Matt has a bachelor’s degree from BYU, a masters of business from ASU and is a certified business appraiser. He has been engaged as a consultant by Arizona School of Dentistry and Oral Health. Matt is one of 20 Certified Valuation Analysts (CVA) nationwide who specialize in dental practice valuations. In the past, he has been engaged by some of the largest national DSOs and some private dentist-groups looking to sell or join private equity groups.
VIDEO - DUwHF #1283 - Matt Porter
AUDIO - DUwHF #1283 - Matt Porter
On the topic of practice valuations, Matt has been engaged by dentists to provide expert witness testimony at trial and retained as a consultant by some of Arizona’s top law firms.
He has successfully transitioned over 150 general and specialty practices in Arizona, including some of the largest transactions in the last decade.
Matt has been a guest on numerous podcasts, spoken at dozens of CE events, study clubs and symposiums and has authored multiple articles published in the Arizona ADA magazine.
Howard: It's just a huge honor to bring back one of my favorites quests Matt Porter thanks so much for coming back you were on episode number 480 and what is this gonna be 1280 Kyle what do you think 1283 so my gosh what is that 800 episodes later thanks for coming back because I'm you're gonna answer a big dilemma I have I always hear dentists all day long saying well my office collects a million dollars so that's how much it's worth they have all these rules of thumbs and you are the only certified valuation analyst that I've ever met on earth they just happens to be practicing in the same city which is the sixth largest city in America so it's a great sample size I know excited so Matt Porter he has an MBA from Arizona State University he's a certified valuation analyst has a bachelor's degree from BYU a master's of business from ASU he has been engaged as a consultant by Arizona School of Dentistry & oral health he's one of only 20 certified valuation analysts nationwide he specializes in dental practice evaluations. In the past he has been engaged by some of the largest national DSOs and some private dentists groups looking to sell or join private equity groups on the topic of practice valuations Matt has been gauged by dentists to provide expert witness testimony at trial and retained as a consultant by some of Arizona's top law firms he has successfully transition over a hundred and fifty general and specialty practices just in Arizona alone including some of the largest transactions in the last decade Matt has been guests on numerous podcasts spoken and dozens of sieve and study clubs and symposiums has authored multiple articles published in the Arizona a DEA magazine I hope I can get him to do an article an online CE course for dentaltown I really this is a huge issue matt graduated from BYU in 2004 ASU in 2007 the Menlo dental dedicated dental transitions team has over 45 years of combined experience and helping people provide personal business and practice solutions. He's got there's basically three of these guys Matt his other partner Tanner Milne who was obviously more important than Matt because he was on episode 48 and you were 480 so it's a 10x scale?
Matt: He is
Howard: In greater wisdom and then Rich Andrus who just does dental real estate I'd like to get him on this show and talk about the real estate aspects but I want to get right to the crux every dentist always says on dental town well my office is collecting 800 that's what I know I can get for it is that rule of thumb as rock-solid as my thumb?
Matt: No nope pretty soon you have so many rules of thumb that you run out of thumbs Hey and then what do you do. I feel like it's similar to somebody in a different part of the country reaching out to you and saying hey Howard I'm selling my house in Wichita Kansas where do you sell your house in Ahwatukee what does that have to do with anything there's so many intrinsic and regional factors involved that if you're actually looking for a valuation to do anything other than just pull a number out of thin air rules of thumb don't really cut it any more and that may have been a little bit more applicable 10, 20 years ago when there wasn't as much variability in practices both in the technology and the types of procedures and the profit levels but now with so much innovation with technology equipment insurance profitability varies significantly more than it used to in one dental practice to the next valuations are a much wider spectrum of value.
Howard: Well the thing that just makes such obvious nonsense to me is that let's say just keep in math easy I hate the numbers 2 3 4 5 6 and 7 I really I never liked them and I was like ones and zeros you know I mean like lately when people say we're 98 million miles from the Sun just say a hundred million I mean you're trying to teach us to write kids in grammar school you're really gonna confuse them with the 98 so let's just say for easy math that and by the way the reason I like nines is because every time he had done he likes with 99.9999 you know there's that one variable that just keeps getting more valuable that you want to find out what what that one variable is but if you have two offices that are collect a million dollars and one the dentist makes a hundred thousand a year take home and the other one the dentist makes four hundred thousand take home how could those be worth the same and then I noticed that the sweet spot of bankruptcy believe it or not for my personal experience it's always somewhere between two and three million they're crushing it in one location they want to be the next Hartland so they open up a second one they don't realize that they don't have the system for the second one and then by the time they open up the third one there's not enough time in hours of the day for the dentist to run around and fix everything and they lose it so profit matters.
Matt: Profit matters and it's funny you mentioned that about the number of locations I seen that so much over the last five to seven years I can't take credit for this but there's another guy in town that owns twelve practices and said hey going from two to three practices is what separates the men from the boys and there's it it completely changes your scope of work and you can no longer be super clinician bouncing back and forth, you have to have systems of processing platform in place.
Howard: So what can you say that guy's name or send him on the show I would love to talk about that send him on the show because how can you realize that going to two to three was what separates the operators from the wannabes and then to get all the way to 12 how could that guy not educate all my homies who are just trying to run their one office and and and that is just so important. They just always hear EBITDA joke at all explain what EBITDA is and is it understood more or misunderstood is this something that they should know more about or something it causes more confusion in the marketplace?
Matt: I feel like EBITDA does one of the most often used but often misunderstood acronyms and we can explain it and and to find the acronym it's for earnings before interest taxes depreciation and amortization but even with that definition it's still so murky in terms of how you calculate it and how you define it at the end of the day the biggest misconception because we talk about another rule of thumb it's use right now is multiples sometimes we don't even finish the phrase is a multiple of what but a lot of times you'll hear people batting around a general of thumb of multiples and usually what they're saying it's a multiple of EBITDA but often times when I talk with Docs they don't understand what their true EBITDA is quite simply put your EBITDA is your profitability of the practice after adding back all the discretionary expenses meal travel entertainment CE automobile but then also imputed a market compensation for yourself. So Howard if your practice collects a million dollars you have sixty percent overhead after those adjustments your pre-tax income four hundred thousand but that's not your EBITDA that's where it's often misunderstood because if you have four hundred thousand and in owner income and people are saying hey groups are paying four or five times a multiple right now then I think oh five times four hundred thousand my practice is worth two million dollars and I'm collecting a million you kidding me show me where to sign and he get really sad and disillusioned when they go through that process and realize that that four hundred thousand is not your EBITDA that's the profit before paying yourself as a provider so you have to figure out what your standardized compensation should be for the provider hat that you're wearing right, in your million dollar practice maybe hygiene is twenty percent of production so you're your operative production collections is 80 percent eight hundred thousand market rate is thirty percent of what you produce so you have to impute a provider expense of 30% of your 80% that's two hundred forty thousand so you're four hundred thousand in profit subtract two forty what what an owner would have to pay you or someone else as a provider it leaves you with 160 so in that scenario 160,000 is your true EBITDA now let's go through that exercise again say it's five times CB da that's gonna be $800,000 so that million-dollar practice once you do the valuation based on EBITDA not two million but people get so hot and bothered and excited thinking that 400,000 was their EBITDA so it's so critical that people understand the biggest misconception is you have to add in a dentist's salary before you know what your EBITDA expense is.
Howard: and this is something we both learned at ASU you guys you went there two thousand five to seven five to seven I went there from 98 97 to 98 I don't know if it was accredited back then it was a new deal but yeah it was great but they don't know financial accounting they don't know managerial accounting and I called dentists when I listen to them talk they do peanut-butter-and-jelly accounting they they don't separate the income you're earning because you went to eight years of dental school and you're performing dentistry versus profit dollars from having capital employed and a dental office as opposed to a bond and index fund a three hundred thousand dollar share of Berkshire Hathaway A two hundred dollar share of Berkshire Hathaway B you have capital employed so you you have to separate those so in Arizona you can hire an associate to come do the dentistry for 25% of adjusted production all day long so when I'm in my dental office doing a root canal I'm getting paid my 25 percent of doing that root canal and that is totally separate than say a 15% net income from owning a dental office whether you were alive or dead or sold to a DSO so those are very very different numbers so don't do peanut-butter-and-jelly accounting try to learn and by the way for you dentists who are really serious who really want to understand the business Street umm do you regret going back to ASU and get an MBA?
Matt: Not at all not at all it was a significant benefit to me to go back and understand the business side of things.
Matt: So you said that was um that was 2005 and 2007 now going back 2007 and this is 2019 so going back 12 years ago to 2005 14 years ago looking back was that was that a pivot point in your career was it a breakout point?
Matt: It was for a couple reasons number one it was good because I'd been out of undergrad for a while had some real-world experience as a manager and understanding how to run a business so when I went back to MBA school I had real-world applications and case studies in my own life that I could apply the curriculum that was being taught I felt like that was a lot different than being in school and not having any real-world education maybe from a dentists perspective after you've been in private practice for a couple years going back and having a really good CE course you can see when and how to employ those clinical skills that you're learning so I felt like it was a pivot point from that perspective then number two at ASU and the MBA program is where I met my two partners and we ended up starting mental transitions.
Howard: Oh that's so great I still every time I see the PhD business guy in Ahwatukee that accepted me into the MBA program eating at a restaurant I always pick up the tab and he's always coming over my table I've been saying why are you doing that I say my gosh that what that was my breakout point I mean I am I graduated 98 and started dentaltown that year because that was the thirst for I'm wanting to share and connect and and try to figure this out it was a total break out point if you are a wannabe business a dentistry guy I'm your assistant can go with you to every course at Kois and Pankey and Ross, Nash and but she'll never be a dentist until she goes back down so go I've had two dental assistants is it just yeah to go back and be my dentists and both them I just like get out of here you you know your and I always called the ball bumping head syndrome when you're trying to pull a wisdom tooth and you're bald and your assistant is beating your head away and you have to stand up and put your hand on her head and push her back and she enter responses I can't see and it's like I'm the guy pulling the tooth III have to see more than you just like it's in your blood you gotta go back to school but you can't do business and not know all these nuances you you know how complicated dentistry is with so many nuances I mean business is that way and if you don't know the difference I mean right now if you don't know the difference managerial accounting and financial accounting just just sign up for MBA program and when dental school is over I literally got down on the ground like a tarmac in a different country and kissed the ground that you're leaving when I drove home for my issue is about a 15 minute drive after the last class of MBA school I was sad because of those 200 kids that I went to school with and that you're never gonna really see most of them again it was so fun and I always tell the instructor every time I run into them at a restaurant and pick up his tab for his dinner and I'm so grateful I always tell him don't let those kids in straight out of business school they're just getting it for their resume kick their butt out of the nest make him go get a dang job because it was the kids who came back and now they were 30 and they'd been managers in hospitals or bashas grocery store and when you'd hear these business cases and you discuss them all you had to do is take out the grocery store and they bypass and substitute with a root canal filling in a crown and it was still just came back to people time and money I mean it's just you know these people they're gonna live you know easy math a hundred years this is our cycle this is what they do and either economics is a joke to you or it's a scientific as a root canal so learn that.
Matt: One thing I'll add to that I feel like it's important to sometimes get our business education outside of frame work or the paradigm of dentistry because it's a very small little community even nationally here in the dental community and sometimes it ends up being an echo chamber where you have a couple people giving business advice that had a practice or ran a practice and then the person that listens to them parrots that advice and teaches a course so you have the same couple principles that originated it for one or two people that everybody's talking and teaching each other and telling each other about and my experiences sometimes those principles may not be the most salient and it's good to get outside of our little Network and get best practices ideas and advice and business coaching from outside of our little industry echo chamber that we have that makes sense?
Howard: It makes a lot of sense and and I was talking about this before the show is the fact that August 4th 1990 was my first lecture August 20th 1990 was my first lecture and I never knew that that would mean 30 years later that I had a lecture in 50 countries I'm getting ready to go lecture in Israel next week that it was you say get out of your local echo chamber seeing how the same human with the same patient and the same technology does dentistry in 50 different countries with different exogenously insurance dental insurance cultures customs beliefs diets really made so many you said salient most noticeable or important pointing outward it it really gives so much clarity to my thoughts on the business of dentistry and sometimes I'll say something and someone will just think that's that's just not how I see it at all and I say well have you ever been to Cambodia right have you ever been to Tokyo Paris France I mean the largest lecture I ever gave was in the air 2,000 to 4,000 Portuguese dentist in San Paulo Brazil I mean I can tell you what increasing the supply of dental schools is going to do I can tell you from Australia what would happen if you gave a if you recognized all the immigrants in America who have been an accredited dental license from say an accredited country a country where you know their dental license isn't from a diploma mill it's not something to just cash gives you a dental license I mean you understand all these variables that they all become more obvious and so you can what it should have could or this how I think it should be but math is math I mean if one plus one equals two I don't care of you like it or not it just is but when you go back at peanut butter and jelly accounting a lot of dentists are my age and they're thinking of selling their practice next year but their own internal accounting is gonna hurt the sell price of that practice.
Matt: Absolutely
Howard: Absolutely talk about that.
Matt: So there's a couple things that I recommend that dentists getting towards the fourth quarter of their career it doesn't have to be retiring next year, you may be starting the fourth quarter. So if you have a year two years five years left a lot of times you need to start looking your practice from the perspective of the subsequent owner whoever's gonna own it next and look at it from their perspective listen I'm nobody's pastor Bishop I'm not an IRS auditor but when I look at tax returns and financials from guys and gals that are a couple years out from retiring I see all kinds of monkey business and that's not for me to judge but when a buyer and a bank starts looking at those financials to both evaluate the practice and then to approve a loan to fund the purchase of the practice you need to kind of have your books in order and here's what I mean specifically I don't even know why I still have to mention this but I share this at every CE lecture report all of your collections Howard probably one out of every seven docs I meet with I look at the tax return it says eight hundred fifty thousand in collections and then I look at the dentists report and says a million in collections and I scratched my head I'm like well that's not just a rounding error where's this hundred fifty thousand they him and ha oh you know sometimes you know the cash doesn't bank and I had one doctor I'm not kidding you here in town a month ago ya had a fanny pack which that's a whole topic in and of itself but he pulls out this fanny pack and he says here's my cash here's the hundred fifty thousand he walks around with wads and wads of cash because any patient is paying cash he takes it he sets it aside doesn't record it doesn't deposit it and then just spends it and super-great whatever not my problem but when you're getting ready to sell you need to report those collections if you expect to receive value requisite with the amount of collections that you're doing you can't tell the IRS hey I'm collecting 850 and then tell buyers and banks hey it's really a million wink-wink nudge-nudge it has to be consistent so report your collections your cash there's a thing that I say is trim your discretionary expenses one of the greatest benefits of being a business owner is the ability to find tax deductions that can be substantiated that can come in the form...
Howard: I want to go back to that cash thing so I call that the morals Pandora Box I understand that taxation without representation is what caused this country to break off from England and I agree that when the most obnoxious part of government is when some individual a thousand miles away thinks they can make decisions about you and your life better than you can I mean that's just an arrogance that most Americans don't agree with I don't think most people agree with that but forget about how much money they tax let's just talk about you obviously have to have taxation because you have to have roads bridges schools you have to have all this basic stuff and so when you start to break a law you're you're the head of that organization and you're showing your 50 employees yeah Howard breaks laws that's our culture and then so then they might start thinking well hell he's not gonna report to cash IRS I'm gonna take the cash and I'll report it to Howard and then later when you look at embezzlement cases I look at a lot of embezzlement cases were actually what broke down long before the embezzlement was morality you started by not reporting your cash then she started saying well I'm gonna steal the cash you're stealing from the IRS I'm gonna steal from you and then it's...
Matt: That's different Howard.
Howard: and then it started to become a large amount so she starts hedging your bet thinking you're married and and a divorce would be a million dollars so I'm gonna start I mean I'm gonna up the ante I'm gonna start sleeping with you because now if you ever caught me the fact that I'm embezzling thirty thousand dollars a year you can fire me but if you want to call the police I'm gonna call your wife and and then and then it can from there can go to doing drugs together too I mean it just you you look at the snowball...
Matt: It started as a snowball just trying to pay less taxes and all of a sudden now I'm snorting lines with my office manager.
Howard: Yeah I know this this snowball the size of a house just cream my life and you start off with the slippery slope.
Matt: Yep
Howard: So the slippery slope is in your office as much as you don't like it you know Lori's the president of our company for 20 years Don's the office manager of my Today's Dental for 20 years my Comptroller I mean I got a bunch of people in here 20 years, rule number one let's not be illegal and break laws and and then some dentists I'll say well why the hell I mean look at this dysfunctional employee why on God's green earth are you firing her today, I;m sleeping with her, I'm doing drugs with her, were embezzling from the IRS I mean well how much do you want to know and it's like well at that case the only thing you can do no matter what is just go transparent come out of the closet and start trying to fix a nightmare and this country is kind of interesting you can go back to Clinton it's never the crime it's the line about I mean a Christian nation doesn't have a problem with the senator they think everyone's a sinner but it's what do you do when you get caught with your hand in the cookie jar you don't sit there and say I'm not eating cookies as there's chocolate all over your face you just own up and say okay I seriously messed up where do we go from here and that's the case when the feds come in because you're eating vicodin you just raise your hand say yeah I can't stop eating vicodin and every dentist I know that no problem no worry it's a disease they take you to treatment they put you know pee in the cup around but the guys is that oh I indeed I am NOT abusing vicodin stealing from the IRS just you know in this country just flip it admit it raise your hand I must find an attorney you're gonna get a spankin and you're gonna get set on the right course and anything opposite of that lying cheating deceiving covering up the cover-up is always ten times worse than a crime so just I shouldn't have to tell you this and I'm not saying as your pastor it's two MBAs telling you this quit lying cheating and stealing and do the honest thing because what percent of time is it gonna come back to bite you.
Matt: Can I say 100 no 99.9999.
Howard: 99.999 because it's not a known number yeah so number one is report all the income and all the cash.
Matt: Number two is be cognizant about what owner expenses you're taking on your taxes there's plenty of them that are legitimate true business expenses that won't affect the valuation your practice that's automobile travel meals and entertainment CE having a spouse or children on payroll 401k contributions all of those are what we call owner discretionary expenses and when I'm doing a valuation or when a buyer or a banks looking at a practice they'll all add those back to your cash flow so they'll look at what the business profit was and then they'll go and add back meals travel CE because those are owner discretionary and just because you as the current owner of the practice spend 40,000 a year on CEO travel doesn't mean that I is the next owner will so though those expenses are fine keep expensing those kind of things on your tax return well when you start to get to grey areas I'll give you an example season tickets to the Suns obviously no one buys those now but ten years ago when the Suns were good I'd see a doc that season tickets for the Suns and he puts that under his advertising expense now there's 41 home games a year and he's going to 36 of the 41 on his own that's not advertising but if he just embeds that in the advertising line and the practice shows an extra 25,000 a year in advertising I can't add that back my cash flow analysis buyers and banks can't justify that income so you you if you're taking those funny expenses on your tax returns you can't expect the buyers and the banks to see that as anything less than a legitimate business expense home remodels your expensing under repairs and maintenance all the Costco trips for your home goods that you categorize under office expenses those are the things you need to knock off a couple years prior to selling so that your books are cleaner and they provide an accurate representation of the profitability and cash flow the practice because at the end of the day now more than ever before your profit and your cash flow after making those reasonable adjustments drive the value of your practice more than collections more than production more than active patient count more than anything else is profit and cash flow now.
Howard: Now it might be different if you were say a specialist a periodontist whores honest and and every one of those games just taking your referring doctor.
Matt: That's why I say he's going to the games by himself.
Howard: Yeah but so be honest about it is is this and and then if you really were taking 40 different referring dentist in your area to a game so that have a material impact on their referring did that relationship really worked I am my boys were always amazed my best marketing from day one was always on press flush like I've had I mean I've had a hundred business leaders pharmacist physician over to my home for dinner I mean I always thought like one of the best marketing deals I ever did was having the the pharmacist across the street over your house for dinner and cooking or going to a restaurant for 32 years I have several that if you go up there and say you know would you refer to that would you recommend orajel oromucosal or is motrin better than etc knowing dude and they'll do this they'll pick up their iPhone know FaceTime me I'm I was I was one of the earliest people doing tella dentistry when pharmacist handing in 2007 iPhone across the counter and some guy who was showing Brad as there's now saying dude come over here right don't get any amusol I'm right around the corner or walk right over here so so you got to look at the on marketing they're everything they thought to say as your marketing was doesn't matter if the marketing works or doesn't work is what are you comparing it to I mean if you spend $100 and you only get and you get one patient from doing this and your alternative is $200 to get one patient or $300 to get one patient you're just moving the 300 and 200 dollars to the higher return of getting more people in their head and so so many of those things you believe you want to believe it's the best but that's what I love about math math says well indeed in fact it is not the best so reviewing their tax returns trimming out discretionary incomes reporting all their cash and when you start saying things like well like when you say car I mean I'm sure she's driving to work right now thinking coming dentists actually report their car as a business expense.
Matt: I mean most all of them take an automobile expense on their taxes.
Howard: Most all of them do that?
Matt: 97%
Howard: So three percent that doesn't?
Matt: Yeah
Howard: So talk about that so 97 percent of my homies..
Matt: Will show an automobile expense line item on their tax return either the business owns the vehicle and they're depreciating it or they're justifying justifying mileage and travel now I'm not a CPA I stay in my lane with with valuations of businesses
Howard: I can tell you now a CPA gives you have a pink tie on I mean that is like a flair you're an accountant.
Matt: and I left my pocket protector at home but what I see they'll do is they'll set up a home office and so they check into their home office each morning and then as they drive to work that's you know interoffice commute and so then they can deduct a mileage.
Howard: Huh I mean there's a couple I filmed a thousand podcasts in my home and I didn't even deduct a home expense for that home.
Matt: You need to go back and file amendments to your last taxes and get some money.
Howard: but you know what what I always would all never forget is what I'm you know the easiest dollar earned is a dollar and expenses saved.
Matt: Yep
Howard: That's where everybody just needs to focus you live beyond your income I mean teachers have the highest occupation of becoming a millionaire call your wife is a teacher they have the highest occupation of being a millionaire because they're like well I'm a teacher I'm not gonna drive a Mercedes Benz living at 5,000 square feet I'm a teacher I'm gonna drive a Honda Accord and live in a you know a 3-bedroom 2bath and then they start saving and then you you by an IRA every year from age 25 to 65 it's only 80 thousand dollars for that grew into a million dollars it's never what you make it's what you save. So trimming out your so the easiest dollar earned adjusted all our expenses saved the second easiest dollar earned is a dollar in taxes delayed and then the hardest dollar you'll ever earn is going to work for another hour and making another dollar but in that easiest dollar tax delayed it just becomes really really apparent that the government hoodwinks yeah jury a trial by your peers unless you're dealing with the government and then you go to the IRS court there's no jury it's you...
Matt: That's right
Howard: The IRS judge and you lose and I just I just don't want to be aggressive enough to open up that Pandora's Box I've never stood in front of the IRS judge I don't ever want to stand in from the IRS judge, just pay your debt and then with a country when you live in a country that's 19 trillion dollars in debt it's like I actually feel like you should be paying more taxes just to get us out of this hole so.
Matt: but not advocating you do or don't expense your automobile in your tax returns yeah all I'm saying is those certain categories that are justifiable discretionary expenses automobile travel meals CE entertainment things like that are always added back to determine what's the technical term is owner discretionary income or owner discretionary earnings that's after adding all those things back.
Howard: The other thing I don't probably the biggest mystery to me in dentistry is when you're talking to dentists or just burn down beat up and fry between the dental insurance companies the irrational patients you think everyone else should be responsible for their poor diet and home care I mean just of all the madness and then you say what do you what'd he do this weekend oh we're going to Hawaii for a week it's like so you know you're gonna pay for that out of just pain and misery and so the fastest road to happiness is to quit spending money especially if you're earning that money through pain and misery. I mean there's a reason that 90% of prostitutes are drug addicts they have a horrible job they don't like and they only do that because they have a $300 a day problem and and that's why I don't think that person should be arrested and put in a cage that person needs to get treatment and get it and learn how to live where they don't need $300 a day to do heroin you know they they can do it easier.
Matt: So in summary clean up your tax return.
Howard: Well okay so but but here I'm saying something weird sometimes discretionary yeah...
Matt: Yeah personal discretionary stuff.
Howard: but a lot of them think well I need to add a lot of business debt I need to upgrade my pano to a CBC to me and my 20 year old chairs to new deck and I need to I need to incur it's like some of these people they tell me how they're gonna occur three hundred thousand dollars of additional debt because they want to sell their practice in three hours are they gonna get that three hundred thousand dollars back plus more.
Matt: I'll give you two scenarios that I've had over the last couple years I had a great dentists in Scottsdale getting ready to retire I met him in a study club I was speaking at he called me up to come to an evaluation was practice he said hey I'm kind of selling it I'm thinking about selling it was my practice worth he walked me through the practice and it's a nice bread-and-butter practice simple but but a clean practice and he says and this cone beam I bought six months ago it's brand new I said wow that's nice how soon you sell in the practice well I'm thinking about doing it right now said okay you place a lot of implants nope never done a one what about an endo you obviously do a lot of endo nope never done an endo I said doc why did he just buy this brand new cone beam when you knew you were gonna sell the practice and you don't do any of these procedures and he said well Matt my friends told me if I have nicer equipment I should be able to sell the practice for more money I thought duh doc you spent a hundred twenty thousand on this cone beam that's now gonna maybe increase the value of your practice by fifty or sixty thousand you don't even do the procedures you just threw seventy thousand dollars out the window because all that new technology and equipment don't really drive the fundamental value of the practice and equipment loses its value very quickly so if I were three to five years out from retiring or transitioning my practice other than a digital conversion and reupholstering chairs.
Howard: A digital conversion?
Matt: Yeah man if you're so if you're still on one tipping well if you're still dipping x-rays you need to convert the practice to digital x-rays and radiography.
Howard: You called it what did you call it?
Matt: A digital conversion
Howard: A digital conversion and what was the other one?
Matt: That's it that's what you need to do just you don't have to go paperless you can still use your paper charts but me and get get a practice management software on computers get computers in the operatories and get a digital sensor and the reason why is that's minimum it's not even minimum standard of care for dentists looking to buy practices and dentists coming out of school it's just the only platform in which they're comfortable practicing on so if I just graduated from AT Still or Midwestern you're in town what kind of technology and equipment do you think I was taught on and what how did I practice in the clinic there at school they had digital sensors and paperless charts and software and all the bells and whistles of equipment and technology so if I go out in the real world I'm looking to buy a practice and this practice doesn't have a pano doesn't have x-rays and still dips there old film x-rays do you think I'm gonna feel comfortable buying that practice and can I see myself being successful in that practice absolutely not. So I think it's important just to bring the radiography up to a standard that younger dentists are comfortable on reupholster your chairs but other than that don't buy new equipment don't make big expenditures they never contribute significantly to the value of the practice and they lose their value quickly.
Howard: What about their AR's I mean you you you know the great offices all their account receivables is under 30 days but that's right oh my god you you are an indent us all time where they're 60 days biggest or 30 day and they're 90 day is the biggest number.
Matt: So if I'm a buyer what does that tell me it tells me that their patients don't have a good habits when it comes to paying and collecting that the team doesn't have a good system or process in place and it tells me that their revenue cycle is terrible which means guess what if your receivables aren't coming in for 90 or 120 days do you think your supply companies are okay with you paying for your supplies 120 days after you use them I think the labs okay with you paying the bill 120 days later you think your landlords okay with rent coming 120 days later I mean the expenses are incurred and due and you have to pay them in a timely fashion so you're killing yourself if you're not collecting that money in a timely fashion as well so take a look at your AR if you're thinking about selling in the next couple years take a look at your AR clean it up make sure there's not a big amount of ballooned AR and Howard here's one of the one of the biggest takeaways that I always share check your patient credits, patient credits even even the best dentists in in practice management couldn't tell you what their patient credit balances because those patient credits accrue over time they're either over payments from insurance there over payments from patients when you're doing an estimate and you don't credit them the $17.25 in some practices they're patients that come in apply for care credit for a treatment plan the care credit gets paid to the practice and then the patient never shows up for the treatment that happens a lot especially in certain demographic areas. I had a practice in Phoenix the doc had been practicing 42 years former AZ da president great guy we ran his patient credit report and in a million dollar practice hits 75,000 in outstanding patient credits some of them were 10 15 18 years old when they were due but what has to happen for those patient credits it's not your money as the owner of the practice is the patient's money so as the seller the practice you either need to reimburse those credits to the patients or you need to credit the new owner those patient credit amounts so that if or when a patient comes in after the sale they can honor that credit on the books.
Howard: That's why traveler's checks was such a great my company
Matt: Yeah right people with the money upfront and then you forget about it .
Howard: Yeah people would buy traveler's checks in at the very minimum lose them people would get him to go on vacation and then they found out their credit cards worked on vacation so that with $1,000 of traveler's checks put them in their in their sock drawer now they are 10 20 years later and it's just like unbelievable in fact Warren Buffett if you look at all of his stocks means obviously the greatest investor of all time all the stocks are only in three sectors and financial and insurance or two of those three and that is amazing. So you said you weren't big on upgrading a two-dimensional pano to a three-dimensional CB CT and I don't get it because you know it's not the right answer because I look at you with your cell phone I mean iPhone only has to come up with a new phone that's like oh this one's one millimeter bigger and one millimeter widder
Matt: Has a fourth camera icon right has a fourth camera three cameras aren't enough on your phone anymore.
Howard: and you upgrade and I'm like so so so okay so you upgrade every time iPhone comes out with a new minor derivative of any old existing product yeah you want to use a CB CT from 1912 I mean you you really think you're gonna buy one in the year 2020 and still gonna be using that thing in 2025 not to mention it doesn't matter what you and I think because we're the providers of the suppliers the demanders the humans coming in dentistry is only four point six percent of the healthcare budget in the 20 richest countries it's all under five percent and so the other ninety five percent when you go in there and want them to check something they're not gonna take an MRI at the dermatologist you know that they send you out somewhere so every one of your patients and it's consolidating because all you have to do is when you're having dinner with your physicians and by the way a lot of physicians won't come to dinner because they're big egos and they're big busy and they're the hardest ones to crack but my god if you ask the chiropractor are the natural path and they're just honored I mean they can't believe of it you start him for me it was chiropractors who were actually married to physicians and they had their own MRI and then you just started telling them well you know if you bought a CB CT or I'll sell you my CB CT there's 80 dentists in Ahwatukee you don't need a CB CT and then when that CB CT and gets replaced by a bigger greater faster easier better one well if you're doing everybody's CB CT in town and then there's also the oral surgeon and the periodontist who they're already sending you cookies already begging to be your friend and if you just call them and say if I need a CB CT can I send it to your office you take it you bill the insurance it's all your revenue and then you send me back a report they're all like yeah absolutely so why do you need a CB CT I just don't get it I'm but you talked about the convert to digital tory's digital radiography that clean up the AR and patient credit is that just the fact that when they're checking out a patient they're not billing the insurance at that transaction usually connected to just instead of because what I see a lot of offices do is they they work Monday to Thursday then at Friday they're just gonna come in and spend half a day cleaning up all this inefficient operational logistics but so a lot of them are just billing insurance one time on Friday um do you do you think part of the digital is to increase the you know what I love the most about like when you go to like Hertz rent-a-car Marriott what I love is the fact that when you check in for Marriott or Hertz there's only like six exact things they ask you in a row and then when they check you out they're standing out there with a Palm Pilot checking out then you go to dentistry Oh check you in oh let me open Dentrix with 4,000 features and buttons 80% of which no one will ever use in this office one time and it's so crazy I'll miss the three things I actually need. I've been telling all the the practice management people like I don't want a way of your new features I want away to X out of existing stuff so that one day I can be a Marriott and when you call it I open up open dental the the only seven things I need to know pop-up and I can't go to three until I've done two and I can't check you out till I've done all seven and maybe one of those check out should be electronic claims sent.
Matt: Right yep absolutely now that's one of the important things as electronic claims if you can but even billing once a week is a lot better than what most practices are doing they think they're billing once a week but their team's not truly processing and sending out everything on a weekly basis otherwise you wouldn't be at 120 days right you'd be at 40 days instead of 30 days there's just it's important to focus on that and kind of see it from the perspective of a business owner instead of just hoping that the collections being done efficiently.
Howard: and so we got the you know computers digital conversion you so convert to digital computers is ready I'll be in check upon checkout sent out like trying to claim back till we were talking about marketing we talked about I'm buying 40 tickets to the Sun's you know who may we think for finding us today what are you responding from and then you'll because right now you think it's all from your Facebook Ads you don't know that the far majority is word-of-mouth referral for all that stuff but what about a new paint, flooring, reupholstering the chairs?
Matt: It's great to do a quick facelift and have somebody from an outside perspective come in either a friend, a colleague ask a patient they'd be flattered if you said hey tell me what you think about the design of the practice what are a couple things we can do to give the practice a facelift sometimes we get snow blind when we walk into the same office through the same door every day and we just don't see it or think about it but simple inexpensive ways to kind of spruce up the office paint flooring upholstering the chairs that's about all you need to do you're not trying to do a complete office makeover renovation you just want to make it look marketable and then that new owner is going to customize it and do a renovation overtime that fits their style and their desires.
Howard: You know just looking in the mirror I you'd think I'd be a fashion statement but I was really surprised how much more they're remodeling lady knew about it in my office and actually that exactly happened to me the last time. So when you look at McDonald's and McDonald's and by the way I know the chick-fil-a came out of nowhere and now they double the average McDonald's but I know that's kind of lying with statistics because I'm McDonald has 40,000 locations in chick-fil-a has 2000 so a lot of people could take any existing restaurant cherry-pick 2,000 locations and say we're better than McDonald's but the real question is will chick-fil-a have better performance than McDonald's if they got to 40,000 locations that's that's an unknown that we don't know but where was I lost my train of thought thinking about, Ray Kroc who I had the honor to meet when I was 10 because my dad was in Sonic drive-in hamburger and we went to restaurant convention in Dallas and still remember what he said it was just amazing but it was the thing I'll never forget was I'm well I'll just tell you sir I was 10 years old my dad had just kind of sonic there was a like an 88 convention in Dallas which is six hours down i-35 we went there my dad you know just couldn't believe he's gonna hear these lectures I got to go with them got all these binders on the business but anyway but Ray Kroc was that they're saying that I'm you know he reduced almost everything he did but you would think he was an anthropologist you would never thought he was a businessman he says he says you know the whole thing with franchize I started that when after World War two and this is debatable but I saw that Nazi Germany could make a tank put on Autobon and have it all the way to the Navy Yard and you know at 80 miles an hour and America they were making tanks in Ohio and they were literally going down dirt roads across Ohio trying to get to some Navy base in San Diego and so he came back and the first thing he did is spent 300 billion dollars on the interstate deal of course now there's website saying that had nothing to do with the military just happened to be built by a five-star general that just finished beating up Germany I mean but when they but so that's when everybody started traveling when they got to the next town obviously everything was unknown and no one likes unknown I mean hell going back for the last million years hey that little red berry on the tree I wonder if that tastes good and you II didn't drop dead and we're all like we're all gonna pass on the red berries from there it's all your program to not like unknown so you got to the next city and so if you saw something familiar that's where you're gonna need that was the whole birth of franchises it was started by the interstate and now it's about the same size of the economy as health care it's about 17% year of your whole economy is these franchises and Ray said it's not that familiar food mom's got to go to the bathroom and she has to sit down dad has to stand up he'll go on his own truck if he pulls over on the side of Road and we're gonna clean that woman's bathroom every hour on the hour because he knows the family I mean you got a wife and kids and she's gonna say you say well why don't you go why don't you use the bathroom of that filling station well yeah you can stand you can you can pee on the dumpster behind the filling station but mom's like no I'm not gonna sit on that she already knows what it's gonna look like and Ray said we will clean that woman's bathroom every hour on the hour and it'll be freshly stocked because mom will choose McDonald's over all the other people I mean you go into a 7-eleven you have a bathroom oh no we don't really you're working a 12-hour shift with no bathroom can I see the plastic coming tube coming out of the side of your body and so he just nailed them with the clean bathroom and it was just a but and Ray that was his formula McDonald's every month you're gonna put away a little bit of money into a savings account because it's seven years we're gonna get this thing in and repaint floor upholster everything's gonna be brand new and I really like this Chipotle the most because if you talked to an expert what Chiptole did is spent the biggest amount of money building a store if you look at that store it would survive a nuclear war I mean it's cement floors cement walls today hundred pound boy could sit in any chair nothing I mean there's nothing you could really do to destroy but but when you put in carpet oh my god that's gonna be replaced landfills paint paint on walls I remember when I don't know if you're young enough to remember but remember when everybody had a drop ceiling at every grocery store and everybody said why are we paying for a drop ceiling just blow it open and and make the make the the vents look a little prettier just just spray paint the duck the duck walls but my god going to a chick-fil-a because I McDonald's has to redo all their stores every 7 years and Chipotle I saying chick-fil-a sorry I ment Chipotle wants a solid 10 years out of that deal I you literally need a jackhammer to do something in a Chipotle say we need to change this out now so when you look at new paint flooring reupholster my gosh I mean when you build your home if you built a tile floor you're done if you carpet it and put panel and shag carpeting and all that stuff so on so think of a think of Chipotle and think of McDonald's so McDonald's got 40,000 locations and no matter what store you walk into that 40,000 locations it's between brand new and seven years old and so that that's a fresh look and I have friends in Phoenix Arizona you walk in their dental office it's like a time machine.
Matt: Yeah and I get a lot of those practices when it's time to broker them and find a buyer and and it's hard it's hard because they walk in and they feel like they're back at Grandma and Grandpa's house these young dentists that are coming out of school and it's just not a comfortable environment for themselves and even if the numbers look good the production's good they have a hard time visualizing themselves working and enjoying themselves in the practice.
Howard: Well first of all I am a grandpa so I have five grandkids I resent that remark so now let's switch from sounds like we've been talking a lot about the old guys selling to the replacements that just got at a dental kindergarten the thing that blows my mind the most in this whole dental scenario is how these young kids take business advice from their instructors who obviously could never have a private I mean those who can do those who can't teach the only saving grace and a dental school is that like my buddy Tim who kicks his butt Monday through Thursday but just likes to teach on Fridays just for the two hundred dollar day's salary it's none of that stuff he just enjoys working with the replacements in dental kindergarten school to give him an idea that's the only saving grace so they believe from doctor never did it that you can't open up your own practice you got to go work for Hartland and Aspen and then I just sit out here because I've had these schools backyard for a deck I say okay well if that's a good idea then go to the graduating class from five years ago they should all be working in Aspen living happily ever after and indeed you find out that whether they work for Aspen or private practice for you or me they quit their job every year in frustration but for five years they'll have five to seven jobs and the only reason they get over the fear of opening your own company is because finally they've been in hell for so long they're already internally dead and then I got I hate my job I hate myself I I hate life I might as well just open up my own dental office and that's when they sprout the two green leaves coming up from the dirt and grow on to live happily ever after so my question to you is I graduated May 11 and had my office open a hundred and thirty eight one hundred and thirty three days later what why the hell are they taking a different associate job every year for five years why don't they just go out tell me what you're seeing I mean am I wrong or ya blissfully happy to ask for five years latter?
Matt: No it's terrible you you hit the nail on the head they rotate every four or five years sometimes more frequently than that and until they finally realize that everybody all these DSOs that we think are just all-powerful and all-knowing and and are gonna crush the industry you realize that my friends that have gone in private practice and owned their own practice are a lot happier more successful than me and maybe I should give this a shot. The thing that I see the most is if I were a dentist coming out of school I wouldn't the prevailing wisdom is even if you want to own your own practice go to a DSO for three to five years get your hand speed up get your clinical skills up and this is pretty unpopular advice and this is just my opinion this is not factor data you know what I do I'd go find a mentor I'd go find a private practice mentor and the thought is hey man I got to get out there I got to make money as quick as I can I DSOs or the quickest way to make some money I got to pay down the student loan that scares me and I got to get as much production in my belt as I can and it's it's working harder but not smarter I would go find somebody that's a real top-notch business owner and clinician and I'd go be your associate I'd be your boy for three years Howard I don't care what you pay me I can be your composite specialist but the amount that I'm gonna learn during that those two or three years is like a fellowship or mentorship is gonna change the trajectory of the next 30 years of my career and I feel like sometimes dentists are so short-sighted coming out of school where they want to own that practice immediately or they feel they need to grind it out at a corporate practice for a couple years sometimes a couple years invested maybe deferring the income for a few years is gonna pay exponential dividends over the next thirty years your career that's that's very unpopular advice to give right now but there's nothing that supplants wisdom from a mentor.
Howard: Oh yeah and then all the time they're like just the craziest question on dentaltown they'll say well I want to go back to Salina Kansas and there's two guys and one will pay me 30% of collections where I say I have the lab bill stop there pay me 25% but I have to pay the lab bill which one.
Matt: So in the end I'll make $30 a month more by going with option A instead of option B and that's how they make their decision Howard is what gives me the most money right now today.
Howard: It's like what if you want to be an implant ologist that's your love in one guy places a hundred implants here and the other guy doesn't do any what if one of them has a big hygiene depart I mean what what do you want to learn you or do you want but yeah so so if you're in school obviously the specialists make a hundred thousand more than general dentists oh and by the way that specialists on there I want to draw attention to an article in ink magazine that sound just said at all when they brought back Steve Jobs he implemented the 30% rule and and he basically looked at all that everything Apple had been doing and he would just say is this an incredible product a good product or I don't even know what this product is and he it was never and the weirdest thing about Jobs is it was never his idea what to do it was his simple succinct annihilation of all the things he wasn't gonna do people kept coming to him with all these software features for the iPhone or the iPod he said dude we're not Microsoft where you come out with PowerPoint and Word and Excel and there's and spawned an entire industry of CD ROMs and universities trying to teach how this shitty software works I want a 65 year old grandpa just sit down with a six-year-old grandson get an iPod out of the box and figure out how it works because it's so simple. So he vetoed 95% of all the software features saying is this making it more simple and succinct and sapient or is this just cluttering confusion and so when you go back to health care you know I just had this specialist make out a thousand minute mortgage on in 1900 health care was only 1% there were no specialist by 2000 it was 14% with 58 medical specialties 9 for dental now we're at 20/20 dentals up to 10 so going out to be a jack-of-all-trades and oh I'm gonna master silver diamine fluoride in pediatric dentistry and ortho and Invisalign and implants and endo I might come on come on yeah you need to be Steve Jobs and when you're looking for associate saying okay I didn't want to specialize in just endo because I didn't want to go that far but as a general dentist I mean you're either gonna have a flair for cosmetics bleaching bonding and Invisalign or a flair for blood and guts implants root canals extraction I mean what do you what is your 30% your Jobs you're coming back to Apple and you're looking at this turn around and saying succinctly what do I want to focus on and that's the guy you should work for but my other question I want to ask for you true or false it seems like in my 32 years or just in this town that a lot of guy said you know what Matt come work for me and you know two or three years now I'm gonna be ready for retirement solve this thing you know I'll sell it to you how many times is two or three years later there's no sale agreement and doctor changes mind because he wanted to new car new house a new cabin?
Matt: You know I see that scenario all the time and I jokingly referred to it as an ambiguity ship not a partnership not associateship it's an ambiguity ship.
Howard: Nice I'm gonna steal all these terms from you.
Matt: Right yeah but here's what ends up happening that sounds really good in theory hey Howard I'm gonna come work for you...
Howard: That should be the name of an article are you in a partnership or an ambiguity ship?
Matt: Yep so I could come work for you and it sounds great you're gonna be the mentor I'm looking for them going down the right road and you even say Matt I'll let you buy in or I'll sell the practice to you you know after a few years and we shake hands and we're off to the races and we're so busy talking about clinical stuff and you know comparing notes and looking at treatment plans and mentoring me on the clinical side of things we never revisit that conversation so there's no defined parameters and then in three years I said I say hey Howard it's been three years it's time for you to sell the practice to me you think oh man I meant like five to seven years but if we don't talk about a few things upfront what's the timeframe that that's going to occur you need to talk about value because I can't tell you how often this scenario happens where you and I'll shake hands and I start working for you then in three years you say okay yeah you can buy my practice it is two million dollars because of all these intrinsic factors that are unique to the practice and that's twice as much as I'm willing to pay that's a gap that we're not gonna be able to bridge and we can't overcome that so I want to make sure there's some agreement on price timing how much is gonna be is it gonna be a partial buy and a half buy-in are you buying me out and working back to figure out what that arrangement is and then lastly the elephant in the room that's always the hardest to talk about is sweat equity these young associates are getting smart and they come in and say well hold on Howard I come work for you the practice is doing 1.5 I work for three years and at the end of three years it's doing 1.9 because we have a little bit of synergy going am i paying that 1.9 price tag I just helped increase the value 400,000 do I get some credit for that how do we handle the increase in value I don't want to you know kill myself for three years being your boy for you and then turn around and have to pay for that extra value I just created. So I want all those four things discussed upfront if you're absolutely adamant about going down that road of an ambiguity ship take the ambiguity out of it define those four terms how long what the price is what the structure is going to be and then ultimately what is going to be at the end and here's the one...
Howard: I'm sorry, say those four things again.
Matt: So you need to determine what how the timings gonna be what the price is going to be what the ownership structure will look like is it a partial buy-in...
Howard: What is the timeline, what is the price.
Matt: Timeline what's the price what's this what's the ownership structure going to look like are we 70/30 50/50 we're just flipping rolls we're in three years I become the owner and you're just the associate not just the associate I would call you the emeritus associate of course Howard and then and then the fourth thing is how do we handle sweat equity the value that's created during the time of associateship. So when you have those four here's here's the one curve ball I'm your associate Howard I'm working for you we have all those things defined I like to ask dentists the owner dentists do you know your associates credit score think about that for a second so even if we have all of these things identified we determine the price of sweat equity the timing I'm grinding it out working for you and at the end of three years we say okay Matt it's time for you to buy my practice and I go to a bank to get a loan for the agreed upon price and they say dude you have a bankruptcy in two short sales we're not giving you five nickels oh that's a problem because you're expecting me to pay you cash you may not want to have to finance my buy-in because that's kind of messy and I'm not a big advocate of that so even if you define those things ask your associate if they're thinking about buying you an overtime or you have a general arrangement know what their credit score is I have a deal on the west side of Phoenix that I'm working on right now where there was another transition consultant doing one of these phased buyin's over time and right there at year three right now his portion of the buy-in is eight hundred fifty thousand and turned out that he had a bankruptcy in a short sale no banks gonna lend to him so the doc called me it's Matt he's invested three years in this kid I sent him to all kinds of CE courses I meant toward him I've given him almost all the new patients for the last couple years to get up to speed and frankly I'm exhausted I don't know that I want to start over and hit the eject button and hire train and mentor somebody else and have to restart that process what do we do it's a problem if you don't know your associates.
Howard: and a quarter of these kids are still in dental kindergarten school.
Matt: Yeah
Howard: and how does it how does a new dentist have a bankruptcy you explain yeah how can you account can a new dentist have a bankruptcy and what is it?
Matt: Most of most of the dentals school students right now probably don't have bankruptcy in short sales but we saw that a lot with young dentists who bought a home bought an apartment bought a condo in 2007 2008 2009 while they were students and the real estate market declines such that they were underwater on their condo and they walked away from it you walk away from your home mortgage that's the most common way for somebody out of dental school to have a short sale or foreclosure.
Howard: Well they I don't know what a short sale is.
Matt: Basically yo the bank 300,000 on your home and it's only worth two hundred thousand and so you hand them the keys and the bank has to short sell the home.
Howard: So your mortgage is more than what the house sells for.
Matt: Yeah you're gonna pay unintended consequences for that years down the road.
Howard: It's such a segway I have to ask, the last time that all happened was Lehman's Day 2000 that 2008 or 8 2008.
Matt: That was 08 I remember that.
Howard: If you tell me you can predict the future okay you're a palm reader and the discussion is over I mean Warren Buffett won't even tell you what the markets gonna do tomorrow but doesn't it kind of smells like teen spirit again.
Matt: Yeah I'm worried.
Howard: Do you smell something funny?
Matt: Yeah it's not if it's when yeah absolutely there's just too many weird economic things going on and they look like what it looks like both from an academic standpoint if you want to look at GDP and interest rates and all that stuff but also you know what I like to do is just drive and as I'm driving around town same streets you are we both live in the East Valley here I see homes going up like crazy it's the apartment complex is going up I go out on the weekend I take my wife on a date we go movie and dinner I can't park there's no parking at the restaurant movie theater because everybody's out there I see fall break all my neighbors and friends are taking their families on nice trips to Hawaii to Mexico to wherever when I see such a high amount of discretionary spending and everybody's just spending money and money and money that's what it felt like in 2005 and 2006 didn't it?
Howard: and 94 to 2000 how old are you in 2000 March 2000 and the y2k bubble?
Matt: I was 20 years old I was out knocking on doors with a white shirt and a tie you know trying to share a book about Jesus Christ with people.
Howard: In what city?
Matt: In San Diego California
Howard: So you went from Philadelphia?
Matt: Yeah
Howard: You're born raised in Philly?
Matt: Yeah
Howard: and then went to San Diego?
Matt: Yeah
Howard: Now man how could the good Lord has sent you to San Diego and then you leave and come back to Phoenix what happened?
Matt: There's a long story from San Diego to Phoenix.
Howard: It's funny you got lost, obviously.
Matt: Within the culture of church missions there's a mount of prestige with going to a rare third world country if I go to you know you've gone or I go to Budapest or somewhere like that everyone's I call wow that's amazing I tell people I went to San Diego and their like that's lame. I thought it was a culture shock coming from you know a more urban environment that was lower blue-collar income and then going to San Diego where I felt like I was on the set of Beverly Hills 90210 every day I saw convertibles and palm trees I'd only seen that on you know Saved by the Bell.
Howard: but what's amazing is you left before the Chargers did you had more vision my god
Matt: I came down here so you asked I came down here after my undergrad my dad got really sick had it had a terminal disease that nobody knew anything about so he's in Philadelphia area and they said hey you need to go to the Mayo Clinic they're the only people that can't even spell this disease so take your pick Rochester Minnesota or Scottsdale Arizona and that decision took him 1/2 second he said I'm gonna move to Arizona so I moved down here to help care for my parents and that was 15 16 years ago my dad subsequently passed my mom's a snowbird and in out of town and
Howard: Were they able to help your dad?
Matt: They extended yep yep they gave him a prognosis of maybe 2 to 3 years and he was around for 10 more years so it was fantastic it was everything more than we ever could have hoped from the treatment but long story short I ended up growing roots and staying here and the reasons for me moving here are gone but I mean I think we're here for life.
Howard: The same story happened with my dad but I actually just flew back to Wichita drove him to the vet had him put down and that was $50 and but I like your story better.
Matt: Are you serious right now.
Howard: I hate the segue because you were going so sweet on this but on that, how do we handle it I want to go right to the most uncensored part I have no idea how you're gonna answer this question but I have a big feeling that you married your wife without a prenuptial agreement.
Matt: I did I figured half a 0 is still 0 sided bottle with it.
Howard: S the most stress that I hear you know going out to eat a burger and watching some girl just bawl her eyes out is because she's going all through this working for her mom. So when you're talking about you know are you in a partnership and beauty ship what is the timeline of the seller dentist to the new dentist so she ate what is the price what is the ownership structure, how do we handle sweat equity, how do you handle this when it's your mom say you ever have you ever see this?
Matt: Yeah so I because of my credentials as a certified valuation analyst I do probably 10 No 22:25 valuation assignments a year here in town where it's a father and son or it's a mom and a daughter where it's a family transition and they say hey listen we want to be able to break bread over Thanksgiving we need you to come in and independently and accurately tell us what the value of the practice is because there's such a disparity the parent sees all the money they spend in equipment over the last 30 years they want to get that all out and they're moving to a lifestyle of fixed income and so they need to get every dollar they can out of that practice out because it's their last liquidity event in their life this is the last time they're gonna move the needle up in net worth and now it's gonna start going down over time and you've got the kids on the other side of the fence that have all these student loans all these debts and in most circumstances parents have been kind of helping in one way or the other and you think hey mom or dad's gonna do me a favor and you know give me a break on the sale price so it's a tough dynamic I would say roughly 90 percent of generational transitions do not occur.
Howard: Say it again
Matt: Ninety percent of generational transitions do not end up consummating meaning I've got a great doctor in Mesa right here whose son became a dentist and in the last 12 months the son bought a different practice and then I had to help dad transition out of his practice to another buyer because of a myriad of factors but the long and the short of it is ninety percent of time the parent the the son or daughter doesn't end up being the future owner of that practice every single dentist who has a son or daughter in dental school thanks man I got my built-in transition plan, they are not even listening to this podcast because they're like man I don't need to know about transitions I've got my built-in plan my exit strategy but 90% of the time that doesn't end up coming to fruition for a myriad of reasons but it's almost never end up owning parents practice 90% of the time.
Howard: Wow so the last liquidity life lesson is you're not gonna get that for mom and dad.
Matt: Nope you're not gonna get a break for mom and dad's mom or dad don't stick your head in the sand and think but I've got a built-in buyer I don't even have to think about upgrading taking care of my practice improving the systems and processes because this kids practically obligated to buy my practice and then all of a sudden at age 65 they say hey mom and dad I ended up buying you know the practice down the street because it's a lot nicer and it has newer equipment it has good systems in place and they have more active patient flow and new patients because they've been reinvesting in the practice.
Howard: and for less money.
Matt: Yeah all that yeah then and then you're 65 looking around like what what do I do with this dinosaur of a practice I don't even know where to start.
Howard: The mom and dad thing is also like embezzlement I mean you know the average dentist makes I mean gosh darn the average honest dental specialist makes 320 average general practice or 197 Dennis who owned their practice make 244 dentists your employees make 147 so just take the Lois you're a dentist's associate making 147 year or you own your practice it's not the fact that your front desk ladies sold ten thousand dollars it was that she was your baby's godmother gone on vacay you know it's an emotional sting and I have dentist friends here in the valley who's a dentist and their dad's a dentist and they have not spoken in 20 years over this and everybody told you to get a prenup before you get married I didn't get one and there's no big deal it only cost me 3.8 million dollars but I know it's impossible to get a prenup it's impossible to get one with your mom and dad but what does everybody say about going into work with family I mean I mean do you wish Tanner Mellon was your brother?
Matt: No here's what I know I can always make more money and I can always find more business associates but you can't make well you can't make more family but that's a different podcast but went once you burn a bridge with family it's irreplaceable.
Howard: When your sister wants to borrow $2,000 because her heater went out one condition it's a $2,000 grant I don't want it back because I don't want to have to spank your butt when I see you not pay it back but go spend $2,000 on something ridiculous but staying on that segue of this is mm Lehman's brother this is uh you know I lived through four of them I graduated high school 1980 you were so lucky to graduate during that big collapse because that has a lot of real impact on how you will view your future and I always saw the most sympathy for kids who got out of high school college in 1994 and rode that Internet wave up to marching from 94 to 2010 chimpanzee throwing a dart could pick a stock that was gonna double and then when that all came tumbling down and to see how many dentists in this town that were leveraged and condominiums and apartments and complexes they had no idea what they were doing and they lost everything but in saying all that you're the certified valuation expert one of only 20 in the United States when that young dentist is buying that practice his biology you know you let a dog out the front door he goes and pees on four corners he wants to buy the land and the building and the practice and a lot of times that land a building is as much money as the practice or a big chunk is that is that a good idea I mean you know that subway rents all their locations they don't own any real estate so do do succinctly yes or no should have dentist own the land and building underneath their practice?
Matt: I wouldn't I wouldn't and here's why if you're considering it an investment it's a very illiquid risky investment to own your own real estate because that's kind of tied up in the performance of your practice if I wanted to be a real estate investor that's great go buy a rental home here go turn two homes into a brb or go buy a real estate investment that's unrelated somewhere else so you diversified your risk meaning you don't have all your eggs in one basket roughly speaking from a financial standpoint it's it's almost the same to own versus lease your building that makes sense because you're taking depreciation on one end but on the other end you you have a lease payment that's fully tax deductible well whereas when you own your building only depreciation and the interest portion your payment's tax-deductible but here's the other problem I own that building I'm pretty much tied to that space for the next what ten twenty thirty years you know as well as I do in metropolitan and suburban areas there's a lot of gentrification there's a lot of redevelopment going on and what's a good part of town basically either gentrification or vacation
Howard: Is it reification or gentrification?
Matt: Well you it depends if you're doing it a second time or the first time.
Howard: Okay well explain what...
Matt: I mean is neighborhoods change over time the demographics and the culture in the neighborhoods change over a decade to two and somewhere where homes become twenty to thirty years old that may not be the place you want to own your practice because there aren't a lot of people moving in and out of those communities therefore you're gonna have a harder time obtaining and retaining new patients so I'd want the ability to move my practice every seven to ten years if I wanted to to follow not move it ten miles away I don't do anything drastic but if you need to move your practice to follow the growth or follow the redevelopment of neighborhoods you want to have the flexibility to do that I look at a lot of practices Howard that I have to sell in West Mesa there hasn't been a new person move into West Mesa for 35 years and so it's just an old kind of run-down part of town and there aren't a lot of new people moving in and there are a lot of new businesses going in and those are the underlying bedrock of practice growth is new surrounding businesses and new rooftops going in so you if I own my real estate I'm kind of tied to that location more so than being able to sign a lease and move every 10 years or every 15 years and yeah that's an opinion not a fact but that's what I do great you like real estate you want to bet on real estate on a building somewhere else.
Howard: So gentrification really is when people move into or neighborhoods and start fixing it up and a lot of times the poor people are seeing a bunch of changes but when I the advantage of lecturing in 50 countries around the world and living in the United States which is a huge sample size I mean you know the United States is it's four and a half percent of the eight billion person heard it's a, I mean how many times in MBA school were we operating on a survey of less than 1% sample right and here you live in a country that's a four percent sample and Texas has no zoning laws and I they just do it better what people don't realize is that a lot of times your problems are designed in you I mean Einstein even said your thinking is to cause of your problems you're never gonna figure this out because what the problem is you're thinking and when you go back to Texas where Texas just I mean like in Phoenix you're trying to build an interstate but I'm you come at a Historical Society we call it the hysterical Society wants to save some house that was made in 1812 well if that house is so important do you want it you go buy it with your own damn money oh no it's so important I don't want to spend a dollar of my money but I know I can run down to City Hall and cause a commotion and get someone else to block that and Texas just says you know what if you want to buy a house in your neighborhood and build a 100 storey building knock yourself out so when you go to all these problems where there's not enough housing in like San Francisco oh it's because of all the zoning because some rich guy doesn't want you to block the view of the bay and once you get rid of all that and make it a liberal free-for-all and you just you just don't have those those types of problems um I wish you would get Rick Andrus to come in and talk real estate.
Matt: but he may have a different opinion than me.
Howard: So I work for you guys because of that question I got grant cardone to come on not once this show but twice he was episode 185 so he wasn't as important as Tanner Miller who was I in the first top 40 but I hadn't come back on 525 his grant even I asked him this question he says you know real estate is a business decision tree level real estate idea is you start with a duplex of like 12 to 16 units and you live in that one duplex for free and you manage the collecting the rent and fixing the toilet and mowing the yarn for the other 16 until you get enough cash flow to buy another 12 or 16 duplex and then at that point now you can bring on your first what I call a lorry a dawn a Stacey a Ken you know a management team to help you start with the business of real estate but if you're gonna get into the business of real estate and your real estate portfolio is one business building that you...
Matt: and you're the sole tenant.
Howard: You're the sole tenant yeah and the other piece of real estate your house is not an investment if you think your house as an investment you should put the bong down now and just quit smoking I mean every study known a man you can whatever that house payment is you could rent the same house for about 85% and if you put the difference in the 85% rat and the 15% of what you pay into an S&P; 500 index fund you're the money you made by owning your house for 30 years will be one third of the money you would have if you would have rented that house and not to mention when my mom called me last week that her heater indeed broke out and that was a $2,000 thing well she was a renter shoot the landlord would have put that in there but when you're my mom it means I get that lucky advantage.
Matt: So here's a couple of things that I'd suggest a younger dentists either in school or coming out of school it's so counterintuitive but don't try and accelerate the payments on your student loan and that flies in the face of Dave Ramsey people's right that you want to get out of debt as quick as you can but no good...
Howard: Chattanooga, Tennessee
Matts: What's that?
Howard: Dave Ramsey
Matt: Is that where he's from?
Howard: Chattanooga baby
Matt: Good for him
Howard: When I went down there I am they have a hotel that's a train car see one man's junk another one's value some hee haw went and found a couple of cabooses drug him right downtown and made a hotel I was coolest damn thing but anyway.
Matt: Yeah so what I'd say is take that extra money or earning as an associate keep your living expenses low and instead of putting it towards the principal of your loan payment set it aside in savings in non retirement savings accounts because when you go apply for a loan to buy a practice the bank doesn't care nearly as much about your student loan balance as they do about the cash in your account I have a practice right now that's I'm transitioning in Scottsdale and it's selling for two million dollars so if I walked into the bank and I said hey I want to loan for two million dollars you know what the bank's gonna ask me they're not gonna say hey Matt what's your student loan balance there you say how much cash do you have in in savings checking can be stock market investments mutual funds bonds but not tied up in retirement they want you to have at least a hundred to one hundred twenty thousand five to seven percent of what you're gonna purchase as a practice to what five to seven percent typically of the purchase price of that practice they want it set aside it you don't have to put it as a down payment in the practice they just want to know that you have some cash that aside at home to help you whether the first couple months the practice ownership when sometimes the expenses outweigh the income.
Howard: That is so counterintuitive.
Matt: It is it is because if you're you know the most diligent financial dentist you think you should be paying down that student loan but man make the minimum payments on your student loan put cash aside.
Howard: but what you're telling them is that yeah of course they're they want to make double payments on their student loans.
Matt: and that's super commendable but it doesn't put you in a good position to own a practice or to be successful early on in that practice because you need that capital at some point to reinvest in a practice or to help grow practice so don't pay down your student loans faster than necessary.
Howard: and you also I've heard you say in the past that most banks when you have a year out of school.
Matt: Yeah yeah that's right so most banks only have a year out of school some will take a year of advanced residency in lieu of one year of post dental school work I've got several dentists that I worked with from time to time that are coming out of the military and that's fine as well even if you haven't had experience in private practice if you had years in the military they'll want to see that they'll want to see your production reports so if you're an associate request and keep copies your production reports because they want to see that you can produce around the same level as the owner doctor that you're looking to purchase and then lastly you want a credit score of around hopefully 700 mid sevens you know you don't have to be you know an all-star you just have to have made decent payments and if you can check the boxes on those things and if it's a decent practice that you're looking at with pretty good cash flow the financing environment is so loose right now you can get a hundred percent financing for that practice plus some operating capital at interest rate under 4% so Howard I'll give you that same example practice in Scottsdale there's a guy that's looking to buy it he's had a couple years of private practice he has a you know around 150,000 in cash and he's walking into that bank the purchase price is two million and they said hey we'll give you 2.1 million so the full purchase price plus a hundred thousand to start you and your business checking account at three point eight nine percent over ten years you don't have to put a single dollar into the practice or invest it and it's interest rates under four percent.
Howard: When you're saying that banks are awash in cash and drawing away another sure sign of the top.
Matt: That's right yeah you can see all the fundamentals that we saw back in 2006 7 & 8.
Howard: So if the banks want you to be a year out of school but they'll accept one year in the army or residency it almost sounds like because that has more to do with your increase communication skills over your clinical skills.
Matt: That's right that's exactly right man I talked to so many dentists that say I want to make more money I want to produce more so I'm gonna go to these advanced clinical seee courses and I want to pull my hair out because the what's prohibiting you from producing more isn't your clinical skills it's your communication skills being able to establish rapport with their patients communicate with them present treatment plan effectively to help them understand the needs that they have I talked to a lot of dentists that'll say oh yeah I can in place I do all in fours I've you know I've got this implantology certification cool how many implants do you place a month uh maybe one maybe two if I'm lucky, what do you mean you have a you know you have an advanced certification in implantology what does that tell me tells me they can't communicate effectively with their patients so usually the barrier to increased productivity has nothing to do with clinical it has everything to do with their ability to communicate.
Howard: and I go back to it all the time I mean we live in this country where the average new car price in America is thirty-three thousand five hundred and sixty dollars according to two sources Kelly Blue Book and USA Today and on average the average American will buy thirteen new cars by age seventy six years old source Anthony Pratt pull director of forecasting you've never sold one case the size of a new car when you talk about an all on four and I there's guys in this town that do an on four on at least that one arch maybe two arches so twenty-five to fifty thousand every Friday for the last ten years and you've never sold one case in your lifetime and you think it's because you live in a poor country you know you're out in Nebraska and it's a corn for you you have a thousand million excuses other than the fact that you have no idea how to presents sell and collect a good case and have no understanding that when any of your friends buy a new car the first thing they do is drive it over your house and show you and they're all excited and I just made their day and when you do this to a person there's one patient I'll never forget she looked at the mirror she had to take a knee she couldn't even breathe I mean she just knew she was gonna be edentualous with no teeth and now she had a Hollywood movie smile at age 50 and she thought she was going to be the you know the witches have big noses and Chins does they don't have any teeth she was losing all of her teeth and it's like you you deprive 10 percent of Americans by age 64 of zero teeth 20 percent by 74 yet they've had 13 new cars and you think all your problems are Delta Dental because they won't give you a million trillion dollars to do one crown I mean really it's Delta's fault it's Obama's fault Oh everything should be covered by Obamacare they show up to your office with a pack of Funyuns eating cheez-its and drinking a Dr. pepper in a brand new Ford Mustang for thirty three thousand five hundred and guess what they can't fix all their teeth because of everything else other than you and that person and when you sit there and and that's where I've seen the biggest disasters transitions in my 32 years if someone 100 is kind of my mind is the guy in Glendale that was like knocking it out of the park at like 1.8 million a year sold it to some kid that came from money so he could get that loan but he and he was a great clinician he'd been to all the Institute's but you know the one thing he couldn't do...
Matt: Communicate and treatment plan effectively.
Howard: He couldn't sell a case.
Matt: That's the key.
Matt: Yeah it doesn't matter how many tools you have in your toolbox and if you can't use them.
Howard: Yeah I mean my god before you go learn well you well LD paint used always say you can't sell a product if it's not said on the shelves so indeed you do need to learn how to do dentistry before you can sell it but what I see is people learn how to do dentistry and relearn it and relearn it and relearn their whole career buying all this equipment and they still have not come to the conclusion that they can't sell any of these cases so what so what do you think is more important when you come out down school to take courses on clinical or communication?
Matt: Communication because I feel like there's an imbalance of the curriculum that's being taught in the dental schools where you're getting much more clinical than the business side and I think it's important right when you get out of school to catch up if you will on the business side of things and you can do that through seee courses and podcasts are a great resource to help improve your business.
Howard: You just said podcast is plural there's another one?
Matt: Well yeah didn't you just say you record like 1200 of them.
Howard: Yeah podcasts are amazing that these guys I mean they're all for free I mean you're doing this and I benefited from him when I was a kid on the ham radios in the farms and although all my farmer friends dad and grandpas had ham radios and then when you're driving in the car had CB radio so I always I thought that was impossible and then the other thing is and by the way I don't want to be too Hartland or Aspen I love Rick Workmen I love Bob Fantana I love Steve Thorn episode I love all these guys and there's nothing you can say about them that's not true about associate offices these dentists come out of 80 still they they don't like working for anybody doesn't press practice or clinical and if you real in fact they actually stay the longest at Heartland Heartland has almost a two-year average there's nobody who do you know in Phoenix who's been practicing 30 years where there are bridges so she just stayed over two years?
Matt: I always joke that associate years are like dog years right when dog years were seven years like one year is 7 years in associateship.
Howard: I've got 30 years so Ive got an 80/20 percent give us seven to ten year time and it's worth then you make money oh great but for that seven to 10-year associate the other ones burn internet and a year because they're not happy and they're not happy because when they were born I did something wrong they're there they have their own life their own their little birds they want to fly out of the nest and they that's what biology is doing with them but I want to call it I'm also I'm I always called it goin fishing like before I bought for commercial property investments in my lifetime I was going by and getting the brochures and talking to the agent and trying to figure the math and like I was so anal that before I bought my first house I called a real estate agent showed me this first house in Ahwatukee and he said like five things I didn't know what he meant I'm just like being quiet like he won't know you're stupid till you open your mouth I left that deal and I immediately called the Scottsdale school real estate and it was three four-hour night's Monday Wednesday Friday six to ten for I think six weeks and got my Scottsdale school real esate license because I didn't know anything he was talking about and and so when you come out of school if you're saying well Matt even said I need a year but my dream is I'm a pediatric dentist and I want to buy out someone in Phoenix start going fish and start pretending you're all that in the bag of chips. When do you when do you take entertaining phone calls from kids in school?
Matt: I'm very conservative in this I usually like to wait about a year out of school before I'll field phone calls and here's why I want them to have real-world experience so they know what they're looking for until you've been in private practice for a year and worked for one or more practices you don't really know what you want to be when you want to grow up what kind of practice you want to look for you can formulate some opinions and theories but you need to go out and test them in the real world and see what you want beforehand so after a year being out in private practice great call me up what I suggest is start looking at practices that are that are available for sale look at the financials look at the practice production reports look at the profiles that are filled out start getting an idea for what's out there in the area that you're looking for so you can more accurately get a finger on the pulse of what opportunities are available because what I tell dentists is stop looking for a unicorn first of all there are no more unicorns out there and when you become realistic with your practice profile in your criteria that you're looking for be patiently aggressive.
Howard: Patiently aggressive
Matt: Look at those practices kind of wait until you find one that really fits that criteria even if it takes a year to but as soon as you find that one you need to move fast because it's still a seller's market where there's significant interest on good practices in metropolitan and suburban areas. So be patient keep looking look at a lot of practice profiles and a lot of practice perspectives from brokers and then when you see something that looks good you need to move very quickly and hopefully that experience of kicking tires so to speak it will help validate that this is a good opportunity, this is the right fit when it comes along so that you can make a quick decision.
Howard: and when there to lose so a year out they've been out of school year how would they contact you would they go to your website the web sites and what is Menlo?
Matt: You know you have to ask Tanner only because Genesis that name came from him but basically Menlo Park was one of the innovation incubators that Thomas Edison created.
Howard: Tanner okay you're gosh if you know what Menlo Park is Tanner you exposed his nerdiness. So Menlo Park was the...
Matt: That was the headquarters that Thomas Edison kind of founded once it was in New Jersey don't confuse it with Menlo Park where Stanford is over on the in California but they had just a bunch of scientists and inventors there in this little think tank and it was founded by Thomas Edison and it was at Menlo Park there so Tanner's always had the mindset of innovation and coming up with better ways to do things and you'll see the logo as a light bulb men load the Menlo group logo as a light bulb to kind of pay homage to the to the Menlo Park name.
Howard: Was that in New York or New Jersey?
Matt: I want to say it's in New Jersey you're the Rain Man here you spit it off like 50 facts.
Howard: Well this is a city of the eastern edge of San Mateo County in the San Francisco Bay Area.
Matt: That's the different menlo though.
Howard: Ok Menlo Park Thomas Edison it's in the middle in Menlo Park New Jersey Middlesex County New Jersey.
Matt: Oh thank goodness I was right and I was wrong about that for a second there you go there's a Thomas Edison center there it's a museum but that was like the original think tank.
Howard: Yeah that is amazing so we're out of time and I'm getting in trouble but I want to hold you I'm just what should they be looking for if you want to buy a practice?
Matt: Yeah just look at collections that's the only rule of thumb you need to know, I'm totally kidding I want you to look at a lot of subjective factors and some objective factors you can look at the objective ones like collections and profitability cash flow things of that nature but I also want you to look at subjective things I want you to look at the equipment the technology number of...
Howard: What were the first objectives were cash flow...
Matt: Cash flow and collections and focus more on cash flow than collections.
Howard: Explain to someone who's only 20 the difference in cash flowing collections.
Matt: Cash flow is the money that you keep at the end of the day collections is what comes in the door before you pay bills.
Howard: So if your business costs $1 a month to operate and you collect $1 your collects a dollar but your cash flow zero.
Matt: That's right because at the end of the day cash flow matters more than collections so you look at both of those two things and then subjectively I want you to look at the types of procedures that are being done to see if you can replicate those procedures if you're doing a lot of all on four cases and I'm buying your practice do I feel comfortable doing those kind of cases you want to look at proportion of procedures what if I'm doing 90 crowns to every ten fillings that good or is that bad?
Howard: That's bad
Matt: That's bad we need to see those kind of things when we look at the numbers and we need to be able to extrapolate...
Howard: because there are a lot of brigadiers at your study club that brag about the million dollar question and what you don't realize that we're where you would have done a MOD on your mom or dad and sister that's really filed the whole tooth down for a crown.
Matt: Right so you want to look at those kind of procedures to kind of tell you how aggressive or conservative what kind of treatment plan they're doing you need to look at is...
Howard: and it is aggressive because when you do a crown five years later a third of them died it needed a root canal so you know first hippocratic oath, do no harm yeah so okay.
Matt: So look at those look at your active patient count but active patient count is such a misnomer depending on how you define it what I dig into it further is how many patients have been seen in the last 18 months for a non-emergency you can sometimes kind of get a feel for active patients by looking at the number of Hygiene days per week I have for hygiene days per week versus nine hygiene days per week which one has more active patients it's kind of a no-brainer but you want to look for hygiene.
Howard: I didn't understand active patients is the number of piece patients see last 18 months - emergencies.
Matt: That's how I like to define it ADA's definition is the number of active patients seen in the last 18 months or appointed to be seen in the next six months but no practice management software is gonna be able to report that I it's debatable you could say it's patients in the last 12 months, 18 months or 24 months some say emergencies some say no but if I'm buying a practice the fact that you know Carl came in on a Groupon just to get an extraction because his tooth hurt but he's never had a cleaning in your practice I don't feel like that's an active patient.
Howard: Yeah but Groupon patients are money you'll make it up in volume.
Matt: Yeah
Howard: and their loyalty is zero that's Groupon was the metaphysical race to the bottom just absolutely race to the bottom okay occupation how is number page see in the last 18 months everybody agrees on that it was an interesting point that you wanted back out emergencies but what did you say about hygiene patients?
Matt: I look at the the hygiene number of hygiene days per week.
Howard: and what are thoughts on that?
Matt: If you're trying to use a really rough rule of thumb around 250 active patients per one day of hygiene so Howard if you have eight hygiene days per week in your office and they're usually booked pretty full seven or eight patients per day with minimal gaps I can tell you that you have around 2000 active patients that's eight days times 250 a day.
Howard: So what do you think about when she's looking at a practice in Salina Kansas the city hasn't grown more than you know the population I'd say it's grows about one percent a year which is a really healthy growth rate and they got the old man's practice from 25 to 65 in a town that only grows one percent a year and he's had one hygienist for the same 40 years what how should why and he's still advertising and he still spends 3% of collections on marketing for new patients why is he still spending money on marketing for new patients 40 years later in the same town?
Matt: I have no idea probably wasted money honestly because what you should be doing in a small town is using internal referrals and figuring out systems to have internal referrals but man those are areas where you probably don't have a lot of net new patient growth and that new population growth in that city so you want to focus on existing patients and reactivating and making sure that you don't have any attrition more so than you want to chase new patients because you can't chase new patients in a town that's not growing in population.
Howard: well in Salina Kansas every time a girl gets pregnant a guy leaves town.
Matt: So that's a one to one ratio.
Howard: So what a person should she be wondering what percent of the revenue is hygiene?
Matt: Anything lower than twenty percent is a little bit worrisome because that's indicative of either low hygiene and/or a really aggressive doctor that's doing a lot of doctor production which goes back to the question of is this replicable production can I repeat it so twenty percent of revenue coming from hygiene on the low end I see 30 I start getting really excited thirty percent of hygiene is a really really solid base of active patients that you can treatment plan and work on.
Howard: Your so you have so many pearls and you talk about doctor production by ADA code?
Matt: Yeah not even by category by eighty eight by the actual code I just want to see that I can do what he's doing oh I don't just care how much endo you're doing how much of that endo that you're doing is molar endo I want to see what kind of what kind of crowns you're doing what's the volume of crowns that you don't get back to that question of by ADA code will tell you crowns to fillings man if the proportion of crowns de for service fillings is significant then you can both see how aggressive the treatment planning is and you can also just ensure that you can do the procedures at the other Doc's doing.
Howard: Okay and production per patient?
Matt: I like seeing that I do like seeing that yeah because that's another indication of how aggressive or conservative a doc is if you're producing a thousand dollars per active page I mean that's a lot that means that probably most of the necessary dentistry in that patient base is being or has been done already.
Howard: and by the way I want to tell you about something I am was talking about yesterday but you know artificial intelligence has come to dentistry like a freight train and most of your artificial intelligence by the way when people say yeah you think that's gonna be a scary thing did look at 5,000 years of recorded history of natural intelligence I think there's only you can only get better from that but when you look at human intelligence so it's mostly visual base it's all your eyes it's not yours like I see you at a party you tell me your name my ears don't grab it but the end of the party my eyes know it's you and I walk up to you and say hey I'm sorry what was your name again and you give me a card that I can hold my opposing thumb I can't hold in my ears and so this natural intelligence is there going into artificial intelligence machine learning algorithms sorting it's mostly objects of so they're reading impressions that's a really good deal but the x-ray companies like Delta Dental just announced they're rolling out a new AI feature they're doing it with Dr. Jeffrey W Johnson DDS MS a board-certified prosthodontist and Delta Dental of Michigan's senior vice president chief science officer is going with a Nova health dental which is AI because instead of them doing a deal we're okay we're gonna spot check one out of every hundred claims AI can do them all and what are they doing they're finding dentists who have submitted the same x-ray 75 times and been paid for the same molar root canal and it's embarrassing for me being 57 to be seeing 50 year-old dentists I'm headed to headed to a gel fur I know like the 15 years like what the hell were they thinking so this AI is gonna get bigger and bigger because only about 1% of is a bunch of sociopath criminal elements and they ruin it for everybody but AI is gonna catch a lot of them so I'm number of and productive production per patient what do you think it should be?
Matt: I like to see 300 to 500 maybe 600 fine it's not a really tight range and I just want to see that you're not harvesting all of the possible current and future dentistry before I own the practice.
Howard: and that is so amazing that you said that number because when you look at the total u.s. dental expenditure for the whole country which my last numbers are 2016 was a hundred and twenty five billion you divide that by the number of people and that number is only it's under 400 bucks it's three hundred and eighty four per person it's great yeah so these shows you can say for the whole country United States four and a half percent sample size of the eight billion heard they're spending slightly less than four hundred per person then that's kind of probably a healthy number when you're looking at buying a practice that this guy's doing the meeting he's not crowning every tooth that moves?
Matt: Right yep
Howard: So should you would you just say that it should be like the whole country should just be slightly less than four hundred or would..?
Matt: You know maybe a little bit more than that because some of that population in the country doesn't receive dental care so that's the denominator.
Howard: Are you talking about Apache Junction?
Matt: Apache Junction is the best place to own a dental practice.
Howard: Is it?
Matt: Oh yeah the the dentist per capita number there is the best in the in Maricopa County and the Phoenix metro area so worst place, Chandler.
Howard: So patient production should be greater than 400 to 600?
Matt: 400-600 fine
Howard: and then how many active me patients?
Matt: I'd like to see 20 to 35 and that's really with...
Howard: 20 to 35 what?
Matt: New patients per month
Howard: Oh new patients per month I thought you were saying active patients.
Matt: but no that depends on the size of the practice
Howard: You want 20 to 35 new patients for per month?
Matt: That's a healthy number for our local market here.
Howard: With how many...
Matt: Sometimes I'll see practices in Texas where they're getting 120 new patients a month that's just those are funny numbers and those won't persist but what what matters more than that Howard is the quality of new patient number one and then number two what's your net new patient I'm getting 50 new patients a month but I don't have enough time to fit everybody in my schedule how many patients am I losing every month that are going somewhere else to get dental care I see dentists so often that are on this treadmill and they're chasing the next new patient that they lose existing patients and then if it's 60 new patients a month but they're all coming from Groupon what good is that this Groupon patients are here for a loss leader procedure and then they're gone tomorrow on shopping to the next practice next time they need dental care.
Howard: So they obviously get twenty to thirty five new patients per month.
Matt: Yeah
Howard: but how many active?
Matt: I wouldn't sweat that one too much I mean if I'm establishing search criteria for a practice that I want to buy that's that's just kind of a good benchmark to look at but that's pretty far down in my criteria of what I'm looking for.
Howard: but how many total active patients?
Matt: Depends on the size of practice I mean do I want maybe if I buy a practice it's a million dollars I'd like to see 1,200 active patients.
Howard: Just 1,200 active for a million-dollar practice Wow so Pete Dawson was right you Dallas and I said you have a million-dollar practice with only 10 to 15 new patients a month.
Matt: That's very possible.
Howard: If you can diagnose treatment plan present sell clothes I mean these Americans buy 13 new cars in their lifetime and what LD Pankey and P Dawson could actually do is convince you that maybe you should delay your next new car for a couple of years and fix certain...
Matt: Fix your teeth
Howard: and they're so happy when you when you fix up all their teeth gosh I think last but not least you always talk about you know if I really wanted to buy a 3-bedroom 2bath starter house and I went over and you showed me a five-bedroom four-car garage five hundred thousand dollar house it's ridiculous others are arguing with you over price right because this is it's too big a house so what so talk about quibbling with price?
Matt: I always talk about that with younger dentists because the young dentist is in a position where they're very price sensitive you have a lot of debt that you've accumulated now and and that's that's a heavy burden to carry and you're stressed about that so a lot of times what's what's intuitive when you go buy a new practice is to try and negotiate and get the best deal you can and there's a couple thoughts I have on that number one don't argue over price you're gonna kill the good will what you're buying isn't an asset like a house well you're buying as a practice where you need the support and endorsement of that Doc so if the practice is priced a hundred thousand dollars above what you want to pay don't even bother just walk away you're you're gonna erode the goodwill right off the bat if you're fighting on price number one and then number two the other thing I say is a great practice at a really high price is still a great deal but conversely a bad practice at a bargain price is still a bad deal I mean it's not like you buy it...
Howard: You just parroted what Warren Buffett's been saying for 50 years.
Matt: Wow okay and I don't even drink diet coke and eat steaks every day like him.
Howard: I mean that's what he's been saying for 50 years
Matt: It's true yeah you find value and it's okay to overpay for it but a dog a dog at a great price is still a dog and you're not gonna make money you're not gonna be successful you're not gonna enjoy your private practice no I'll give two other quick PSAs for younger Docs out there number one I you know we talked a little bit about the economy coming to a precipice here and maybe having a contraction or another downward wave I would not hold off buying or owning a practice to try and time the global economic market the reality is the single biggest indicator is success as a dental as a dental practice owner is facing you in the mirror it's yourself you're gonna determine your success more than global economic factors interest rates real estate values so go bet on yourself and don't try and time the market because this isn't a market commodity it's investing in your practice for the next 30 years so don't let economic conditions change or try and time the market number one number two you know the one common denominator I see in every successful practitioner Howard it's philanthropy it's giving back and that's that's hard to do when you're young and you feel like you need to work as hard as you can to make as much money as you can to try and pay those debts and payday loans I volunteer I've been on the board of directors for several years here at the Arizona Mission of Mercy.
Howard: MOM
Matt: Yeah so I'm on the board of directors for mom I have been for years a big proponent of it and and it's not coincidence we have about three or four hundred dentists every year that come to the event and volunteer and I get to see under the hood of a lot of practices here in town I see a lot of financials I transact a lot of practices I do a lot of valuations so I kind of know who's doing what and inevitably especially the younger Doc's the ones under 40 years old the guys that are doing the best financially and making the most money are all the ones showing up to these events and giving back I don't know what the correlation is I don't know if it's causation I don't I'm not here to guess what what the connection is but I know this for a fact the docs that give back and the docs that do a little bit of charity are the most successful financially so look for opportunities to give back I'm so envious of dentists and the skill set that they have to be able to help people and change their lives I'm not envious of the day in and day out grind that you have as a practitioner but your ability to come in show up in in a couple hours change somebody's life is pretty awesome and some where the other the cosmos of the world when you do that you succeed better financially yourself so those are my two PSAs don't change your timing don't try and time the market to be a practice owner bet on yourself and then secondly do some good.
Howard: Well I'll tell you one thing that I said you don't know if it's causation I mean obviously it's a good type of person gives back I mean really III think the funniest pun in the world is for living in the present and this present was given to us by the 110 billion young humans lived and died in just the last 50,000 years how am I going back a million years a homo erectus we're talking about just the last 50,000 years about a hundred and ten billion humans lived they created this present which is our present and our only purpose is that we're gonna be replaced and what present we gonna give them so focusing you know when people say they don't know if there's uh you know they want to find something to do with purpose well what what was born what did you see when your life became present that you were glad your ancestors bought I mean if anything they have a freeway for you know democracy freedom safety or whatever but the one thing I notice about those guys giving back it's the same reason I start lecturing August 4 1999 that when you raise your head up and became transparent it's not what you know it's who you know and then so I started lecturing in ninety in 1990 when I saw the internet came out a sort of dentaltown now I'm doing podcasting it guys I know you think you're all that and a bag of chips but you got to get out there and press the flesh. Same thing going back for marketing you can go this is dentistry uncensored you can go to look at my b2c podcast my job Awhatikee uncensored where I networked with all the you know I I did a hundred podcast of people in Ahwatukee I was going to dinner with every pharmacist every chiropractor every natural about every physician it's so when you do to the mother of Mercy you're giving back but you're also hanging out with your homies who it's really weird on Facebook if they're in another country they're your colleague they're across the street there your competitor and get that out of your head I mean my god you should when you're going out of town you have emergencies you should give the number of the dentist closest to you and that should be your number one friend.
Matt: It's such a scarcity mentality.
Howard: Yeah if you're gonna live in fear and scarcity you know quit listening to dental podcasts go to the therapist find out what happened in your childhood that went wrong what or whatever the hell it is and just start thinking and hope growth that abundance and one of these days you and all the dentists in your corner are gonna realize that if they got enough money to buy 13 new cars in their lifetime it sure as hell isn't the guy across the street that's causing her to have a denture and a flipper and all that stuff it's just you guys just don't have your act together but man it's just we called your last podcast practice transitions with Matt Porter principal at Menlo dental transitions.
Matt: It's a sexy title.
Howard: Just do this part 2 or?
Matt: Spice it up
Howard: Okay let's do it right now Menlo Dental Transitions with oh I know we didn't put your initials in the last one every or what would you call it don't dental transitions with Matt Porter MBA CBA certified yeah we'll do that certified value you that that is a and by the way that is an accomplishment.
Matt: Thanks
Howard: and congratulations on that. Thank you for everything you've done for dentistry and thank you so much for coming by on a very busy Tuesday to spend an hour and a half of my homies.
Matt: Thanks Howard appreciate it
Howard: Good luck with those four babies
Matt: Dude, that's why I'm working