Episode 457: Sell, Merge, or Buy Up Practices?

dental a team podcast Dec 09, 2021

Randon Jensen, a dental broker with CTC Associates, is the latest guest on the Dental A-Team! He joins Kiera to talk about a very, very popular topic right note: Selling, merging, or buying up practices! 

The two discuss answers to the following questions:

  • What’s the smartest move for practices to make right now?

  • Who comes out financially ahead with different choices? What are the emotional costs?

  • What are some of the determining factors to make a decision?

  • And a ton more.

Randon is one of the good brokers, and gives his honest opinions on how different futures for dental practices can shake out.

About Randon: 

Randon Jensen, a native of Preston, Idaho, currently resides in Bountiful, Utah with his wife, Cami, and their five children. He graduated Magna Cum Laude from Utah State University with a Bachelor of Arts in business management. Prior to joining CTC Associates in 1999, Mr. Jensen worked in mid-level management for Wal-Mart Stores, Inc.

In addition to authoring and co-authoring scores of articles and other publications on the topics of practice transitions, dental partnerships, associateships, mergers, marketing, and practice management, Mr. Jensen has had the privilege and opportunity to lecture to a number of professional groups on those same topics, including groups such as the National Association of Practice Brokers, the Practice Valuation Study Group, the Utah Dental Association, the Academy of General Dentists, the Metro Denver Dental Society, the Provo District Dental Society, the Roseman University School of Dentistry, and the University of Utah School of Dentistry, as well as several local and regional study clubs.

Mr. Jensen is privileged to have worked with so many excellent dentists and other professionals over the years and is grateful for the one-on-one, personalized service he is able to provide his clients and customers. It is a privilege for him to work in such a great industry with great people.

Episode resources:

Learn more about CTC Associates

Get in touch with Randon directly: 801-298-4242 or [email protected] 

Reach out to Kiera

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0:00:05.8 Kiera Dent: Hey everyone, welcome to the Dental A Team Podcast. I'm your host, Kiera Dent. And I had this crazy idea that maybe I could combine a doctor and a team member's perspective, because let's face it, dentistry can be a challenging profession with those two perspectives. I've been a dental assistant, treatment coordinator, scheduler, filler, office manager, regional manager, practice owner, and I have a team of traveling consultants where we have traveled over 165 different offices, coaching teams. Yep, we don't just understand you, we are you. Our mission is to positively impact the world of dental, and I believe that this podcast is the greatest way I can help elevate teams, grow VIP experiences, reduce stress, and create A teams. Welcome to te Dental A Team Podcast.


0:00:51.9 KD: Hello, Dental A Team listeners. This is Kiera, and you guys, I love bringing on impressive guests to the show. These are people that I've met, that I vetted, that I work with, that I share, that I recommend, and I love to bring on really, really, really awesome people. So the person I have today, his name is Randon Jensen, he works as a practice broker. Now, before you stop listening, he's actually a really, really, really awesome one. He works for CTC Associates and they do dental practice transition specialists and the reason I brought him on is because I met him in person, and lo and behold, he and I actually know somebody who I'm super, super passionate about. His name is Larry Chatterley. He helped us with our practices in Colorado. But Randon is just a stellar stand-up human. He is straightforward, very direct, very honest. I'm speaking with their group later this week. And I am so just impressed with his work and what he does, and I'm so excited to welcome him. So Randon, how are you today? Welcome to the show.

0:01:46.5 Randon Jensen: Kiera, what a fantastic introduction. Thank you.

0:01:51.1 KD: Thank you.

0:01:53.7 RJ: I should just have you come along with me all the time.


0:01:57.0 KD: Well, it's all true. I genuinely... I just value who you are as a person, and I think you are just a good human. I know you help a lot of dentists and a lot of practices. And a lot of brokers, I'm not crazy about. [chuckle] And I say that with love. I had a rough experience with some brokers and I know some other practices have, so to find you in the industry, I think you are such a valuable resource. And Brian Hanks, I love him. Shout-out to him. He does such great work and you two authored a book together. So just excited to have you on. So I gave you an intro, but kind of give us your background of how you even got into dental practices, helping transition practices. Give us your background and your story.

0:02:39.3 RJ: Oh, sure, yeah, absolutely. So you mentioned Larry, Larry Chatterley. So I have been...

0:02:44.0 KD: I do love Larry so much. [laughter]

0:02:46.4 RJ: Isn't he great?

0:02:47.6 KD: So great.

0:02:49.2 RJ: Larry is fantastic. I can't say enough good. We could fill the whole podcast talking about Larry. What a great guy. He's been my mentor. He was my business partner. I've got a degree in business management, and I started out with a little company in the management program for a little company called Walmart, and...


0:03:10.6 KD: Just a small company. I've never heard of them, actually.

0:03:13.6 RJ: Right, kind of an obscure company and many may not have heard of. Left them to take a job with Ford Motor Company, met Larry's son at the time, he said, "Hey, I'm working with my dad, this is what he does." Kind of unique, of course. I had never heard about it. I had no idea people did this. And so he said, "Well, why don't you come on and work with my dad? I've decided I wanna be a dentist, not just work with them, and so I'm going to dental school. Come on and work with him, see what you think." And as you've already alluded, Larry's top-notch. After just a few minutes with him, I thought, "This is somebody I wanna hitch my wagon to." He is just an incredible individual, and interesting, you'd say... You mentioned having bad experiences with other brokers because in that first interview, he said, "Hey, I gotta let you know that the brokerage industry, as a general rule, does not have a great reputation." And he said for a good reason. He said, "I probably wouldn't do business with a lot of our contemporaries around the country." And so he said, "Therein lies an opportunity to make a real difference." And he said, "I know you've got this job with Ford. If you wanna take that, run with it, great. If you wanna join me, it's hold everything, but it's an opportunity to provide a service one-on-one with clients."

0:04:35.5 RJ: And so that's how I got into it. That was in '99, so just over 22 years now. And he brought me on, treated me better than a son. Had a steep learning curve for the first two, three years, just shadowing him and learning the industry, learning brokerage of practices. And I'm still learning, we all are, but Larry's fantastic.

0:04:56.8 KD: That's fun. That's awesome. And I love your experience, I love that you got there. And I'm glad that we were able to connect because Larry was somebody who I felt just kind of took us under his wing and didn't let us get burned and looked out for us, found practices for us that maybe weren't necessarily right there at the top. I felt, and I know this might not be your best comparison, but for me as just a very layman over here, it was kind of like a realtor who found that dream house for me that wasn't necessarily on the MLS listing yet, that's how I felt Larry treated us with buying practices, and that's why I loved him. I felt he helped us negotiate and just really guided us through the process without taking advantage. So Randon, I'm really excited because you deal with this all the time, and our listeners are really, really savvy. We have a lot of team members, a lot of dentists that listen, and right now, I know you and I chatted prior to recording of the topic that a lot of people are having, and I think it's because of the pandemic, I think because of Covid, a lot of practices are selling right now, and a lot of DSOs are emerging, and big DSOs are starting to buy up other practices, knowing a lot of people might wanna sell out, might wanna retire.

0:06:09.3 KD: And I feel like this is a zone that we really could dive into with you, especially like, should offices, from your perspective, things you see, what should offices do right now? Should they maybe buy a second location? Should they sell out to these DSOs? Should they merge in? What does that actually look like? Because let's be real, when they contact my office, these offices call me, "Kiera, this DSO offer is unreal," and I don't know, I don't know what the other side of it is, I've heard great stories, I've heard horror stories, so I'm curious, let's dive into this DSO world since you see so much of this, of just kind of what you're seeing, and let's just help some people out, give them some knowledge of what you're seeing, being an expert in the industry.

0:06:52.1 RJ: Absolutely. No, it's an excellent topic to address 'cause it is a hot topic, right? So first of all, you mentioned a lot of times we use vernacular that may be common to us, but maybe not common to the listeners. I would imagine, probably everybody knows DSO by now, but we're referring to dentist service organization or essentially corporate dentistry. Corporate dentistry is a little bit of a misnomer, but really just groups or companies that are acquiring practices as investments. A lot of them are backed by private equity groups and other private investors. But yeah, this is a hot topic. This is a trend right now. Obviously, there's a lot of growth in the industry and the DSOs. There are a lot of things that are driving that growth. Part of it is, I think... And these are just my observations right? And I don't have a lot of data to back this up other than my observations, although there is some data we could pull, but a part of it's generational. I think it's a generational thing. A lot of dentists coming out of school don't really have an interest in owning a practice, and that's neither right nor wrong.

0:08:04.7 RJ: They just would prefer to work for somebody else, and they see that as being a lower stress environment as a general rule. So a lot of them are going that way. A lot of them feel like, "Well, I need to do this because student loans. Student loans are so high, I've gotta go for the sure thing." Or at least what they perceive to be the sure thing, or a lower risk transition. Of course, it comes with the risk of getting a pink slip, right? You could get fired at any time. And we saw a lot of that through Covid, a lot of dentists working for DSOs that called us and said, "Hey, I didn't like the uncertainty of not being captain of my own ship or master my own destiny. I was told by the DSO, "We'll call you when we're ready to come back." So there is some trade-off there. I think the increase in female dentists, which is fantastic, I wholeheartedly support, but their tenure in the profession is shorter, and they like the flexibility of being able to work and take time off as needed without having the stresses of practice ownership.

0:09:13.2 RJ: Now, parenthetical to that, I should mention, I am starting to work with a lot of female dentists who are joint venturing on practices, groups of female dentists that are coming together and buying practices together, and then acting as that support for one another to allow that flexibility, which is...

0:09:34.1 KD: Yeah absolutely.

0:09:35.1 RJ: Kind of a cool trend I'm seeing there, too. So I think a lot of those. And then of course, insurance, the complexities of insurance, the reimbursement rates of insurance has driving DSOs, it's all about a number... Economies of scale, right? A numbers game, stack 'em deep, drill 'em cheap, we say. So there are a lot of things in the marketplace that are very conducive to DSO growth. Now, the big question is, "Do I sell to a DSO? Do I explore that? Or do I do my own thing?" So let's look at each of those. You mentioned a second ago, Kiera, that you have clients come to you saying, "Hey, I just got this offer from a DSO that's unreal. How do I pass this up?"

0:10:24.2 KD: Right.

0:10:24.8 RJ: Well, that's the hook, right?

0:10:25.5 KD: Agreed. [chuckle]

0:10:27.0 RJ: Yeah that's the hook is that usually... And I'm speaking in generalities, of course. Every situation's different. But what I'm seeing as a very common MO is for DSOs to catch the attention of a dentist with a very big number, in some cases, even an unrealistic number. And that number usually comes with a lot of caveats, a lot of qualifiers, and it may be subject to change after due diligence. So usually, if the client is wise enough to reach out to someone like myself and have them help decipher, if you will, the offer, a lot of times we find that the offer isn't as appealing, when you get underneath, as it is on the surface. So in most cases, the DSO will offer again a big number, only part of that's in cash, part of it usually is some type of what they call a hold-back or a contingency pay-out that depends on the practice performance after the sale for a period of time. And usually they're requiring the seller to stay on and work for a period of time to meet, and if the practice meets those benchmarks, the seller fulfills their work-back obligation, then they'll get paid out that contingency portion.

0:11:51.0 KD: Interesting.

0:11:53.9 RJ: And I wanna circle back to that 'cause that's a very important element. And then the third element I see in it is a lot of times they'll offer equity in what we call the parent company, or the DSO, as part of the consideration for the purchase of the practice. And this can get pretty tricky because in many cases, the DSOs value themselves, and so they're saying, "Well, we're giving you, say, 3% equity, and we're valuing that at $1.2 million. So $1.2 million of the consideration we're paying you is a 3% equity in our parent company." Well, oftentimes there's no valuation to back up, to substantiate that 3% in that parent company is worth $1.2 million. So you really have to just take them at their word, which again, can be problematic. So usually when we sit down and start reviewing these offers... Well, I realize every dentist who's looking at, who may be considering to sell to the DSO, may be doing so for different reasons. And so those all have to be considered.

0:13:06.4 KD: Right.

0:13:07.7 RJ: But if we look strictly just at the numbers, and I tell the doc "Hey, if your primary objective is because you see a big number and that's why you're wanting to sell, let's look more closely at the numbers." 'Cause as of yet, I've yet to analyze an offer in which the selling dentist comes out ahead by selling, financially. They just don't.

0:13:27.6 KD: Right.

0:13:29.3 RJ: When we look at the profits the sellers take, it's very... Let's say the work-back period's a three-year period, and they have to continue to work the same level they're currently working or more in order to get paid out that full amount. If we do the math, the profits that the seller gives up during that three-year period more than offset any "premium" they're getting paid on the practice.

0:13:55.4 KD: Interesting.

0:13:56.8 RJ: Yeah. And we kinda joke, we said, "Well, the DSOs may be a great company, they may be very altruistic in many ways, but generally they're not just gonna offer to pay you extra out of the goodness of the kind heart."

[overlapping conversation]

0:14:10.8 KD: They're smart savvy business and I think we forget that. And they didn't just get there just by happenstance. They are smart. And that's what I think... I'm so glad you highlighted. I don't think we think about... I don't know. I guess I look at it as like, these are sharks. I'm their shark bait. What are they taking from me? I guess it's going to be a good deal. It has to be a good enough deal for me to want to do it. But at the end of the day, they've got some ulterior motive. What is it gonna cost and what is that emotional ROI on me? What is the physical ROI on me? And is that something, with all the facts laid in front of me, do I actually want to do it versus just looking at the pretty writing, the pretty offers, really getting to know every single piece of it?

0:14:53.7 RJ: Yeah, very well said. I love that. Like you said, not only what's the financial cost, but what's the emotional cost and so forth? A lot of doctors think, "Well, if I sell, this is gonna take a lot of stress off of me." And generally speaking, the feedback I get is, no, it's just a different kind of stress, right?

0:15:11.8 KD: Correct.

0:15:12.7 RJ: Still having to manage the day-to-day stuff. But now I have no control over it. And not only that, there's certain things that I did have control before that now are being dictated to me that I just don't like.

0:15:25.9 KD: Yes, and I think people don't realize that. I think sometimes it feels awesome and exciting to sell it because we look at our problems right now like, "Oh, they're all going to go away." But I think it's important to play the tape the whole way through. I have a friend who's not in dental and he sold his business and he had to stay on for two years. And I remember talking to him before he signed the paperwork to sell it, and he said, "You know, Kiera, this is actually really hard because it's my identity, it's my business, it's my baby that I've done, and I'm gonna literally have to sit here for the next two years and watch people come in and change the business that I've done." And I've talked to him, it's been about a year and a half since he sold it, and he still says to me to this day, he's like, "It's still hard." But he was able to get to the point of seeing it and playing the tape the whole way through and realizing that this isn't necessarily his identity, however, he did it because he's starting up another business that he's super passionate about, and that's his passion project that he's doing while he's finishing out his "term" with the business he sold to.

0:16:27.9 KD: And so I don't think people necessarily realize the emotional state that it puts them in to sell to somebody else who now tells you how to run the business that you developed. Pro or con, but I think play that tape all the way through, really think through that and mentally prep that this is what you were signing up for, there's a lot of perks to selling it, but it's like, do you play the tape the whole way through, really thinking about what that's going to look like? 'Cause I know for me, I would actually be horrible at having somebody tell me how to run my business, absolutely terrible. I'd rather roll over and die versus have that happen. I just know that I would not do well being told what to do. [chuckle]

0:17:06.4 KD: I would rather just have a partner come in and I just to cash out on part of the business for the rest of who knows how long versus selling it to a DSO and having a bigger payout. But that's something I've had to literally sit and think about for the last three years of, "What's my long-term plan? What can I emotionally do?" So Randon, I guess my question to you is like, how do people make this decision? Because [chuckle] that sounds like very broad. But truly, how do they make this decision when it seems very alluring, they're stressed out, maybe they're strapped for cash right now. It feels really nice not to have to manage your practice anymore 'cause that's where most of the stress comes from. If they just have to do dentistry all day, they'd be happy, but then a lot of people sell and they're not happy. So how do people determine, do they wanna partner, do they want a second location, do they sell to a DSO? What are some of those determining factors so people can really whittle this decision down?

0:18:01.3 RJ: Excellent, excellent question. Well, so like I said, there are a lot of considerations outside just the numbers, right? And the interesting thing is the DSOs are primarily interested in practices that are larger. There's another term that we use often, EBITDA, earnings before interest, taxes, depreciation and amortization. So it's basically what's left over after you paid all the operating overhead, exclusive of any debt service, taxes, depreciation, amortization. They're looking for practices that are EBITDA $300,000, $400,000 or more. Most dentists don't fall into that category. And they're wanting five to eight operatories at a minimum. Usually, they're very selective about locations, whatnot. So unless they're like smaller groups that are just trying to build early on, they may be interested in smaller practices, but most of the big players, the savvy players that know what they want, they're only interested in a very small segment of the market in terms of practices. So a lot of dentists say, "Oh, yeah, I'll just sell to a DSO." DSOs may not be interested in the practices they have. And here's the interesting thing. I find it's usually those dentists that could potentially benefit from having the DSO take over some of the management operations, but even then when I do the math on it... Meaning the doctors who are doing really well, they've already got to figure it out. You know what I mean?

0:19:36.0 KD: Right.

0:19:37.9 RJ: They've figured out the business part and leveraging and other things to allow them to grow to that point where now they're catching the eye of a DSO. So I find it ironic that they would then sell through DSO when they've already got the business side figured out.

0:19:52.4 KD: Right.

0:19:53.7 RJ: The dentists that are needing to get to that next level, they're the ones who could potentially benefit, but when I sit down and do the math, and I was lecturing to a group recently of dentists on this topic, and I said, "Let's list the things that you love about your practice, about being a practice owner, and then let's list the things that you dislike." And what's interesting is most of the things that they really liked about being a practice owner, they would have to give up, the autonomy, the control, the decision-making, being able to take time off when they want to, being able to decide who they hire and fire. Those types of things they give up when they sell.

0:20:31.2 KD: Right.

0:20:31.8 RJ: On the flip side, the things that they really dislike, yeah, a lot of those they'd be able to outsource. Well, I don't like to have to handle a lot of the human resources, or I don't like the marketing, or I don't like dealing with insurance, and those are things that they would be... Not every DSO is built the same, right? Not every operates the same, but that's the promise at least, that they would take those off your plate. So I said that, I said, "Okay, doc, let's sit down and look. If you could hire... Let's say you hire the best marketing firm to take care of your marketing, or an HR firm and outsource all of your human resources, all of your management of your staff, or even hire an MBA to come in on a salary to take care of all the business operations, and we start adding up the cost of what it would cost to get the very best in each of those areas. And without fail, it comes in less than the cost of all of their profits. Meaning they could hire somebody to do everything the DSO is promising to do, but at a fraction of the cost of what it would cost them to sell to a DSO, if that makes sense, in terms of giving up their profits.

0:21:36.3 RJ: So back to your original question, if a doctor is considering a possible sell, how do they make that decision? First of all, decide what's the primary emphasis? Is it financial or is it because of some of these other elements of practice ownership that maybe are stressful or less savory that they want to divest themselves up or give up? Then consider, are there alternative means of accomplishing the same thing without giving up the stuff that you love about practice ownership? If not, yeah, it may be turning all of that over and just being able to go and drill/fill and go home may be the right thing for that doctor. But again, they may or may not have the practice that a DSO would be interested in. So then the alternative is where we... Kind of ties into the second part of your question is what if I'm looking at buying a second practice? Well, that dentist might be looking to sell then to a dentist who's looking to build, start building there. And those dentists are looking... They're open to buying smaller practices 'cause they're starting to just build their network of multiple practices.

0:22:45.5 KD: Yeah.

0:22:45.6 RJ: Question on whether do I buy a second practice, that considers a whole different range of characteristics, right?

0:22:53.2 RJ: Mm-hmm.

0:22:53.5 RJ: Some dentists are really... They're really invigorated, for lack of a better term. They're really energized by the concept of... I think like you are, Kiera, you're really energized by being an entrepreneur, by the challenge of building and growing something. And so, yeah, buying a second practice or a third or a fourth can be very rewarding for them from a career standpoint. They have to be prepared though at the additional amount of time and effort and work that will take to begin managing a second or a third or a fourth location. And some are not prepared for that upfront, and it means that they have to give up clinical days in order to do that.

0:23:39.1 KD: Right.

0:23:39.7 RJ: And for some, they're great with that, for others, they're saying, "Wow, I've just taken on a lot more headache that I didn't anticipate." And really, part of it is they have to consider too what is their primary emphasis for doing it. Is it to really, for lack of a better term, bless the lives of... Meaning, I know how to do what I'm doing, I do it well in terms of managing my own practice. Could I really help somebody else out by doing that, and could I bless the lives of those, the staff in another office and so forth? I find if it's all about, now it's all about the money, I'm gonna turn and burn, which is kind of the concept that these private equity groups employ.

0:24:26.3 KD: Right.

0:24:26.8 RJ: 'Cause usually when they come in and acquire practice, it's all about, "Let's make cuts wherever we can, and regardless of maybe how they affect quality or the quality of the patient experience or the quality of the dental care, the quality of materials used or whatnot, we have an experienced staff member who's been there a long time, but we're paying them too much, well, let's replace them with somebody that's cheaper.

0:24:51.2 KD: Right.

0:24:54.3 RJ: So part of it comes back to, yeah, am I doing this to really benefit the lives of those that I work with, or am I doing it just to turn and burn and make money?


0:25:03.3 KD: As you guys look back on 2021, how was it? Was it your best year? Was it a year you could've done a little better? And as you're looking forward to 2022, what type of a practice and a person do you wanna be? Well, guys, now is the time to take massive action and to have the life and the practice you've always wanted. Dental A Team Platinum is where it's at guys. We focus on system development, that's right, top to bottom, team development, growing leaders, growing you as a person, making sure your balanced, that we have happier teams, and we also ensure that your practice is profitable, teaching you how to be business savvy. So if you're looking to enhance your practice, take it to the next level, you yourself wanna grow, now is the time. Dental A Team Platinum, we fly to your practice. Most of our offices see a 10% to 30% increase in revenue, reduction of stress, happier teams, better patient experiences. So if you know you wanna rocket-launch yourself into 2022, don't wait, guys. We are only taking on so many Platinum practices because we physically fly to you. So email us today, [email protected], and you better believe we have something special for you end-of-year offices. So be sure to reach out, [email protected]. Remember, you're only one decision away from a completely different life.


0:26:12.0 KD: And I think that that's a really good point to look at of what is the long-term game. Randon, I'm so glad we're chatting because I have a doctor right now that I really hope is listening to this podcast. I mean, sometimes I feel like podcasts are specifically for somebody and this one for sure is. I'm like, "Ah, I'm gonna pick Randon's brain for this doctor." Because he really is struggling. He wants a legacy. He wants a long-term piece. He has a potential associate to buy in but doesn't know if he wants to split X percentage of equity. There's also the pieces of, "Well if I sell to the DSO, then I've got a bigger payout potentially, or do I just keep going with where I'm at?" And I think that that's where a lot of people get hung up. But I love that you talked about, you already have the system into play.

0:27:00.6 KD: Most of the time, the practices the DSOs are going after are the ones who have the business side of it dialed in, which, as you say that, I'm like, "Yep, that practice definitely does. A lot of other ones looking at DSOs, they have done the hard work." And so I guess my question to you, Randon, is if I'm that practice, I know I've got probably the next five to 10 years in me before I wanna retire, would you suggest just kind of riding it out, maybe bringing in an associate partner that I'm going to sell to. Would you suggest that I just build it up to sell to somebody, or would you suggest I do a DSO knowing I wanna retire, I wanna be taken care of, and I probably have the next five to 10 years in me to continue on? What would you suggest that practice does?

0:27:39.0 RJ: Yeah, and this is where I have to check myself when I'm sitting with a client because I have my own opinions with regards to DSO, and probably those opinions have been formed because dentists are my life, so understandably, I'm defensive of the individual dentist, and I hate to see them get taken advantage of. So I wanna be an advocate for dentists, for the individual. So sometimes that taints my opinion of DSOs because I don't always see it working out the best for the dentist, in fact, usually the contrary in most cases. So that being said, when I sit down with a dentist to try and be as independent as possible is to understand their needs and what they're hoping to accomplish. From what you've described with this client, for example, as far as leaving a legacy, if they're wanting to maximize financial returns from their business, I would say hold on to it. Now, bringing on a partner, yeah, you're giving up partial equity. The question is whether that partner allows you to take the practice to a level that you could not achieve on your own. 'Cause understandably, giving up equity means giving up a share of profits, and you compare that against just hiring an associate to work for you. Obviously, you can make more money just having the associate work for you. That's what the DSOs do, right?

0:29:03.2 KD: Mm-hmm.

0:29:04.5 RJ: But that may not be the individual that you want long-term, right?

0:29:12.4 KD: Right.

0:29:13.1 RJ: We kinda talk about different levels of producers, you know the type, but some they may be great clinically, but they're not great with patients and so forth. So a lot of times, the associates are not somebody that you want long-term, or if there's somebody that really good, they're usually not content just to be an associate, they want a piece of the pie. But what I found is, if the seller doctor will take that leap of faith to say, "Okay, this is the right individual, and that's the important element is having the right individual, if I give up," and I say give up, they're selling, they're getting something in return for it, and it's not like they're giving it up, "but if I choose to give up part of my practice and part of the ownership, can we together as a partner, make more of the practice than I could on my own?"

0:30:04.8 KD: Yeah, for sure.

0:30:06.9 RJ: And in most cases, yes. The answer's yes. 'Cause we reach what we call SET point, the sole economic threshold where you're just one person, you can only work so many hours in a day, you only work so many days in a week, et cetera, before you start to burn out. And so having somebody else to help share that load, that burden, can help grow the practice beyond what the individual could do on their own.

0:30:36.2 KD: Yeah, that's a good point. And I think that that's a hard piece to do sometimes, is to see that by giving up some leads to something greater. And I really think that's something that people have such a hard time wrapping their minds around, figuring out, "How do I get to that spot?" but I think that it also comes with time and long-term goals, and seeing the bigger picture sometimes. Now Randon, when you're transitioning practices, do you suggest... Let's say I have an associate. What is the percentage that you suggest associates should buy into as partners? Is there like a magic formula? Do you increase it over years? Do you go 50%? Do you start with 20%? That is a piece that I feel there's zero clarity around, and I feel like everybody is just kind of wandering in the dark like, "Oh, what do I offer for a partnership?" Do you have any suggestions on how to bring that partnership in?

0:31:29.0 RJ: Absolutely. I could tell you unequivocally, in my experience, the only percentage that consistently works is 50/50.

0:31:37.3 KD: Interesting.

0:31:38.5 RJ: Any type of minority interest has been a recipe for disaster. So I have something docs say. Well, I don't... Well, the worst is the 51-49, right? It's that 1% of you're always holding... "I don't see you as an equal, you'll never be an equal. I'm always gonna hold that 1% over your head." The other owner might as well own 49% of nothing. They have 49% of the risk and responsibility, 0% of the control. It's ironic, but having like a 20% is in some ways better than a 49, but still, as a minority interest holder is the same thing. You're investing at 20%, which by the way, in terms of business valuations, a minority interest share always sells at a discount. So I don't know if doctors are thinking about that and thinking, "Oh, well, my practice is worth $1 million, I'll sell 20% for $200,000," but in reality, it may sell 20% for $120,000. It's a considerable discount for noncontrolling interest. But yeah, you have somebody with skin in the game, but what's difficult is, again, no control associated with that. It's really just a share of profits in exchange for their investment. And then you have to look at how marketable is that investment. If a doctor owns 20%, then wants to sell that 20% to somebody else, that's not a very marketable equity position.

0:33:18.3 KD: Sure.

0:33:19.0 RJ: So again, if I have a doctor who's looking at partnering, 50/50 is the only thing that I see consistently go. 'Cause usually minority interest share partner starts to resent the fact that they have no controlling interest, right?

0:33:38.1 KD: Interesting.

0:33:38.6 RJ: So if I have a doctor that's exploring something along those lines, I'll sit down and say, "Well, really, what are you trying to accomplish?" In most cases they, "Well, I wanna offer something to the associate to keep them around, and I want them to have some skin in the game or whatever, so that they have loyalty to the practice, and I'm also rewarding them and for their longevity, as well." And I say, "Well, let's go to the associate because the actual equity may not be top on their list," but I find that most associates are motivated by one or more of five different things. Either they want some type of security, knowing that they're gonna have a job for a period of time. They want greater income potential. They want some type of control or decision-making. They want some type of egg, knowing that they're working towards, they're building something that they will have some value later on. Or they just want the prestige of saying that they're owners.

0:34:37.2 RJ: It's usually one of those. When an associate says they wanna have some type of ownership, it's usually motivated, like I said, by one or more of those five things. There are ways of giving the associate what they want in each of those areas. Well, the eagle thing I haven't figured out yet, but the other four areas, we can structure an associateship to help them... We can share profits to help them with the money. We can do a phantom equity, where they're building a phantom equity, which is really just a share in the value of the business without actually giving any ownership. We can put together a formula for that, "Hey, the longer you are, your phantom equity will vest if you stay with us for this long, or it may vest in increments over time." There's ways to give control in certain areas. There's ways to help give them security that they need. So there are things that we can offer. If a seller does not want to actually give up ownership or is adamant about only giving up a minority interest, I would say, "Well, let's look at offering something else to your associate to hopefully or ostensibly accomplish the same thing, but without going the minority interest route."

0:35:53.1 KD: So that's interesting because I'm glad you said this because it's very different than what my mind has been, so I love it. And I hope everybody listening is hearing that because I think so many times the owning doctor struggles to give up 50%, and I'm gonna speak from the owning doctor's side, and help me just wrap my mind around this. I know this podcast is a little longer and I'm so grateful because these are questions that might help us see the middle ground, because I think so many owning doctors feel, "Hey, I put my neck out on the line. I took a ton of risk. I built up this practice to be profitable. I worked really hard. And so for me to give up 50% to somebody who's brand new, who hasn't put that time equity, like, yes, they're going to pay money, fantastic, but we're talking like two, five, 10, 15 years of time, effort, hard work, struggles." I think a lot of owning doctors sometimes build a resentment towards this new doctor who just gets to come in for 50%. So Randon, help me understand how to see that differently. [laughter] Because I think that this something people struggle with and why they're just like, "No, I don't wanna give up 50%."

0:37:04.3 RJ: You know, you're right. Yeah, no, there's legitimacy to that, absolutely. I find that that is a mentality, especially among dentists who have started the practice from scratch. When they've gone through those sleepless nights associated with starting a practice from scratch and having zero cash flow initially, and then they build something up, their perception of the value of the practice is far beyond what the market could ever bear, and that's neither right nor wrong, that's just their perception. But those are candidates then that... Yes, I may find the right guy that I'd be willing to give up 50, but they would never be able to pay me enough, like the value of the practice or half the practice is... What I would be willing to accept is far beyond what would be reasonable. And so those are ones where I go down that alternate path, "Okay, doc, let's not look at selling half of the practice. Let's look at what you need, you need or you want to have somebody else or multiple dentists and they're helping you to meet the demands, patient demands, scheduling demands, and to accomplish growing the practice. So let's look at some of these alternatives. What are something that we can offer the associates that will attract a quality associate and want to keep them there long-term without actually giving up any equity ownership?"

0:38:29.1 KD: Interesting. And I really love that because I think that that's sometimes the middle piece that people don't talk about, that could be a middle piece. And Randon, this is what you do. Do you help people negotiate those deals or do you simply primarily do practice transitions? 'Cause I feel like part of a practice transition doesn't necessarily mean selling, but also bringing in partners and figuring out how to split... Are these the types of things that you guys do, or what is your specialty, if people are interested in finding out more? 'Cause you've given so much information, and I feel like these are the questions a lot of people have, but they don't even know who to ask for advice on this.

0:39:05.8 RJ: Yes, it is, absolutely, yeah. I know a lot of brokers don't do partnerships or even these middle, I like the way you describe it, kind of a middle ground or a partnership alternative, if you will, because they are so complicated. So a lot of brokers aren't interested in getting into the complicated nature of the three types of business relationships, but I think there's real value in them. And so, yes, absolutely, we do a lot of partnerships and we do a lot of phantom equity, earned equity associateships or just straight associateships with all sorts of different elements included.

0:39:40.8 KD: That's awesome. And I really would say, I think sometimes having a "mediator" or somebody who's an unbiased middle party who does this a lot can actually help a lot of these deals go through better and help both parties feel good about it. Because I think that to me is the number one driver of successful partnerships, is making sure, number one, your divorce is planned before you get married, and then number two, making sure that the marriage feels good to both people, that they're not coming in with embitterment or resentment to really make it work.

0:40:13.1 KD: And that also ties back to what we were talking about before, these DSO offers, or selling your practice offers or buying another location offers, of really just having somebody to advise you and to work through it. And that's why I like you, Randon, is because you literally dive into the dicey topics that most people won't, and you've done it for years and you're very level-headed and you see... You've seen so many pitfalls that you can give the advice of what not to do. I would never have thought to advise people to do 50/50. To me, that feels like a recipe for resentment to build in. But to hear you say that if you do anything less than that, that actually will build resentment and it will fall apart. Like valuable information that I don't have enough experience to advise on that. I've had my own experience, and you're right, I did get resentful, I did get really bitter, and I was like, "Forget this, I'm working so hard." Because I didn't know what it was like to have those sleepless nights.

0:41:03.7 KD: So regardless of how much you try to get me to understand it, I never can because I haven't been there. And so to have you, to work with you, to have you as a broker, if I'm looking to sell my practice, to ask questions for those DSO questions, to have the partnership questions, I think you're such a valuable resource. So Randon, if people wanna connect with you, they have questions, I know I have quite a few doctors and offices who have these issues, that are struggling, that are listening right now, how do they connect with you?

0:41:33.5 RJ: Sure, yeah, a number of different ways. Of course, you can find us online, www.ctc-associates.com. That's C as in Charlie, T as in tango, C as in Charlie, and then a hyphen, associates spelled out in plural. Of course, you can find my phone number and email on the website, but my phone number, office line, 801-298-4242, 42-42.

0:42:00.3 KD: Awesome. How much fun is it to have CTC where you have to literally like spell out each of those? [laughter]

0:42:07.3 RJ: It is a little bit cumbersome, actually. [laughter]

0:42:09.5 KD: I love it. Randon, I just appreciate your time. I appreciate you popping on the podcast with me and just really sharing valuable information. I know a lot of people, including myself, listening to this today, are just gonna be helped, and I know that there's a thousand more things, guys, I feel like we're gonna transition of changing the associateships, the partnerships, the selling, the buying. I feel like we're in a different animal than we were two years ago. And so, Randon, I love that you are a resource that I trust, that I promote, that I recommend for offices who are in this dilemma. So Randon, thank you again for just being on the podcast, being a dear friend. I'm excited to speak with your brokers and your group of people really, really soon, and I'm grateful that you're able to spend time today on the podcast with us.

0:42:57.5 RJ: My pleasure, Kiera. Thank you so much for the invitation. And the feelings are mutual. You're an absolute delight, and the work that you do for your clients is fabulous, so thank you for all that you're doing.

0:43:08.5 KD: Well, thank you. Guys, we are good peanut butter and jelly over here. Randon and I are... He helps you guys buy practices and we help you guys make them successful. So Randon, thank you. And guys, reach out. He is one of the nicest people I've ever met, very knowledgeable, again, comes from brokers that I trust completely when I've had bad experiences with brokers in the past. So definitely reach out if these are questions you have. Ask Randon, he's super, super knowledgeable, will help you in a second. And as always, to all of you listening, thank you, and I'll catch you next time on the Dental A Team Podcast.



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