How to Prepare Your Dental Practice for a Successful Sale

[00:00:00] Hi everybody, here I am again and two weeks have gone by like a flash. My name is Dr. Marc Liechtung and this is Dentistry Beyond The Numbers. One is a favorite, I mean this has been happening so I really appreciate everybody helping.

[00:00:15] But like me, follow me, give me a comment and tell me what you want to speak about. I love our profession, everybody. I truly do. This is why I'm so passionate people telling me that I could see a passion and see this.

[00:00:28] It's because I talk about what I love and what I like and the things I like about what I love and what I like and what I love and it's unbelievable.

[00:00:36] But it's stuff that we've done and you know, I tell people that I have gone through so much stuff in the years I've practiced, especially in a city like New York where you don't know what's coming through the door.

[00:00:47] Less with we spoke about selling one's practice in the 40s and the 50s and the 60s which decade are you going to sell? Everyone's getting the edge cashflowers king turned to your honey and say I'm ready, are you ready?

[00:01:00] And then when you're ready, what do you do with the team? You know, the staff? That's the number one issue. You put your practice up to sale. You quickly get an offer and you don't know what to do with your team.

[00:01:15] Big question. I broke down closing a practice in how you get prepared for a practice different things. It's not just saying Monday, I've come into the practice and I had a discussion with my family and I'm about to sell the practice.

[00:01:30] Ladies, gentlemen, I'm going to sell the practice. But it doesn't work like that. In my opinion, you ever see these things I went through in an apartment in New York City. The broker came in, spent a couple of hours maybe half a day staging the apartment.

[00:01:47] I can't be honest with you. I got so nice. I almost told them not to sell the apartment will take it as is. But they staged the apartment. A difference maker, when they do well, they turn the couch around. They painted a wall. They made it more inviting.

[00:02:03] They did not put it up on the board. They did not put it on those multiple listings till they were ready. And I say that's the way I looked at this through the years of selling practices. You know, there are things we must get ready for.

[00:02:18] Not expensive things, not time consuming things. But things that we must be wary of before we go to market and our eye is got to be on the prize.

[00:02:30] There are three things to sell it. That is the practice itself. What does it look like? How does it work? What are the machinery? Do I need to clear the drains? Right? We're going to get into that.

[00:02:43] Staffing team, when do I tell them? What do I tell them? Who do I tell first? We're going to get into that. That is huge because somebody who has bought and sold tens and tens maybe a hundred practices.

[00:02:58] But also, you know, you don't buy 50 practices on the first 50 you see. You look at 300 before you buy 50.

[00:03:05] And I can tell you, I've looked at more than 300 practices in my lifetime. And the number one question I see and the number one issue that plays in the mind of the doctor is what do I do with my team?

[00:03:18] They're eye care for them. I love them. I want them. We'll go through that. Lastly, we call it numbers and scheduling. It's really production, collection, schedule, all the numbers.

[00:03:29] But it's also payroll and marketing. What do I do? Right? We're going to get into that. So we have a lot to cover like we always do in a, you know, a short period of time. This is action pack.

[00:03:43] And all these things pertain to us. You know, what pertains to various things in my life I've sold many, many practices the least profit that I made on a practice was really the first one I sold alone.

[00:03:57] The first one I sold alone was a practice up in the anchors, New York. It was a great practice storefront for opportunities as I remember.

[00:04:07] I've been like 25 years ago, but it was still a front busy area. I remember the address. I remember the doctor bought it, but I also remember that I took upon everything. Right? So we're going to talk about what we do when that happens.

[00:04:22] First, let's get into the facility. The facility is so important. You know, because when I did it all myself and I was eager to sell. I remember coming in on Monday, making that decision telling the people that I needed the broker with salad. I'm ready.

[00:04:41] Little premature on the facility. You know, your practice is the mecca of what makes rain. You know, they come in, they like the coziness, they like the business, they like the ambiance. What do we do to facilitate that facility being optimal for the sale.

[00:04:58] You know, I like to do this once in a while, but when you're about to sell it's so important ladies and gentlemen, it's imperative that you come in one day. Whether you show your office staff or not, but you sit in the waiting room.

[00:05:12] Literally go out to the waiting room and sit in it and make believe your patient with one of those gocams. And you are filming your waiting room.

[00:05:23] And if you're a potential buyer and you are doing $2.5 million and you're looking for let's say $45 million for that practice, you better sit in your waiting room and make sure that little holes magazine rack.

[00:05:39] Biggest thing, you know, they used to say when you come out of a restaurant and you grab the mince, it carried a lot of germs from people walking out of the bathroom touching it. The magazine rack is usually a mess.

[00:05:52] And the reason is because magazines aren't really concentrated on as much. So to get people to go and clean it, let's say you don't have one that's better at this point.

[00:06:02] But if you have something about a fat sitting waiting room, make sure that that magazine rack is either updated, cleaned, kept nicely, kept nice or remove it completely put a picture there.

[00:06:20] But by no means leave anything to chance. A big factor for me is I look at the chairs in the waiting room, do they have anything hanging other cuts, rips should I replace one should I just move one and take one hand is one worse than the other.

[00:06:36] I need you to look at those chairs look at the rug make small changes. I'm not saying and I'm going to say this over and over, you do not come into your office and say I'm going to change that change that change that change that I'm going to change the wall pit note that is what the multiple will do.

[00:06:54] And we'll get into that a little bit. So what I'm saying is I like to look at the chairs the biggest factor for me about evaluating when I'm in the waiting room is look beyond the team look what your patients are seeing because the people that are coming to buy your practice, especially in the world of the DSOs and DPO's and very skilled acquisition people that are coming in to look to certain things and I want to explain why that matters.

[00:07:24] But first I want you to look past the front desk. I want you to look at what a patient looks at. I want you to see if the paper is ripped or their shots added place, is there a picture that looks silly? Is it broken?

[00:07:40] Spects the very small things clean up everything make everything look tidy. This is not a time to renovate this is the time to absolutely, you know, fumigate take out the dirt clean up the place lose the clutter make it look a little more advanced all about cat what we call in the business capex if somebody walks in sees they need do dental chairs because there's holes in it.

[00:08:10] When you could have easily spent $2100 and fixing that hole, you may get a five and a half times your profit your EBITDA or maybe even six if you have a great team great staff at this time.

[00:08:24] Things that aren't growing to the seven and eight multiple that is whatever your profit but you go back we talked about it in depth.

[00:08:31] But this is all going to be predicated if you have chairs that need replacement if your place doesn't look so great they'll give them a offer you a for because they have what they call capex that they have to put in to make the facility what they want.

[00:08:47] So the small things do matter if a hospital is cracked see what it takes to replace it not a big thing and in the end for somebody who's coming in they look at it and say it's just a little more work there's probably other things don't give them the reason to think about other things give them the reason to say that that's good that's working nice nice we offer you five and a half multiple and you can negotiate from that when I talking about that now we're talking about getting the facility.

[00:09:16] And that's the lab you need to make sure from this day forward and have a meeting that your team understands that you want to clean lab.

[00:09:26] You're not going to tell him yet but you want to clean lab and if you want to tell them that you're a prerogative I'm not advocating for that yet.

[00:09:34] I am saying make sure that lab is organized make sure there are unfolders that are falling out lab cases that are all over the place don't give anybody a hint or reason to go in and look deeper.

[00:09:47] Why is this a mess do they have do they have a system we'll learn about that as we take the reports down the road and I'll show you those reports soon.

[00:09:55] But the fact is that the facility needs to be just kept you know sitting away to look at the things can't believe does a cobweb get that off.

[00:10:05] I can't believe there's been a cup sitting there for a week make sure it's picked up I doubt that's happening and I don't believe that's happening but I want to make sure it's not happening.

[00:10:15] And it's an easy fix what next well for guys who are little older or even wherever you are at and you own the property. A factor is that you want to make sure they come in with a pretty good number and a great lease.

[00:10:30] This all helps because it looks like you're a landlord that takes care of their property looks like you're a landlord who is meticulous about the runnings of the business and they won't have issues. 50 year olds.

[00:10:44] 50 year olds I generally find that are men's a men's a you know they've got the technology. They may or may not on their office but the office is relatively new and some of them they're very new and the capex to the buyer is going to be low.

[00:10:59] And that's very important so capex remember means that there is no renovation needed or minimal. Now 50 year olds I'm just going to not stereotype you I'm just giving a for instance has some technology.

[00:11:12] They work with a scanner they work with CT they have electric handpieces they're completely digital x-rays that is already happening somebody in their 70s.

[00:11:24] Prior to the 70s probably digital x-rays probably in short cameras maybe a scanner but they may not be as digitally focused as some of the issues we're going to talk about.

[00:11:33] Now the 50 year olds are ready to sell as we discuss last time because they want to embark on something new. Their capex is going to be minimal in that situation but the most important thing is to make sure again the things are working.

[00:11:49] The last thing the group wants to hear is that by the way the I tend to be scanner or the I terror or the price prime scan is not working and we didn't know anyone.

[00:12:00] Nobody is buying your office to renovate or buy you technology or hire you and associate the more ready made succession plans whether it be with equipment or doctors.

[00:12:13] The 60 year old with the big lease he's 74 years old he's got to practice he's got to space he wants to renovate his space but he's going to sell is going to get a big number and they're going to put all the money in no they're not they're going to give you a good number and they're going to put the money in slowly.

[00:12:31] They are going to do is sign you a 10 year lease with two five year options don't just don't move much you could potentially have with your eyes closed at 20 to 30 year lease.

[00:12:41] So make sure that you're not being a pig right we're not being a fuzzah we are now looking at the facility and saying this is a great retirement tool for me in the future because it's an inability by a strong company.

[00:12:55] And I want to make sure this goes through so we can't think that they're going to be that night in shining armor to fix everything.

[00:13:03] The 40 year olds and I'm having a couple in mind right now are in my opinion the 40 year old dentist today are just are just drinking the cool it's digital it's beautiful it's all it's all scanning it's all in control it's it's got the aroma the ambiance the feel of technology.

[00:13:24] The office looks great and hate them or not they are 40 something years old and they're killed they'd buy great practices that is a multiple hero that guy that gal is going to get paid paid for these practices because.

[00:13:42] They don't they don't have the hair on the building on the practice on the facility they may not own it.

[00:13:49] But I got news fear large groups are not buying it they're only rented they're not in a real estate business they have to outsource that so if you've got a great office and technology is driven and and and even though he's high.

[00:14:05] Great thing facility make sure it's clean when that visit comes and straight through to the contract is signed might be a good habit to pick up you know stay it's staying to the form keep your office clean and making sure your team.

[00:14:20] And that's the lab really cleaned up and organized and that is so paramount because like we talked about with with the flow of an office hygiene is the first first person to see a practice.

[00:14:33] The lady room the front desk the hallway the ops the hygiene up these are the things that they's really emphasize and then the technology if you're full of tech you got some great look.

[00:14:48] You're really driving the band here you know you're driving that car to to acquisition and eventually you're going to have some leverage to to sell it a nice number at a better rate or better multiple of your ebit the next major thing is as we discussed.

[00:15:06] It's the number one question I hear all over dock do I or do I not tell my staff.

[00:15:16] Well, I got to be honest I'm going to give you a little history lesson I talked about it before about the young girls deal to reason that practice was so bad is because look at these reports financial reports patients statistics.

[00:15:31] Right, Lisa and equipment contracts and show accuracy of financial data and so on and so for patient records contracts and agreements with vendors all the marketing tools the passwords.

[00:15:44] I am for one was incredibly poor at keeping these records I was drilling and filling and billing and making myself that super generalist at that time of dentistry. Do you have somebody that does this is is really imperative in my opinion so the question of.

[00:16:05] What do I do with my team I want to tell Docs that you know the most important thing for me was that over the years I develop a very strong work in relation with a.

[00:16:17] managers wanted to in particular managers they were assistants they helped me run the business for the last 10 to 12 years I have somebody that has helped me sell things and I could not begin together.

[00:16:30] This massive amount of reporting and keep my business going the most important as we get into the further on with this podcast we're going to talk about how we don't want to lose any revenue.

[00:16:44] We don't want to go down so my 15% of my time is gathering reports and 50% of my time is trying to focus on patient care and whether I have multiple associates one associates know associates hygiene checks.

[00:16:59] And I think that's the most important thing for me is that if you do have a manager that is somebody that's been with you for a number of years and you feel a trust.

[00:17:20] It's my experience and my thoughts that long the way of seeing all these practices that if that member.

[00:17:26] If that teaming that person who has given 10 12 years 15 20 years of their life to us and we don't have the maybe the respect to tell them what's going on then my fear is that they hear or when they find out they're going to look for another job because they don't trust us.

[00:17:47] So I like to always take one person the person that has helped me get to where I'm going and have a talk with her. And tell her that as my manager, as my administrator, as my director, as my right arm, you will have a future.

[00:18:05] And I can tell you good and bad stories about post closing, which we will get into down the road, but post closing how they treat our people.

[00:18:14] I mean, they have a different outlook, but at least they do give it a shot because I'll say this over and over and I told us to people when I get asked nobody is pulling up with a bus.

[00:18:25] Nobody is pulling the bus up to the practice opening up the practice although today I don't know but opening up not getting political open up the bus and a new staff comes in. That's killer practice, not build a practice so we and our teams are very valuable.

[00:18:44] Treat them as such, bring in the leader let the leader know there's a great opportunity. You know, recently I went around talking to managers in our group outside our group practices.

[00:18:56] I might I might visit and talk to and help and I asked every manager if the practice was selling do you care to know not only did every single manager said what I thought they would say is of course I want but I was so sensed and was told by a few that if I wasn't told,

[00:19:15] I will never trust that doctor again because who knows when they do it again and they they keep me out maybe they want to get rid of me.

[00:19:24] So I strongly believe I would never change the contract promise long term or anything but I will tell them we've got a deal for the practice.

[00:19:34] What do you do when you have a team of staff and you have a bunch of people and you know when do you tell your assistants what do I do doctor I tell them after closing.

[00:19:44] My feeling is telling them, hi everybody I sold my practice and today's the first day that you now work for ABC dental.

[00:19:54] I think if I'm an assistant I say this guy's looking to replace me I'm looking then they find a job it's a dollar two more than what you're paying them and all of a sudden you have to give a razor to keep the same team.

[00:20:09] But I want to give you a little insight two things number one the way I look at it is this knowing how deals run a couple of three days two three days before every closing and you may know it from buying a house or buying your practice.

[00:20:22] You get what we call a HUD over an explanation of finances it is already means that the bank the lender the provider of funds has released and set aside the exact money that's needed for this transaction.

[00:20:36] At that point they're making the deal it's a 99% value that they bet that they make in that deal I would gather my team.

[00:20:46] I would gather them nothing fancy no celebration I gather my team I already told me personally my head person my manager was told because I could not handle all the previous three months questionings reporting answers, you know can you get me this report again.

[00:21:05] You know private equity groups and if we're seeing this mounting in the industry I'm notorious and we will get into the the hot ships and the pros and cons of going with these groups by buying and having transactions they'll ask for the same thing over and over.

[00:21:24] And you're going to need help to get through that but as far as the assistance the other doctor the other maybe an associate or even I genist.

[00:21:32] You're pending out close you I call him in right then and say listen ABC dental has made me an offer I cannot refuse. And I'm sorry but I'm selling but I want you to know.

[00:21:46] They offer medical benefits for a one k opportunity they offer advancement if you're good they're going to utilize you and if you have potential they're going to bring it out in you.

[00:22:01] And they need to know that there's a future for them that you've carved out the opportunity that nobody is leaving and that you can do through negotiations at the table top then when you're talking numbers you're going to say to them you know.

[00:22:16] I want to keep my team it's very important to me now with us the group that took me out guardian dentistry partners there about keeping.

[00:22:25] Uniformity they're about growing the doctors genius there are a number of groups out there I know guardian so the team in the office is kept.

[00:22:36] Everybody then has the opportunity to shine or not shine they're going to be great and if you're not doing great they're going to say listen maybe it's not for us but you're getting to give that opportunity.

[00:22:49] A mentor of mine I may have mentioned it before always said to me I can get you in T Yankee Stadium but I can help you hit the curve ball and that is it.

[00:22:58] I'm as a doctor as a seller as having an asset they want I can get you the job but if they want you to do certain things and you keep not doing them right or just have the your own issue with it.

[00:23:11] That's not going to bow to well but we as clinicians we need to talk positively to our team because there is something in a transaction that as we go through it.

[00:23:23] It's going to be times you say and we're going to get right into it in a minute but for this aspect I don't think it's proper for us to bring our team together and say listen they gave me an offer I can't refuse I think terrible.

[00:23:38] And if I was you guys I mean I'm dealing with them but and they giving me a big number but I would leave and look for another job that's really not being a very good seller.

[00:23:48] And you know many times I talk about this over and over selling has a huge responsibility we have to deliver to our buyers who are paying us in enormous amount of money hopefully.

[00:23:59] Money we didn't think we were getting in dental school when we were getting paid percentages of our gross now we're getting multiple of our profit. So if we're running at a 22 to 24 25% profit margin and I'm doing $3 million we'll $750,000.

[00:24:17] So pretty good number to get a 5.6 notable for my 3 million dollar practice they're paying us in a lot of money.

[00:24:25] And thereby I want to talk positively I wanted to deliver them the team that delivers me revenue quality and patient satisfaction just like I've experienced I want to be that guy I want to be that moral compass.

[00:24:42] I want to I'm saying now the best by a seller is a seller that brings a full package speaking positively they'll be times with every group that you have gripes but when we speak to our team we tell them that day when we got the HUD we're looking at these numbers we don't want to say listen.

[00:25:02] And don't be bashful don't talk numbers I don't think don't be very judicious. I don't think you will but tell them there is future growth for all of you.

[00:25:13] What's next? Next thing is probably the most important part of all this and I call it numbers and scheduling production collection and scheduling to me the toughest time to sell a business or

[00:25:30] I should say during the process of selling a business so what happens they call it the acquisition team or whatever you know practice acquisition or broker with the doctor comes in and look at the practice they look around they like it they feel a location.

[00:25:44] The look of it suits them I like it it fits into our group right then you go through the dance they look at your numbers they give a precursor to some of the numbers they asked for before they deep dive into the do diligence you sign what we call a letter of intent to allow them to.

[00:25:59] To allow them to look on the your hood and then three months later is a closing to me those 90 days toughest time in a transaction.

[00:26:09] I've had doctors I call him up I goes doctor Jones that now he's out come let's say doctor can you tell me when doctor Joe he took it two week vacation you telling me he signed a letter of intent and planned was a plant now he took a two week vacation.

[00:26:24] Oh and by the way he also stopped his marketing and stop Saturday chemistry so he doesn't have to pay his hygiene. That is not going to be somebody who's going to get to the finish line.

[00:26:37] I'm going to tell you there is no staff cutting you probably signed it in the letter of intent there's no hygiene cutting there's no marketing cutting there's no vacations that are not planned already do not plan them.

[00:26:51] There are no days or vendors that are cut it is business as usual because if you're doing $200,000 a month and you're being bought on that number.

[00:27:03] And for the last three months they look at your books and you did a total of 250 over three months they're going to retrain your deal.

[00:27:12] And I say maybe we've got it wrong or we need another few months to look and that is the biggest biggest pay what you need to do. You need to make sure that the marketing stays still. The the everything we order the doctor schedule and matter of fact.

[00:27:31] I often like to say that the most important time to be absolutely the best of what we can bring is those 90 to 120 days from letter of intent to close.

[00:27:44] But the one thing we cannot do is give them a reason because we stop and sign the letter of intent fed one. Febber one I got the letter of intent I go home to my wife, my whatever my significant other and I say honey look the trophy.

[00:28:00] It's not the trophy yet because come April one they're going to ask from February March numbers and if February March numbers which is pretty good time of the year this.

[00:28:11] You know snow is over in the northeast and people are rocking in the spring and getting ready for some dentistry. If those numbers are dipping and they're dropping quickly.

[00:28:21] These groups are going to relook at that number and then come back to and say you know we're offing your 4.8 million we're going to do it at 4.2 with 3 9 or we're going to tow back a little more.

[00:28:33] Something is going to give just like the facility so I often say why don't tell my staff is because I need those 90 days. I need everyone optimal I need everyone believing this practice is on the up to up tick.

[00:28:49] I need my manager or my right arm to help me with the reporting to help me gather the information. And also to run that business and make sure he as she knows that the prize is the closing not the letter of intent.

[00:29:05] So it really sounds crazy but once you sign that letter of intent keep the practice moving especially if you haven't told your team come two three days your loyal will send you a.

[00:29:18] Disbursement of funds behind that disbursement of funds will tell you who goes what a lawyer the broker that they're there what you're all what you don't know and then you'll get a check for this amount. That is disbursement of funds have already been put aside.

[00:29:33] All the team in did a great job buying everyone dinner when we close but remember something that this should be a joyous time if it is a joyous time if you're selling on your terms you're you want to go you want to minimize you like we said you're 40 and you have a great team but you want to cash out.

[00:29:54] You got $2 million of you but are you gonna get $10 million you owe to your put away a you pay that by you'll do it again like we said.

[00:30:04] That's your prerotative you don't know anybody anything the thing you do owe them is the respect and the transparency not to hurt anyone. It is my opinion that when we close and we do it after.

[00:30:18] I just feel that the doctor and the team that staff that works for us. They just as a disconnect and that disconnect could lead to really a revolving door of your practice when it was so stable.

[00:30:32] And really wasn't the group that did it. It was the way you've gone out of it and maybe you should have told them earlier especially some of the key teammates now. Two to three days before closing is probably the most respectful time.

[00:30:48] Before if you haven't told them but what benefit does it get them or you if you tell them early. They see people coming through they lose their desire so it is of my opinion that these three things the facility. All right.

[00:31:05] God be great with the facility really got to be great with this facility the facility has to look shop right so you got the facility and then you have all the team and the staff in which is almost as big.

[00:31:20] As the practice itself because they help you make this engine roar and then you have scheduling a numbers those are the three things I like to look at I'm not talking about the legal I'm not talking about the transaction.

[00:31:30] I'm talking what we do in our own house as you go through a transaction for those of you have gone through it you probably I'm probably preaching to the choir at least I hope so and if I'm not.

[00:31:41] Please let me know where I went or I because I want to know what if I'm missing something but if you've never gone through a transaction before and selling your practice this is a tremendous asset for a lot of us it could be the largest asset and we want to get it right.

[00:31:59] And there are ways to get this right is a great buying pool out there and as the interest rates we hold drop a little bit by the end of the year this M&A is merger and acquisition market is going to get hot I got my hands and toes cross because we all want that to happen.

[00:32:16] Get ready for it and if you're looking to sell get prepared for it be proactive doesn't happen tomorrow happens in 3060 90 days be patient get it right and treat your team really well because the last thing people want is a revolving door and.

[00:32:39] Lastly come to work to work signing a paper that runs out. In 90 days with no guarantee of anything is not a reason to celebrate. Be happy put a pep in your step but you got a.

[00:32:56] Keep a quiet for most of the time because you just want to keep going and show those numbers when they're done with their due diligence.

[00:33:04] But as you put this whole thing together we looked at the 40s to 50s to 60s you're understanding different levels bring different transactions and different levels also bring different thoughts of a transact.

[00:33:17] We tried to cover as much as we can here today I really welcome you to like me and and just reach out to me and tell me some things that I could help you with or more less just give me an idea of what you like and what you don't like listen to this one it'll save you a lot of heartache.

[00:33:33] A lot more coming keep talking about interviews people want to come on I really wanted to finish up this and give you the idea of when you sell it is a science you know where to find me it's a great great profession we're in.

[00:33:46] And I love it and I love to talk about it on dentistry beyond the numbers thank you so much for listening things are happening we're moving look for me next time dentistry beyond the numbers I'm Dr Mark Leiton and I'll see you next time thank you so much.