Episode : #1,219: How to Make Your Practice a Viable Asset For Your Eventual Exit

Podcast Description

Kiera is joined by Brannon Moncrief, principal and CEO of McLerran and Associates and expert on dental practice sales and DSO affiliates. The two talk about running your practice with a mindset to sell (maybe not today or tomorrow, but eventually). That means thinking about your business as it is and preparing it for a private buyer or DSO or associate transition; “keeping your foot on the gas” when it comes to finances; knowing what those sale numbers can look like depending on how successful your practice is; and more.

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Transcript:

Kiera (00:00)

Hello, Dental A Team listeners. This is Kiera. And today I have one of my favorite people in the industry on the podcast today. He and I have podcasted multiple times. I just think he’s a wealth of knowledge. And today I’m really excited because I think that the landscape of what to do with our practices, whether I have a private buy, whether I have an associate legacy transition, whether I go to a DSO, like what do I do? And how do I make my practice like a viable asset as opposed to just a job for me for the rest of time?

I feel like Brannon Moncrief is one of the best of the best in the industry to answer these questions. He and I chat shop often and he is a wealth of knowledge for me. So Brannon, welcome to the podcast today. How are you?

Brannon Moncrief (00:38)

Thanks for having me. Appreciate the kind words.

Kiera (00:41)

Of course. you and I were just chatting. I think you and I have talked like, what, this is our third time in less than a week. So it’s kind of fun to have this in a a real podcast setting. but Brannon, for those who don’t know you and don’t know about your business and what you do, just give the listeners a little bit of background of who Brannon Moncroep is, and then we’re gonna dive into how people can valuate their practices and kind of like what do I do in this choose your own adventure landscape that they’re living in.

Brannon Moncrief (01:05)

Appreciate that. I am the principal and CEO of McLaren and Associates. And I’ve spent pretty much my entire professional career on the business side of dentistry, about 25 years now. I can’t believe it’s already been that long. I I wish. I wish. That’s the filter on my camera.

Kiera (01:17)

It’s okay. You’re not a day over 25, Brannon. You just started this from a baby. it’s a nice one.

Brannon Moncrief (01:27)

thank you. So I spent the first 10 or so years of my career as a dental lender, lending money to dentists all across the country to

Buy and start practices. And then I purchased McLaren 15 years ago. The legacy business that I acquired was a small mom and pop practice brokerage firm focused on traditional practice sales, doctor-to-doctor, practice transitions, specifically in Texas. Scaled that business significantly over the past five, six years, expanded it nationwide. So now we have offices all across the country handling doctor-to-doctor deals.

In general dentistry and across all different dental specialties. And then a lot of your audience has probably seen me on different podcasts, webinars talking about DSO affiliations. We got heavily involved in the DSO and private equity space about seven years ago, really out of necessity. We were watching a lot of doctors that we thought would engage us to sell their business to another clinician choose to go down the DSO path for one reason or the other.

And we knew that private equity was likely here to stay and gonna consolidate our industry rapidly. So we evolved. We built out a team, built out a process to provide cell set advisory to large practice owners who, for one reason or the other, are gonna choose to affiliate with a DSO or private equity as opposed to sell in a traditional sense to another doctor. So we’ve done about 250 DSO affiliations across the country, general dentistry and all dental specialties.

And

then we’ve been involved in about 1500 private practice sales. So have really seen everything that can go right and wrong in monetizing your business. But I look at my job first and foremost to educate doctors regarding what is your business worth, private buyer versus DSO? What are the pros and cons? What are the nuances of each of those options? Get you educated, and then you get to choose your own adventure from there. And we help you execute. We help you take the practice to market and monetize it.

at the highest possible outcome and also ensure that we find the right fit for your practice, the right buyer to protect your legacy.

Kiera (03:33)

No, Brannon, I think that you guys do so much in the industry and you’ve helped the industry. And I’ve learned a lot working with you, working with several of our clients. And I feel like this is just something as a business owner, whether you are thinking of selling today or selling in the future. I remember when I first started Dental A Team, people were like, Kiera, you’re gonna sell it. And I was like, always. Like I’m always building this to be sold. That doesn’t mean that I want to sell it today or tomorrow or the next day.

But I would be an absolute rookie if I didn’t think about selling this at some point in time. I think you build businesses better when you have that exit in mind. Again, that doesn’t mean like I have no intentions of rapidly firing this off. I’ve been here for quite some time. I feel like I’m getting cozy in this chair, just like I’m sure Brannon and you are in your business. but it’s constantly building it, innovating it, creating systems, creating EBITDA, creating those profit margins that are necessary. So when the day comes, because I don’t believe that any of us are probably going to really know.

The day we want to sell. I’ve seen plenty of doctors who have had divorce hit, they’ve had death hit, they’ve had accidents. I had a dentist get hit by a bike. Like he was on his bike and he got hit by a car, so he didn’t get hit by a bike. He was on a bike getting hit. And I’m like, I promise you that day leaving the office, it wasn’t like, I’m on a bucket list to get hit by a car today. Like that just surely was not there. But he had built his practice to where if he wanted to sell, he could, or we had the systems and processes in place to give him the options. And I think that just preparing for this gives optionality long term.

So you’re doing it on your terms as opposed to being forced to make a rash decision unexpectedly. So going into that with that mindset, and I hope people, and I know Brannon, you agree with that. Otherwise, we wouldn’t be podcasting. You and I have very aligned interests in the industry. But I am really curious, like helping people to kind of have that mindset. Like, what are some of the things that DSOs versus private buyers versus like just transitioning to an associate? What are some of the things? Because I know that there’s different flavors and factors. Like, I don’t like mint chips.

But I definitely like a grasshopper shake. Like I like both, but don’t give me the little chips in it. It’s disgusting. Like I prefer the like Oreo mashed up with the mint flavoring. So like I’m gonna prefer different things. And I guarantee you that while both might like the same flavor with air quotes around it, there’s nuances that both of those buyers are going to want differently. So how do people, when they’re looking at this, thinking about that future sell? again, not tomorrow, but when they’re when the time comes, whether planned or unplanned, what should they be preparing for for both of those different types of buyers?

Brannon Moncrief (05:57)

Love

what you said about like being prepared to sell at any moment in time. Because if you take the steps to prepare your practice to be marketable, valuable, and sellable, those are the same steps you need to take to make your business hum, you know, on a daily basis, right?

Kiera (06:12)

Exactly.

Brannon Moncrief (06:13)

but you never know what life’s gonna throw at you. So you always want to be prepared, whether you’re looking two years down the road or 20 years down the road. we’ll kind of bifurcate our conversation today in a flip-flopping back and forth between private buyer versus DSO because they’re really.

know two different worlds. So when

Kiera (06:27)

Mm-hmm.

Brannon Moncrief (06:28)

we talk about the private buyer world, you want to do check as many boxes as possible as far as what private buyers are looking for when they call somebody like McLaren and say, hey, I’m looking to buy a practice. And we ask, okay, great, tell me about what you’re looking for. Because the answer is pretty consistent. Typically private buyers are looking for a practice within 60 miles of a major metro area. So urban, suburban markets.

Those practices are going to see higher valuations and more demand than practices in tertiary or rural markets. Doesn’t mean that if you’re in a tertiary market, you can’t sell your practice. It just means that all things equal, it might take a little bit longer and it might trade for a lower valuation. they’re looking for five plus operatories. Most young dentists these days are relatively entrepreneurial.

And eventually want to grow into a multi-doctor practice for one reason or the other. A lot of that is lifestyle driven. Some of that may be value driven, the fact that they eventually want to sell the practice for a premium to a DSO or private equity. They’re looking for PPO and fee for service practices. So if you have an HMO component or a Medicaid component, that’s definitely going to impact demand and valuation. They’re looking at technology, equipment, facility, curb appeal.

All of that matters when you go to monetize your business, but you also want to be evaluating what is your runway to selling the business and are you going to get the ROI on that investment at sale, right? If you’re six months away from selling, probably doesn’t make a lot of sense to pour a lot of money into technology and equipment and updating your practice. But if you’re five years away, seven years away, 10 years away, you’re going to get the benefit, the ROI of that investment along the way. And it’s going to make your practice more valuable and more sellable when you go to sell.

you want to make sure that your financials are updated and clean. You want to make sure that you’re working with, you know, a dental CPA. we see a lot of messy financials, and that becomes a serious problem when advisors step in on the buy side and are trying to figure out, you know, what is the true overhead of this practice? What does the cash flow actually look like after removing all those personal and discretionary expenses you’re writing off to the business? And a lot of the private buyer deals are going to be contingent on financing. So lenders are looking, you know, through that.

That same, you know, lens as well. I would say keeping your foot on the gas, you know, that’s one of the biggest issues that we see where we start looking at financials for a client that’s ready to go to market. And I’m like, damn, I wish you

would have called me three years ago. And there’s always an

Kiera (08:56)

Yes.

Brannon Moncrief (08:58)

explanation. No, I’m spending more time with the grandkids, I’m playing more golf, you know, I’m traveling more, the patients are still there. The reality is buyers care about the most recent couple of years of performance.

So you want to keep your foot on the gas leading up to a sale. You want to sell at a peak, not a valley. Otherwise, you just need to be conscious of the fact that you might be transitioning your practice without being aware of it. What we call sunsetting an office. And that’s a strategy, but

Kiera (09:25)

Mm-hmm.

Brannon Moncrief (09:25)

we want it to be a conscious strategy, not an unconscious strategy where you sunset the practice from a cash flow perspective and then you call me and you want to sell it for what it would have been worth three years ago. Right. So keeping your foot on the gas.

is a big one. And the earlier you start planning, the more optionality you’re gonna have. So

Kiera (09:45)

Mm-hmm.

Brannon Moncrief (09:45)

if you wait until the day you’re ready to sell, you got one option, right? It’s a it’s a short-term transition. Sell tomorrow, you’re likely out the door within four to six weeks, unless you have a large multi-doctor practice. So the earlier you start planning, you can think about, you know, does a DSO make sense? Is it does it make sense to do some type of internal succession planning? You know, bring associates on as minority partners and then step out.

you know, over a period of time or do some type of associate to purchase. So start planning, I would say at least three to five years in advance. That’s that’s really key. Start having these conversations, learn what drives value, get a feel for what type of transition strategy you ultimately want to deploy and what you can do in the meantime, you know, what levers you can pull to increase profitability, increased demand and marketability leading up to a sale. And that’s where you know somebody like you comes into play, right? You can help pull those levers

And help the doctor increase the value of the practice leading up to the sale. So that’s really what matters in the private buyer world. Now, the DSO world is going to mirror a lot of that. what I would layer in there is DSOs care a lot about EBITDA profitability and making sure that, you know, your practice is generating at least, let’s say, two million dollars in top line revenue, four hundred thousand dollars or more in EBITDA.

That’s really the size practices that they’re looking for. And I would say if you fall below that metric, you might have some DSOs interested. But in my opinion, makes no sense to consider a DSO affiliation if you’re doing less than $2 million in top-wind revenue. It’s just not, in my opinion, economically motivating comparative to hanging on to the practice for a little while and then eventually selling it to a private buyer. But key-man risk is a big deal. Engineering the practice in a way that it’s not.

solely dependent upon you both from an operational perspective and

Kiera (11:37)

Yeah.

Brannon Moncrief (11:38)

from a productivity perspective. So, you know, becoming a multi-doctor practice that is not solely contingent upon you clinically. And then, you know, building out your team to where it’s not so dependent on you operationally on the day-to-day as well. So I think in the DSO world, it’s really about profitability, it’s about that key man risk. And then it’s about having enough runway

To

exit to fulfill the post-closing requirement that the DSO is going to require. So the industry has moved towards a norm of five years. That doesn’t mean you working five years full-time, chair side. It just means they want you to have a vested interest in the business for five years post-sale. So if you wait until the day you’re ready to exit, DSO is off the table. So

Kiera (12:23)

Yeah.

Brannon Moncrief (12:26)

those are the three things I think that make DSO a little bit different than private buyer. But ultimately,

All of those things, I think, are smart business, even if you’re five, 10, 15, 20 years away from a sale.

Kiera (12:41)

Yeah. And Brannon, I love that you talk about this because you’re exactly right. Like these things are what you actually want your business to be as a business owner. You want it to be profitable. You want it to not be dependent upon yourself. You want to have less key people like reporting up to you. You want to have it where there’s a team in place. Like those are the things that actually make dentists happier in the long run, too. And makes them not want to sell just in like a bad day flash sell. We all have bad days, every single one of us listening.

I promise you, Brannon, if someone walked by on the wrong day and was I’ll give you a buck for your business, you’re like, Yeah, take it today. Like I’ve surely had those days. but it’s like just I think also having that peace of mind of knowing what it is. You said a few things, and I don’t want to get like I understand you and I both kind of play Switzerland in the industry, but I also know we do know some key players. You talked about CPAs that you really love because I agree, having clean financials as a business owner and also as somebody who’s looking to sell.

Who are some of your favorite dental CPA specifics? Like and again, I’m not here to say like these are the only ones. I know you and I both have some of our faves. Are there any that you’re finding that are really good to prep for sales and to help people just see their financials better from your opinion?

Brannon Moncrief (13:49)

Typically, if you’re, you know, a smaller practice, you know, let’s say one to two locations under three million dollars in top line revenue, you know, AD CPA is a great place to start, right? that’s the Academy of dental CPAs. So I think that’s a great place to start. That is a group of DSA individual CPA firms that specialize in working with dentists, and each of them has a geographical focus, right? So you can find that member that

works in your area. we also do, you know, a decent amount of work with Profy.

Kiera (14:24)

Mm-hmm.

Brannon Moncrief (14:25)

Profile works with a lot of large, you know, multi-location practices. So if you are a little bit more sophisticated, a little bit larger, that would be a good place to start. And then I’m sure, you know, you have a handful as well here that you would recommend.

Kiera (14:41)

Yeah, absolutely. Yeah, I found agreed profile. We do a lot of work with a lot of their clients, agreed on that smaller and like please take that we’re not talking smaller, like I know this business is large for you. I think when Brannon and I are speaking, dollars are what’s going to get evaluated on. So if you’re in that one to three, that’s what you’re being evaluated. It doesn’t mean that it’s a small business and you’re not going to get a great multiple. It just means like certain CPAs have different tax strategies based on the size of revenue that’s coming through your business. So

Really getting somebody, I remember I I remembered calling my this is funny, Brannon. I called my processor, my lending processor, and I was like, I think I need a better deal. Like I’m such a big client. I’m transacting 10 grand a month, and you should definitely give me a better deal. And I giggled today because I can only imagine the person on the other side of my gear like that’s such a small transaction amount compared to half of our other people on there.

But for me, that was a large amount and that didn’t change my lifestyle of believing that $10,000 a month of transaction was so much that I felt like I deserved it. But when I go into these ranks of talking to buyers and talking to people, I think knowing yourself and being comfortable with the business that you’ve got and the ROI you’re going to get from it, it doesn’t matter. It matters on what your life and your end goals are. It doesn’t matter on the dollar amount. Now, if you’re looking for a different lifestyle, like if I wanted a $10 million sell and I’m transactioning $10,000.

Well, we can see that clearly the math’s not going to math. So I just want you guys to realize like picking these CPAs, I do think it is pivotal and paramount to choose a CPA that knows your size of business and then recognize you will probably outgrow that CPA. A CPA who’s transacting one to three million is not going to be your best CPA when you’re transacting five to ten million. There’s different strategies involved. And I have seen it multiple times where my clients who have been with somebody for so long, because that’s who they needed when they started.

You’ve got to make sure that CPA is growing with you at the same size and they’re able like, and you don’t wanna be the big fish in their pond. You wanna be the small fish in their pond, knowing that they’ve done a lot more. But again, not being so small that the the people can’t help you because sometimes those larger firms, they are gonna charge a lot more when you’re at one to three million. It does not financially make sense for your profitability to be paying that much because you don’t need that much. So I do like I’d Bailey. I found I’d Bailey, especially for some of those large DSOs.

Scott Haberman is somebody I really love and recommend a lot. I think he does a lot of DSO transactions, a lot of multi-locations, a lot of that higher level. If you’re that one to three to even four, I would definitely not recommend calling him. Fees are too high for that size of business that you’re at. So that was helpful, Brannon. On that, I also was curious when you were talking about this. I think you did a really good job of of listing it of the things that are going to make it more valuable. I’m also curious, like, what are you seeing of multiples when they do sell? So, like if I’m selling to a legacy, like what’s my benefit?

versus my con, like pro and con me of selling to a a private buyer versus a DSO buyer. Like what does my life look like on both of those scenarios?

Brannon Moncrief (17:36)

Okay. This is a this is an in-depth conversation, but I love the question. So let’s let’s let’s

Kiera (17:40)

I know, me too.

Brannon Moncrief (17:43)

juxtapose, like you said, private buyer versus DSO. Let’s start with valuation first, and then we can start with with some of the more qualitative factors involved. So from a valuation perspective, most of the time when you’re looking at valuation through the lens of a private buyer, we’re talking about the age-old benchmark.

of

a percentage of revenue or a multiple of net cash flow before doctor compensation and debt service. We’ll also talk about an EBITDA multiple, although most private buyers don’t look at valuation through the lens of an EBITDA multiple. So you’re

Kiera (18:20)

Why is that,

Brannon? This like is a piece I genuinely don’t understand.

Brannon Moncrief (18:26)

Primary reason is that most private buyers are going to buy your practice and it’s going to be their baby. They’re going to step into your shoes. They’re going to take over all the production. And therefore, the profit that they’re going to realize from the business is a product not only of the EBITDA, but also the clinical chair side wage. So they do

Kiera (18:45)

I see.

Brannon Moncrief (18:46)

look at it differently comparative to multi-location practice owners or, you know, DSOs. Not to say that that’s correct.

But the reality is that, and again, I’m sorry for using this terminology, but a smaller practice, right? Look, it’s all relative, right? A million

Kiera (19:02)

I think it’s fine. Mm-hmm.

Brannon Moncrief (19:05)

dollar one-doctor practice is a very, very successful one doctor practice. But most practices doing less than, let’s call it 1.5 million in top line revenue are not generating any amount of meaningful EBITDA. It’s just impossible given the overhead structure, you know, of a dental business. But there’s still

profitable businesses that have value for the owner operator. And that is what most private buyers are looking at. They’re looking at it through the lens of the owner operator, the chairside clinician that’s going to not only take home that EBITDA, but also that chairside wage. So they’re

Kiera (19:39)

Got it.

Brannon Moncrief (19:40)

typically going to pay somewhere in the range of 70 to 90% of annual revenue. And that is the most current year’s annual revenue. Now you’ll see outliers, right?

If you’re located in a tertiary market, if you have an antiquated office, a smaller office, you know, let’s say sub $700,000 in revenue, you might trade on the lower end or below that 70% of revenue range. If you’re in a really sexy market, you know, like in Austin, Texas, a Phoenix, Arizona, a Charlotte, North Carolina, where there’s a tremendous amount of demand, you might trade for 100% of revenue, especially if you have.

you know, a fully updated high-tech office with six operatories and your, you know, fee for service and you’re, you know, netting, you know, 50% profitability, right? That so you have outliers on both ends

Kiera (20:32)

Mm-hmm.

Brannon Moncrief (20:32)

of the spectrum there. practices often trade for anywhere from, let’s call it two times to two and a half times net cash flow before doctor compensation and debt service. So if the average general dentistry practice nets 38%,

Before doctor compensation debt service, multiply that by two. That practice is trading for 76% of revenue.

Kiera (20:57)

Mm-hmm.

Brannon Moncrief (20:58)

And then from an EBITDA perspective, although we just talked about the fact that most private buyers don’t look at valuation through the lens of a multiple of EBITDA, most private deals are trading for some that have EBITDA, right? That have meaningful EBITDA. They’re trading for somewhere in the range of four to four and a half times EBITDA.

But that would be a larger private buyer deal. A practice with EBITDA of three or four hundred thousand may trade, you know, for anywhere between 1.2 to 1.5 million. And that practice likely has top line revenue of anywhere from 1.2 to 1.8 million.

Kiera (21:36)

Mm hmm.

Brannon Moncrief (21:37)

When we look at valuation through the lens of a DSO, and when DSOs are looking at practices, they don’t really care about revenue. It’s all about profitability. It’s all about EBITDA. And I know most of your viewers understand what EBITDA is, but think of EBITDA as absentee owner profit, the profit that’s available for the investor. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, Amortization. What it really means is after all the true overhead of the business is paid.

After the doctors are paid a market wage to work chair side, including the seller, what is the passive absentee owner profit left for the investor? And DSOs are paying anywhere from five on the very, very low end to let’s call it nine times EBITDA. Nine times EBITDA would be a platform investment, probably five or more locations with EBITDA of 5 million or more.

Five times EBITDA would be a much smaller practice. Let’s call it $1.5 million in top line revenue with $250,000 in EBITDA. Where, in my opinion, a practice that size that’s trading for five times EBITDA, why sell to a DSO? Just hang on to it and eventually sell it to a private buyer. You’re gonna get around the same valuation from a private buyer that you would from a DSO in that particular situation. Most practices are selling for

Somewhere around seven times EBITDA practices that we take to market. And most of the time we’re talking about a one to three location practice with revenue in the three to ten million range, with EBITDA in the 700,000 to let’s call it two million range. Most of those practices are going to trade for somewhere around seven times EBITDA, might be a half a turn lower, might be a half a turn higher, depending upon.

The geography and the other characteristics that we talked about, you know, previously. So when you’re talking about, let’s say a $2 million practice, let’s just take an example, right? Private

Kiera (23:39)

Mm-hmm.

Brannon Moncrief (23:39)

buyer valuation versus DSO valuation. So $2 million top line Rev practice with $400,000 in EBITDA. In the private buyer world, you’re gonna have to find a relatively confident, sophisticated private buyer with some experience and a pretty good personal financial statement that can knock down a practice of that caliber.

On a good day, that practice probably trades for somewhere in the 1.5 to 1.8 million range from a private buyer perspective. In the DSO world, let’s say that practice trades for seven times EBITDA, it’s trading for 2.8 million, right? Seven times 400,000. So pretty big gap. You know, you’re talking about at least a million-dollar gap. And as the practice gets larger and as the EBITDA number gets larger,

It gets harder and harder to sell from a private buyer perspective, just because there’s only so many private buyers that have the confidence, the skill set, the financial backing to buy a practice with top line revenue of five million. And in the DSO world, DSOs start to get really, really excited about the larger and larger the practice gets. So that gap between the private buyer valuation and DSO valuation, it increases exponentially as the practice grows in size from a revenue.

and EBITDA perspective. But in the example that we just outlined, while the gap is a million bucks, right? Let’s just call it 1.8 million versus 2.8 million, there’s a lot of nuance regarding

Kiera (25:04)

Mm-hmm.

Brannon Moncrief (25:05)

what happens with that gap, right? And the commitment on behalf of the seller post-closing, the private buyer deal, you’re probably going to get 100% or very close to 100% cash at close. And you’re likely going to be able to exit the business in relatively short order.

Let’s say six months or less.

Kiera (25:23)

Right.

Brannon Moncrief (25:24)

In the DSO world, yes, you’re getting a higher valuation, but it comes with structure. You might only get 60 or 65% cash at closing. So the cash at closing is actually going to look similar to the private buyer deal. And then there’s likely gonna be an earnout component and some type of equity component where you have upside and the ability to get to that 2.8 million number or higher, you know, post sale.

It is going to come with that post-closing commitment of three to five years. So a lot more structure involved, a lot more nuance involved. You’ve got the post-closing commitment of the DSO deal. You’ve got the equity component that has a risk reward proposition. So it’s not as cut and dry as saying, DSO’s going to pay me 2.8 million versus private buyer is going pay me 1.8 million. That’s a million dollar gap. DSO all day long. No, you got to look at the details. The details

Kiera (26:15)

Mm-hmm.

Brannon Moncrief (26:16)

match.

But I would say as you cross that four million, five million top line revenue mark, it’s a lot more compelling to go the DSO route than it is to go the private buyer route. As you move down from that two million top line revenue mark, it’s a lot more compelling to go the private buyer route versus the DSO route. That gap in between that two to five million dollars in top line revenue, you know, $400,000 to a million dollars in EBITDA, it’s debatable. It it depends.

Kiera (26:46)

Mm-hmm.

Brannon Moncrief (26:46)

Right. On your specific situation, your goals, the characteristics of your practice, and really, yeah, what you’re trying to accomplish. And that’s where we spend a lot of time with clients, educating them regarding, hey, let’s do evaluation through both lenses. And then let’s unpack the gap, the economic value gap. And then let’s unpack the nuances. And then most importantly, let’s unpack your why. Right. Like what is your

Kiera (27:09)

Mm-hmm, mm-hmm.

Brannon Moncrief (27:11)

runway to exiting the business? Why are you looking to monetize it? And then we’ll lay over.

you know, all of that qualitative and quantitative information to decide what is the right route for you to go down.

Kiera (27:22)

Yeah. And Brannon, I love that you talked about it because they’re I think when people hear just dollars, right? Like 1.8 versus 2.8, like of course I’m going that. But like you said, I think the big pieces I’ve watched with people selling in both realms, like you said, your lifestyle of selling to a private buyer is usually a lot easier. You’re done. Like I cash out, I’m out, like I’m done, and I can put that money into, and I’m getting almost a hundred percent of that close. Just like you said, both of them you’re getting about the same of money at close.

And I think people need to realize like the DSO is still a gamble. Like there are pieces when you’re investing and there’s buybacks and different pieces. And it’s based on you performing, you might not get all of that additional amount. You also might get it. And so just being comfortable and like, could you put these into investments? What are you planning to do with this money when you close? Looking at some of those things of what because like we were looking at a deal structure the other day. And I was like, well, dang, if they took the money now and invested it over the next 10 years, as opposed to working for 10 more years and probably not being able to get that.

Would they get the same type of returns if it was invested properly versus continuing to work? And so this is, I think, where for me, I get obsessed with this psychotic puzzle of like, you know, the pictures where it’s like got lines everywhere and they’re like overlapping and crossing and there’s no like rhyme or reason. That’s how I feel like it is when you’re going to sell because there’s so many different scenarios that you could play. Like, do I want to invest it now? And like, what’s my run rate? And do I have spousal or partner support that we wouldn’t even need to touch that if we were to sell now?

Am I the primary provider of this? So if I were to sell now, like this is it, game over. I need to live on this now. Is it that if I work for a few more years and get it up to five million? But like me working for three to four more years to get it to that five million mark and then needing to work for a DSO for three to five years, do I have eight to 10 years left in me that I want to continue working? Because that’s the realism if I were to sell it that way. So I agree with you. I think it’s really like, what’s my why? What number do I actually need to make? That’s why I feel like having a good.

CPA, having a good financial advisor, knowing like what your your target end day is, if you know that number of what you would ideally like to get, I think it’s so much easier to work backwards and then also lifestyle of what you want to do. So, and as you said it, it finally made sense for me, Brannon, because I’m always like, why does one care about top line and one care about EBITDA? But putting it in simple terms, like please tell me if I got it right. I feel like I’m your student today. I took a bunch of notes. My learning today was the reason that a private buyer would be buying it at

A number and a multiple based on revenue, like top line production number, and that’s adjusted production, everybody. So don’t get excited. They’re gonna be looking at that. They’re not going at your 1.9 when you’re only collecting one. They’re for sure going off that collection amount. Like, don’t get excited about that. But they’re gonna do that is because they’re coming in and they’re the they’re a a dentist. So they can remake that money. That’s what they’re able to do. Yes, they’re taking home profitability versus a DSO as a legitimate investor. They’re not coming in as a dentist, they’re not working as a dentist, they don’t care about that top number.

They care about what’s my passive pro profitability in there because that makes it a good like no investor that I’ve found comes in and wants to take over and become an employee. They want just the passive money. They’re gonna put people in place and they’re just gonna run this and it’s gonna be part of their bigger portfolio. They’re looking for the amount of cash of passive profit to make them larger to private equity. Is that did I get that? Or is there anything that I missed in my understanding today?

Brannon Moncrief (30:37)

I I I think that is very well said. That that is the difference between the perspective of a private buyer and DSO. They’re they’re very different. I understand how sometimes people are like, why doesn’t a private buyer care about EBITDA? Like you should. You should care about profit, but it’s just a different perspective if you’re gonna step into the shoes of the seller and the clinician and you’re gonna take home that clinical, you know, chair side

Kiera (30:59)

Sure.

Brannon Moncrief (31:00)

wage. You know, one point I I wanna make in regards to this whole discussion, like private buyer versus DSO.

Is you hear a lot of talking heads out there that are really pro-DSO

Kiera (31:11)

Just

Brannon Moncrief (31:12)

that are like, it’s a no-brainer, like 2.8 million versus 1.8 million. You go DSO all day long. They don’t even want to talk about the difference and and the nuance involved. And then you have other people, whether it’s CPAs, whether it is brokers that don’t do DSO deals, that are like, no, DSOs are the devil. You know, you you should only sell to a private buyer, you should never sell to a DSO. And I I think

You have to look at those people’s perspective and their business and why they may be saying certain things, right? Because

Kiera (31:45)

Mm-hmm, mm-hmm.

Brannon Moncrief (31:47)

ultimately there is often an ulterior motive. And that is to protect

Kiera (31:51)

You would agree.

Brannon Moncrief (31:52)

their own business and their own pocketbook. And that’s really where I love, where we come at this conversation is we do private deals all day long across the country.

Kiera (32:00)

Mm-hmm.

Brannon Moncrief (32:01)

We do DSO deals all day long, all across the country.

We excel in both of those worlds. I don’t know that there’s another practice brokerage firm that does, right? Most of them are siloed into either doing private deals or DSO deals. They don’t excel in both worlds. They’re not highly educated in both worlds. So I love that we kind of sit in that objective seat. Hey, let’s talk about all of it. And I don’t really care

Kiera (32:23)

Mm-hmm, mm-hmm.

Brannon Moncrief (32:24)

what path you want to go down, but get an education and then make the decision that makes the most sense for you. And then we’ll help you crush the outcome, whether it’s today or

Five years from now, whether it’s private buyer or DSO.

Kiera (32:36)

I and I feel the same. Like in the consulting world for us, I don’t care what route you go. We tell everyone like what’s your life and what you want this business to do. That’s our ultimate goal and end goal of what we’re going to be doing. Like if you want to go to a DSO, rock on. If you want to go towards private sell, rock on. My job as your consultant and as our consulting firm is to make you the most profitable, like the most sellable business that you can possibly do. And like we’re a miracle grow for practices. So I love working with people like Brannon because it’s like great, you’re not ready to sell or it’s not quite to the level we want. Here’s like

three or four levers that we’re going to instantly push to drive that amount up for you, knowing we’re headed for a seller. We want to get it there. So Brannon, I kind of want to pivot gears and do almost like our part two of today’s episode. and that part two is I want to talk about the dark side of both of these because like there’s elephants in the room on both. And I feel like if we can talk about that dark side, I feel like it’d be a very beneficial because I’ve heard the DSOs go bankrupt. And so that additional 40% that I was working my last five to eight years.

I actually don’t cash out on that. Or they go under and then I don’t even have a business. I also know with private buyers, people get annoyed because they’re sitting there, sitting next to their associate. They bring on a partner, the partnership is sinking ships. So can we just like do a part two? And I want to just go a little dark. Like I think we had the light. Let’s now go dark on part two of this episode.

Can you walk me through private buyer versus DSO? Like what is the dark? What’s in the shadows? What are like the horror stories? And I don’t want to freak people out. I feel like it’s just a good way to educate of like what things can go wrong instead of just looking for all the things that can go right. And then we’re able to make the most educated decisions.

Brannon, thank you for being such a wealth of knowledge in the industry. We adore you. Our clients adore you. And I’m just grateful for you today. So thank you. Yeah, likewise.

Brannon Moncrief (34:17)

See you. Good to see you. Bye everybody.

Kiera (34:19)

And for everyone listening, thank you for listening. And as always, thanks for listening. And I’ll catch you next time on the Dental A Team podcast.