Listen to This Before You Sell Your Dental Practice to a DSO

[00:00:00] Hello Everybody, and thank you again for joining me for another episode of Dentistry Beyond The Numbers and I am Dr. Marc Liechtung. You know, I've been thinking a lot about what was gone on the last several episodes and things we spoke about.

[00:00:13] The truth of the matter is that I'm enjoying it. I'm enjoying letting my knowledge grow and hearing people ask me great questions and maybe even helping people. It's been a great run and I want to continue but I thought I'd take a step back.

[00:00:26] You know, last week I spoke about selling in your 40s, your 50s and your 60s. And how would mean to you?

[00:00:33] For those of you that think they know me great. For those of you that know me even better but for those of you that don't know what I've accomplished

[00:00:40] you know we all make mistakes in life. I just felt like I wanted to let you know that some of the experiences a lot of the experiences I've undertook and successfully acquisition in my career. Whether it be product dental practices groups

[00:00:54] and I thought it would be helped me with the listener and you the doctor and the team that you know we're on coming from. I'm coming from situation where after 25 years of chair's

[00:01:04] identity in New York City and the upper West Side Lincoln Center it taught me a tremendous amount and when I got into dental school I really love the science of dentistry. I love the art of dentistry.

[00:01:15] I really took the dentistry but it's when I owned my own practices and I saw the transformation of me as a clinician during a day and a business man at night and that's when I started to think of needs

[00:01:29] and just to take you back in 2010 maybe 2008 I had this idea. People were coming into the office we were selling unbelievable treatment plans but throughout marketing we were also getting people

[00:01:40] that couldn't afford a dentistry through the marketing. We would go off to them you know like we do now you know a lot of implants great period adult treatment cosmetics they would come in we'd give them

[00:01:50] an offer we'd give them a treatment plan and they would not be able to accept it you know this is a story I told back when I was acquired and that was that it really came to me when I was helping my grandmother

[00:01:59] through a time of crisis that I had to literally carve in the acrylic bridge in her nursing home for a whole day and I thought of this product called snap on smile and I only bring this up now because

[00:02:10] this is believing a whole podcast unto itself but snap on smile was an amazing, bulky purpose non-invasive removable appliance it is still made out of crystallized the seedle resin and it helps many

[00:02:22] many different types of people but it also helped people get to the next step of dentistry showed them what they could look like how they could chew. Was it a temporary? Was it a long-term

[00:02:30] provisional or wasn't it just was it to some people maybe they last stopped? I didn't know but back in 2011 2012 the Denmark court came calling and they were owned by a bank and they came with my

[00:02:44] investors at the time and they convinced me to sell the product so in essence that was really the first major sale I really had in that I felt like the bankers and all of them were coming down

[00:02:56] and we you know I bought some practices but this was pretty serious and what it did do is it allowed me snap on to travel the world and see dentists from all over and learn different techniques.

[00:03:07] When I came back I put my effort into growing my Lincoln Center office and then hacking dental arts on Broadway in 68th Street Manhattan it was it's a love to me and it's probably the most

[00:03:18] important asset of my life in that that's the office I developed the quality appliance known as snap on smile and when I got back from snap on smile the practice was doing about $3

[00:03:29] $3.5 million in a quick story I had an associate with me for eight years I had no idea what happened but for any reason not to get into it I got a text when I was with my wife one day that I left my

[00:03:41] resignation on your desk after eight years I got a letter saying that she left and she took staff and I was devastated I was doing three point four million dollars three and a half million

[00:03:54] dollars at the time and I do get devastated I don't know if any of you get devastated but I taken home I take it into my bed I think about it I'd ponder about it I come up with a solution

[00:04:03] hopefully but here's the chance that I didn't know if I had a solution a very big producer left the practice and left it aggressively I did not go after illegally I decided not to the biggest reason was

[00:04:15] I hired a lawyer and after three months of deciding and getting to lawyer S.V. what are your damages I said damages were up on annual basis of over a million dollars in the first year that

[00:04:28] back doctor left us after eight years in my panic we did 4.7 million dollars so what were my damages so yeah I had a great practice on the upper west side doing phenomenal numbers and a large DSO

[00:04:43] king calling and the DSO when the practice was annualizing doing 4.9 million offered me 10 of 15 percent over gross I was a lot of money I mean here I am young a family and I was more

[00:04:56] less in my 40s and it was a young family and I said to my wife I said this is a lot of money and I could go on and build a group somewhere else we will we were moving to Jersey I said

[00:05:05] let me look in Jersey I had a license and I went ahead with the acquisition and I went ahead begrudgingly but I had a group in New Jersey that I started cultivated and as soon as the

[00:05:19] practice them in Hatton started to be sold I started to ramp up my desire to grow a small group in Jersey and in Brooklyn. Coupling has laid a true to form another two groups came calling and this is an

[00:05:34] amazing story I mean the groups came calling two very viable DSOs one today is thriving and one today is no longer and of course my decision after going with one or the other or the other or the

[00:05:47] other was I picked a one that eventually dissolved what it did do is give me a tremendous experience first of all they looked at my group as foot dots on a board really didn't matter how much we were

[00:05:59] grossing it was viable each one had a staff each one had a lease each one was doing some numbers they got related the gross they gave me a number it was nice I didn't love that group it was very

[00:06:11] short stay and I sold it for a good number and subsequently I sold it to this group that really wasn't sure of which way they wanted to go it was a DSO with about 35 40 practices

[00:06:28] and they were growing love the guys that ran it but I didn't feel like meeting the C-suite in Chicago they had a really firm understanding of how to grow a dental business and practices they

[00:06:42] bought a group of practices they asked my opinion I said not to buy it they bought it anyway and that became their demise that practice with 14 or 15 offices was worth anything and I thought

[00:06:54] it was all a scam but you know from a practice standpoint but the bottom line was I had a clause in my contract and I thought about how to get out of this I had a clause in my contract that when

[00:07:04] the CEO would get fired I had the option to leave well sure enough I got a call one morning from the CEO saying Dr. Mark I loved working with you but I think I'm being terminated I immediately called

[00:07:16] my lawyer and said exercise my out I'm leaving and I did and as I'm leaving that group I want to just give you an idea of time because it gets confusing it was about 2018 2019 right before COVID

[00:07:32] and as it was just happening I got a call from the group that bought my Manhattan dental last auto office and I would get a report and they went from 49 to annualizing between 1 6 and 1 8 that's how they destroyed this beautiful 7 chair practice in the west side of Manhattan

[00:07:52] and they called me up and they asked me to meet and they said Dr. Mark let's have lunch at the place we always met I met with them and they asked me how I want to do this they want me to come

[00:08:01] back to work because I did my contract for a year and I left and they said we need you to build the practice up and I said I'm not going to build the practice up I'm not going to work for a group any

[00:08:11] more than they said well Dr what are we going to do and in my pocket I had a check and I took out the check for the exact number that I wanted to buy it back from them and I told them what I

[00:08:22] would like right at lunch I told them you paid me an excess of 5.2 I'm going to buy back for 475,000 and they left and they took a break and they went outside and they made a phone call and

[00:08:36] and as he come back he said one can you close I said I could close right now and I bought back my practice which was one of the greatest things for me it was doing one eight I bought it back

[00:08:48] for 8% of what they paid me and the following year we built it to 3.9 million that is not any magic source that is not any excessive marketing that is just caring and doing quality work

[00:09:00] and bringing back the patience and treating them a lot better than that particular group of people that that dental DSO brought in would be better and subsequently I built it up and I ended up

[00:09:14] true to form like I am out by a couple more and I ended up buying four more during the course of COVID taking an opportunity and I'm getting to my point everybody I want you to get a little history

[00:09:26] about Dr. Mark Lifetime and then when I put those five together I built them up pretty quickly to be the best group I've ever owned in two two and a half three years well two years and after two

[00:09:39] and a half years of owning them and building them up and having really good presence a company that I work for now proudly Guardian Dentistry Partners came calling and they evaluated it totally

[00:09:52] in a different way and I'm going to get into where I'm going now I subsequently sold my practice is or a major part of my practice I'm still a partner in a managing partner but I wasn't

[00:10:02] to achieve clinical officer like I was before and rightly so because they have a great team and I'm very happy with the team I've sold my practice that became managing partner of my

[00:10:11] region and the region now has just since they bought me we acquired 13 offices we are doing phenomenally well but what I want to bring you is during these transaction it could get confusing

[00:10:22] already telling us what he did now what I'm telling you is I look back after all these transactions and I see what has transpired I'm looking at the first one when I sold Manhattan Denlots

[00:10:37] it was strictly gross revenue nice office long good lease stable doctor ready to work that's a percentage of our gross so what I want to explain to you now is that what we're looking for and

[00:10:51] why I said 40s 50s and 60s is because 20 years ago the way they evaluated practices was totally different than five years ago or six years ago and that's totally different than today and the groups have changed and they're changing again I had a lot of transactions in my

[00:11:13] life I bought practices at board shots and we're going to do a podcast on the advantages of buying records around janabode it's phenomenal same lease and so I bought a lot of things and I would like

[00:11:26] to believe I can't believe both of them years ago we looked at your gross you come in with a 5 million two million one million half a million dollar gross we would evaluate the capital expenditures

[00:11:38] we would evaluate your staff and the the revolving door of staff we evaluate your succession plan if we come in you're a 75 year old doctor do you have an associate will you give up some of your

[00:11:50] hours to bring on an associate back then that was a question but what they paid you was a percentage of your one years gross revenue so if you did a million dollars and you had a nice practice good

[00:12:01] location long lease and a stable doctor you get 80% of your gross 800 thousand dollars years later you would get still that percentage of gross but if you were a doctor like I was and you had a

[00:12:12] couple of dots on the board where you owned other practices you would have the opportunity to cash in a little more because what practices or groups the SOs we're doing were putting stuff

[00:12:25] on a board and the more dots on a board the better they were they they would build it but if they didn't build it they would just buy more to circumvent the losses to make the balance sheet

[00:12:37] to the board much better and looking better because we got 200 practices instead of 189 that are failed or a couple of failed so that would be there too more dots more money but you don't like anything the groups have gotten so much smarter and today they've entered that word

[00:12:58] of EBITDA earnings before depreciation interest taxation amortization EBITDA are dropped dead we talked about it before dropped dead operational profit what that means is that means clearly that if you take a million dollar practice and you take everything out marketing rent staff doctors pay

[00:13:23] doctor produced 800 thousand dollars take out the 300 thousand dollars that would take to replace him so right now you come in with the EBITDA of 200 250 thousand dollars let's say 200 thousand you're running a pretty good ship at 20% of your gross revenue two years ago before the interest rates

[00:13:43] went up you may get six times you may get a one two one four buy but today you're probably looking at a million a million one it's probably going land in the five x range but the difference on point

[00:13:54] to out is today and they evaluate everything they don't evaluate just how your practice is running but in the next three to five years are we gonna change the chairs how this is a compressor

[00:14:06] has the air conditioning system and that is why today's world is probably the most sensible way of buying a practice all I wanted to do today was to bring in these tidbits but also to say that

[00:14:20] you know when you go through it like I went through it you realize the changing of the guard the interesting thing is when I sold Manhattan dental arts they liked it because I had multi-specialty

[00:14:30] I had a root canal specialist I had a period on a student surgery but today like we spoke about groups like it if you have what I called and I keep terming super general dentist or the super

[00:14:43] generalist think about it if we're building a business today and we have great surgeons who are called period honest well great surgeons that took an a real liking and a pension for

[00:14:55] surgery and really took great courses for that that area these doctors for the most part of being paid at 35% specialist are being paid at 50% if someone could put in an implant that they getting $2,000

[00:15:11] they make $700 the office makes after everything is done 15% more in their pocket and the doctor is doing more work because they don't have to put the chair to chair so it works out that there's

[00:15:25] more dentistry done by a super generalist than if you have to refer out or for over to another room to a period honest. So the transformation of dentistry has been amazing if you think about it and

[00:15:39] I do a lot I mean I think about it and this is very serious topic for me because I've seen the changing of the guard now we're talking about dentistry and technology and AI and Pearl and

[00:15:50] diagnosing will that go with the younger teams younger doctors probably the older doxoprys set in their way so the transformation is going to begin again. What's interesting of that

[00:16:00] our profession is this this is so much to keep up on and what I said at the beginning that I really took a liking to dentistry it's because there's so much to learn you know for those of

[00:16:11] you that play golf you have 14 clubs in your bag sooner or later over time you try to get comfortable each one not that I'm the best golfer but I got and I always looked at them as tools you know

[00:16:26] you're looking at them as tools can I hit the 7 iron better than I hit the 9 iron maybe I just hit the 9 iron and be in the game maybe I just learned what I learned use technology to the extent

[00:16:37] but I'm in the game maybe I button up my books and make sure that my EBITDA is above 15 18% and as we discussed last time get ready for the sale how do I do that look at your lab

[00:16:50] costs look at your lab cost look at the cleaning supplies look at your dental supplies look it look at the things that you could turn low hanging fruit and if you take four or five or six

[00:17:01] you really acknowledge them you could be deducting or increasing by three four five percent of your EBITDA which is a game changer when you'd go to sell you know there's a few things I

[00:17:13] wanted to mention and that is that the metrics we talked about it right we talked about the EBITDA but also operational efficiency I mean are you at 18% of dental supplies or you at seven

[00:17:28] is your labs under control or they're out of whack whoops today and buyers today don't want to come in and remedy the situation they want to come in and enhance the situation and these are

[00:17:39] the ways we look at things we look at things on how we can enhance them snap on was responding to a problem the problem of my patients saying no to expensive and extensive treatment once they

[00:17:52] get comfortable they advanced to more treatment learning your practice allows you to have better results a better exit more work-life balance because you'll then structure it in a way that your insurance is paying 99% plus on everything if you're taking insurance if not your collections

[00:18:13] are 99% plus and even better your new patients are flowing on a consistent basis these are the things staff course are down these are the things we must look at and that's what we're going to

[00:18:24] get into today I want to give you a sort of like a little bit of you getting to know me a little bit I love dentistry as I said I practiced it but it's the aspect of building a business within what

[00:18:36] we know that really really gets me excited and I really do love hearing about doctors that are approaching something maybe they want to acquire a practice in their neighborhood what to do my feeling is we've all been there there's so many people that I call the best

[00:18:54] and they could share with the rest and I think it's key that's what this is about whether you pick something up today or not whether you say wow that guy's telling us what we need you know what he did

[00:19:05] no I'm not telling you what I did I'm telling you what I did is it relates to something either you're doing could do will do or have done and evaluate it of course if you need help

[00:19:18] advice and you want to ask a quick question send me a text shoot me a link but this is the future for us building our businesses and then selling them and I see so many people like I discussed last

[00:19:30] week in their 40 selling their business like I did and advanced to the groups I was I was really captivated by the group of dentistry I wanted to be a leader and teaching doctors had to be great

[00:19:41] and that's what happened so in closing this is sort of like a catch-up sort of wanted to tell you a little bit about Dr Mark Leighton and dentistry beyond the numbers and why I'm doing it it's not

[00:19:52] an ego thing I just love to talk about dentistry and to embark my knowledge wherever it's needed they if I could help I sit in on a lot of meetings I'm blessed to be with working with a lot of smart people

[00:20:05] shout out to my regional team in New York City they are amazing and other people I work with every day but I will say that the truth the matter is when you find good quality people you stick

[00:20:16] with and I've been lucky to do that so evaluate what you're doing evaluate where you want to go not every transaction that sounds so wonderful was so wonderful they were hard so I don't want

[00:20:30] you to think this was a piece of cake and remember if you're doing something and everybody's doing it and it's easy right everybody is not doing it had a lot of transactions we have a lot to learn

[00:20:42] dentistry beyond the numbers will keep going and as I promised with scheduling our fall interviews marketing advancement different products different procedures are coming along things that could advance our practices and things you want to know about and why the doctor created that in

[00:21:01] dentistry sort of something I should have done last week but I was away with some friends dental friends and I found out that a dear friend and one of the most how do I say most forward

[00:21:12] thinking general dentist I've ever a dentist he was surgical dentist I've ever met in a short period of time I knew him he captivated me he was a wonderful clinician that probably had the most

[00:21:26] productive highest efficient five chair practice in the world and I want to just say rest in peace doctor recline in the short time I knew you I learned so much I would love to have you on the program

[00:21:40] because we all would have learned a lot I want to say thank you again to joining me on dentistry beyond the numbers this was a little bit of an emotional session for me to bring up my past and try to tell

[00:21:51] you my my my past of acquisitions and try to embark on you that the groups are not something to be afraid of the groups are something you can embrace and you get the right group it took me

[00:22:01] one or two but I get the right group you could really learn a lot grow a lot we're going to see you next week on dentistry beyond the numbers my name is Dr Mark Leicton I'll see you there thank you