Bassim Michael, CPA, CVA, MS is the founder and president of Onlyfordentists.com, a division of Michael & Company, CPA. Bassim and his team are dedicated to helping dentists understand their financial information, improve their profitability and lower their taxes. For more than 20 years, Bassim has worked with hundreds of dentists throughout the United States to help them become better managers and leaders.
Bassim is a frequent speaker on topics such as practice management, tax planning and exit planning. He has been quoted in many articles and publications such as the Wall Street Journal, Dow Jones Wire, and many more.
VIDEO - DUwHF #1051 - Bassim Michael
AUDIO - DUwHF #1051 - Bassim Michael
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Howard: It is just a huge, huge honor for me today to be podcast interviewing Bassim Michael CPA, CVA, MS. You know what a CPA is? A certified public accountant, a CVA is a certified value analyst so, he's certified. He could testify in court about the value of your practice and an MS, that's a Masters in Taxation?
Howard: Wow. He is the founder and president of onlyfordentists.com, a division of Michael and Company, CPA. Bassim and his team are dedicated to helping dentists understand their financial information, improve their profitability, and lower their taxes. For more than twenty years, Bassim has worked with hundreds of dentists throughout the United States to help them become better managers and leaders. He is a frequent speaker on topics such as practice management, tax planning, exit planning. He's been quoted in many articles and publications such as the Wall Street Journal, Dow Jones Wire, and many more. Thank you so much, Bassim for coming on the show today.
Bassim: Oh, it's a pleasure. I'm honored to be on your show, Howard.
Howard: So, this has got to be kind of a wild year from you because it's the first time in a long time there's been a big tax change.
Bassim: Oh yeah, I know. I remember when the tax law passed back in December, I think I became like a local celebrity. I was on TV probably ten times with different local stations and everyone was just going nuts over the new tax law and wanted to know how it breaks down and how it helps people and who gets hurt but for the most part, we found out most people will end up getting help from this new tax law.
Howard: Well, you've been doing this for over two decades. When was the last time the United States had such a big change in the tax code?
Bassim: The tax code gets changed almost on a regular basis, but with something with this magnitude, it probably hasn't been since 1986, which was probably long before I became an accountant that we've seen something like this come out
Howard: That that was Reagan's tax still?
Bassim: Yes. That was back ‘86 during the Reagan administration. Yeah.
Bassim: And then the later the congress was the other party. It was Tip O'Neill, that was a wild time. That was back when both parties used to work across the aisle together.
Bassim: Yeah. That's when everything worked.
Howard: Yeah, those day, and Clinton worked very good. He was a Democrat. He worked very good with Newt Gingrich. He was the leader on the other side. That was kind of the end of the bipartisan work across the aisle for the better of the country. Now it's just batshit crazy. But what do you think dentists need to think about on this sweeping, big major piece of tax legislation.
Bassim: They definitely need to know where they stand. We always recommend that they would do their first tax projection as early as July. So, like really early in the year, just to kind of get an idea where they stand year-to-date. And then based on that, sit down with their accountant or financial advisor and figure out what's the game plan between now and the end of the year to basically maximize their tax benefits and lower their tax liability.
Howard: My Dad used to always say the easiest dollar earned is a dollar and expenses saved. The second easiest dollar earned is a dollar or taxes delayed. And the third and the hardest dollar you'll ever earn is working and producing, collecting another dollar. So, it's about you guys working smarter, not harder. I've been a dentist for thirty years. I know my dentists, I mean they chose a profession where they're going to do surgery twenty-four hours a day in an operatory. All they want to do is surgery in an operatory and that's what they dream about. And then guys like you come along and have to tell them that they're running a business, they didn't go to school to be a business major. They didn't go get an MBA. They want to be a dentist. How do you coach your dentist's to become better businessmen?
Bassim: What I learned in running and operating a business, believe it or not, when you go to accounting school, they really don't teach you how to run a business either. They teach you debits and credits and they teach you the tax law. But it's a whole new game when you run a business, you have to make payroll, you have to know how to deal with employees, and most of all, you have to get new customers and new patients. You learn as you go. In the fifteen years plus that I've had my business, it's been definitely a learning curve. So, we try to apply what we learned. And, I also get to learn quite a bit from my clients as well. We've got some wonderful dentist clients that are just amazing business owners.
So, the learning goes both ways. But, the way we educate our clients is, we found out when we first started focusing on our practice growth, we decided to kind of go through our client list to figure out if we want it to grow organically, which area we should grow. So, we started going through our client list, grading our clients, not just on the financial aspects of a client and how much they pay us or how fast they pay us, but also if they accept our planning suggestions, if they're willing to sit down with us on a regular basis to go over numbers. And also, how they were willing to implement some of the recommendations that we made for them. And lo and behold, when we did our research, dentists had like five stars in all categories. They were good to work with. They had plenty of time to sit down on a regular basis with us and go over the numbers. And it was great.
That's always good when you're a performer. It's good to have fans and people that will listen to you. So, that was important. So, at that time we had five clients, so when we found out that dentists were our best clients, I started taking them out for lunch, finding out what they really wanted from their accountant. So, I found out that dentists are very competitive. They all wanted to know how they're doing in comparison to their peers. They also wanted a lot more beyond just doing the books and preparing a tax return at the end. They wanted to save money on their taxes, they wanted to know what the numbers mean. So, that's where we developed a dashboard, a very simple one-page dashboard that gives them all their collection trends, that gives them an analysis of their overhead, the best trend analysis where it compares year over a year on the main overhead categories. And it tells them what their benchmark is, what their peers are doing. This is all things that they wanted. And then they also didn't want me to call them on April twelfth and tell them that they owe fifty thousand. So, that's where we started doing the planning in midyear, so that they had plenty of time to lower their tax liability and also figure out ways to save up more money so that they can pay their tax bill in April, if they couldn’t lower it enough.
Howard: That's right. So, when you're benchmarking, what low hanging fruit do you see that runs a better business? I mean, you hear all these one liners, “Well, if you buy a Cerec CAD/CAM machine, it'll pay for itself because you won't have a lab bill”. True or false?
Bassim: It could be true, it could be false because if you buy it and you don't use it. And that's the case, we see quite a bit of people that buy the Cerec and then they end up not using it and it sits and collects dust. So, it's a great machine and will definitely save you a ton of money if you use it. You just got to invest the time and getting training and training your team to use it as well and encourage them and incentivize them to use it. So, it could be true, it could be false.
Howard: How many dental offices do you do?
Bassim: Just under two hundred.
Howard: That's a lot. Two hundred dental offices and are they all in the United States?
Bassim: All in the United States. We had a fun consulting engagement in Dubai last year. That was a lot of fun.
Howard: Yeah. I retweeted that picture of you today on your Twitter account when you were with The Singing Dentist.
Bassim: Oh yes. Yeah, he was there. I saw that podcast. Yes.
Howard: So, who sings better? You or him?
Bassim: Definitely me.
Howard: Definitely you?
Bassim: Yeah. But the environment has to be better. I got to be in the shower.
Howard: I love that guy. I podcasted him in his hometown. I was in London and we were sitting at the hotel [inaudible 09:31]. He was podcast four fifty-eight, The Singing Dentist. My God, that guy's got more personality than the next ten dentists combined.
Bassim: And so much energy. He was on stage for probably a good two hours performing and it's amazing. He's even popular in this part of the world.
Howard: Yeah. I love Dubai. That's a hell of a city. Of those two hundred dentists, what percent of them do you think have CAD/CAM? Is it not very many? Is it middle, you know, what percent?
Bassim: I would say maybe a third or more.
Howard: A third or more have CAD/CAM and of those third, how many of them do you think it was a good decision, financial decision versus not?
Bassim: By the time a client engages us to work with us, I would say they're probably like, usually in the top, maybe fifteen or 20% of their peers. So, they're usually in the process of really working on their business and so when they make the decision to buy it, they usually know that they're going to use it. But, most of our clients end up using it because we coach them on that as well.
Howard: Okay, listen to what he just said. This might have flown right over your head. In 1900, healthcare was 1% of the GDP and there were no specialties. A century later, it was 14% of GDP and the MDs had fifty-eight specialties and the dentists had nine. Now, it's 2018 and healthcare is 17% percent of the GDP. You have to use a specialist. You wouldn't want to go to a gynecologist if you needed a vasectomy. You wouldn't want to go to an ophthalmologist if you lost your hearing. Dentists who go to CPAs who only do dentists, they're a cut above the cloth. They get so much better and better. You're smart, dammit, you learn Algebra, Calculus, Physics, the Periodic Table. God Dang, you're smart. You just have never been mentored in accounting [11:38], you have to get a CPA. I mean, this guy does two hundred dentists. He knows what's going on. He knows trends. Here's another true or false. Rural docs do better than urban?
Bassim: I would say it's true. Again, because we work with so many dentists in different states we actually do find that dentists that operate in rural areas do a lot better and they're usually more profitable. But, I think the reason for that is probably because there is less competition and also people that live in rural areas typically have more disposable income because it's cheaper to live in rural areas.
Howard: And there's nothing to buy. I mean, if I just drive to work, I drove past twenty places where I want to pull out my debit card. But you live in the rural, there's just almost no place to spend your money.
Bassim: Yeah. And hence they have more disposable income.
Howard: Yeah. Everything's cheaper. Labor, everything's cheaper in rural. You go open up a dental office in a town of two thousand and a $10 an hour job is just considered like that'd be like working at Intel if you lived in Phoenix and everything's cheap.
Bassim: It's always a challenge to get good associates in rural areas. So, that's the challenge.
Howard: So, true or false? Dentistry doesn't even have a chart of accounts. It's so frustrating to hear dentists sitting around a table talking about their overhead. And I always tell dentists when you're at a study club and dentists are talking about their overhead, remember just one thing, they have no idea what they're talking about. Like one guy will say his overhead is 50% because he paid off his land and buildings, so he doesn't pay rent. And one guy will say, “My labor is 20%, but it doesn't include FICA matching”.
Bassim: It could be so low because he's doing the hygiene himself. He doesn't have hygienists do the work. So, you have to know the story behind the numbers.
Howard: Do you think dentistry has a chart of accounts? Do you think there is one? Could there be one?
Bassim: Yes, we do have a chart of accounts for dentists.
Howard: No, ‘you’ have a chart of accounts, but do you think the two hundred and eleven thousand living Americans, who have an active license to practice dentistry, use the same chart of accounts?
Bassim: No. But, it is actually a requirement in our firm, if you are going to be a client that we have to use the same chart of accounts,
Howard: Please email me that chart of accounts and post it on Dentaltown.
Bassim: Yeah, absolutely.
Howard: So far, we haven't done ground zero, which is getting any of these practice management companies like Dentrix and Eaglesoft and Opendental to merge with an accounting software. We haven't even put the Apollo Space rocket on the launch pad. So, until we do that, there's nothing, but one thing we could do in preparing the rocket to be rolled to the launchpad, is at least agree on a chart of accounts. Could you post yours on Dentaltown and email me a copy of that?
Bassim: Yeah, absolutely. I'll email it to you after we're done.
Howard: Imagine if five chefs are sitting around a table and they have different names for all the ingredients and you're trying to copy the other recipe and share information. There's a reason we talk a common language. In fact, we finally had the first universal common language, the zeros and ones, after zeros and ones, it would probably be English. But anyway, so chart of accounts, you'll post that and email me that at Howard@dentaltown.com.
Howard: Okay, next up. If a practice management software was going to a merge with an accounting software, what accounting software would you recommend?
Bassim: We typically use QuickBooks online.
Howard: QuickBooks online?
Bassim: Yeah. The way things developing in the software world is that you don't actually need a software that can do everything. While we're seeing now happen is, everything is moving to the cloud and then all these different apps are talking to each other and exchanging data. So, I think that's going to be the trend going forward is, I think more practice management software will move to the cloud and that will probably be able to communicate better with accounting software and maybe other software as well. Because, it's hard to find a software that will be the Jack of all trades and then it’s going to be a Jack of all trades and master of none. So, I think the trend is just find a software that does one thing really good and then you find something else that talks to it that does a different task really good. And that's how you achieve that Nirvana.
Howard: So, the Fortune five hundred, they all use SAP, right. SAP out of Germany.
Bassim: Yeah, they use that. But again, I think they have people, they have their own IT departments that can maybe customize certain functions, which most dentists are, just like most accountants, we’re small businesses, so most of us don't have our own IT people.
Howard: So, Fortune five hundred companies in order to really streamline, they're all running on SAP software out of Germany and they're all incorporated out of Delaware, so they have that standard deal. So, when boys and girls from Wall Street are looking at mergers and acquisitions, they know they're all playing on the same legal platform with the incorporation, the same accounting software. So, then Microsoft bought Great Plains. What did you think of that move? Is that a good software? I mean it is Microsoft. Are they doing really anything with that?
Bassim: Again, I think that Great Plains is being used for more larger businesses than dental offices.
Howard: What's your definition of a bigger?
Bassim: Possibly the larger DSOs, maybe they could use something like that.
Howard: Dollar amount? If Fortune five hundred does SAP, what do you think that dollar amount of the business for Microsoft Great Plains.
Bassim: Probably over ten million.
Howard: What do you think of Peachtree Accounting? Do you have any clients that use Peachtree?
Bassim: No, we try to use one software so that we can maximize on efficiencies, so we don't have to train people on different software. So, we mainly just support QuickBooks online and QuickBooks desktop to an extent, but we're trying to get away from that now. We're finding again that cloud-based applications are probably where the future is.
Howard: I realize every day that I'm just really, really getting very old. I came out of dental school and got SoftDent and after thirty years I switched that to Open Dental. I had been on Peachtree for thirty years. I went through MBA school, I have the first check I ever wrote still on that damn thing, but nobody else uses Peachtree anymore.
Bassim: It's a great software. It probably does everything that QuickBooks does but what QuickBooks and Intuit is they got a lot of accountants to use the software and that's how it grew.
Howard: Microsoft Great Plains, are they on the cloud too?
Bassim: I'm not very familiar with it because we don't have any clients that use it. Most of our clients, even the ones that have multiple offices, the way they're structured usually each office is set up in a different entity. So, it still acts like a typical practice.
Howard: What practice management software do you, think of your two hundred clients, is the best for your clients? I mean, Dentrix, Eaglesoft, SoftDent, Opendental. Do you have any favorites?
Bassim: No, but again, we see that the majority of people probably use Eaglesoft and Dentrix. Those are the two most popular ones.
Howard: But Opendental is the fastest growing one?
Bassim: It is the fastest growing one with the newer practices that are starting up or being acquired. But, I would still say Dentrix and Eaglesoft are still very popular.
Howard: So, when a client switches from the dentist, they pick them good. They wanted an accountant you could trust. So, they went to church, they asked their pastor, he recommended this guy sits next to him in church, I follow you. But, my gosh, when someone switches to you from that guy who only had one dentist as a client, and the rest were corn farmers, wheat farmers, soybean, welders, plumbers, when they switched to you, how do you generally make their lives easier and make them more money? What's the average case roll outs look like? What is usually the advantage of switching to a firm like you, with two hundred dentists, when they'd been using an accountant for ten years and the guy only does two dentists.
Bassim: That's an excellent question. Well, when I was in college, I believed in mentorship. So, I had a few mentors in college that mentored me and one of them was the CFO of a regional retailer that was headquartered in my hometown and his name was Alan Weinstein. I think he’s retired now, but he was the CFO of this publicly traded company and he was my mentor. And, what he told me was very eye-opening. He said that he was not really an accountant. He said, and I quote him, “I'm a retailer that knows accounting”. So, it's very, very important for an accountant to know the industry because accounting and financial reporting is a tool that you use to manage and if you don't know the business and the ins and out, you're not going to know how to use that tool.
So, that's how we approach it. So, like I mentioned earlier, we usually start off first with a uniform, a chart of accounts and we explain to them how things are categorized. Then we tell them about the overhead and where they need to be operating at and why it's important to focus on profitability because if a business is not profitable and it's not generating cashflow, it might as well not be in business, right? So, it's very important to focus on your profitability and profits and the word ‘profits’ and the word ‘businesses’ are not dirty words. They're actually important for creating good service for your patients and keeping happy employees. So, we focus on that. I’m also just being proactive with the taxes. We know how to depreciate a dental building, for example. If someone who's not trained might just depreciate a building thirty-nine years when we know that a good chunk of the construction cost is allocated to the special plumbing, and the special electrical, and the special flooring and the walls, the special wall coverings that are required by code so that you could operate a dental office.
So, we segregate those things and then we could depreciate it much faster than thirty-nine years. So, I definitely think, and our clients think that industry knowledge is very important for an accountant to do their job right.
Howard: When you talk about EBITDA, Earnings Before Interest, Taxes, Depreciation, Amortization. The people listening to you under thirty don't know what any of those terms are. Can you explain EBITDA? What is interest before taxes, depreciation, amortization because you're dropping terminology, you're saying words they don't know the definitions of.
Bassim: EBITDA is probably the new magic word now in dentistry. Everyone is talking about EBITDA. It's basically a way to measure earnings and to measure profitability and return on investment. And the reason we use that measurement is when we calculate EBITDA, we could compare apples to apples. So, if I compare the EBITDA of practice A and the EBITDA of practice B, it gives us an accurate measurement of how the practice is profitable. In the past, they used to value practices based on a multiple of gross collections, right? They would say, well, a practice usually is valued that maybe anywhere between sixty to 80% of collections. But let me give you an example. If we have two practices, both of them actually gross a million dollars, but one of them has an EBITDA of five hundred thousand and the other has an EBITDA of three hundred thousand. Would it be fair to calculate the same valuation to them? If we're using a multiple of gross collections, it probably wouldn't, right? Certainly, the one that nets more to its owners would be worth more, so EBITDA is just the way to be able to objectively compare practices based on earnings. Because you could have practices that have the same collections, but they're not operating at the same efficiency level and therefore they offer different operating results.
Howard: I can't tell you how many offices collect a million dollars a year and the dentists take home one fifty and then across the street is a dental office that collects three fifty a year and the dentist takes home one fifty. One’s doing three fillings for every one the other guy’s doing. One has three times of an exposure of a bad Yelp review or a board complaint or a lawsuit. They're running three, four operatories. I know one person who's my idol on Dentaltown, she's called Tinkerbell. She has like a four hundred square foot office, zero employees. Her office, she just has an iPhone. All her patients have her iPhone number. She virtually has almost no overhead. I mean her overhead, it’s like 10%. She has the lowest volume, highest net income practice I've ever seen.
I just see this all the time. You drive for show and you putt for dough. I don't care. Everybody wants to get the Big Bertha club hat and tell everybody they'd knocked at three hundred yards. Who cares? You three putted the hole and you lost. And, it's all about net income. So, that's why EBITDA is everything and also in my thirty-year observation, the sweet spot of going bankrupt the most, is expanding from location two to three. The first location you're doing so damn good, you can muscle a second location, you can have your own team running back and forth. But by the time you start that third one, all the holes in your unorganization rise their head. All the little Doberman Pincher monsters turn into a Tyrannosaurus Rex and you get eaten alive on that third location. So, you got to get your house in order. You got to get poised for growth.
Bassim: Having multiple offices is maybe glamorous, but in reality, I think you definitely need to optimize the current location that you have before you think about moving to a second location. By optimizing, [inaudible 29:12] maybe three days a week. I think you need to be using that space maybe six days a week, making sure all the chairs are full before you start thinking about opening a second office. And I would probably encourage it first to expand your current location maybe from four to six or seven operatories before you even started thinking about opening the second office.
Howard: I was sitting here having lunch with another consultant and we were lecturing, and this dental student came up and said that his main goal was that he wanted to open up a new dental office every year when he gets out of school. So, year one, one, year two, two and I'm like, what an emotionally weird goal. And I've seen other dentists tell me all the time, “Well, you know my office does a million” and I'm in this town, so if I put one on the other three sides of town, in the north side, the east side, the west side, I'd be doing four million. I'm like, “Dude, I could give you a hundred names of a dentist who does four million in one location. Why would you want to do four million in four locations?”
Why do you think opening up another, rent, mortgage [inaudible 30:22] computers, interns, malpractice. Why do you think doubling all your expenses is the best way to grow? You want to grow net earnings and when you talk to anybody with an MBA on Wall Street, they say, “You know, if I could just grow earnings double digit every year”, they don't care how they do that. They don’t talk about one location. It might just be as little as, “Okay, we're still going to do a million, but to grow earnings, we're going to drop this underperforming PPO that we're not making money on and focus more on a higher lucrative dental insurance or a cash patient”, they should grow every year. They should have less debt and grow earnings. It’s kind of like the Internet days, where everybody would say, “Well, how is your company going?” “Oh man, our page had two million hits”. Really? Well, when you go to Starbucks, you can't even buy a cup of coffee with two million hits. They would always give you measurements that couldn't buy you a cup of coffee at Starbucks. So, you talk about that exit planning, starting with the end in mind. Why do you think that? What does that mean?
Bassim: Well, most people when they hear the word exit planning, they think, maybe I need to talk to somebody about selling my practice, you know, six months before I want to retire and that couldn't be any farther from the truth. The truth is, especially if you're running a solo practice, you need to have a contingency plan in place so that you're protecting your family, you’re protecting your employees, and also keeping the best interests of your patients in place so you need to have things like buy/sell agreements. So, if you become disabled or prematurely pass away, you need to be able to have a contingency plan for that so that your family can get paid for the value of the practice, your employees would continue to keep their job and your patients will be taken care of.
I remember I had to grapple with this when I was probably thirty-five years old when I started feeling some chest pains and so anyway, I went to the doctor. I took a few mornings off here and there to see a cardiologist and they did the echo grams and all the physical stuff. And it turned out there was a false alarm. Thank God, but I remember one afternoon one of my employees came to my office and he was so concerned and asked me if something happens to you, what happens to us and that was a wakeup call for me and that's when I decided okay I need to have a contingency plan. So luckily, I had an associate that was in my office that had been with me for a while so we developed a plan to make him a minority partner. And, then we bought life insurance on each other. We have a buy/sell agreement. So, we put all the necessary steps in place so that if something happens to me or I get hit by a bus, it's business as usual and it certainly makes me sleep better at night and it makes my employees feel at ease. And actually, that's one of our selling points that I have for our clients. I say, “Hey, if I'm on vacation? If I'm not at the office, your accounting is still being done and you're taken care of”.
Howard: Very nice. So, let's go to the practice manager software. I recommend Open Dental. Which one do you recommend, if you had to recommend one?
Bassim: I always recommend for the clients to check probably two or three different softwares and see which one their staff knows best. And also, what's popular in their geographical area so that if maybe they have staff turnover, the team that they're going to recruit, they know the software, so they don't have to spend too much time learning the new software. So, it’s basically what they know best. And then again, when I'm talking with a client that's thinking about having multiple offices and they're thinking about scaling their practice and their business then we definitely need to have software that's probably more cloud-based that can help them centralize some of their functions, like maybe the scheduling, billing. So, we usually leave it up to the client. We ask them to do their homework, but we always recommend that they check two or three different software packages and see what's best for them.
Howard: And do you like to be able to enter remote, into their practice management system?
Bassim: We use some of the practice analytics that go on top of their practice management software, so if they subscribe to that. A lot of our clients ...
Howard: Like what?
Bassim: Like Sika or Square Practice so one of these apps that go on top of the practice management software and a lot of our clients already work with consultants that use these apps, so we like to have access to it so that we can …
Howard: So, your main ones are Sika software and Square Practice.
Bassim: The one we see client use the most is Sika.
Howard: It's Sika, okay. VJ Sika – I had him on the show – and Square Practice, but for instance, what percent of dental offices do you think are being embezzled on every year?
Bassim: I know the numbers are bigger. I don't have the specifics, statistics, but I know the numbers are very high.
Howard: But for you to catch that, wouldn't you have to be logging into their system?
Bassim: Yes. And we usually ask them to send us the collection reports, so we usually just ask them because, for security reasons, we don't know if the login is going to be something that's secure or not and for HIPAA compliance. So, what we typically like to do is, we like to get their collection and production reports at the end of the month and we try to compare that to the numbers that go into the bank and then we see if there is a difference or not. But we typically don't get access to the software. But if they use Sika software, for example, then we like to get access to that because it will give us the same data without having them send us the reports manually.
Howard: In the last twenty years, have you found much embezzling?
Bassim: Yeah, we've had a couple of offices that ran into that. We usually say to our clients that what you need to do is, you need to put controls in place to prevent embezzlement. Discovering fraud and discovering embezzlement is usually very difficult because usually the people that do it, I hate to say it, but they usually are smart with numbers and they know how to conceal. So, they're going to do it in a way where if you're going through the normal motions, you're not going to catch it. So, usually we always say that you stumble upon fraud. So, what a practice owner needs to do is they need to prevent themselves from being victims of fraud. Putting controls in place like segregation of duties. But sometimes in a small practice of say five people, it's hard to do that. Maybe sometimes even installing cameras in your front office area. Asking patients that they paid cash or that they always have a receipt and if maybe giving incentives, if they don't get a receipt they need to call a number and report it, then they would get maybe a Starbucks card or something. So, you need to have controls in place to prevent you from being a victim and certainly reconciling between production, collection and deposits would definitely help. But again, if you're dealing with a smart [inaudible 39:28] they're going to know how to conceal it in a way where if you're even reconciling, you won't catch it.
Howard: What consultants do you work with? Do you have a favorite or a couple of favorites?
Bassim: We love working with fortune management, Bernie Stoltz and his group.
Howard: Yeah, we just had him on the show. Bernie Stoltz, fortune management, unbelievable guy. So, had good luck with him?
Bassim: We've had good luck with him. I always tell my clients, with consultants it's like going on a diet plan. No matter how crazy the diet is, if you follow it, you'll probably have results. So, it's probably a fifty fifty with consultants, meaning they contribute 50% to your success, but if you're not willing to follow their advice and act on their recommendations, you're not going to see results. So, it certainly helps to have a great consultant, but if you're not open minded and you're not willing to do all the hard work and roll up your sleeves, it isn’t going to work.
Howard: You sound just like the judge. That's exactly what the judge told me when I sued my personal trainer after three years and I was still short, fat, and bald, she said, “Well, you didn't do anything”.
Bassim: For three, four years I've been paying my gym membership and I’m not seeing results.
Howard: Well, I'll tell you why. It's the recurring theme of my seminary. I love my homies. I want them to do well. I want dentistry to thrive and I always tell them, you got to get a CPA that specializes in dentistry and instead of buying shiny equipment, a CAD/CAM, an oral scanner, a CBCT, a laser, all those toys, buy a consultant. Get your house in order, pay off your student loans, manage your capital, get rich and then the decision will not be, “Should I buy a Cerec machine?” It should be, “Should I buy a new red Porsche?” or “Should I buy a Cerec machine?” It should be, “Well, should I buy a CBCT or a cabin. This summer should I get a new boat, or should I get a laser?” That's how those decisions are made and when they get their house in order, their marriage is better.
Howard: They're less likely to do substance abuse. I remember the three causes of divorce are over money, sex, substance abuse. And when you're dealing with your CPA, you have to be 100% transparent with your spouse. It has to be a marriage deal because your CPA is not going to be able to save you a bunch of money when you go get divorced, you're going to lose half your money. There are some dental CPAs, there are some firms, who at the end of year will not even take you as a client if you don't bring in the spouse. It's a partner deal. And as far as the investment, that's another thing, that's often a great task for your spouse. And it seems like every time I'm talking to a dentist, they don't know how to enter an insurance code.
Howard: They couldn't build electronic claims. Their staff could embezzle around them in circles because they're busy doing root canals. But as long as you make it, so it's going to take two or three people to embezzle, that's when you'll shut it down. When one person can do it, it's going to happen and half the dental offices, if one person can do it. But when it takes two to lie, cheat, and steal, now game theory starts checking in because I've got to go up to you and say, “Ah, Bassam, you want to rip off Howie?” Because I don't know if Bassam is going to say, “Well, get out of here” and then go tell me, and then I'm out of job and then when there's three, game theory will tell you, and where I've seen it with two in an office is when the mother was the receptionist and the assistant was her daughter.
Spouses are good and then a lot of times I'll be talking to a dentist and I'll say, “Well, do you have any family members in town, they’re in accounting, bookkeeping?” They’ll say, “Oh, my brother's wife is a CPA”. Like ding, ding, ding, ding, ding or a bookkeeper or you know, whatever. But just make sure that it's going to take two or three people. I'm pretty positive in my organization that four people would have to be in on it to do it. So, I think I cut you off on that tax advice. What do you think most dentists listening to you right now did not comprehend on this latest Trump tax reform?
Bassim: Well, I think the biggest provision is the new section one one nine eight. That’s the new deduction for pass through income and that's where most dentists run their businesses. They're usually run S corporations or sole proprietors where they are on some type of pass through entity. So, the new law basically says on their net business income, they can get a 20% deduction. Now, accountants, attorneys, dentists, they were excluded from enjoying that 20% deduction if their income is above a certain threshold. So, for most for most married dentists, if their taxable income is less than three hundred and fifteen thousand, they will enjoy the full 20% deduction. Then it starts to get phased out between three fifteen to four hundred and fifteen thousand, but I think it's a great deduction. I think it's going to help many dentists who are either independent contractors and they run their income, [inaudible 45:43] flows through to them as an independent contractor income or if they run a practice in that type of structure like that as well, they're going to do great. There's also a lot of great incentives for growing your practice, like in depreciation and Section one seventy-nine has improved.
Bassim: There's bonus depreciation which can even be applied to use the equipment. And they expanded the definition of Section one seventy-nine and as you know, Howard, Section one seventy-nine, that's the provision in the tax code that allows you to write off equipment in the year that you buy it. So, they expanded that. So, for example, if you have to replace the roof on your building, typically that would have been depreciated over thirty-nine years. Now you could Section one seventy-nine that or if you had to change the AC system or the book cameras, all of these things now can be Section one seventy-nine deducted. So definitely, the new a tax plan is going to be a lot kinder and gentler to business owners and dentists specifically.
Howard: They always told us in MBA school, the tax code was simple, it wouldn't be fair and if it's fair, it's not going to be simple. But then I go back to when they started the federal income taxes under Abraham Lincoln. It was a one-page form. Some people think that the fact that it's sixty thousand pages, is just proof enough that it's just complete politics and corruption. Do you think we should go back to a single one-page form or do you think, like the old saying, that if it was simple, it wouldn't be fair, and if it’s fair it wouldn't be simple? How do you weigh in on that?
Bassim: Well, that's a great question and there is always interested parties with every type of deduction or incentive. And I think there was a true attempt by Congress to make it simpler. But the reality is there are so many interested parties involved that were lobbying very hard against that. I know there was also an attempt to implement a version of the value added tax or a national sales tax. They called that the border adjustment tax and it didn't happen. I think it probably would have been a great opportunity for us to allow our tax system to enter the twenty first century because it would have simplified the income tax code and it would have probably made it less possible for people to cheat on taxes because you would have been able to tax goods and services at every stage as they were being improved or there was value being added. But I think it's coming. Maybe not with this round of tax laws, maybe next time. If politicians start talking about it, I think it will happen.
Howard: Well, that's what Greece needs because they the reason all the EU members don't want to bail out Greece is because the Greeks won't pay their taxes. It's a cultural thing. Your grandpa's not doing it. Your grandma's not doing it and nobody in your family is doing. And for you to just sit up and say, “You know what, the right thing to do is for me to start paying my taxes”. If there was ever a country in the world that would overcome their tradition.
Bassim: The IRS did a study to see how compliant the restaurant industry was with reporting every penny they make. And they found out that 98% of restaurant owners don't report all their income. So, again, if we had some type of value added tax.
Howard: Yes, and the person who has to pay all the taxes are employees because the boss is doing it for them. The middle class pays the lion's share of these taxes because everyone else gets out. So, what do my homies find if they go to your website Onlyfordentists.com? What are they going to find on your website?
Bassim: They will probably find all the different services that we provide. We also have a newsletter that they can see all the different issues and we have a blog and it's constantly being updated so we would like for your Townie subscribers to come to our website and check it out. Also, they can subscribe to our newsletter as well.
Howard: And another thing that they always say is a complete mental error, they always say, “I want to find a CPA in my town”. Dude, how often do you have to go to your CPA? You use labs that are clear across the United States. Why does your CPA have to be up the street? You don't want the most convenient CPA information. You want the most useful CPA information and I'm telling you that with an MBA, [inaudible 50:58], in spades the CPAs who know the most about dentistry and add the most value are people who just do it as a specialty. Just no different than medicine. And who do you think can pull wisdom teeth better? An oral surgeon or a general dentist. I mean that's all oral surgeons do all day. Just get specialized. Do you have to see your clients? You're in Fresno. What if I'm in Jersey?
Bassim: Yeah. So, we typically what we do is we have to at least see them once a quarter.
Howard: In the flesh?
Bassim: No, we usually do it the same way you and I are talking right now.
Bassim: So, we usually use Skype or GoToMeeting or JoinMe.
Howard: Which one do you use the most?
Bassim: Probably Join Me because they probably not as interested in seeing my face as much as seeing their dashboard, and seeing the P and L, and going over the overhead, going over their tax projections and what they can do to lower their taxes.
Howard: I think you're going to be switching to Skype soon. You know why?
Bassim: It's in our plan because we actually just subscribed to Skype for Business.
Howard: Well, Microsoft bought Skype and they bought LinkedIn. So, rumor has it that your LinkedIn app on your phone is going to turn into FaceTime. So, if you and I are connected on LinkedIn, it shouldn't be long where there'll be a little phone icon and then we can talk to each other in the face. In fact, the prisons are switching to that right now. And the prisoners are upset because the whole influx of drugs and everything in the prison is during visits by family members. And so, they're switching to that now.
Bassim: Now, are you trying to imply that a senior accountant is similar to someone in jail?
Howard: Well, it's true man, because everyone wonders why is there just the same availability of drugs inside a prison as there is outside of the prison, in the poorest neighborhood in town. And it's from the visitors and everyone knows it and they just can't stop it. So, finally these prisons are saying, “Dude, we got Skype, we got GoToMeeting, we got all this technology. So, from now on, it's going to be video”. You can't have hand someone a bag of dope through a video. So, when I look at your website, I see tax reduction, dental accounting, practice valuation, practice transition. You're talking to a younger crowd now and a lot of them want to go home because, especially the women dentists, because the women dentists know if they're going to have a baby, they're pretty sure their deadbeat husband is not going to have to do a lot of help. They kind of want to be in the same town as their mom and their sister. So, they go back home, and they see old man McGregor's practice and he says he wants to sell it for $750,000. You're a certified valuation analyst that can be court ordered. How do you help her decide if old man McGregor's practice is really worth $750,000 in Salina, Kansas?
Bassim: So, I think the key here is looking at the cash flow and that's probably what lenders also look at. You know, we need to look at the cash flow and make sure that the practice will be able to provide for the young dentists, personal living expenses, pay their practice loan, pay for their student loans. So, that's usually the one thing that we try to focus on. And then we also look at the overhead so that we can find out if they're spending 50% on staff when it should be only like twenty-five or 30%. So, these are things that we look at and we kind of maybe give a buyer the heads up, so they know what they're dealing with. But, I'm of the belief that it takes a special skill to build a practice and maybe for someone who wants to be a business owner or practice owner, it's probably easier to buy a practice than to do a startup because you have immediate cash flow from the beginning. So, that's how we evaluate practices, it’s based on the cashflow.
Howard: And that is cashflow, that’s not sales because again, the dental office could be doing a million dollars and the dentists are like taking a hundred thousand, and there's a practice for sale across the street for five hundred thousand. And that dental office is doing three hundred and fifty thousand and taking home one fifty. And, when you're doing hands on surgery all day, it's kind of like, say you own a lawn service. Would you rather be a lawn service that to make $100,000 a year, you had to mow ten houses every day. Or would you rather buy the business where you made the same money mowing five houses a day. Hands on surgery, mowing lawns or making pizza is not a game of volume. If you want to get into a game of volume, you go into some automated factory, you don't sit there and do something manually hands on. Can you assist her in the whole brokerage transition sale?
Bassim: No, we usually represent them, like for a buyer, we just help them with the due diligence, we do the tax returns, we do the production reports, the aging of accounts receivable would kind of work with the rest of the team, the lenders, the dental attorneys to make sure that they know what they're getting themselves into and you know, in all these years, I think I've only seen one dentist go out of business and it's probably because they didn't listen to our advice. Advise them not to do it and they still went ahead and did it. But we always advise our clients to work with people that specifically work with dentists because this particular client, she ended up working with a local bank and now with a bank that deals with dental practices and the fact that she has a DDS behind her name. They approved for the loan, but she was not the right fit for that practice. This was a really high-end practice and she was mainly working for core corporate dentistry. She was not doing a lot of the high-end stuff. When I looked at their production reports, the seller was doing a lot of implants and she never did implants. She told me she was going to take the weekend course in Las Vegas. But, when I told her I don't think she's the right fit, she doesn't like it. And I think a couple of years later she ended up going out of business. But that was the only case. It's not also just looking at the numbers and the cashflow, but also need to ask yourself, do I have the skill set to offer the same services? So, you always want to buy a practice that your skill set is higher than the current seller is selling so that you could expand your services and be able to add value to it.
Howard: Well said. I've seen that happen three times. Just here in my backyard in Phoenix where some guy was mostly selling these big full mouth rehab, cosmetic cases, taking all the amalgams and PFMs out and all of a sudden, this young kid bought it. He couldn't sell any case like that, 90% of dentists have never sold one $25,000 case in their whole life and he paid one point five for a practice and this guy’s selling all day long. And the real value is the other end. That ones I've seen cleanup the most, bought some old seventy-year old man's office. All he did was MOD amalgams. He did it for fifty years, planting all these trees. That guy just sat there and this little three operatory, had one hygienist. He had his two little operatories four times a day. One of his patients, for the last fifty years, the whole MOD amalgam would break off and they would come in and need a buildup and crown and it was just ka-ching, ka-ching, ka-ching.
Howard: And he did that. He's still doing it. And so, then you go to a guy who does all of his own endo and then you don't do endo. He did his own implants. You don't do implants. You need to find something. The best bargains are the lowest costs office and say, “Well, the only reason they're doing five hundred is because he referred out all of his wisdom teeth and I can do that. All of his molar endo, I can do that. Or all of his Invisalign”. What value can you add? You don't pay for something that you can’t do and then buy it and take it off the table.
Bassim: I wanted to add when you're buying a practice, we always encourage the dentist to focus on the chart audit. Because I always explain to them what they're really buying, they're not really buying the old equipment that's worthless. What they're really buying is the future work, the future cash flow of that practice. And it's not the future of new patients, because guess what, if you do a startup from scratch, you could bank on getting new patients. So, when you're buying an existing practice, you're not going to be buying it because it gets thirty new patients a month, what you're buying is the future work that's going to be done on the existing patients. That's what you're paying for, the goodwill. So, typically you'll be able to see that in the charts. When you audit the charts, you're going to see if they do all the work. Is there going to be any more work for you to do or not? That's really what you're paying for.
Howard: And you know, the DSOs, the reason they're all running into dentistry is because dentistry only has a 0.4% bankrupt chance. Restaurants have 20% the first year. Dentists have 0.4% and the 0.4% is almost always had their license taken away and if their license is taken away it’s usually 80% the time for alcohol, 15% for opioids and 5% for cocaine. And I tell these makers that I just have them pee in a cup and get a bunch of hair because you can find out, and that's only for a 0.4%. But, I mean that sincerely, also for the ones listening because people who have big problems like that, especially dentists, physicians, and lawyers are masters at keeping that hidden from everybody, everybody.
Almost no one knows outside of their family or sometimes not even in their family. So, if you're listening to this, listen to this, if you have that problem, solve that problem first, go get treatment, go get help and get a year under your belt of sobriety and then go do the deal because that is the only thing that's going to take you out. It'll take out your practice, your marriage, your kids. We could go on for forty days and forty nights. I want to tell you, first of all, thank you so much for always posting on Dentaltown. Your posts on Dentaltown are amazing, you're always asking questions. Go to his website onlyfordentists.com and it’s a genius name because it's true. That's what you need. If you have a heart attack, you want to go to onlyforcardiologists.com. If your eyeball falls out, you want to go to onlyforophthalmologists.com. You don't want to go to a veterinarian when you have a foot problem. Just get specialized in your CPA. This guy deals with two hundred dental offices, so he’s seen everything. He's seen it for two decades. He sees the trends, he can see what you're doing at thirty thousand feet. Quit using that guy because he's up the street from you and was recommended by your mom. That doesn't mean anything. Look at this podcast. We're doing a perfectly great podcast and we're probably five hundred miles. How far is Fresno from Phoenix?
Bassim: Yeah, probably at least five hundred …
Howard: Yeah, I don't need to be sitting on his lap holding his hand to transfer information. You don't need a laboratory and a CPA in your backyard, dude, come on. This is the decade of Amazon.com. You can buy sneakers that were made in China a week ago, delivered to your front door. You don't need to meet any of those people along the way. So, thank you so much for all that you've done for dentistry, for Dentaltown. Thanks so much for coming on the show. I had a rocking hot time and I hope you post those under chart of accounts just tell Howard did. I would like to get that foundation as they're starting to drag that rocket to the launch pad. I think who's going to do at first is Open Dental. It's the only company where their president and CEO, the founder was a dentist, Jordin Sparks. His brother, Nathan runs the company while Jordan does his dental stuff and the only dental practice management company that's totally yours. Totally like, we're here for you, we'll help you out. But if you on Dentaltown could get everyone to agree on the chart of accounts and then the second decision is what software system do you want to bridge to?
The DSOs are all going to want Great Plains and by the way, I know I'm old, I keep saying Great Plains Accounting. When Microsoft bought it, they changed the name to Microsoft GP and GP is for Great Plains. But I think the DSOs will all want Microsoft GP, but I think the smaller offices will want Microsoft GP because they want to be poised for growth on an exit strategy. We always call it the Mack Truck Syndrome in MBA school. What happens when junior is on their way to work and is ran over by a Mack truck? And that's one of the biggest stress test of a small business is will this business survive the loss of one person? In fact, it's one of the top three causes of bankruptcies. And got this small business, in a small town and they do three million a year and the owner nets a million and they didn't realize that Mark was their salesman and he was selling three million a year. And then when he died, they brought in a great guy, but he can only do one and a half million a year. So, they went bankrupt in six months and every MBA now will say, “Well, why was this entire company built on one guy bringing in all the revenue?” That's just dumb.
Bassim: This is our setup, I mean, most small practices and the typical dental practices is based on that one solo guy.
Howard: Yeah. I hired my first associate straight out of school, but I can't say I did it because I was smart. You know why I did it? I was professionally lonely. I wanted to talk to another dentist and I was so damn dumb. I got a dentist my same age because that was cool, and he was funny. Looking back, it's like, “Oh I was so dumb. Why didn’t I hire the sixty-year old dentist who applied?” Oh no, that's why I hired the only twenty-five year old that applied. When you start up a dental office always hire people that have ten, twenty years’ experience because you have none and then when you have twenty years’ experience, you can hire a twenty-five year old with no experience. But a twenty-five year old with no experience cannot hire another twenty-five. Granted, we had a blast. It was fun. Lots of giggles and pranks and all that, but it was not smart. But hey again, go to onlyfordentists.com, Bassim Michael CPA. CVA. Ms. Thank you so much for coming on the show today.
Bassim: Thank you, Howard. Thank you for having me. I appreciate it.
Howard: All right. Thank you, Ryan.