The Risk of Partnerships

While most have heard the name Dave Ramsey, many may not be quite as familiar with one of his protegees, Chris Hogan or his book, Everyday Millionaires. For this book, the author mined the data available on thousands of millionaires in the United States to explore their habits and similarities. While there are many interesting insights, one that caught my eye concerned a subject that crosses my desk with incredible frequency, the subject of dental practice partnerships. Below is an edited version of Mr. Hogan’s perspective on partnerships and their effect on business and financial success.

“One of the riskiest financial behaviors I know of is engaging in partnerships with other people. I’ve seen friends or family members go in together on business and investment deals and I’ve seen them go sideways more often than not.  Even if you know and love the other person, a partnership can ruin your chances for wealth building.

A legal partnership is basically a business marriage.  You’re going all in on an investment with another person, mixing your money with theirs, putting your financial well-being in someone else’s hands.  You’re fully trusting this person to do what they say they’re going to do.  You’re also trusting that nothing tragic or unexpected happens in that person’s life, because if it does, that tragedy happens to you too.  Partnerships most often fall apart due to what I call the four D’s: drugs, divorce, death, and debt. (CSW note: We add a fifth D to that list, disability) If your partner, for example, develops a substance abuse problem, you now have an addict controlling your financial destiny.  If he or she gets a divorce, you could have someone else’s crazy ex coming after a huge piece of your business.  If your partner dies, their adult kids may come after his piece of the company, leaving you with second- generation partners you don’t know or trust.  If your partner buys a ton of expensive equipment using debt without checking with you first, you’re now on the hook for it whether you wanted it or not.  I’ve seen all of these things happen.

A whopping 97% of millionaires believe they control their own destinies.  Each one sees his success as being completely up to himself.  A partnership robs you of that power.  Partnerships turn self- responsibility into joint-responsibility and sadly, the world is full of people who can’t be fully trusted.”

Over the years, we have seen the bad outcome resulting from poorly designed and/or executed partnership arrangements. While there is enough success to create just enough plausibility to continue on the partnership dream, the fact is that most partnerships fail and when they do, the results are often painful and expensive. Frankly, failed partnerships and associateships serve us best by contributing to the buyer pool for our listings. Since there are plenty of buyers, we don’t really need that kind of help so we urge extreme caution with these liaisons. Remember, whether you want to believe it or not, most will fail.

Steve Wolff, DDS

What Are You Going to Do After I Sell Your Dental Practice?

Believe it or not, that question is generally the first one we ask of a potential seller-client when we have been called into conference about selling their practice. Some of the answers are pretty predictable; more golf, fishing, skiing etc. along with volunteering at their church, travel and an expanded presence in the life of their grandchildren. Others are a little disconcerting; from “I’m sure my wife will find something for me to do” to “as little as possible” It seems that everyone has opinion about the new form retirement should take on for the Baby Boomer generation but the consensus seems to be that some realistic advanced planning will likely make this a more productive and satisfying stage of your life.

Not to make this a book review but texts like Robin Ryan’s Retirement Reinvention might be worth a read. It would be a shame to retire from a successful career in dentistry only to fail with a miserable retirement.

You might be wondering why this is any of our business. After all, isn’t it just our job to sell the practice and put a check in the bank for our client? Well the answer is both Yes and No. While we hope that our work contributes to our client’s financial wellbeing (Question number two; Do you have enough put away to live comfortably into the future?), in the final analysis, a successful transition includes the stories about both buyer and seller living happily ever after. We like to hear that the seller is pleased with the outcome of this legacy and that the buyer has gotten a head start on a successful career. Both take a lot of work but that’s ok. If you are considering moving toward retirement, please do some realistic planning about your future. Where do you want to live? Do you have a hobby that could become a new part time career? Does your church need a new sound technician? Are you and your spouse ready to be together many more hours per day than you have experienced over the last 40 years? Do you need to get on top of some health issues? The list goes on so pick up a copy of a credible book on retirement (Robin Ryan’s seems pretty realistic)and give these things a little thought. Trust me, it will make our first meeting go much smoother.

Steve Wolff

This Was a Tough One

Those that know me have no doubt heard my rant from the soap box about having plans in place to manage the transition of your practice in the event something unexpected happens to you. We seem to average about one crisis call a year. We’ve had two calls so far in 2018 so this is a very real thing. This last one was personal. Dr. Dennis Myers was not only a hard working and dedicated guy who never stopped trying to expand his knowledge and skills, he was also a close friend with a huge heart who was a source of joy to me and my family.

Unfortunately, that heart misfired on the afternoon of June 2nd and by the following morning had ceased to function. He was 72 years old and his memorial service was held on June 8th. While no one is likely ever perfectly prepared for sudden death, Dennis did one thing that had a profound effect on his patients, staff and estate. He signed a Memo of Direction which allowed us to cut through the red tape of his trust, probate and estate and get busy with the valuation of his practice. Consequently, the Buyer’s Prospectus was prepared and the practice was on the market NINE days after his death.

Subsequently, we were able to attract the attention of Dr. Mark Beard and the sale of Dr. Myer’s practice was closed on October 1st. Dr. Mark is a quality guy and I know Dennis would be pleased with the outcome of his tragedy.

Below is our Memo of Direction. It’s a WORD document you can change so whether you leave our name in place or substitute someone else, please do your family and estate a favor and fill one out and leave copies with your personal papers, spouse, executor and attorney. Practices do not survive very long if the doors are closed, staff members are looking for new jobs and your patients are being seen somewhere else. Don’t let your life’s work dissolve as a result of not taking five minutes to take care of business.

Download our Memo of Direction

Dear Doctor

Whether it be by letter, text or a phone conversation, the message below is one we have to deliver way too many times. I regret the fact that my words are such a shock to most of the recipients as they have either chosen to not believe them or simply were oblivious to the market. If you are the owner of a small practice that is providing you with some pre-retirement income and deferring the dip into your retirement savings while providing good service to your patients, then more power to you. Don’t be surprised though to get a letter like this:



Dr. B. Boomer,

I am in receipt of you practice information and it was a topic of discussion this morning at our weekly staff meeting. While you and I have had some communication in the past, it was not until you disclosed your annual revenues that we were able to determine a course of action. You’re probably not going want to hear what I have to say.

Unfortunately, we will not be able to be of assistance to you. From a practical standpoint, the threshold of annual revenues for transitionable practices is around $500,000. We simply are unable to find buyers for practices below that number and frankly, in the Midwest the number is moving quickly towards $600,000. With Student Loan debt often $300,000 or more, our buyers need more immediate revenue in order to cover that debt plus any acquisition debt along with the practice overhead before they can take home a paycheck. For the same reason, unlike those of us from the ‘70s, there is not much stomach for start-ups as nationally only about 5% of the new grads go directly into ownership. Young docs would rather go to work for a “Corporate” office and get a steady income than risk starting cold.

Occasionally someone close to an office like yours might be interested in your files and phone number. We have had reasonable success in merging a small practice like yours with another local office. Be aware though that they will not want you or most of your equipment as part of the deal.  Know too that this transaction has better not be the cornerstone of your retirement account. Otherwise (and I have to use this line way too often), work until you are done working, lock the door and put a notice in the newspaper to advise patients how they can obtain their records. I would recommend a call to the Dental Board to make sure you are in compliance.

I’m sorry I didn’t have better news for you but I’m sure you have provided a great service to your community. Best of luck to you.


Cost versus Price

It’s certainly not unusual and completely understandable that these two words are often used interchangeably to describe the value assigned to an object. Maybe that object is a car, a head of lettuce, a baseball game ticket or even a dental practice. While we often assume the assigned value is always in dollars, maybe it’s defined by hours or even mental and/or physical energy. Interestingly, it can also be a combination of several standards of value. For our purposes here, we will be addressing the often-confused concepts regarding the value of a dental practice as it relates to its price versus what it costs. Understanding the difference may decide whether you own your practice or continue working for someone else.

There should be an asking price for every practice that is on the market but how that was determined is of valid concern. In many cases the number comes from a rule of thumb that someone read about in a journal or magazine article or in some cases just anecdotal conversations. If that is the case, the buyer has every right to be leery. For our purpose, our seller-client pays for a full appraisal of the practice in advance of the listing. Several different legitimate methods are used along with the database of sales data we have accumulated after 25 years and soon to be over closed 270 sales. A running compilation of the last 25 arm’s length transactions confirms that we are usually pretty close in a sales price to appraised price comparison.

After completing the appraisal, we assist the seller in determining an asking price. Depending on the case, we may feel that price is the top of the market while in other cases a margin is added to account for either a rinsing market (such as we are now experiencing) or to let negotiations allow for supply and demand. Ultimately the seller sets the price as we don’t want to make the market. We just observe and compile the data. Notice that we have not yet discussed cost because that is the consideration the buyer must now give to the viability of an opportunity. While we don’t ever want anyone to just blatantly over pay for a practice (frankly, it’s bad for business), the price may be of only modest concern if the cost is manageable. If the buyer can pay the overhead, taxes, student loan debt and acquisition debt and still make a living in an opportunity that fits their career plan and geographic preference, then maybe the price is not so important. Let’s do a little math;

If the asking price is $400,000 for a practice in the area you want to serve and would be a good jumping off point for your career plans, should you walk away if the seller will not accept your $360,000 offer? The cost of this practice would be $4242.00 (10-year loan at 5% interest) for the asking price as opposed to $3818.00 to service your offer. In truth, you are not walking away from a $40,000 difference in price but rather a $424.00 difference in cost. That amounts to about one porcelain veneer crown every other month. You can argue with the appraiser and seller but in the end, if you walk away, you lost out over half a crown.

Steve Wolff, DDS

Merge Right

We have recently had conversations with a rather large number of doctors whose practices are probably too small to be transitioned to a new owner-operator. While the majority of this text is taken from an article I wrote in 2015 for Dental Economics, there are a few new twists that make revisiting this topic worthwhile.

As more and more practices established in the 70’s and early 80’s come on the market, it seems likely that a good number of them will need to be merged into existing practices in order for the retirees to perpetuate care of their patients and maintain a chain of custody of patient records. With enrollment to local dental schools in our market more than a third less than previous levels, a significant number of retirement age doctors will not find buyers for their practices if revenues are less than $400,000.00. Positioning their practices for a merger into another may prove to be the best exit strategies. Certain factors contributing to the marketability and successful transition of these practices seem to bubble to the top.

Retaining one or more key staff people: It is no secret that many patients will have more connection with the office manager, assistant or hygienist than they do the doctor and having one or more come to the new office has a very powerful effect on patient retention. Besides their familiarity with the patients, a willingness to promote their new boss goes a long way towards acceptance of the changes the new office and doctor may present. Pre-appointed hygiene visits can be “money in the bank” for the new doctor if properly handled.

Geography will matter: Although it will be surprising how far patients will travel to see their long-term doc, common sense suggests that the closer the office is to the old location, the more likely patients will visit the new doctor. Patients of a mature practice might have all initially lived close to the office but over the years may have moved several times and find themselves living a couple of zip codes away. Even though dental care may require only a few trips per year, some patients may be reluctant to drive past numerous other dental practices to get to see the new doctor. We suggest that the Buyer review a Zip Code report as part of their due diligence in order to help predict the number of patients that will eventually make the trip.

Fees and Insurance compatibility: The Buyer needs to closely review fees and make sure they are relatively close to those in their office. If the retiring doctor has not kept current with their fees, the Buyer may find themselves in the role of the Bad Guy when they introduce the patients to the realities of current UCRs. The patient may feel that the new doctor is overcharging and will leave the practice. Ironically, even if they go somewhere else and find out the facts of 2018 life, they will not return to the original practice. By the same token, careful review must be made of the participation in various PPOs. In today’s world, if you do not accept the patient’s insurance, they will likely go elsewhere.

Letter to patients: Perhaps nothing is more important to a successful merger than the careful construction of the selling doctor’s retirement letter. Since there will likely not be any opportunity for the selling doctor to continue seeing patients, the announcement of his plans, the sincere introduction of the new doctor and the advisement to the patients as to the custody of their records will go a long way in “laying the sword upon the shoulder” of the new owner. Patients have trusted the seller for years, often for decades, and will generally trust his instructions to visit the new practice.

Diplomacy: Although the buyer should know the seller’s reputation within the dental community, the new doctor will need to be especially careful about being overly judgmental regarding treatment the patient has received under the care of their trusted friend. They should work first to build a relationship with the patient and can then educate the patient about their treatment philosophy and plans. Expect too that the newly acquired patient base may have a disproportionate percentage of older patients and being sensitive to their needs will go a long way towards keeping them in the practice.

When properly executed, a merger may be the fastest and likely least expensive way to expand a practice. The buyer needs to do their homework and be as sure as possible that they are getting what they think they are getting.  Fair pricing of the target practice and good planning will return the buyer’s investment many times over. Their only regret will be that they didn’t do it earlier.

Steve Wolff – UMKC Class of 1977

People Want a Number

Most of my friends and family know that more than any other sport, I’m a pretty big baseball fan. My two favorite teams are the Kansas City Royals and whoever is beating up on the Yankees. Debbie and I will attend Spring Training, plan a game at the “K” during most homestands and even try to work in an away game or two each season. I have a pretty good working knowledge of the players and coaches on the team, including some in the minor league pipeline and to top it all off, I have suitable baseball attire for three seasons of weather. I have come to realize that modern baseball has become a game of a massive amount of statistics so it should come as no surprise that a copy of Keith Law’s Smart Baseball would catch my eye at the local library. BA, RBIs and ERA just won’t cut it any more. Imagine my surprise though when Chapter 10 started this way:

“People want a number. They don’t want lots of numbers. They want one number that answers the question. That’s a mixed bag. because one number destroys all nuance. It doesn’t show your work; it just gives the answer, without context. You could apply this to many spheres of life, and it’s no less true in baseball as anywhere else. Fans and writers want to point to one number that sums the whole player up. He’s a 20-game winner. He’s a 300 hitter. Incomplete picture be damned, let’s just slap a number on that fella and call it a day!”

It was like deja vu all over again! Hardly a week goes by that someone doesn’t ask me what the secret formula is for valuing a practice. Just like the baseball fan, they don’t want the facts, they just want a number. I recently had an article published in the Missouri Dental Association’s Focus Magazine regarding practice appraisals and valuation and had this to say about “a number”;

NEVER trust a report that relies on some standardized multiple or “Rule of Thumb” as there is none. That rationale relies on at least two bogus assumptions. First is that the rule is applied to practices of all shapes and sizes when in fact practices with different revenue levels have historically sold for variable percentages of gross collections. Secondly, it assumes that two practices with identical revenues, one being a rural Medicaid-based practice and the other a high tech suburban office will sell for the same price. I can assure you that is not the case.
I think I’m sticking with that. Now if I can just get my head around WAR.*

Steve Wolff – UMKC Class of 1977

*Wins Above Replacement (WAR) is an attempt by the baseball community to summarize a player’s total contributions to their team in one statistic.

“Wrapped Around the Jawbone”

If you went to dental school, or ever let it slip at a social event that you are a dentist or practiced more than a week, you have no doubt had to sit and quietly listen to some tale about a brother/sister/mother/ father/ etc. whose lower molars had roots that “wrapped around their jawbone,” and what a gruesome procedure they had to endure in their removal. (Another favorite is the rationalization for a woman’s dental woes being that their baby, while in-utero, “sucked all of the calcium out of their teeth.”) Knowing that it is a waste of time to debate the anatomical or physiological absurdity of those stories, we sit quietly and listen while the meter continues to run on our life’s patience and energy.

We at ADS MidAmerica find ourselves in a similar situation when retirement-aged docs pull us aside and start telling us about their exit strategy of bringing in a recently graduated associate and integrating them in to the practice while slowly easing themselves out. We used to think this plan would work out about one time in twenty (The Five Percent Solution?) but have come to believe that we were overly optimistic. While not getting too deep into a discussion that is best done face to face, let me list a few reasons this strategy might be doomed. Rest assured there are more.

  • You don’t have enough revenue. Potential doesn’t count.
  • You don’t have a big enough facility.
  • You’re not really ready to share the revenue.
  • You’re not willing to share patients, nor do existing patients want to leave your care.
  • You don’t have a written plan with dates and trigger points.
  • You forgot to get a restrictive covenant with the associate.
  • You are not financially secure outside of this transaction.
  • You don’t know what you’re going to do after you officially retire.
  • In short order, the associate will not appreciate your company.
  • You risk the possibility that the staff may like the associate better than you.

While folks will argue with us that these rules don’t apply to them, the fact is that most if not all do. If this is the basic plan for your retirement, we need to have a cup of coffee NOW. There is no charge for the consultation and maybe, just maybe, we can point you towards a more likely outcome.

Dr. Steve Wolff – UMKC Class of 1977

The Four-Headed Monster

A Blog Post from Dr. Steve Wolff

Dr. Charles Blair told us this day was coming. The demise of indemnity insurance and the proliferation of the PPO model has changed several aspects of the dental practice and industry. While a few offices (especially in rural areas) can operate without participating in an ever widening umbrella of preferred provider organizations, the fact is that most practices are affected in several ways, some of which they have not yet realized.

The first and most obvious is the downward trend in reimbursement. Most providers quickly realize that they are getting paid less for any given procedure than they were in the recent past. As third party payers (for better or worse let’s lump them together as “insurance companies”) negotiate deals with employers or institutions over the amount of benefit they will pay based on a set premium dollar, the provider of those services is generally not invited to the table. Consequently, since the buyer always wants to pay less and the payor always wants to provide a more attractive package of benefits, the provider becomes the shock absorber that balances the equation. Without benefit of representation, you now receive $69.00 compensation for a procedure for which you used to receive $105.00.

The next issue to rear its ugly head is the need for ongoing “Credentialing”. In spite of the generally good track record Dentistry has amassed over the last several generations, dental offices are now expected to participate in a location specific, ongoing paper chase to presumably assure the payors and consumers that they are being treated by the purest and most chaste of hands. Since there is no universal credentialing (like maybe a license issued by a state board or some evidence of ongoing education?) this process must be repeated ad nauseum with every company even remotely related to a claim for payment of services. Once again, the provider has no voice in this process and must endure the cost and time commitment to be in compliance.

Here’s one I’ll bet you hadn’t thought of:  the chance of getting a colleague or a locum tenens doc to come into your office in the event of an emergency in order to keep the doors open is becoming a distant memory. Notice in the previous paragraph I referenced the “location specific” paper chase. The fact is that if you provide services in an office, you must be credentialed in that specific office in order for the practice to bill and receive payment “In Network”. Since by definition an emergency demands immediate action, the realization that credentialing will require weeks if not months to accomplish will certainly make it difficult for patients to be seen and staff to be paid.  And don’t even think about billing the work under the host doctor’s name – as that is seen as out and out insurance fraud, the penalties for which can be catastrophic. Years ago I participated in a mutual aid society made up of nine docs who agreed that if any one of us went down the other eight would work half of a day in the office to keep things running. The lack of portability of credentialing now makes those arrangements difficult if not impossible.

Lastly is the wa-wa that most directly affects our business. That lack of portability that makes locum tenens work difficult also makes a practice transition a little more painful. Now after a seller accepts a buyer’s offer, one of our first steps is to begin the credentialing process. The hope is that when the buyer takes over their new practice, they can be paid for their work. Since this process can take so long (months), we can find ourselves in limbo as the buyer has to titrate between their desire to get started in their new office and timely payments for service. While in the recent past we worked on a 45-60 window to closing, that date can now be hard to pin down.

So we’ve pointed out the problems and whined about them a bit, what do we do next? Unfortunately there does not seem to be much the individual doc can do. They just don’t have enough horsepower. Sure they could stop participating in PPOs but the realities of business and cash flow make that a hard choice for most practices. It would seem to me that legislation is going to be in order and the first step in getting things under control might be to leverage the emergency coverage issue. Who wants to bear responsibility for letting patients be left stranded in the middle of care?  Standardizing the requirements and allowing a doctor’s license and credentials to follow them would be a start. Working under the host doctor’s (or their estate’s) supervision would seem temporary fix.

While that legislation might not correct all of the problems, at least it would give the providers a seat at the table in the ongoing discussion. Keep this in mind however: in my children’s lifetime, a single payor system of payment (read Uncle Sam) will be in place for all health care needs. Plan accordingly.

Dr. Steve Wolff – UMKC Class of 1977

When do I tell the staff? Part 2

from Dr. Steve Wolff

We ended our discussion in Part One with the timing of making the “Big Reveal” to your staff. Again, while instincts might suggest that you let everyone in on your plans early in the game, our advice is to minimize the time spent in the “Neutral Zone.” Treading water is hard work and it isn’t fair to make it more difficult than necessary. It is important that everything now go smoothly and according to plan.

The new doctor should be introduced so as to put a face with a name. The buyer should have received instruction on reassurances they can make to their prospective employees along with some things that for now are best left unsaid. We recommend that the buyer initially plan as few changes as possible – including work days, business hours, office décor and financial policies. Evolution – not revolution – seems to be better accepted by both staff and patients.

While one of my broker colleagues once described this phase as akin to “cheating on your wife and then asking her to help pick out a birthday present for your girlfriend,” the fact is that the transition now needs the assistance of the team. Among other things, announcement letters will need to be sent to patients of record on the day of closing, and staff members can be very helpful in the production and mailing of those letters. Making them part of the process seems to begin the move toward the new normal.

Confidentiality needs to be maintained with regard to patients and the dental community. While our closing rate is better than 98%, lightning can strike: what a mess you will have if the deal falls through and your retirement has already been announced.

By the date of closing, the staff will begin to move toward the New Normal. Tears may still be shed (by both doctor and staff), but they will soon adjust and will perhaps come to realize that by extending the life of the practice, their jobs may be more secure than ever. In our experience, if properly coached, counseled and implemented, staff losses are very small. You can take some comfort in knowing that even the Israelites eventually made it to the Promised Land.

A final thought from Dr. Bridges: in the chapter of Managing Transitions on dealing with nonstop change, he states that “People have to understand that the point of change is to preserve that which does not change.”  Assuming that the core mission of the practice is to provide quality dentistry, changing the doctor may be the one thing that most assures that care will be available into the future.

Dr. Steve Wolff – UMKC Class of 1977