know how to do the electrical, I don’t know how to do the plumbing. You bring in your own equipment, your own expertise. But in dentistry, you're coming into your office using your equipment, you know everything I'm doing. Are they independent contractors or are they employees?

Thomas: Well, your question is very well informed. You hit the nail on the head again! What really drives under the tax law, what really drives and this is laid out pretty good detail in the code and the regulations. What is an independent contractor and what's employee and actually the way the code looks at it, the regulations look at it, is “what is an employee?” Well they look at both. What is an employee and what creates independence. The kinds of things that create independence are; I bring my own tools, I set my own fees, I make my own hours, I probably use my own staff. So, for instance, I'm an independent contractor, clearly these will be my clients but if you're an associate working in a practice and you're using the owner’s equipment, the owner's staff, the owner's tools, hand pieces etc. clearly, you're an employee! So, this is another one like the goodwill issue. This is another one that's very commonly and I still see it, where we're treating an associate as an independent contractor and you might say, “Why would anyone do that if the law is so clear?” Well, the attraction, first of all you've got lawyers and CPA's again who are misinformed, who allow their clients to do this and the reason an employer might do it is, an employer doesn't have to pay the payrolls taxes and an employer doesn’t have to include you in his retirement plan if you’re an independent contractor. An employee might say, "Well I want to fulfill my own LLC and now I can do all kinds of stuff because I'm not your employee". Well, they're both wrong and the IRS views these things on payroll audits as “horrible” and their extremely painful if you get caught doing it and there are extreme penalties for it. About 85% of the revenue in this country is earned by payroll taxes. So, the IRS sees that as its piggy bank. The IRS takes payroll taxes and takes mischaracterizing people for payroll purposes very, very seriously. So, if you characterize somebody as an independent contractor, you do it. It's your great peril.

Howard: And the IRS Court, doesn’t have jury correct? It's just you and the IRS judge, right?

Thomas: No. Well the Tax Court yes. The United States Tax Court is a judge Court, that's correct. And the IRS has their council and you have yours. Hopefully it doesn’t get to Tax Court.

Howard: But there's no jury though?

Thomas: That's correct.

Howard: I mean you can’t play to OJ game on a bunch of people that don’t understand the tax code. My dad always said that, “everything is tax deductible until you go to Tax Court.”

Thomas: Well that's true but hopefully, we don’t get to Tax Court. Hopefully you win the audit and my philosophy is, that anything that I have my clients do has got to pass the giggle test on audit. What I mean by the giggle test is if the auditor is looking at what you’re doing and he's going like this... "Laughing". That's not passing the giggle test ok. So, you want that auditor to say, "ok, I can see you’re an endodontist and you go to this practice twice a month and you go to these other practices another twice a month and you have twelve clients that you see a month and you take your own files and your own scope and do set your own fees. Ok, I can see all that. Yeah, you’re an independent contractor". Right? He’s not laughing, he's seeing that objectively that that's defensible. Ok, so there are those rare situations but the vast majority of cases, we want to pass audit, not get to tax court.

Howard: And you actually practice and live in Scottsdale, Arizona which I believe is the most competitive city in all of Arizona. I can’t think of a harder place to get going than Scottsdale Arizona. Do you think these dentists coming out with so much debt need to smarter about demographics? What would you tell? You've got two dental schools in your backyard. You got AT still at Maisa, you've got Mid-Western in Glendale. What would you do if a bunch of class people said, "you know I want to go down to Scottsdale. I want to go practice right where you do". What would you say to that kid?

Thomas: Well, I agree it's competitive and if you mean competitive in terms of dental practices.

Howard: Right.

Thomas: It certainly is. I don’t know about most competitive in the country, but there certainly are some...

Howard: No, no I said in Arizona. Most competitive in Arizona.

Thomas: Oh, yeah. I would agree with that and that’s true, but that's also an advantage to the right associates. There are some terrific practices and the reason that's competitive is, there are some very, very fine dental practices and their looking for the quality people. Again, not to gill my own willy here, but one of the advantages to doing it the right way, doing it our way, is that we are doing the evaluation objectively in a fair market valuation under USTAT standards by an ASA accredited senior appraiser. We're doing the financial analysis, we're doing a very rigorous audit of the numbers. All this is right up-front. So, even when our clients are just looking for an associate, they're going through this what we call "phase one" work. So that when these candidates come to them, their ready. They've got the aeros in their quiver and their ready to go because the best associates are going to go for that practice that's best prepared for them and is serious about making them a partner. And so if it's just going to be willy-nilly and I'm talking to people all the time and they say, "When can I be an owner", "well, we'll get to that. Yeah, we'll talk about that" or "yeah, I’ve got a broker". Boy, you’re going to scare away a lot of talent. But if you do it the right way, the way we set things up, then you're going to get the best candidates. It's a supply and demand thing. Best practices, best associates.

Howard: Yeah, and remember just from watching Judge Walker, he always asks for your receipts. So, all these people, you know after they've been working for someone for a couple of years, they say, "well, he's going to sell it to me". "Well did you get a asking price? Did you get a date? Is there anything in writing?” And there's nothing in writing. There's just a bunch of conversations they've had at lunch over the years. And then they finally give up and throw in the towel and feel like they've wasted several years of their life. How long would you say, after you've been dating someone and working as an associate, that you should really sit down and start talking to someone like you're a lawyer who's going to put some words on paper and make each one sign it?

Thomas: Well, we believe in saying the context from the beginning. So, literally from the interview stage. So, we are making it very clear, very transparent to the associate. Here's what we intend to do. Now we're going to do a dating period as you say. We're going to do this kind of honeymoon period where, you know, you're going to work in the practice just as an associate, as an employee for six months, nine months, whatever it takes. Just to see if you're fit and if well fit. You may find out this isn't the practice for you. We may find out you're not the associate turning partner for us. But if assuming that all goes well, we're going to move right into what's called "phase two" or the "design phase." And we're going to show you, and we're going to draw up a document called a "Letter of Intent" speaking of putting something in writing that it's going to describe the purchase price, it's going to describe how we're going to structure the entity or we're going to be an LLC and S Corp. How we’re going to design the purchase? Is it going to be a stock sale? Is it going to be an asset sale? How are we going to handle how we're going to pay each other as partners? How are we going to get paid? What happens if someone is disabled? What happens if someone wants to retire? All of the things that are going to go into this deal are going to be put in that Letter of Intent. So, even before we get to documents like a Purchase in Sale agreement, we'll have that Letter of Intent so we have absolute clarity on how this deal is structured. We're doing all that right in that first year of working in a practice, and that's another reason why I go back to the very beginning when I said that the vast majority, I can literally count on one hand, the deals that we took to marriage that failed and out of the hundreds and hundreds of deals we've done. Because we do all of this spade work, all of this due diligence at the front end and by the time that associate is signing documents, saying “I'm coming in as a partner,” they're in. And so, you've got that context going forward right as a worker bee coming into the practice.

Howard: On Dentaltown, on the website, there's fifty categories and one of them is called “Practice Transitions” which is what you do. and it's a very bright, vibrant deal. I really hope you start posting everything you've read in that corner. One of the associates is asking today, "Do you think I'm more valuable if I go do a residency first before I start looking at becoming a partner? Or do you think I should just go straight in and become a partner?"

Thomas: My attitude on residency is, if you want, a kind of like going to Law School. I mean if you want to be in the real estate business, don’t waste your time doing three years in law school. If you want to be a lawyer, go to a Law School. Some people do these things just because they want to put up the inevitable and stay in school and they love to learn, and I love to learn. So, I get that. But if you're going to go and spend the money and do the time for residency make sure it's something you want to do. “I want to be an orthodontist, I want to be a prosthodontist.” So, that's fine. You don’t need to do it just to set yourself up for ownership. Go and do your residency because that's what you want to do. There's going to be time for you to become the owner. Certainly, it going to (00:39:41 unclear). I'm working on a client right now, associate's just finishing up prostho residency. He's going to be transitioning into ownership in a general practice. He's going to be a very, very high end general dentist with a prostho background. So, that's terrific. It's going to work very well in this practice but that would be my advice. Go do residency because you want to learn that stuff.

Howard: Some people would say to you it's easy to find an associate in Scottsdale to do what you're doing but what if I'm out in the middle of nowhere-ville. How do I find an associate? Do you recommend Head-hunters? How do you find someone to come in and do this when you’re in Parsons, Kansas as opposed to Scottsdale, Arizona?

Thomas: Well, good question. Actually, if you’re looking in Parsons, Kansas I've got a client there so let me know. We work nationally. The Head-hunters are fine. Be careful that you're not signing. There are still some, they're basically brokerage houses that will do associate placement for a fee. So, like a Head-hunter, the dental practice will pay a fee, let’s say a couple thousand dollars or so or maybe more for the placement of an associate. But make sure that you're not signing a brokerage agreement because now you’re selling your soul. So, don’t sign a brokerage agreement, make sure it's just an associate placement fee, that's fine. What I find, interestingly all these so called websites, so-called placement services that find you associates, very rarely does it work. 90% of them don’t work! They don’t stick, they don’t last. When we're doing it the way we do it, again, the phase one work, the evaluation done properly, the purchase feasibility analysis that we do, the audit work that we do on the practice, all that, the letter of intent, phase two, the design work... When we're doing all that stuff, that's tends to attract the very best quality associates. When you're ready for an associate and you're putting the word out to your specialists, to your referring doctors, to your colleagues. When you're doing that, it's amazing, even in smaller markets, how quickly people will find you.

Howard: And Dentaltown has free classified ads. There's over six thousand ads on Dentaltown. We've made it just like Monster Jobs, all the big employment bureaus so that you can put up a deal but it's very good. That's another place to find an associate. So, I feel like I'm not smart enough to be asking you anymore questions! Is there anything I missed or I should've asked?

Thomas: No, actually we spoke very thorough. You seem very well informed on this stuff so you've done your homework Howard.

Howard: Oh thanks! It's been really fun watching you guys. I consider Mercer and Transitions Company, I've been watching you guys forever and you guys are just so darn smart, you're so innovative, you've been so much for dentistry. It's such an honor that you came on this show today to talk to my homies. And I hope that you go on to Dentaltown and post those PDF's that you've written that are on your website. So, Thomas thank you so much for all that you've done for dentistry and thank you so much for coming on my show.

Thomas: Well, thank you Howard. It was really a pleasure being here.

Howard: Alright, see you soon!

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