MSD Insider  0:00  

Welcome to MedShark Insider with Bill Fukui, your expert host on all things medical marketing and SEO.

Bill Fukui  0:08  

Good evening everyone, and thanks for investing time to join us tonight. If you are considering buying or selling a dental practice in the near future or even beyond, and looking for information on the data you need to collect, conducting due diligence,and the transition process, you’re in for a treat tonight. You’re going to get some insights that practices and doctor,s dentists will spend a lot of money to get this insight. So you’re going to have the benefit of getting that tonight. And so the title of today’s presentation is on “The deal looks too good, but is it?” And that says a lot, doesn’t it? I mean, it really kind of goes into it always looks better, looks easy on the from a conceptual standpoint, but when you get into the weeds, there’s so much more to it, right? And the ideas, practices kind of get stuck many times, thinking it’s better. It’s such a great deal and and they end up having some issues. So today I’m going to introduce our guests. Travis Slade is a CPA, and really he understands the dental business from the inside out. He’s started his career working in an actual dental practice, gaining, you know, intimate insights into the financial and operational struggles that dentists literally every day. He is now the founder of Uluru Advisors. And Travis leverages that experience with really decades of working with practices and working with over, you know, over 1000 dentists I believe, and really helping professionals navigate through practice transitions. You know, things like tax planning, cash flow and really just making practices, you know, confident in what they’re doing and leveraging confidence in that process. So welcome, Travis. 

Travis  2:25  

Happy to be here. Thanks.

Bill Fukui  2:28  

Super. Our other presenter tonight is Joanne Tanner. And I’ve known Joanne Tanner for many, many years. She has an incredible reputation in the dental industry. She is the founder of Tanner Management and Consulting. She’s been we’ve known each other for probably 25-30 years, but she’s been in the dental industry for over 40 years, specializing in practice acquisitions and helping dental practices grow. And really, she works exclusively with dentists, which is what I’ve always found. You know, an advantage to the practices that she’s working with is that I know from my experience with her, she actually was much like Travis, who worked in a dental practice. She has an incredible background, and I think at the end of the day, you’re going to find the information she has on financials, you know, assessment, systems, operations, and really just setting up realistic, you know, transfer even before, during, and after the sale. So welcome Joanne

Joanne Tanner  3:47  

Thank you, Bill. 

Bill Fukui  3:48  

So let’s go ahead and get started. Travis, I’m going to let you jump, jump in here. I’m going to give you a little bit of background on me. I’m the founder of Medshark Digital. I’m not going to go into all the details about me. It’s really about you guys. If you need any digital help, I’m here to help, but really I’m here to support and host this program. So Travis, I’m going to pass it along to you and we can get started.

Travis  4:16  

All right, thank you, Bill. Appreciate you. Bill, kind of coordinating and hosting this and sponsoring this event, really, if someone here is looking for any digital marketing needs, definitely encourage you to reach out to Bill. So we’re going to talk about the deal looks good. So when we say the deal, we’re talking about the deal of buying a practice. You are looking at acquiring a practice and this is primarily focused on you as a buyer. There’s a lot of different perspectives to take from a buyer versus a seller, but today, we’re focused on the buyers and helping you identify if it’s actually a good deal. And I’m going to share my perspective as an accountant. Usually, when you buy a practice, you get an accountant involved. And for me, I got into dental before I really got into accounting. So over a decade ago, I worked in my brother’s dental practice. I had studied accounting in college, and I thought, I’m never going to be a CPA, because those guys are so lame. And then I did some finance and for a little while, and I worked in my brother’s dental practice, and I saw the pains of running a dental practice. And there’s a lot of beautiful things of owning a practice. I’m very much an advocate for practice ownership, but there are some difficult things. And I saw my brother getting, you know, bombarded with tax accounting, cash flow type questions, and he just wasn’t getting any answers. And I just felt like there’s got to be a better way to do this. So I’ve spent over the past decade trying to help dentists make good financial decisions, especially as it comes to practice ownership. And I don’t know if I’ve worked with 1000s, but definitely hundreds of buyers buying dental practices over the years, and want to share some insights that I have on what I’ve seen be a good deal or not. The first thing I want to focus on is cash flow. Now, there’s a lot of people involved in buying a practice. Obviously, the dentist is the centerpiece, but there’s a lot of different advisors, and there’s different people that do cash projections. And I just want to give a little context on a cash projection, and this is the first thing that I look at when I’m trying to determine, is this a good deal, or how do I really feel about this practice? I like to look at the cash flow, but let me give a little context. So this doctor is selling their dental practice, and this doctor has a lot of different numbers. There’s numbers in dentrix, there’s numbers on their P and L, they also have a tax return of all these numbers. This tax return is filed with a federal agency, and so as a general census, we assume most people are not going to lie to a federal agency, and so there is some level of trust on this tax return, and that’s usually banks like tax returns, accountants, we love tax returns, right? So we usually start with this tax return because it comes with a certain level of trust, but the objective of your tax return is to pay as little in taxes as possible. So as a business owner, you want to grab as many legitimate expenses as you can and report them on your tax return and make your income look as low as possible. Well, now this seller is taking their tax return and they’re turning it over to you to sell their practice. Well, now they want that tax return to look as good as possible, right to the IRS. They want it to be as low as possible. To you. They want it to be as high as possible. Well, the way that we get there is we do the what’s called these add backs. A good example is a Porsche, right? We have a senior doctor, seasoned doctor, and they want to buy $100,000 Porsche, and they tell their accountant they want to write it off. And the accountant says, I don’t know if that’s a good idea. And then the the doctor says, shut up, I’m doing it. Just joking. They don’t do it. They work with their accountant, they write off $100,000 Porsche on their tax return, and that’s great. They save some money on taxes. Well now they’re turning it over to you, and they’re selling their practice. You don’t need to buy $100,000 Porsche as a dental practice owner. If you don’t know that, you know you’ve learned one thing today. So what we do is we add back that Porsche. So instead of having $100,000 Porsche expense, you have $100,000 more of cash in your bank account, right? So we have what are called these add backs. And these are really important to understand, because the ad backs, if done correctly, can help us take this tax return from a tax return to what you can really expect for cash flow. Now, when it comes to add backs, there are some very common, legitimate add backs. Some common, legitimate add backs are the owner’s salary, their retirement contribution. So if they have a 401 k plan, a lot of these seasoned doctors, they might have a defined benefit plan, and they’re putting $100,000 into retirement. You don’t have to do that as a new practice owner. That’s completely discretionary. They also have some travel. We talked about auto expenses and family wages. All of these things are what we consider discretionary expenses that they put on their tax return that were legitimate expenses. But when it comes to selling their practice, we’re going to add those back because you the buyer. You’re not going to have to do your you’re not going to have to travel to Hawaii to do your CE. You’re just going to do it online, right? So you’re going to have a different level of expenses than what they had now. Doing the Add backs for the seller feels really good, right? Right? They had this tax return that showed $200,000 of income, and they saved money on taxes, and then they add these add backs, and they got their practice to look like it’s a $500,000 practice, and they just want to keep going, right? Let’s add back everything we can. And sometimes it gets a little aggressive, right? So there’s this danger zone category I have if I see add backs that are utilities or supplies or lab fees. Those are usually not discretionary expenses. You kind of need utilities, and it shouldn’t be a number that you fudge with too much, right? The only way you’re fudging with utilities is if you’re taking your personal utilities and putting it through the business, and now that’s potentially tax fraud, right? So that it’s kind of a slippery slope as we look at some of some of the Add backs. Now, there might be legitimate reasons, but you kind of need an explanation on why you’re adding back utilities and things like that. Some of the things are a little bit more straightforward, but we do this to help ourselves get a better sense on what is the actual cash flow of the practice? Now I, when I do the cash flow analysis, I have a pretty good a sense on is this actually a good practice? You can have two practices that both collect million dollars in revenue, but have completely different overhead, completely different add backs, and if done correctly, you can help identify what’s a good practice or not. But it can be confusing to be in your shoes, and when you first see a practice, you’re likely going to see a cash projection from a broker, and that’s their job. They often have a high level number this practice cash flows, 300,000 or something. You might see that in the prospectus, and there are a lot of fantastic brokers. I personally love brokers. I’ve dealt with a lot of transactions where there’s no broker and it’s a lot harder. The brokers are do a good job about managing expectations, but they also represent the seller, right? Their job is to make the seller look as good as possible, and so sometimes their ad backs might not be the same ad backs that I would think for a buyer. We also have a banker involved. They do cash projections, and I love dental lenders. They do a fantastic job. I wish there were accounting lenders like there are dental lenders. Guys are spoiled with banks, and there’s some fantastic bankers out there, but, but they have a focus on how to get this through underwriting. What numbers do I need to do to get this qualified? Which is great for you, and it’s fantastic. But sometimes, when we come in as an accountant, we get a reputation of being pessimistic, right or realistic. Call it what you want so, but we want to paint a picture. What is your real cash flow going to look like? And we factor in things that sometimes the others don’t. For years, Delta Dental had a haircut when you moved from Premier. Joanne’s probably going to talk about this little bit more later on, but I never saw this Delta Dental haircut factored into brokers and oftentimes even bankers for years, right? And this is a very real haircut, as you’ll later find out. And there’s other factors, you know, even debt service. You know, if I buy a $1.5 million practice, what’s my debt service going to be on that? Let’s factor that in, right? So everyone factors in different things. As a CPA, we try to be the most comprehensive. You can call it pessimistic. We’ll call it realistic. And ultimately, this, for me, is the starting place of, is this a good deal? How much cash can I expect from this practice? We haven’t even talked about price yet, right? We haven’t even looked at like, you know, multiples or things like that, because I need to have the right expectations about cash flow going into this practice before I even care. You know is, are they going to give me $200,000 off of practice that cash flow is $50,000 a year. I don’t care. I don’t want $50,000 a year. That’s not worth my time, right? So it’s really important to have a really good understanding of cash flow, and for me, that can serve as a compass as you navigate the practice acquisition. Another example is if the price, you know, might be a little bit higher than normal. Well, if the cash flow is really good, even after debt service, and it has a premium price, that still might be a good deal because the cash flow is so good. So to me, this is my North Star. There’s a lot of factors, and obviously people have different opinions on this, but in all the practices I looked at, I’ve looked at, I love cash projections as a compass, there’s also different scenarios you can think about with cash projections. Sometimes, you know, you can tweak things and change things and and we can play around with cash projections a lot, but it’s a good starting point. Okay, the next thing I want to talk about is price. So we we definitely don’t want to pay $2 million for a price that’s worth 600,000 right? Price does matter, but in my. Experience, I like to use the ballpark rule. I want to make sure price is in the ballpark. But in my experience, price is not a scientific, exact number. Some people disagree with this, and I think I was tainted because my first job out of school when I swore off being a CPA and I wanted to do finance in downtown San Francisco, and my job was valuing businesses. I was effectively an appraiser of businesses before they became public. So think Facebook before it, ipoed and companies like that. We, our company would, would give these companies an appraisal and a value. And I learned how much subjectivity is involved in this. In the process of appraising a business, there are very complicated models, very advanced models to try to appraise a business, but at the end of the day, there’s just a couple levers you can turn, and you can change the value of the of the firm by millions of dollars. And so when I think about, you know, what is a scientific exact number on a on what the price of a practice is. Ultimately, it is has some subjectivity to it, but we do want to make sure we’re pretty close. So there’s a couple methods that are most commonly used when there’s a solo Doctor buying from another solo doctor. The most common multiples that are used is a multiple of revenue. So you probably have heard people say, Oh, my practice collects a million dollars. So it’s worth 800,000 that’s that is a multiple that’s used out there. But another multiple is what’s called seller discretionary earnings. So we look at the actual profit in the business. I think that’s an important thing, and we take a multiple of that. So usually there’s some kind of mix on those multiples to kind of come up with a range of what this this practice is worth. Now, if it’s a large practice, or if there’s a lot of associates involved, sometimes we’ll use an EBITDA multiple, but that’s not most commonly used when it’s a single doctor and a single doc. Now, in looking at these numbers, I kind of talked about this a little bit, but just the past week, I’ve talked to probably three buyers who who, when they come to me, they they don’t want to buy a practice for more than $300,000 and their thought process is, I have a bunch of student loans, I just don’t want more debt, so I want to buy a practice for $300 or less, right? Oh, they’re, they’re selling, it’s a $300 practice now it’s only worth now they’re selling it for 150,000 it’s like, Yeah, I bet they are. Because those small practices don’t have a lot of cash flow. There’s not a lot of meat on the bones. There’s certain fixed costs you have running a dental practice. You have rent you have equipment, you have supplies. You know, the smallest office you could have, maybe two opera three operatories. You still have some certain fixed costs with that, and it’s hard to make profit on a really small practice. You really need the million 1.2 $1.5 million size practice to have healthy margins and to have decent cash flow. I would much rather take out a million dollars of debt to have $250,000 of cash flow than to take out $200,000 of debt to have 80,000 of calories of cash flow. That scenario right there. That’s it. That’s a much better ratio, right? Like, it’s a very profitable $200,000 practice, but it’s still just not a lot of meat on the bones. So sometimes, you know, in these practice, these buyers have even used the term, like, I this is going to this is a good deal, don’t you think? I mean, in my opinion, I’d rather have the cash flow, right? And go back to the cash flow and, and and that, again, is my North Star. Now I will caveat this with there are a lot of buyers out there who want to be in a very specific location. I live in Southern California. There’s a lot of dentists in Southern California, and it’s hard to find these $1.5 million practices with great overhead that are being listed on the market. Usually, those practices in my area don’t even make it to a broker, right? And so sometimes you have to start with like, work with what you have if you want to be where you’re at, but have your eyes wide open and knowing the work that you have ahead of you, right? So doesn’t mean you know every location and scenario is different, but just because it’s a cheap practice, doesn’t mean it’s a good deal. I want to make sure that point gets across. Now, the other thing I’ll say about price, and then I’ll try to keep moving along, is you are not buying a purse. You’re not buying a car, even you’re not buying, you know something you didn’t like, get off at Ensenada on a cruise and you’re trying to haggle with something that you’re buying on the streets. You are buying a cash generating machine. You are buying the place where you will spend at least 40 hours a week. Physically, another 20 hours a week. Mentally, this will consume your life, hopefully. In healthy ways, and you want to make sure it’s a good practice, and nickeling and diming for price is not going to serve you well in the end. Ultimately, you know, let’s say the practice was listed for 900,000 and you want to try to get it for 800,000 that $100,000 that you’re trying to negotiate a amortized over 10 to 15 years of a loan that’s actually not even going to save you that much on an annual cash flow basis. You might eliminate some goodwill, you might turn off the seller, and now he’s not going to advocate for you as as much. So I usually look at price as a take it or leave it thing. Now, there might be legitimate things that come up, maybe they didn’t tell you about certain key members leaving, or certain things about rent, or, you know, different there could be some things that come up that are legitimate, that could merit a reduction in price. But I oftentimes see buyers going in just with this mentality, like they just got off the cruise ship, and they’re trying to haggle on price. It’s like, I’m just, it’s just anything I’m buying, I’m going to haggle on right? It’s like, you don’t really want to haggle on this. You want to maintain goodwill. And it’s a take it or leave it type thing with price most of the time, in my opinion. Now, if they’re selling the again, if it if the price comes in at 600,000 on my model, and they’re asking for 1.5 then there’s a huge, you know, much bigger discussion. And the discussion might just be, you know, to leave and not, you know, not work with price, but if they’re willing to work with you, then then you want to have a constructive conversation. Okay, couple other quick things I want to point out. It’s important to look at overhead. When you’re looking at overhead when you’re buying a practice. It’s important to know this kind of factors into add backs. And some of the things that add back or not, there are some overhead items that are really hard to change. It’s really hard to come in and move locations to change your rent expense where you’re more you know, if you buy the location, you got to just accept the rent for what it is. And sometimes I look at the rent expense, and we want rent expense to be no more than 10% of revenue. And then we would we, you know, we say, Oh, if the rent is $100,000 a year, well then it needs to be a million dollar practice. We can kind of back in, like, what revenue should it be doing based on the rent. And maybe you feel like that’s realistic, right? But rent is not going to change. Also, staff is not going to change in the short term, at least, you don’t want to come in and fire a bunch of people or keep everyone and give them a pay cut, right? That’s not going to go over well, right? So those, those expenses are not going to change. Your labs and supplies you might be able to change, right? But even then, I wouldn’t think like, oh, they had their supplies were 10% of revenue. I’m going to come in and make that 6% overnight. There’s usually a lot of other things involved to change your supplies expense, but you can, I have seen a doctor. I just had a buyer this year, or this past year, they bought a practice. The lab expense was really expensive. And they went to all the labs, and they said, Hey, I just bought the practice with, you know, shopping around labs. Are you able to give us a reduction? And they they cut all their lab bills in half by just asking for that. So it’s amazing. You know, sometimes it can be easy and sometimes it’s not. Here’s the overhead categories for a GP practice. Ultimately, if you find a GP practice with 65% overhead, that’s a good thing, but each category might be a little off. You’ll get these slides after. If you have another specialty, you have my email at the end. If you ever want different overhead numbers, happy to share those. It’s not any secret what the overhead numbers are for the different specialties item. Okay, last I want to talk about some red flags when it comes to buying a practice, and things that kind of turn me off on is this actually a good deal? So a common one we see is somebody owns multiple practices and they’re trying to sell one of those practices. If you owned two things and you had to sell one of them, you’re probably going to sell the one thing that you like the least, right? So usually you’re, you’re buying the the the practice that’s not the best. And the other thing on the accounting side is the it’s hard to know the numbers, like the depending on how you’re they’re doing the accounting, it can be really messy, hard to know what the real overhead is. I lean on Joanne a lot in these scenarios to go into the practice management software and really tell me what, how much production and how much meat is on the bones, because the overhead numbers are just a mess. So these can be difficult. And doesn’t mean it’s a no deal. But you just, you want to be really careful going into these ones. Another one is when there’s a mismatch of information. So this is this oftentimes, why people bring in a CPA initially. If somebody says on the tax return or the profit and loss that they had $700,000 of collections, well, I should be. To get 12 months worth of bank statements. And I can go through those bank statements, and I should see $700,000 of deposits. And we do that on the accounting side. We can, we can tie out the deposits to make sure that it agrees with the tax return. If the bank deposits only total 500,000 but on the tax return, they said 700,000 and so they’re selling their practice for a lot. That’s a concern, right? Where did that $200,000 go? So it doesn’t happen a lot. Usually there’s a pretty close correlation, but it’s something you want to look out for. The other is understanding your payroll expenses. So if they, you know, had $100,000 of payroll expenses, they should have w2 set up to add up to $100,000 so we can help with that and kind of make sure that their numbers are indeed what they say they are. You can’t always detect fraud. That takes a little bit more work, but this is a pretty quick way to just check the accuracy of their numbers. The last one is just a story that doesn’t add up. So the first example is declining revenues. It’s very common to see a senior doctor with declining revenues. They are getting older and they don’t want to work as much, and so they’re just making less money. That’s That’s a very common story, but sometimes maybe they’re not seasoned, like what? Maybe there was something else on why my revenue is client was declining, even if they were older and working less. Are we sure that those patients are still around? Or did they get tired of waiting to get on the schedule and they left right? So you want to be careful about declining revenues. Banks hate declining revenues. It depends on how big it is that a client that’s something you want to have a good understanding of the story. Another one is those add backs that we talked about. If they’re really aggressive, you want a good explanation as what’s going on. If they just tell you, I just, you know was aggressive on my taxes, that, to me, is not a good enough answer. You want to see actual accounting records and how much was legitimate expenses, and how much was the personal ones that they put through the business. And lastly, if it’s a rushed sale, I’ve seen these where someone’s got to leave the country or something, something crazy is going on. Your ears want to poke up for this, and you want to be careful about those. Again, none of these are deal killers. You just want to have a good understanding and understand what’s going on. To really understand is this actually a good deal, or are these red flags going to kill it? So these are the most common things that I have. We’ll share this at the end as well, but feel free to reach out to me if you have any questions, if you’re looking at a practice, I do a thing where I’ll do a free analysis. If you send me a prospectus of a practice you’re looking at, I kind of record my screen and I spend 10 minutes and I look at it live with you, or kind of send you the video so you can kind of see my first reaction on a prospectus. And if it’s good practice, at least on the surface, and if I think it’s one you should pursue, feel free to reach out for me at any time for any any perspectives on that. But I will turn it over to Joanne to talk about her part.

Bill Fukui  28:16  

Oh, Joanne, you’re you’re muted. There we go.

Joanne Tanner  28:23  

Thank you Travis for amazing presentation. I forgot you actually worked in a dental office, so you truly know firsthand the pressures and the stresses. Because you know when membership, when practice, ownership, is done right, it means freedom. When it’s done wrong. It’s very stressful. So that’s why the doctors are here today. Where do I start? How do I know it’s a good deal? So on the next slide, I have a nice picture here of who I want you to build on the team, because you’re going to have myself understanding the clinical and practice management. And of course, for years, we’ve known to do the financial due diligence, and certainly the legal due diligence. But you see, without the practice management due diligence, you’re not truly understanding, how are they getting to the million dollars of production. Travis was sharing some very true stories, and I have a practice that was sold not too long ago in San Francisco, and unfortunately, the buyer called me after the fact, and he was sharing with me he was so excited because they were producing 1.5 million. He always heard it’s a good idea, but then when he found out everything had been crowned and veneered, there wasn’t any pending treatment, he didn’t agree with the treatment philosophy and wanted help turning it around. So truly, doing the clinical and practice management is essential. So there are seven key areas that you’ll see on the next slide that I want you to focus in on. And before we get to that, there are five top mistakes. So first of all, the active patients, that doesn’t change the value Travis. Spent some time talking about practice valuation. I like to know, are there 800 or 1800 but the value is based upon profitability. So we can help you verify how many active patients are in there. Don’t believe it, because the seller just picks a number. Oh, there’s 2000 they don’t know. And I can help you verify that. We’ll talk a little bit later about accounts receivable credits, but ignoring those credits would be another Top Mistake. Sometimes, if you assume the production is going to transfer, that would be another mistake. And we’ll get into more detail, not understanding the true impact of Delta Dental, and if you’re not doing your financial due diligence, oh, but the doctor called me and she said she was already pre qualified. Well, that’s great, but I understand you don’t have any practice debt that your husband has a very good job. In other words, Doctor, this is not a hobby. And let’s go to the next slide, and I’ll tell you more about that, because she didn’t truly understand and the banker didn’t yet see the tax returns. They were pre qualifying her on only her income. So it’s important to engage someone like Travis. In fact, I prefer to get his thumbs up first before you engage my services, because if it doesn’t make sense on paper, why move ahead to the next level when we work with practices, we want you to focus in on seven key areas you hear frequently. I’m going to do the chart audit we see when we work with a practice. It’s a practice assessment, and when you miss any part of these seven areas, you’re going to fail in your transition, or something’s going to get skipped or rushed, or maybe you’re working with the wrong advisor. So let’s go to the first part of the seven key areas, and that’s understanding the procedure code report. That’s a simple report that we can generate. Many of the brokers generate that report for you, because doctors, I want you to study that procedure code report, and when it clicks through, they’re going to understand, can you do these same procedures? Because if you can’t, maybe you’ll learn, maybe the seller was referring some things out that you can add, because that’s going to add value from that procedure, code report alone, we can tell a lot. Could this be a good fit for you talking about the buildups? Because maybe there are codes that the seller isn’t using. Maybe there are X rays or IO photos, they’re not billing out that we can add to the value and add to the revenue. So that’s just the first section. The second area of doing a really good practice assessment, as we mentioned earlier, is understanding the number of active patients. As I said, it doesn’t change the value. But as you’ll see here, and we have an app, by the way, that integrates with 90% of the practice management software’s. So we don’t need to have you generating a lot of reports within an hour or so. We get the data within a day or maybe two. We have these beautiful reports to give to you because of the active patients, how many are pre appointed? Where is their potential on adding value to the practice once you buy it? So back to that second area, which is coming up on the next slide. If you study that procedure code report, when you’re looking at the chart audit, that is part of what you’re doing. I realize you don’t have the patient there, but you’re going to look at some intraoral photos. You’re going to take a look at the x rays. Am I agreeing with that pending treatment plan report that inventory tells you, tells us about the treatment philosophy. Would you have recommended a crown? Or maybe there’s a lot of teeth that have potential. So when we do this full practice assessment, I have had so many compliments afterwards, because maybe they bought a practice before, or they’ve heard from their other colleague that they’ve gone in talked with the seller, and they end up talking for an hour or two because the broker said it’s a couple hour meeting, and pretty much they didn’t know what to do. So we give them a list, and I’m on zoom with you to walk you through one, making sure we have that analysis report. Keep going through here, and we take a look at that procedure mix, like I said, maybe it’s overstated, or maybe there are things that are lost that you can add to it. We also mentioned earlier about we can verify the number of active patients, so that’s important, as far as also the new patients. You see that broker pay. Jacket, and I agree with Travis, I prefer to work with a broker, because it makes the seller and the buyer all understanding on the same page. However, they tell us an average, and it doesn’t give us trends. So again, is there an average of 20 but maybe the last six months, and I look at each month for the last 24 months, that tax return, that all important tax return that Travis mentioned, that tells me for the last year, was it an even 85,000 every month to get to the million, or was it 120 a month in the first quarter, and now we’re down to 70 and 60 the last quarter of last year. So we want to get all of that data to put together to forecast the trends continue for us, the accounts receivables. We may have some new doctors joining us, and they may not even know what accounts receivables are. That’s when you’re playing banker. That’s when the seller can afford to allow the patient to pay over four, five and six plus months, because a seller doesn’t have dental school loans, they certainly don’t have a practice loan. They might even not have a mortgage anymore, so they can afford to do that. So even if you’re not buying the accounts receivables, it’s important to know what There currently are, and we’ll talk more about that towards the end. Within the accounts receivables, there’s that hidden liability of the credit, because that’s money that’s owed to the patient. The third section is retention. Part of your chart audit is when you’re looking at a particular patient’s chart, and you’ll be writing down notes, not patient names, but their first visit date as well as their last visit date. Sometimes we see the patients have only been in the practice for two or three years, and that could be a potential red flag. Or you see, oh, there’s a lot of patients have been here 1015, plus years. So of those, how many have returned to the practice? Because the patient retention that system of pre appointing is very important. And I’d rather you know now, doctor that those patients are pre appointed than you calling me three months into it, saying, Where is everybody? In other words, we just don’t do a chart assessment. We tell you what you’re getting today and how to make it even better for your tomorrow. Within the hygiene department, we’re going to take a look at what type of treatments the hygienist is doing. You’re going to take a look at the x rays. Maybe they’re they don’t even have digital X rays, but if they do, are they taking a full mouth series? If so, how often? What kind of pending treatment? And again, do you agree with that treatment philosophy? Because you see, it’s essential to understand how the seller has been going on. If you come in there and have a totally different philosophy, it’s okay, but go slow. We need to create that relationship with the team. I had a call just a few minutes before we got on to our zoom, and she wanted to make some changes right away. And I told her, be sure to go slow and we’ll talk more about that in a little bit. Treatment. Acceptance is a biggie. This is the gold within your practice. Doctors generate that pending treatment plan report. It might be called the unscheduled report. Now, maybe you don’t print it, but you save it there, and I’ll show you how to do that on the Zoom when you’re doing your chart assessment, because that’s going to tell you, yes, it’s your inventory, but that’s going to allow you to screen through to see are they just, you know, diagnosing a couple mods here and there, or they’re diagnosing a lot of 2030, plus $1,000 cases that maybe this doctor, three years out of school, isn’t quite ready to handle. So this treatment acceptance is critical. The number six is again, understanding the trends. It’s extremely important, as I mentioned earlier, annual data says one thing, but understanding those trends. About two years ago, I had a practice that I actually had worked with the seller, 20 years before full disclosure, so I was familiar with the practice. With our app, we received the data from the last two months, we tied it back in our report, gave it to the CPA, and we discovered there’s $150,000 discrepancy. It was a total honest mistake, because the seller contributed an owner contribution to buy some equipment. So it was noted on the tax return, but it wasn’t in dentrix. So because we did our app, we not only was able to save the seller because he amended his tax return, but we saved the buyer some. Money because they reduce the price. So when we understand those trends, that’s very helpful for everybody. And the banker also appreciates knowing that. And as I mentioned earlier, it integrates with 90% of the software. So within what you’re doing in many of the states now, there are a few but most, 90 plus percent of the practices that do participate with Delta. If the seller is Premier, the buyer must take the Delta PPO. So when you click through, what this means is within and if the seller is fee for service, that’s great. We don’t need to do deal with that, but we’ll have to determine or are they truly out of network, because sometimes the seller isn’t aware. Every dentist that buys a practice or starts a second location must take the Delta PPO, and we can confirm, because sometimes we see on the prospectus that their PPO, but sometimes it’s a hybrid, meaning the seller may have joined the PPO 1015, years ago in the beginning, and they were given a higher rate for the PPO that our new doctor isn’t going to get now. So I have a slide coming up that we’re going to show you that impact, because Travis needs to know that exactly, because it depends upon now, roughly it’s 30% and we know that on average, but sometimes it’s even higher. I live in Sacramento. It’s Delta country. We have a lot of delta here. Parts of San Diego, there’s less delta. So we can determine with our app exactly how much Delta what procedures were done on those patients. Now there is one exception. If you are a specialist, they’ll offer you a specialty fee schedule. Except worthhoe Peto and pros, they all take the same GP, PPO fee schedule. Sorry to be the bearer of bad news, but it is what it is. And doctors, this does not mean a deal breaker. I have a number of successful case studies. I have one today. I’m helping her buy hire an associate, so that PPO doesn’t mean it’s bad. I had one near and dear client. Actually, she’s also a client of Travis. She took the PPO for three or four years, then we helped her drop, become out of network fee for service, and she’s doing beautifully. We also have taken a few in certain demographics. On the next slide, we’ll talk more about this, depending upon how much Delta there is. She decided to drop delta from the beginning, what? And by the way, she was in San Francisco and certain demographics, that’s a good idea, because she could not accept that $900 crown when the seller was getting 1300 plus. It just didn’t make sense. And with our coaching on the team, learning the verbal skills, so you can see this doctor sample, insurance summary, we ever determined that 73% of all the patients that had insurance, 80% of patients on average, have insurance. And this practice, 73% had Delta on average, we see 50 to 60% have delta. This one was very difficult because it was 70. So we’ll give you a report like that doctor. Then we take it one step further and say of the procedure codes that were done based upon the new fees, you’re going to see $240,000 in in drop in revenue. And as Travis will tell you, that comes right off the bottom line. So when you think you’re going to be making 400 plus 1000, it’s closer to 150 and that’s when you and Travis and I need to try to figure out they’ll sharpen their pens, and many brokers will when they see this pen and paper, go ahead and continue for me, please. So we’ve covered an awful lot of information today, and I’d like to offer you the complimentary phone consultation to give me a call to answer some of your questions. And speaking of questions, Bill, I believe you’ve already had a couple from the audience come through. Bill,

Bill Fukui  44:29  

Yeah, I’ve got a couple of questions, and actually one of them is actually my question, and this one was for Travis, I mean. And it was in reference to your $100,000 Porsche, right when we’re talking about those types of what would be, you know, thoseadded backs, what would be? What would you consider, what are legitimate seller expenses, right? We talked about, you know, you mentioned some that were like, you know that $100,000 Porsche, which I would love to drive. But what would you consider, what are legitimate seller expenses that should be added back to the bottom line?

Travis  45:19  

Yeah, I think the I think the thesis, is to think about discretionary expenses, so expenses that the seller, you know as a business owner, the tax code is very favorable. There’s a lot of you know, Liberty to take privileges on what you deduct and what you don’t deduct. So it’s, it’s, we call them owner expenses on our financial statements. We have a whole section on our our clients financials, where we put all their discretionary stuff in the owner, owner section. But it’s basically all the stuff that is not regular practice overhead. Regular practice overhead is paying the staff, paying for supplies, paying for your utilities, those kinds of things, all the other stuff, like the Porsche to travel to Hawaii, putting your kids on payroll. Right? If you buy a practice and that owner had their kids on payroll, you don’t need to keep their kids employed. All right? They probably weren’t very useful, right? So all the discretionary stuff is effectively an add back. Now, some people have different interpretations on what is discretionary, and that’s why it’s been helpful to see hundreds of these. And I have a pretty good opinion on what’s discretionary and what’s not. And when you work with trusted advisors, they can help guide you through that.

Bill Fukui  46:44  

Cool and one question we did get was, what’s you had mentioned? It says data mismatch as a red flag. What would be other, maybe financial red flags? Is that something that would cause me to really think about this? What would be something that says, whoa, whoa, let’s put the brakes on this.

Travis  47:09  

Yeah, so it’s, it’s a matter of that in order to be a mismatch, there has to be two pieces of data that we can compare. So one of the pieces of data is going to usually be the tax return. So, but what data is on the tax return? Can we verify? So, for example, if you know the first example was on the tax return, they said that they had $700,000 of collections, we should be able to go look in bank statements and quickly find $700,000 of deposits, right? So we’re matching the bank statements to the deposit or the collections on the tax return. If those don’t match, then that’s a mismatch. Other things that we can verify are the payroll and then also 1099 so the These practices will get 1090 nines from insurance companies that should also tie out with insurance collections that they report in their practice management software rent expense, right? If they tell us, I pay $3,000 a month in rent, and then their rent expense on the tax return is 2000 for the whole year. And something’s weird right there. It could have been a misclassification on the on the accounting records, but basically, you know, there’s not a lot of categories that we can match, but collections and payroll are the two biggest and they’re probably the most important.

Bill Fukui  48:34  

Okay, this next question is for Joanne, and this was actually, I’ve actually gone through this process, but we did not see account accounts receivable reports in the due diligence. Is that normal? And Travis,

Joanne Tanner  48:53  

if you could change slides for me, because I’m going to give bill a kudos here real quick, and then we can stop the share, Bill. I’m going to give you a big shout out. This is so very gracious of you. And so be able to share that screen with everybody. The accounts receivable report frequently has patient names on it, so it won’t be something that shared, but we get a total of the accounts receivables. And then there’s called the aging 3060, and over 90 doctors Be very careful with the accounts receivable aging. Because Travis, I’m not sure if you recall, in dentrix, and also in eagsoft and some of the others, if the office manager is not closing out the month end, the ARS do not get aged. So the seller is quite proud. 90% of my AR is current. It’s statistically, probably not very likely. And so we can help you determine when was the last time? Sometimes it’s been years that it’s been closed out. Otherwise you would be overpaying on the accounts receivable. Bowls again, eat doctors. Even if you’re not buying the accounts receivables, you’re buying that system, because you do want to close out the month end. You see, if you don’t, someone can go in there and change things that would be like taking white out or scratching out on your paper charts you want to be able to close the month. So there’s no changing of anything, especially payments. We’ve discovered some of those things. The other thing that we discovered that I failed to mention earlier are write offs. If Dr seller has a lot of write offs, because he has many friends, and he comes in here and he says, Please, no copay. Oh no, no, let’s no copay. And we actually help you look at the ledgers to determine you see the insurance paid. And then right after that, it says, patient, copay, insurance payment. Patient, write off. Patient, no copay. Patient, write off. So if seller is writing off all patient copay for quite a bit and Dr buyer is not going to do that. One, you can’t afford it. Two, if it’s insurance, it’s not allowed, it’s illegal, therefore it won’t be a successful transition, understanding that can take time, and that’s we’ll walk you through, and looking at the ledgers and look at the amount of write offs. Now there it may be buried in with the insurance write offs. That’s why carefully looking at the ledger is essential. It’s a good question. Bill, thank you for bringing up the ARS and help us.

Bill Fukui  51:29  

You’re welcome. And this is actually more of a practical question for the you know, when a dentist buys into an existing practice, how do you avoid kind of the disruption of, you know, patient care, daily operations. I mean, this is a process, right, right? This is a process that we’re going through. How what are either tips, or, how do you avoid all the disruptions that ultimately end up, you know, impacting what you end up purchasing, what you get at the end.

Joanne Tanner  52:03  

First of all, doctors create relationship with the team, because they’re the ones that are going to pre present you and pre sell you to all the patient they’re going to fall in love with you. First I mentioned earlier, studying the procedure code reports and say, Look, Joanne, no perio, we can increase production right away, but slow down because of that hygienist who’s been there 15 or 20 years all of a sudden hears from you that you don’t believe what he or she has been doing or not doing for the last many years. You’re going to lose her trust. She’ll be down the street and there goes. So go slow, create relationship with the team first, having those one on ones to determine what’s going well, getting their input and what are some of the things you want to see improved, because if you’re all on the same page, it will go a lot better. Super.

Bill Fukui  53:02  

Great answer. Joanne, I love it because I’ve always dealt with staff from the marketing side. We do intake training and all that kind of stuff when leads come in. So I love the fact that you have great insights in terms of the team, because at the end of the day, they’re gonna, they’re gonna make or break. My pleasure. Yeah, super well. Thank you everybody for joining tonight, we will be sharing the presentation and the slides with everybody, so if you miss stuff, you’ll also have the ability to contact Travis and Joanne directly in that correspondence, because I know there’s going to be other questions, because this topic, there’s, there’s too many, you know, variables that if you don’t have, you’re probably buying something that you should

Joanne Tanner  53:53  

Thank you, Bill. Thank you.

Travis  53:55  

Thanks, Bill. Take care.

MSD Insider  53:57  

Thanks for joining us for the MedShark Insider with Bill Fukui. Join us next week for another dive into all things medical marketing. All episodes can be streamed at www.medsharkdigital.com/med, shark-insider.