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AUDIO - HSP #239 - Eric DeVriese
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VIDEO - HSP #239 - Eric DeVriese
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• Half of graduating dental students will never own a practice
• There is still opportunity in this ever changing landscape
• We are fighters for the entrepreneurial spirit - We believe
• 4 key stages for an E-dentist (Buy, Build, Grow, Wealth)
• You MUST start thinking like a CEO (Builder, visionary, leader)
• Tools the tech savvy dentists are using
We are a CPA firm that only work with Dentists. We help Doc BUY their first practice. We help Doc BUILD their practice with tools and processes. We help Doc GROW their practice with branding and expanding. We help Doc achieve WEALTH turning active income into passive. We talk with our clients every week. We are very involved in their success.
www.RealTimeCPAs.com
One of our vendors did a video on us
https://www.youtube.com/watch?v=UEX5NB02q7Y
Our YouTube channel
https://www.youtube.com/channel/UC9_dqCASfDKjl4iZlqP6Isw
LinkedIn:
https://www.linkedin.com/in/realtimecpas
Howard: It is a huge honor today to be podcast interviewing Eric DeVriese, who is a CPA and has decided to only do dentists, and I'm so excited to have you on today, because I'm a dentist, and I'm telling you, dentists want to do dentistry. We want to fix broken teeth, we want to get patients out of pain. Nobody went to school to know what you know, nobody wants to do what you know, and you're actually, I don't know how to say this and be polite, but you're just kind of that necessary, evil task of accounting and business, and purchasing a practice. I want you to do all the talking today, because I just ran 10 miles, so I don't even think I have any wind to spare. Basically, you're in Ormond Beach Florida, a little beach town in Northern Florida, is that Gulf, or Atlantic?
Eric: We're on the ocean side.
Howard: Okay, the ocean side. What is that near, South of Clearwater?
Eric: Well actually, we're just North of Daytona Beach.
Howard: Oh, Daytona Beach. Right on. You get to see the space shuttle take off?
Eric: We used to. Now it's all Elon Musk and what is it, the dragon he's shooting in the air nowadays.
Howard: Yeah, I mean the odds of this are just not even possible, but twice since 1990, I was lecturing around that area, where everybody said, "Okay, stop," and we all went outside in the parking lot, and got to see that thing way, way down take off. I mean, that is just amazing.
Eric: It's a pretty cool experience.
Howard: What do you like to do? What is your key customer? What kind of dentists do you like to deal with? Do you like the old dentist selling their practice, you like young kids coming out of school, are you trying to find the young kid, and the old guy, and fix them up and do a transaction? What is it you like to do?
Eric: Well number one, we just like to help dentists in general right now. I've got about 9 years of public accounting experience with Price Warner, House Coopers and Deloitte, and we used to be all things to all people, and it's just really difficult. We try just to focus on one area, and become a subject matter expert in that field. We found that dentists really need some business help. No offense Howard, but some of the deals that I've seen put together in contracts, they really needed some extra guidance, so we decided to work with these people. Some very close friends are dentists as well, so that kind of helped steer my ship into dentistry.
We helped 2 young dentists buy their first practice, and then once they got in there, they needed help building out all the processes, the technologies, and so on, and we had a lot of fun doing that, and we really did a great job. We decided to focus on helping the dentists buy, get in the game, there's so many questions, so much out there for buying dental practices. Once we get them their first, or second, or third dental practice, then we focus in on the processes. We call it the build phase, but basically we're very, very process driven, and we're pretty tech savvy. We're not in it for everybody, we understand that, that's fine.
We're looking for, I use the word millennial, on the cusp of, because typically that kind of client, if you were to tell them, "All of your data is going to be live, on your iPhone, on your iPad, access to it, when you want it," they would tell you, "Well of course, why wouldn't it?" It just seems to be a natural fit for that younger generation in our sweet spot.
Howard: Well you know, my favorite Pulitzer Prize winning book of all time, it's a tie between American Medicine, the Rise of the American Health Care Industry, and the other one would be Guns, Germs and Steel, but that Pulitzer Prize 1984 Paul Star book, the whole deal was that, in 1900 medicine was one percent of the GDP, and by 2000, it was 14%. No industry ever did something like that. Medicine has 58 specialties, dentists has 9, and I think, all the successful CPAs and lawyers that I see, they're just doing a niche market. It used to be, a lawyer would do every kind of law known to man, now this guy only does patents, this guy only does, whatever. I tell every dentist that, the single smartest move they can do on the business of dentistry, is to deal with a CPA that only does dentists. The old day of calling your CPA who just got off the phone with a dry cleaner, and a Mexican restaurant and a plumber, that's just not value added.
My hats off to you. All the dentists I know that hook up with a CPA that only does dentists, you put on your armchair psychologist hat, and you show them the numbers, and you show the dentists what you see in their industry, and they just make far better, faster, easier decisions. You talk about the 4 key stages for an E-dentist, buy, build, grow, weld, talk about that.
Eric: It's funny, you said one of your favorite books was 1984. One of my favorite books was 1985, and that was Michael Gerber, the E-myth. Basically, I'm sure a lot of people have read that, but it still holds true til this day, where there's the one kind of person that, in that analogy, it was the baker, she baked cakes. In our analogy, it would be the dentist, drilling and filling and doing chair side work. Then they say they want their own shingle, want their own business, and you start to realize, there's all these other nuances that go into the business itself. That's where we come in, and we used E dentist for a reason, because we subscribe to that theory, and we kind of hold their hand through that. Basically what we do, our mission, another book that I really love, is Simon Sineks' Start with Why. Our mission statement is all about the "why." Why do we exist to help dentists? Our mission is, it's all about relationship.
Another thing we say is that we're not your father CPA. CPAs in the past, would focus just on maybe, tax returns, some consulting once in a while. We really drive relationships, so part of what we do, is we meet with the clients and the dentists every month, we're in front of them, doing their financials, their nonfinancials, asking questions, we're available through text, e-mails, phone calls. We really drive that relationship, so the e-myth there, with the dentistry, we are that backbone support. The C-Sweep, if you would. C-e-o-c-f-o-c-e-o, where the dentist really needs to focus on driving the ship, and steering it. We're just his sounding board. It's always going to be his or her decision, but we are in their ear, kind of guiding them through the whole process.
Howard: Remember, you always have to refer to a dentist as a she, because if you call a dentist a he, it'll piss off the women, but if you call dentists she, no man has ever complained. I have yet to get a e-mail from a male, saying "Hey, you called dentists a woman," so always call them in she.
Eric: 50/50 in the industry now.
Howard: Yeah, it's amazing. God, it's just amazing. One of my big complaints on these Podcasts, is that if I interview a dentist, it's a man, if I interview a woman, it's a dental consultant, or a hygienist. It's just so hard to find over 50 year old women dentists. They're just rare unicorns. When I was a freshman in dental school, there was one girl in the Senior class. Now the dental schools are half women. I love your website. Let's go through the 4 things on your website. The first one is build. Is the first one build?
Eric: It's buy.
Howard: Buy.
Eric: It's buy. Right? You have to buy something first. It's really difficult-
Howard: It's buy, then build, then grow, then wealth. Walk us through the buy, the build.
Eric: Yeah. For buying, it's really set up for a sellers market. You've got, if you want to call it corporate dentistry, group dentistry, what have you, they're very hungry and aggressive in purchasing these existing dental practices. Then you've got the brokers, and the brokers have the relationship with who? The seller. Right? I mean, they're the ones that are getting the 10% from the seller. Of course it's win-win. They want you to sign, but really, what we found, is the buyer is kind of left out on their own a little bit, where he or she doesn't really know what the process is, how it's supposed to work, the letter of intent, the financing, the scrubbing of the data. We have found that they just take the brokers word for gospel, and you really got to step back and realize that that broker has an agenda. They want to close that deal. They've already committed to the seller, that they're going to get x dollar amounts for this firm.
There's a lot of leeway in what I'm saying right there, but I firmly believe as a whole, the buyer is going unprotected. That's where we come in. We are accessible for all the phone calls, the hand-holding, the spiritualness, any kind of questions they have. Usually what we found is, one phone call, within about 45-60 minutes, we can answer 90% of that buyers questions. They feel so comfortable that we've explained how the process works, this is what we're going to do, this is what you need, and 95% of the time, they bring us on board to help them with the transition. The buy package is really a relationship starter. We work through this whole anxiety- because it's a big deal, buying a dental practice is a big deal. We kind of walk them through that whole, very important stage in their life.
Howard: True or false, fact or fiction? "Well I can't buy a dental practice, because I have $300,000 of student loans, no one's going to loan me a penny. I got to work at a corporate dentistry doc-in-the-box, or go join the Navy for 4 years, and then I'll call you in 2020."
Eric: Right. It depends. I'm going to say myth, because it really depends on who you are. There's a place for corporate dentistry, I get it. If you're not the E-person right, the whole E-book of dentistry, if you just want to drill and fill, and go chair side, and have that type of style of life, that's okay. In fact, I'm going to put a pin in that, and we've got a place for them in the wealth bucket, but the entrepreneurial, the person that went to dental school to build something, to create something, to have a legacy, to just have worth of him or herself, I say that is a myth, because number one, for financing. Banks love dentists. I mean, love, love, love. 1% default rate, right? The banks will finance you. Not getting into all the numbers that go into it, but I can always find a lender to help this kid out. What's more important, is the cash flow. It is all about cash flow.
That's where you really need to not just look at the shiny object, where it's located, or the new equipment, or any of these other types of things. You really got to get down to the cash flow, and once we get that cash flow working, and we can prove-
Howard: Okay, time out. There's not one person listening to this Podcast that knows what cash flow means. Cash flow, is that a Gram-negative faculd of anaerobic bacteria that causes an oral infection?
Eric: I'm sorry, yes. You're absolutely right. Basically, it's the money you take home at the end of the day. Most docs know about production, right? They know about collection, and they know that if they're an associate, it's 30, 35, 40% of productions that are take home. They know all of that. In fact, that's interesting because, typically what'll happen where you said myth, is it impossible for a dentist to finance their own dental practice, and the problem they say, is that they're so focused on their student debt, that they need to look at the cash flow, which is the net. Let me back up on that, you asked me specifically ... Help me out Howard, I got derailed there.
Howard: Can they get financing?
Eric: I'm sorry, yes.
Howard: When I'm in these dental schools, and I'm in a dozen of them a year, the kids all believe that, if they're going to walk out with $300,000 student loans, no one's going to loan them a dime. I know from talking to experts like you, that that's just not true. You were saying that dentists only have a 1% default rate, so the banks love them. You were saying that's because they have good cash flow, and none of these dentists know what cash flow means, and you were talking about it's basically production. Finish off on cash flow, and then also, the other things the students always tell me that, "Well, wouldn't it be wiser for me to pay off my student loans first, before I go buy a practice?"
Eric: Right, and the trick with that is, I say no, because banks love you, right? They're going to give you a loan at over 10 years 4, 4.5 percent. You look at what you're taking home on that, you're going to get what, 125, 150 if you go to associates. You can pull out 2, 250, if you do your own thing. We can walk through the numbers, but really what it comes down to, is who are you? Are you an entrepreneur, or are you somebody that just wants to be a W-2? Once we figure out that you're an entrepreneur, we can figure out the math to find you a practice that will cash flow, and again, the cash flow is the doctor benefit, the take home.
Howard: Basically, what you're seeing, is if I come out of dental school, and I go become an associate, for somebody else, whether that's an individual dentist, or a group practice, or corporate, that they're going to make about 125, and you're saying if they're an entrepreneur, and they own their own business, they're going to make 225, is that about what you're seeing?
Eric: Oh, more than that. Well it just depends on the numbers. Basically what we do, when they come through, here's a simple scenario, on this point, typically the kids think smaller. They're concerned with that 300,000 student debt. They only want to buy a practice that's about 350 or 400, because in their mind, they think that would work. In theory, again I use the word cash flow. The very bottom number, when you include debt service, the student loans, and their take home, it doesn't work. They have to go bigger, so what I do is, I say, "Look, what do you produce? What's comfortable for you, do you produce 2500, 3000 a day?" Okay fine, so let's say you produce 3000 a day, let's say you take 2 months off, so you're working 44 weeks a year, x 4 days, that's pretty comfortable. 176 days x the 3000, that's about $528,000 of production.
You save $528,000 of production, and usually on a general practice, you want to have a hygiene for a third, that's 176,000. You told me, young dentist, that you can produce $3,000 a day, you should be looking at something about 700,000 for a practice, on a comfortable basis, not the 400,000. On that note, the bankers are going to look at, what is that young doc producing as part of their loan payout? If they're producing 2,500 or 3,000, the banks will lend you up to that dollar amount. Don't get hung up on the student debt. It really comes down to your spirit, and what you want to do, and we can work out a way.
Howard: It all comes back to, they don't know the 3 basic understandings of accounting. They don't know what a statement of cash flow is, they've heard of a statement of income, a P&L, when they're trying to figure their taxes. They know what a balance sheet is, if they own a house, what their equity is, what their liability is. They don't understand the cash flow, because the biggest mistake I see, is when they go buy a house, they know if they buy a $100,000 home, and they hold it for a year, and sell it, they're selling a $100,000 home. Well if they buy a $200,000 home, when they go to sell it they're selling a $200,000 home. If they go buy a 300,000 home, when they sell it ... That's the way cash flow is. They always think they're saving money by buying a very small home. If you're a Mormon dentist, and you have $400,000 student loans. You already have 2 kids walking, and one in the oven, why did you buy a $100,000 home, with the little cash flow.
Why didn't you go buy the biggest beast you can get, and go buy a huge office for a million? The other myth is they think, well they can't buy that big practice, and do a million dollars a year, if they don't place implants and have a CBCT, and a CAD/CAM, and a laser, but most of these million dollar practices, they're a million dollar practices, because the dentist just does 3 or 4 crowns a day, at a $1,000 each, takes a rubber impression and sends it to an old fashioned lab, and just does crowns and fillings and refers out most of their Endo, all their implants, all their Perio. surgeries, all that stuff. You can go buy a big million dollar practice by some old fart like me, they're just doing crowns and fillings, and checking two hygienists an hour. That's why I am just so happy that I get a guest on today like you, to tell them the other side.
I want you to do this, you got a bunch of kids listening. I believe 50 year old guys like me, do not fully understand how millennials think, I try because I have 4 boys, 20, 22, 24, 26, so I try to get it, but I want you to talk to these individual people, and try to help them know if they're kind of have the entrepreneurial, they really would be a good fit for owning their own business, and what the red flags would be, like you know, you really need to be an employee.
Eric: Right, right. You need to be a leader, right? Part of our process, is think like a CEO. That's one of our tag lines, right? The Elon Musk, the Steven Jobs, all these people out there, not to be visionary per say, but you need to be a leader. Basically your dental practice is going to be you, right? You're going to be controlling this. Everyone's going to be looking at you. You need to be a decision maker, you need to be the visionary, you got to have passion. Passion is a big deal. You got to have desire, right? You have to have passion desire, want it, and then surround yourself with smart people. Those are the secrets to success. When I say that, does that excite you, or does that freak you out? That's a very simple test right there. If the fact of leading people, or calling the shots, or making the decision frightens you, it's going to be difficult. It's going to be really really difficult.
If you are hungry or aggressive, and a lot of the dentists that I come into, are very much hungry and aggressive. They know it. Usually it's the opposite. I have to kind of talk these guys down, it's like, "Slow down, you don't know everything. Hold on a second. Just hear me out. Let's just brainstorm and spitball here," and it works out pretty well, but that's it Howard, in a nutshell. You need to be a visionary, passion, desire, and want to build something.
Howard: When you go into a dental school, what percent of the class, do you think is like that?
Eric: I feel probably 75%, and it's not gender based at all.
Howard: That's why I think the biggest danger about corporate dentistry out there today, is that they're trying to herd cats. They're hiring all these dentists, and deep down in their hearts, those dentists don't want to be there. That's why I think it's a risky business. What did you think as a dental CPA, that when the biggest one, Heartland, wanted some liquidity, that nobody took him public, no American Venture Capatalist, none of that. It was sold to a Canadian Pensions plan. Was that a red flag to you? I mean, if it was a rocking hot, Elon Musk, Steven Jobs, Apple iPhone business, wouldn't they have just done an IPO?
Eric: Yeah. There's a lot of people out there smarter than me, that's for dang sure. I don't profess to be the smartest person in the room. What I love is, Rick Workman, is a genius by the way. I think he did a phenomenal model. Oh my gosh.
Howard: My friend, and the richest man in dentistry, he's a billionaire.
Eric: Love him, or hate him, but you have to respect him.
Howard: You have to love him, he's just a good guy.
Eric: I want to take his model on a lower scale. I think the secret to success, and I'm kind of jumping into the wealth, is first you start to buy it. You buy it, right? Then you build it with all these processes, right? Everything is process driven, all your back office. It just becomes, not a machine, but the process kind of takes over, and then you grow. You start to either expand locations, or you knock down walls, and create more ops. Then, the whole goal, you know Steven Codwy, Begin with the End in Mind. The end is the wealth, and with wealth, you take yourself out, and you start putting associates in. These are these herding cats, like I said, where Rick Workman had a grand idea, I feel the real wealth is back down at the entrepreneurial doctor, and have him or her have 4 or 5 offices or whatever, and then they can step out and run it like a CEO.
That's where I think the real bang is going to be in the future. That's where I think the real bang is going to be in the future. The Rick Workmans' having the pension plan, buy them out, I don't think everybody was on board with it being so big. I get it, the Sam Waltman, the Walmarts, but I don't think he had complete buy in.
Howard: The other thing I can't believe, is all these older guys that want to sell their practice. When you sell your practice, you're going to have to give a big chunk of that probably 38% to the FEDs, and then where are you going to put your money, when you could have had this ... What are you going to buy, a restaurant? You had this dental business, with margins unheard of on the S&P 500, the average profit margin on the S&P 500 is 5%, and any idiot dentist can do that. I mean, double that, triple that, if you can take away the cost of the associate employee. Any dentist could net 10% on a dental office they own that's ran by associate dentists, so you just doubled the S&P 500 average. I want you to address this, here's what I see. The dentists like Rick Workman, who have 1500 offices and is a billionaire. He hasn't fixed a tooth in 20 years. Then you got the other guy, Steve Thorn, who I love and adore, Pacific Dental Services.
His dad was a dentist, and he thought why the hell should I go through 8 years of college to be a dentist when you can hire one in 8 minutes. He owns 500 offices. The E-myth book that you talked about, was talking about that if you spend all your time making hamburgers, fries and cokes, you never work on your business, you work in your business and never go anywhere. All the people like Ray Crock who went from zero to 20,000 McDonalds' before he died, they never spent a day making big Macs, fries, and cokes, they worked all day on the business. That's where you come in.
Eric: Process.
Howard: You're going to work with this guy on the business, you're not going to get in there and start mixing up and doing a root canal with him, and helping him pull out a wisdom tooth. Talk about how a dentist should work on the business, and not in the business.
Eric: For sure, that's that whole CEO mindset. It's a paradigm, right? I get it, you went to dental school, you're excited about practicing, but you have this golden goose in front of you that can lay these eggs, and so what you need to do, is take care of that goose. Zig zeigler talks about the cow, and how the young girl had this 150,000 cow, and how would you treat it, you know you treat it like a machine, you take care of it. Your dental practice is the same thing. You need to take care of this dental practice, and you need to run it with processes, so that you can get removed out, and work on your business. You're looking at reports. You're looking at patient care. You're looking at phone call acceptance, you're working on your business, right? That's the goal.
It's a transition, because at first, you're excited you're doing chair side, but as you get older, as you get more experience, you need to work through that, to set up your processes, so that you can work again, on your business. Where we come in with that, that's the build, right? That's that second build phase. Our number one goal is relationships. Most CPA firms focus on process and technology, and whatever. We have amazing process and technology. Some of the things that we do have, because I think a lot of the young dentists out there would like to know, some of the tools that they might just take a peek at, we don't have any proprietary rights over them, so feel free. We use a software company called Zero, which does all of our accounting. They basically dial into your credit cards and your bank accounts every night, and it's live updates.
Everything is live. You swipe a Starbucks card, or gas, it goes right into your accounting software the next morning. We also use something called receipt bank, where they just take pictures. They take pictures on their phones for their bills, if they have automated payments through their e-mail, we link that e-mail into receipt bank, where everything is digital. We use something called Zen payroll, which is really cool. It's all Cloud based, it's amazing. We use something called Spotlight reporting, which is all their financial and non-financial data, all in one dashboard. That's how you get these processes in place where you get removed out of it. You don't write paper checks, it's all digital, so that when you come out of it, you got controls in place that you can do multiple offices, without having Betty, or Cindy, or Joe involved with that.
It's all process driven. Then it becomes more of, not a machine, but it becomes something that you can step away from, and it still exists.
Howard: I want to ask you this, when you get married in the United States, half of the marriages fail. A lot of these kids in dental school, they're saying, I'm a woman dentist, and I want to have 2 kids, and my best friend Shirley, she wants to have 2 kids. We think we're going to do a partner, 50/50, I'm going to work Monday, Tuesday. She's going to work Wednesday, Thursday. What is your thoughts on partnerships? Do you think it'd be better to have complete control, and be the owner with an associate, or are you seeing partnerships work?
Eric: I believe, this is my own opinion obviously, I believe there are 2 types of partnerships. Partnerships that have failed, and partnerships that will eventually fail. I get it.
Howard: Oh my God, I love it. That is so funny. Only 2 types of partnerships, ones that have failed, and ones that are going to fail?
Eric: Yeah, but that's not for everybody, I get it. That needs process more than anything. That's fine, work life balance is fine. You'll listen to Gurus out there, where some of them are all work, work, work, you know, open Saturdays for the client base, some of them are, like the Blatchford, is like, "No, just work really hard, and then take a month off," so it just depends what you want to do, but that analogy that you just gave me with 2 women that want to have a real good work life balance, you really need process. That way everybody understands what's going on, whose roles are what, and then you might be able to do something like that. I would not set that up as a partnership myself. I would probably have, there's always one dominant, whether it's 51, or 49, there's usually almost always one dominant person, that person owns it, and then you work backwards from that, is what I would say, but I don't like partnerships.
Howard: I don't either. I tell these women, I said, "Okay, so that sweater you just bought, after 3 years, you won't even wear it again, but that partner you married, you're going to still love her in 30 years?" It's like tattoos. When I see a woman get a tattoo, I'm like, you don't even like your front room furniture after 5 years, you don't even like anything you wear in 5 years, but you're still going to be rocking that tattoo, in 20 years, 30 years? I just think you have more options if you say, well I'm going to be the 100% owner, and this is going to be an employee.
The second follow up question, naturally, I just came out of dental school, and I'm a dentist, and I'm going to start my own practice, and my husband, he used to work at Deloit and Tuch, or whatever, and he's going to be my office manager, my business and front desk. Are you seeing husband and wife teams, do you see that as a good thing, or do you see that as a red flag?
Eric: No, it just really depends. A lot of this is all personality driven. People skills are so important. The latest one we just did, she is the dentist, and he, they've got two kids, and he kind of stays home with the kids, but he doesn't do the front desk, he kind of does the back office stuff. That's worked out really well. He comes in maybe 2 or 3 days a week. It's not ideal for everybody, because there are certain management gurus that will say, "No, everybody needs to be treated as the same, once you get somebody working in there a little bit there's going to be resentment," so I get it, but it really depends on personality. I would not throw up a red flag, just for the sake of throwing up a red flag. I do like having the spouse on there for tax planning, which is a whole other story, I'm not going to get into that for here.
There's a lot of power in having a spouse on the books in some capacity, but to answer your question, I don't see it as a red flag, but I would watch it, and I would have a conversation to make sure that everybody knew, what some of the risks and pitfalls could be.
Howard: My take on that, is I think, some of the most amazing offices I've ever seen, the wife ran the front, and/or the husband, but it was because the spouse wanted that job. They didn't want to be at home. Number two, they could get hired at another dental office, that day, somewhere else. Number three, when they're in the business, the dentist is the general, he's the Pope, and they're cardinal, bishop, priest, Monseigneur, alter boy, they get in line. Where it has been a disaster, is when I have seen husbands want to be there, love to be there, but don't submissively shut the hell up when the general says, "Okay, I hear what you're saying, but the answer is no". They can't handle the "no" word.
Eric: There needs to be a CEO, there needs to be the general in chief.
Howard: Yeah. Let's go back to basics though. I know these docs are sitting there thinking, okay, you said, Xero Accounting, you said Receipt Bank, you said Zen Payroll. They're probably thinking, okay but am I supposed to be on Quickened, quickened online, quick books pro? Accounting, you didn't mention accounting. What accounting software should they be on?
Eric: Well, we actually use Xero. It starts with an x. X-e-r-o. I believe it's New Zealand. It's completely cloud based from the ground up. I've worked with everything.
Howard: It was programmed by sheep?
Eric: It was sheep, yes. Phenomenal, phenomenal sheeps. Very bright animals. I didn't know if you knew that Howard, extremely intelligent.
Howard: It was human, New Zealand land sheeps made it, that's amazing. What was that movie they filmed down there?
Eric: Lord of the Rings, wasn't it?
Howard: Oh my god, I lectured down in Ocland, that is the freakiest, prettiest place, you've ever seen.
Eric: They're good people down in Ocland too.
Howard: It's X-e-r-o accounting, and they're thinking, why did you do that instead of Quicken?
Eric: Yeah, because what we love about them is it's all streaming, it's all based in the cloud where quick em and quick book were flat file mainframe systems that they kind of cobble together for an online experience. Really, it's partly the user interface, the UI they call it. They even call it, beautiful accounting. That's their tagline. It's beautiful. It's just very intuitive, and we kind of hold their hand through the whole process. We only need the dentists to see what we need them to see, but yet every experience that they have with it is easy, it's understandable, it makes sense. Part of it is the user interface, but the real big driver for me with Xero, is the live bank feeds. The credit cards, your bank loans, your debit cards, everything is 24 hours. Everything is repeatable, it all has smart logic.
If you went to Starbucks one time, and swiped your card in there, and you coded it to meals and entertainment, the very next time you swipe it, it stays in there, meals and entertainment. We can close our books the second day of the month. You can't just do that. Most of these dentists, or the older docs, I don't know how fast you close your books. We can close books in like, 2 days. That was a real big deal. We're looking at trying to grow this into a big ... We're going to have tons of closes, so we needed something that we could use, so we could do our month end close really fast.
Howard: I love their website, when you go to x-e-r-o.com. X-e-r-o, that's sounded out as Xero?
Eric: Yeah.
Howard: You know what, what's really neat, right on their deal, it says the online accounting software alternative to quick books, and they got a 2 minute overview. Is it in the same price range as quickbooks, or should that really not matter?
Eric: Yeah, it's pretty similar. I think they have different deals, you can do payroll, there's all these different price points, but yes, it's comparable. What we do with that, all that licensing, all that software, is all included, so the doc only sees one price, but yeah, I think it's pretty comparable to quick book.
Howard: Okay, we've been talking a lot about young dentists, you holding their hand through buying a practice, building a practice, growing wealth. Is that mostly what you like to do, to help the young kids, or do you have older clients who say, "Look, I don't want to sell, I don't want to transition, I don't want an associate, I just want you to be my dental CPA.
Eric: Routine is a very powerful beast. What we've found with the legacy doctors is that they've kind of just always done it that way. "Well, we've always done it that way." Change management is kind of difficult at times. We're not for everybody, because we're very focused on tech. Every accounting software that we use, through all the list I gave you, they're all cloud based. You either got to kind of, get it, or you don't. We found, that sweet spot for us, is that late 20's, 30's, maybe early 40's, they get it. We don't even have to talk about it. This is amazing, and they love it. The 50's, 60's, they're still kind of timid about the internet a little bit, this is very stereotypical, I apologize. These are very broad brushes that I'm painting with.
Howard: Hey, it's dentistry uncensored. You can say whatever you want.
Eric: It's just more of an uphill battle for us. We love high five's and we love hugs, and we love like, "Oh my God, you guys are amazing," we love that. The 20, 30, 40 year olds that we work with, they get it, and we just click, and it's amazing experiences. Versus, it's just a different relationship, so I would say the sweet spot is that 20, 30, 40's.
Howard: What if someone's listening to this and wants to talk to you, how do they talk to you?
Eric: Yeah. 800-790-5420. That's our main office. Realtimecpas is our website. You can schedule demos right on our website.
Howard: Eric@realtimecpas.com?
Eric: Yup, you can do that too. You could find me on Linkedin, just google me. Just do Eric DeVriese.
Howard: That's Eric DeVriese, it's Belgian, so it's capital D-e, then V-r-I-e-s-e. What does DeVriese mean in Belgian? I assume it's a waffle?
Eric: Yes. It's a beautiful, big waffle.
Howard: It's a beautiful, big, accounting, Belgian, Lord of the Rings, waffle.
Eric: Yeah, so the phone number, e-mail, google me. There's lots of different ways.
Howard: You know why my oldest son is named Eric?
Eric: It means King?
Howard: Because it was a boy. When I got married, I wanted one little girl named Erica. Erica was first and it turned out that it was not a woman, so I didn't know how to convert Megan to a boy's name, so Erica just turned in to be Eric.
Eric: Does he love his name?
Howard: He does love his name. I always tell him, I say, "You've been letting me down since the moment I first saw you."
Eric: That's great.
Howard: You know? He's a great kid. I want you to address the sky is falling. I've been doing this 28 years. When I came out in '87, there was dental capitation, instead of sending the insurance claim, and then paying 100% for cleaning exams, or 80% for fillings, or half for crowns and root canals. They were just going to start sending me $10.00 a month per person, and I had to assume all the risk. Then that went nowhere. The orthodontists, Orthodontic Centers of America, they all believed they were going to be working at Walgreen's and making Orthos, and that totally disappeared, so I've come to the conclusion that whether it's religion or economy, in stocks, about 10% of all the stock people always think a crash is around the corner, and we're all going to die bankrupt. In religion, at least 10% of all my mom's catholic friends always have the date on when the end of the world is.
Some people in dentistry, they just come out, and they just have really bad attitudes, that this industry is going to hell in a hand basket. How do you see that?
Eric: A couple things on that. One, I'm reminded again of Zig Ziegler, where he says, "The media has accurately depicted 18, of the last 2 recessions." Take a deep breath, number one, and then let's think about this logically. Let's use our brain for a second. Number one, banks are giving you money hand over fist, right? They are lining up. I'm not joking, they are lining up, to give you money. Not the veterinarian, not the optomologists, not the CPAs unfortunately either, dentists. What do they know, that you don't know, number one. Actually that'd be number 2. Number 3, when interest rates were so low that all this money was sitting on the sidelines, right? It went a lot of places, but where is one of the big places it went? It went into dentistry. This corporate dentistry just happened, I mean it's happened before, but this huge push, that tipping point.
You know, Malcolm Gladwell, that tipping point happened, where all this money was sitting on the sidelines, and say, "Where can I get 15-20%? It went to dentistry, all right? Take a deep breath, you've picked a phenomenal, phenomenal career choice. Let's go make some money, so don't worry.
Howard: What I tell these young kids, I said, "You know, in health care, grandpa can know there's a lump or a bump somewhere, and it's been there for 2 years, he knows it still ain't right, he probably knows he's got high blood pressure going on, and he doesn't care, he doesn't get it checked. Walk up to any woman in America, any woman in America, and walk up to her and say, "How much money, cash, do I have to give you to pull your front tooth, and you could never replace it for the rest of your life." I mean, a homeless won't take a million dollars for it. I mean, they just laugh. They're like, "What?" I'm like, "Are you telling me, you wouldn't take a million dollars in cash, for your front tooth, and you wouldn't replace it?" Girls with no money, trying to get student loans to go to college, holding three jobs, say no. It's like, are you kidding me?
You wouldn't take a million dollars, and you're not bullish on dentistry? Dentistry is the juncture between health care, and hair, nails, teeth, fahion, Victoria Secret, supermodel stuff, and these women. I saw it in the 2008 recession. I saw it where Dad would come in, and I said, "Okay, well that tooth needs a root canal, build up a crown, and he'd say, "Screw it, pull it." Then Mom comes in, and I say, "Well you know, we can pull it for $200.00," and she's like, "Are you kidding me?" It's part of their self-esteem, it's their beauty, it's their self respect. You can't get a woman to part with a visible tooth.
Eric: It's funny, on that same note, I have got one dentist that, I love what he says, "I don't compete with other dentists, you know what I compete with, Cadillacs, trips, and things like that, because my purchase is like, what do you want to do, do you want to take a trip, or do you want to make yourself beautiful for the rest of your life? In that point, it's borderline recession proof. There is always going to be a need for a good practice.
Howard: I want to ask you another specific question about buying a practice. If you got a selling dentist that's got a ... the average dentist office, what's the average supposed to be doing right now, half a million in revenue, half a million in production? What are you seeing?
Eric: Yeah, it depends, but that's fair. You see them all over the place though, right? Because we deal with a lot of brokers, and then what'll happen is they come to me, and it's like, "Oh, I want to buy this," and you'll see 1, 2, 300,000, which does make cash flow again, I'm sorry I used that word, but those don't make sense. I see a lot of 5, 6 and 7s. Yeah, I do. I see 8-1.2s. You'll get to that point though, where you become insolivant, where you get too big to purchase, but I would say the sweet spot is 5-800,000, because again, the analogy that I used, I always ask the dentist, what do you do right now? What are you comfortable producing? They take a deep breath, and like, well what do you mean. It's like, not your paycheck, what do you produce on a daily?
Then we go through that whole math, and figure out okay, this should be your annual production that you're comfortable with. That should be your driving force on what you want to buy, but I'd say between 5 and 700,000, that sounds right.
Howard: Is there any rule of thumbs on valuations? Some people think, well if it collects 700,000 a year, it's worth 700,000 a year, but when you leave the dental world, it's all ebataw, where, what if you made 700,000 a year, and only made a $1 profit? They would say, okay I'll pay you 4 times earnings, they would only buy that business for $4.00. Talk about the difference between valuation in dentistry, and ebataw in non dental industries, and are there any rules of thumb on what a practice is worth. You might be talking to some older dentists right now, who have a practice, and they're wondering what they're practice is actually worth. Then on top of that, is a different urban rural.
Eric: Yeah. There's a lot of myths, and a lot of what you said, rule of thumbs, and they're fine. The big thing that you hear about is, "Oh, it should be 65, 70% of production," you know, you'll hear that number thrown around. I mean yes, you care about production to a certain extent, but I'm just going to beat this horse to death, it's cash flow, right? If you got 700,000 and your payroll is at 40%, which just happened, and I told him run, so your payroll is at 40%. That's a long story, I'm sorry for even saying that, but 40% and you get down to overhead, total overhead is like 80%, and you've only got 20% doctors profit, who cares that it was 700 if you had that same 700 and payroll was around 21, 22% and you're take home was 40%, they're both the same, but one's giving you 20 cents on the dollar, and ones giving you 40 cents on the dollar, that what matters, and that's what people should be focusing on.
For the people that say, a high level mark of 65 cents on production, I don't really subscribe to that. I'm more down low. I would look at what the net cash flow is, and again, I will explain that, call me. I'm sorry if I keep saying that word over and over again. What I found in Florida is right around 1 and a half, 2, beach towns, rural, you can get for about 1 and a half times cash flow. When you get into like Orlando, Miami, you're probably going over two. Maybe 2 and a quarter if it's a highly desirable location. I would say a rule of thumb, if you can get down to net cash flow. Your broker will give you a report, but you kind of got to normalize it, and there's a lot of things you got to scrub, but somewhere between 1 and a half and 2 and a quarter, excuse me.
Howard: Some of these entrepreneurial dentists, they're in these dental schools, they're reading Inc, Fortune, Forbes, the economist, and they keep hearing this word Ebita. E-b-i-t-a, earnings before interest, taxes and amortization, and some of these corporate dentists in dentistry, they buy on Ebita, can you explain to a dentist what Ebita is, and the detail, what is even amortization? What is earnings before interest and amortization? What the hell is that all about? Is it a fungal infection that should be treated with Nystatin?
Eric: Yes, you can get rid of it. You want a lot of it actually. Basically, in a financial statement, you start with productions, you take out your haircut for insurance or whatever, and you get to net collections, that's cash money coming in the door, that's the good guy. That's the stuff you can tie to your bank statements that the IRS audits. Then you come in with all your outflows. All your bad guys, all your expenses. Usually, what we do is we try to keep it very high level, so it fits on one page. We do employee costs, which is everything, their salary, their benefits, their uniforms, their payroll taxes, all of that should be in a range of 21, 25%. Then we come into clinicals, clinical supplies, somewhere around 6%ish, depending. You've got all the different disciplines, but I'm just, very high level here. Then you've got lab fees. Lab fees, what's after that? Then we got facilities.
Howard: How much would lab fees be?
Eric: Lab fees, what is lab fees? Lab fees is 7ish. You know, 7. We try to keep it around 7, so you got lab fees at 7. Then you've got your facilities. Facilities should be at about 7%. That's your rent if you're paying rent, your cam, utilities and so on.
Howard: Cam is common area maintenance?
Eric: Yeah, all that kind of stuff is in there. We kind of break out like that, then you got your administrative expenses, I guess. You add all those expenses, all your bad guys up, and typically for a General Practice, you're looking at about 60%.
Howard: What should admin. be, and what should fall under admin.?
Eric: Admin is legal and accounting, continuing ed, office supplies, expenses, practice development, you know, those kind of things. Basically everything else.
Howard: What should that be? What kind of range, percent?
Eric: That should be ... I don't have that handy. I apologize.
Howard: That's okay, but the total-
Eric: Is 60.
Howard: Is 60%.
Eric: What we're trying to get at, is we call it a doctors benefit, is about 40%, 40, 45%. This is a general practice, they're all a little different, pedes and oral and endo, but yeah you kind of want to be there. You take all those expenses, you have your good guys, and then you have your expenses. What's left from that, that's basically in a nutshell, is your earnings, before interest, that interest is off your practice loan, if you have any other credit card lines, if you're not just using AMEX, but if you have a credit card that's your interest. Taxes, is if you're a tax paying entity. Most of our docs are all LLCs or SCORP, so there really is no tax there. Then depreciation is sunk cost, so when you buy your CBCT, or your biolase, or whatever, you have to capitalize that from IRS perspective. They don't let you take that 100 grand all in the first year.
You've got to amortize it over a useful life, so we don't really play with that number, because it's a fixed cost. The 40% take home is before all these things. Amortization, is if you bought the dental practice, the good will could be amortized over section 19087 for 15 years. That's down low here, but you can't control those pieces right, so it's not fair to put those in your general expenses, so that's why Ebita, they kind of pull that stuff out. It's kind of like a true operating net income if you would. Ebita, if you're saying, OH, what's Ebita, it's your operating income. That's the easiest way I would say.
Howard: What are these corporation ... By the way, in America, you know you got a 3 bedroom, 2 bath, you might be able to sell it in a day or a week, but if you got a 25,000 square foot mansion, because your an NFL player, and you just got transferred, you might have an liquid asset. That is one of the reasons corporate dentistry got so great, is because they have massive access to capital. Everybody wanted to throw money at them, but number two, a lot of these older legends who had these offices, doing these 3 or 4 million, they were illiquid assetts. The only person that would come in and write them a check, is Rick Workman. The biggest monster practices I've seen, whether it was Bruce Berrett, or the boys out of Atlantic Goldstein, Salma, what is it, Goldtein, Salma, and the other one, Rick Workman offered liquidity. What are these big corporations paying Ebita? What's the multiple Ebita that you see them paying?
Eric: They pay more, and that's the problem that we're up against right now. For my young docs out there, it is somewhat of a sellers market. It really is. You've got all these people trying to buy selling doc right now. You've got the Rick Workmans. You've got Rick Workman up here, you've got Pacific, you've got Heartland, you've got all those big guys, okay. Then you've got this extra layer of this they've seen the light. My model, you've got these people that have 4 or 5, 6 offices that have a little bit more capital to play with. Maybe even some side money thrown in there. They're hungry, they're aggressive. Then you've got the young dentists like, "Hey, I just graduated school, I got 2 years under my belt, I want to go buy a small practice." You've got all these different people trying to buy, selling doctor. It's a trick. There's a little bit of finesse involved.
You said to Ebita there, they usually always win if they want it. They'll come in, and their play is to put a big number, they want to put a big number in front of selling doc, right? They come up with this big number up front, but then there's all these contingencies underneath it. Not so much sell back, but there's all these different triggers and targets that have to be accomplished over a period of time. He's not stupid, you know, he didn't get that big being silly. The doc sees that big, fat, juicy number, and my guy that comes in, I can't compete with that sometimes. It really depends, who's coming to the table, who you know with a broker, but I don't know the number that they have, or the formula that they have, but I've seen deals taken from us because somebody came in and paid a big number.
Howard: When it's all done and said, if that doc didn't sell his practice, if he just stayed there, and took the regular income, how long would they have had to work there to equal what they were getting paid for for their dental office, would you say?
Eric: Yep, that's fair. What that would mean, that's that whole cash flow, that Ebita, if you would. Typically, what I said is, anywhere from one and a half, to two and a quarter, and that's pretty much like years. You can equate that to years. A big guy comes in, maybe they go three. Maybe that's 3 years. That's a really high side. It's typically closer to 2 I would say. They're young, they have no more golden goose, they don't have any golden goose.
Howard: Then they think they're going to go open up a restaurant, or a condeminium developer, or they're going to be, yeah a bed and breakfast. I heard that one in Arizona, a friend of mine in this very zip code, 85404. It's delusional. Even if you had a bed and breakfast, you wouldn't sell that for 2 years income. Why don't you just put on an entrepreneurial hat-
Eric: What do you know about bed and breakfast?
Howard: I know. Well, I know a lot about bed and breakfast. I'm fat and lazy and love to lay in bed and just eat bacon sandwiches, but seriously, I don't see the alternative place of where you would want to put your money in capital. You're a dentist, you've been doing this 10, 20, 30, 40 years. I love working with the kids. I love going into my office and talking to these kids. They're bright eyed, and they're bushy tailed, and it's so lucrative, and you make money, and I don't get it. You're an amazing guy. Anything else you want to close on? We're at the 55 minute mark now. I only get you for 5 minutes now until the close. Close this, you're talking to thousands of dentists, they're all individuals, most of them are commuting to work right now, they're going to get to work in 5 minutes, and I believe that consultants have perfect client customers, and they have rotten customers.
Just like patients. We have patients we like. Some dentists really want to treat a kid, some really want to do a root canal. Talk to these dentists who would be the perfect match to call Eric, the Belgian Waffle.
Eric: Yeah, you can either be defort or in one or two years of associate-ship, or even a little later than that. Someone looking to get in the game, to wave the American flag, to be the entrepreneur. Somebody that wants the dream, right? They're passionate, they know there is something more. Maybe corporate dentistry got in there, and they went for a year or two, got some production under their belt, and they're realizing that this is not what I want. I want something more. I know there's more out there. They're not scared, but they just don't understand how it works, how I make it happen, I don't understand the process, that's the person. If he or she could just call me, 60 minutes, I'm telling you. 90% of your answers, we can get those all blasted out. It's free of charge. I don't charge. Again, we're all about relationships, so let me help you.
It's all about paying it forward. When that person understands the process, then they tell that person the process, because there's more. There's something else out there besides a W-2 working for corporate dentistry, that's my person.
Howard: All right buddy, well I think you're an amazing man. I called you, you didn't call me. Thank you for all that you're doing for dentistry. Obviously, you can smell the passion that you have for helping these kids wave the American flag, and grow they're own business, and be a visionary leader. Last overtime question, since I still got another minute out of you. What if this girl is driving to work, and she's sitting there thinking you know, I want to do it, I want to own my own place, I have a vision, but you know what, I don't know if I'm a leader? My mom was a stay at home mom, my dad worked the line at GM. Is there anything that she can read, watch, go to, to help her be a better leader?
Eric: Dental town, of course, right? I mean please, seriously. By the way, thank you for building that. What a great forum for everybody to hang out and express themselves. There is, the smartest person is the one that knows to surround themselves with people smarter than themselves, or at least in different areas. We don't know everything. You don't have to be the leader, visionary per say. You just have to understand to bring in people to help you do what you need to do. Don't feel like you have to go alone. That's your line there, but don't feel like you're in it by yourself. You have so many people that want to help you succeed, and that's no joke. There are so many people that want to help you be a winner. Please, rethink that and make it happen. At least investigate.
Howard: Eric, I'll tell you my version of how I see myself, what I think a leader is. A leader to me is when you go ... Long story short, my mom, I felt sorry for her when I was little, because my dad wouldn't go to the opera, she always got season tickets to the symphony, and it was one a month during the school season. It was 9 symphonies a month, and my dad would rather hang himself than go to a symphony, and none of my sisters would go, but I felt sorry for my mom, so I was like, "I'll go," and I put on my Sunday suit and all that, but that's kind of where my vision of a business man took off, because the conductor has his back to all the customers, and the patients, and everyone paying money, and the conductor didn't learn how to go play a violin and a chello, he just found the best people out there, and I always thought, watching those symphonies with my mother, that that's a true business man.
If I need CPA advice, I'm not going to go to CPA school, I'm going to find the best CPA. If I need to find someone to play a piano, I'm not going to take piano lessons, I'm going to find the best pianist, and all I'm doing everyday, is I'm a conductor for 55 employees that just all knock it out of the park. My back is to all my patients and customers, and if you don't believe in delegating, Ray Crock the founder of McDonalds is dead, and 40,000 McDonalds don't need him. Sam Walton is dead, and they don't need him, and I'll tell you what, my business does not blink if I'm on a 2 week cruise in the Arctic circle. I don't have to be there, I mean at this point, I don't have to be alive.
Eric: Well you do, number one, but yes. It's all about process, and that's the bottom line. Be smart enough to instill process and you'll be fine. You'll be fine, you'll be fine.
Howard: Yeah, go out there and be a damn conductor, and call Eric. He said the call is free. Eric, slowly what is that number again?
Eric: 1-800-790-5420
Howard: Okay. Well Eric, I tell you seriously dude, I called you, you didn't call me. Thank you so much for spending an hour with me today, I had a blast.
Eric: I had a great time, thank you Howard.
Howard: All right buddy, take care.
Eric: All right, bye.