This week, the Dental Amigos welcome David J. Goodman, CPA, a partner and Dental Practice Solutions Team Leader at PFK O’Connor Davies Advisory, LLC. David has over 35 years of experience working with a client base of individuals and closely held businesses. Before joining the PKFOD, David was Managing Director of LB Goodman. He is a member of the Academy of Dental CPAs and the Practice Valuation Study Group. He is a licensed CPA in New Jersey, New York and Florida, and a frequent contributor to Dental Economics magazine on practice and financial management.

In this episode, David discusses the dental industry trends he observed in the last year. He highlights an overall increase in labor costs, but also the benefits for practice owners who invest in long-term employee retention and staff morale. David then discusses the different financial planning strategies that he recommends for independent dentists with one or two practice locations versus those that he recommends for his clients who run complex multi-location practices.

Each year, David Goodman and his team synthesize their dental industry data in their Dental Practices by the Numbers report, which you can download here for more high-level analysis of dental industry financial trends. You can also find him at pfkod.com or reach out to him directly at dgoodman@pfkod.com.

Listeners who want to reach out to Paul can do so at Paul@DentalNachos.com and those who want to reach out to Rob can do so at Rob@RMontgomery-Law.com.

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Full Transcript:

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Bumper  

Welcome to The Dental Amigos Podcast with Dr. Paul Goodman and attorney Rob Montgomery, taking you behind the scenes of the dental business world. All the things you didn't learn in dental school, but wish you had. Rob is not a dentist, and Paul is not a lawyer, but since Rob is a lawyer, we need to tell you that this podcast is for informational purposes only and shouldn't be considered legal advice. Listening to this podcast does not and will not create an attorney-client relationship. As is always the case, you should formally consult with legal counsel before proceeding with any legal matter. Learn more about the Dental Amigos at www.thedentalamigos.com. And now here are the Dental Amigos.

Rob Montgomery  

Hello everyone, and welcome to another episode of the Dental Amigos Podcast. The one and only podcast, at least that we know of, is hosted by a dentist and a lawyer. Super unique , we like to think. And I'm Rob Montgomery, and with me, as always, is the Head Nacho himself, Dr. Paul Goodman.

Paul Goodman  

Glad to be chatting, Rob.

Rob Montgomery  

It's good to have you. And today we have a very special guest, our amigo, David Goodman, a dental focused CPA, long time veteran of the dental industry, a great accountant, has done really impactful things for his clients for years. Who's going to talk about, you know, as we get here at the end of 2024 as we record this show, kind of what what we're seeing in the dental world, what we can expect to see in 2025 and I'm really excited to have David on on the podcast. And so, as we said, you know, David is a dental focused CPA. He's a partner and Dental Practice Solutions team leader at PKF, O'Connor Davies Advisory. David has had over 35 years of experience working with a client base of individuals and closely held businesses before joining the PKF O'Davies, was the managing director of LB Goodman. He's a member of the Academy of Dental CPAs and the Practice Valuation Study Group. And I had the opportunity, Paul, to meet and hang out with David and his wife, Hope, in Boston this past fall, with my guy, Josh Salzer. And was just we spent some time together. Enjoyed chatting. Was good to get to know David a little more. He's been somebody that I've always kind of followed and had respect for in the dental industry, but it's, as you always say, Paul, it's nice to have these in person meetings face instead of Facebook. Real connections with real human so I really enjoyed my time with with David. David is licensed CPA in New Jersey, New York and Florida, as a thought leader around the dental professional practices, David is often invited to speak on tax-related practice management and growth topics. He's a national speaker on a variety of dental practice related topics. He is known for his practical, educational and entertaining style. I can vouch for that. He's also a frequent contributor to the Dental Economics Magazine on practice and financial management. David is also a past president of the Jewish Federation of Northern New Jersey and Jewish Family and Children Services in northern New Jersey, a member of the Tulane University Center for Public Services Directors Advisory Council. David is also the co-founder of the jfn NJ Clean Up Crew, which has led over 400 volunteers on disaster recovery trips. David and his wife Hope have four daughters, and without further ado, here's David Goodman, welcome amigo, and thanks for being on the show.

David Goodman  

Thanks for having me, guys. I'm really excited to be here, because I've always been on the other end as a listener, and I appreciate the invite, so I'm blushing here from all the things thatyou've said about me, Rob, it's really nice, and I appreciate it. And so I want to say also that Paul and I are not related. We just share our last name, and we are both very much passionate about dentistry, but there's no blood relationship that I know of here.

Paul Goodman  

Yeah, people have asked, and you have the name of my amazing father. So that's special to me, who passed away in 2016. So David Goodman is always a special name to me. So thanks. Thanks, David. Appreciate it. Yeah.

David Goodman  

And I also want to mention that, you know, I went to school in New Orleans since my connection to Tulane University, and I know that you had a little trouble pronouncing words, because New Orleans has a different language than the rest of the United States.

Rob Montgomery  

Yeah, help me out there, right?

David Goodman  

So simply, it's the Klene Up Krewe group of volunteers that go and respond to disaster wherever it might happen, and actually just returned from New Orleans, helping them to recover from Hurricane, I think was Francine that hit there in South Louisiana, so, but thank you. I'm really happy to be here, guys, and looking forward to sharing with your audience some of my thoughts on, you know, what's happening in dentistry and any other topics that come up.

Rob Montgomery  

We're excited, but before so in my defense, I have to say David and Paul. Yeah. And for our audience, the reason why I kind of screwed up Klene Up Krewe is it's spelled K, L, E, N, E, K, R, E, W, E, so you're absolutely right. I love New Orleans, David, it's one of my favorite places in the world. It is in very many ways, the third world, as they like to say. I feel like in a good way when I'm in New Orleans. I'm not in the United States. I'm not sure where it is. It's its own special place. But you know, as we know, like that, only in New Orleans would that be a thing and spell it that way. So it's great to hear that you are a New Orleans guy through your Tulane connection. It's cool that you do what you do with that, with that group?

David Goodman  

Yeah, thank you. And I love the city, and I'm glad that we have that in common as well. Hoping to take you down there someday and show you vine New Orleans would be fun. I'd love it.

Paul Goodman  

We have a hard hitting question, if we came to your town and we got nachos, where would we go and what is your favorite topping?

David Goodman  

So the the place where we would go to it kind of sounds a little weird, but it's Rosa Mexicana. It's a chain of Mexican restaurants that people might know, but one of the things that I have kids who are celiac gluten free, and we know that nachos at Rosa Mexicana is safe for them, awesome. And I am a hot, spicy guy, so I love jalapenos and hot sauce on my nachos.

Paul Goodman  

Nice. And I love Rosa Mexicana. I got a New Yorker. I've gone there for so, great, great choice.

Rob Montgomery  

Yeah, it's a fun spot. So yeah, as we say, you know, here we are, the end of 2024, and I know David, that your firm publishes a book online every year called Dental Practices By The Numbers. And as we record this episode, it's coming out in in a couple of weeks after we're recording. So it's probably going to be out right around the time when your episode is released. So, you know, as we talked about today, we're gonna talk about what we're seeing in 2024, what we saw, what we can expect. So kind of, right off the bat, David, you know, what is a trend that you saw in 2024 that you see your clients, industry people, talking about that you think is one of the hot topics that we've had to deal with in this past year?

David Goodman  

We have seen some pretty interesting trends, from 2022 information that we get from our clients to 2023 which is what will be out in our Dental Practices by the Numbers book shortly, and it's available for free on our website, and I'll give that information later, but one of the trends that we saw was there was some pretty good practice growth. We saw practices grow anywhere between five and 10% over the last year in terms of revenue, but that revenue did not necessarily fall to the bottom line through just increases on the top line, we're seeing lots of increases in employee costs. Employees are the biggest overhead item in any dental practice, and we've seen it over the last couple of years, and even more so creep up to the point where it's almost 30% in some cases, of revenue, and so that's a big chunk of revenue going to the employees. But what we also found was that during the pandemic, doctors got a little better at how they were spending in other categories, for example, in administrative costs or occupancy costs. You know, occupancy costs like just shutting off the lights or keeping the air conditioning a degree or two lower, and we're able to overcome the increases in labor by being more efficient in other overhead categories, so that by the time we get to the bottom line of what's left over for associates and owners of practices, we're seeing about the same percentage, which is somewhere around 36 to 38% but we actually have, for the first time, starting To see general dental practices consistently now having 40 or even 41-42% of collections available for owners and Associates, and that's just the way that you kind of compensate for when one expense category goes up, you find ways to be efficient in other expense categories that you can control.

Paul Goodman  

Thanks for sharing that, David, I really enjoyed listening that is as someone who's the owner oftwo dental circuses. I mean practices. I mean circuses where the animals don't try to eat you, just slowly annoy you to death. I have dealt with all of those things. And what I wanted to ask you about, you know, I was just on a podcast which I talked about some of the words that are demoralizing to dentists, and one of the top "D" words for me as a dentist is dental insurance. Tell me how are your clients navigating some of those challenges with you know, I don't want any angry letters, so I call them all spoiled guac, PPOs. I don't want any angry letters from dental insurance companies, but I know they come to their accountant with some of these questions about participation dropping, not dropping, frustration. Tell us a little bit about that.

David Goodman  

Yeah. So you know, sometimes insurance is a good fit for a practice depending on their location, but a lot of dentists, as you know, are being challenged by their inability to practice  dentistry and treat patients the way they want to. And the insurance companies are getting in the way. I see insurance companies, in many cases, just being an expensive advertiser for the offices, and we're seeing really substantial decreases in reimbursement rate, and some of it may be the dentist's fault for not billing the insurance companies what their usual and customary rates, or UCR is, or fee for service rates, and insurance companies look at that, especially the PPOs. And so it's really important, I find, for dentists to be billing the insurance companies. I know it's a challenge to take down the write downs when you collect the money, but it's important for doctors to see how much those write downs are and to either get back to the insurance companies and negotiate with them to get some increases. And there are some insurance companies that, even with increases, it's going to be a real challenge to be able to even be profitable with treating patients, and we have been helping many of our clients now look at dropping some insurances in their practice, because they lose money whenthey see the patient. It's not about keeping busy. It's really about taking care of patients the way you should be, and I think they'll really appreciate it. Rob, you got me all revved up here about not increasing fee good, right? So, here's the scenario. We're coming towards the end of the year, and sometime in January, your employees in the dental practice are going to come to you and they're going to say, we want a raise, and you're going to give them some sort of raise because they're probably entitled to it, or because of, as you just mentioned, the cost of living increases that we're seeing right now. And now, the question becomes, as a dentist, how do you actually pay for that raise? How do you pay for the rent going up? How do you pay for the increases in the cost of your supplies, or the cost of even payroll taxes for your employees and the utilities going up the only if you do not raise your fees, you're going to work more to pay your expenses and to earn your income, or you're going to make less. And the only way to change that dynamic is to be increasing your fees. And actually, in our dental book, we have surveyed our clients and provided about 40 different CDT codes, and the average fee that our clients are charging for those codes the 80th percentile, and I recommend that practices be somewhere between thataverage and that 80th percentile. Some practices might be closer to the 80th percentile, some may be closer to the average, but fees need to go up every single year, because your costs go up along with it, and that's the only way to be able to pay. You can get more people in the chairs, but again, you're going to work more, or you're just going to take home less. And I don't think that any dentist that's listening is really going to want to take a bite out of their lifestyle.

Rob Montgomery  

Yeah, it's interesting. You just say that, as far as you know, not charging enough, not keeping up with your UCF, we, Josh and I, met with a consultant that hopefully we will get on the podcast in the near future this week, who was talking about the fact that he sees a lot of practices that just don't. They haven't increased their fees over the years, and some of it is what you're billing insurance companies, but it's also just UCF for cash patients as well. And maybe if you could speak to that, David, do you see that a lot with dentists your clients, wherepeople just aren't keeping up with that. And of course, you know, nobody wants to increase their prices to scare customers or clients away. But, you know, news flash, we've had a little bit of inflation in this country recently and I don't know what the price of eggs is, what 40% 50% higher, some crazy number. And yet, a lot of dentists seem like they're not really increasing their fee schedule. So if you could just speak to what you see in that in that sense. Yeah, for sure. That's great, great advice. And you know the thing too, when you talk about pricing in the dental world, right? What your UCF is, it's not like those fees are online. I'm not saying that you're like, trying to trick people or gouge them, but it's not like you have to worry that you know, like you're a gas station. You drive by and you're like, Whoa, gas is 3.59 there, and like nobody cares.

Paul Goodman  

Us dentists take a lot of grief from the general public. They open up conversations like, I just want to let you know I hate the dentist, and I want to say, I just want to let you know you could have kept that in your head. But one thing that I don't know if it's an advantage or not, four to five dentists recommend Trident, and four to five patients have no idea what you charged them last year, so it is just something that I think your advice is good, and it's just paying attention to your business metrics that comes out of it. David, as someone who went to dental school, they just didn't teach you any of these things in dental school, and you can be siloed in your career. And I think that's awesome advice. I wanted to ask you another question, David, related to trends. You know, one of my favorite things is helping dentists hire associates through Dentist Job Connect and really helping people hire their first associate dentist to unlock more freedom and free time. As someone who's dealt with clients for this long time, have you seen more or fewer dentists adding their first associate, whether it's for a lifestyle need, or buying a second practice? Talk to us about the associate trends you see?

David Goodman  

Yeah, and it's really interesting. You mentioned that because recently, I've been having a few conversations about this with with some of my clients. So as Rob pointed out in my introduction, I've been doing this a while, and many of my clients are, you know, close to my age or older, and but are not ready to completely slow down. And so one of the things I say is, if you are ready to kind of take a break, you want to step back a little bit, don't impact the value of your practice by having less revenue. Bring in somebody that can fit in for you when you're not there. Because I do believe that practices still make money from having an associate there. And then I do, you know, have doctors who also speak to me about, you know, my schedule is booked out, like four months, and I'm like, do we have a chair? Do we have space? Let's bring in an associate, or even one day a week, if you're working four days, let that one day a week, the associate come in and see patients for you. And so that's definitely something that I'm seeing. But you did mention like adding on practices or second practices, and this has been a trend that's actually been going on for at least, like six or seven years. The cost of dental school has gone up so much that dentists are graduating with a ridiculous amount of student loans, and what they've discovered is by partnering up with another dentist and buying a practice that both doctors can work in one practice, and each of them make a really good living and fill in every single day. So if there's a six days a week that the doctor can be in the practice, and one doctor works three and then spends another day working as an associate somewhere else, and the other doctor works three and also does the same thing as working in another practice. As an associate, you can make a lot of money because your rent doesn't go up because your practice is open six days a week, the rent is going to stay the same for the whole month, and so lots of other fixed expenses in the practice allow for this, like combination of doctors working together. And so this gives opportunities for dentists who may not necessarily have thought about owning their own practice because they've been overwhelmed with debt, to saying, Hey, I think I can do this by working with somebody, and let's share the overhead, and I'll be able to make a living, take care of my debt. And, you know, feel like I'm living a lifestyle that a dentist should be rewarded with. Really cool idea well.

Rob Montgomery  

And it's great to hear David say this, because when you talk about working with people that are good consultants, which obviously, David's a CPA, but he's also giving business advice to his clients through the experience that he's had, that is what I would consider to be strategic growth, right? This is going to work, where we see people run into problems when they do arrangements that are similar to this, partnerships or additional locations. It's sort of like, Whoa, let's do another location. Okay, you know, let's be partners. Oh, okay. And then, six months later, look at each other. Like, I thought we were gonna make more money. Like, well, did you have any kind of planning or help or forecasting or cash flow projections? Like, no, we thought two was more than one. We make more money, like that. Doesn't always work that way. I mean, I think we see definitely I agree with this trend and and I will speak to, sort of the downside to that trend in two ways, in a cautionary tale, and not to take away what David's saying, because I think, like I said, the right situation with the right planning, these arrangements work. But where we see problems, especially on the younger dentist side, is where somebody takes this concept and doesn't do it right, or it's just it's beneficial to one party at the expense of the other. And generally speaking, any kind of partnership where there's a winner and a loser is not a partnership that's destined for success, go and figure out partnership, marriage, any kind of relationship. But you know that goes to structuring this in a way that makes sense, and understanding it and where I see the abuse really with this. And people are probably getting tired of hearing me talk about this, but I have to every chance I get are these minority buy-ins in the DSO world, where a young dentist buys a 10% interest in the one location of this 100 office DSO, and rarely do those deals make sense?

Paul Goodman  

What are they actually buying? What are they doing? I think what you shared, David, I just want to add before we go to your next trend, and I was talking about one of my friends this morning, who's a practice owner. Because you only know this if you're a practice owner, the amount of expensive stuff you have to put inside of a practice in 2024 to make it run is so much more than 1984 and 1994 from CBCTs to scanners. And I just think what you shared is really valuable, because you have to set up multiple practices with the same, multiple expensive things. And, I know this is this the popular time everyone's trying to get their deduction for equipment they don't need. David, is this the season?

David Goodman  

Yeah, it is. I actually had a conversation today about that.

Paul Goodman  

It's another reason of not only having this expensive stuff from CBCTs and scanners, but maintaining it. So thanks for sharing that.

David Goodman  

Sure, yeah, the expensive coat hanger or the place to pile up your old magazines. I unfortunately see that too much because they went out for that tax deduction. If you're going to make an investment in a piece of equipment, there are two things that you should be looking at, and taxes is not one of them. You should look at, making sure that it's going to be good for your patients, and making sure it's going to add to your top line revenue. That's the reasons why I suggest people buy equipment for their office. So good for the patients, good for revenue.

Rob Montgomery  

Yes, it's a great tax deduction. It's only a deduction because you got to pay for it. It wasn't free, you know. Unfortunately too many people do fall for that.

David Goodman  

You get 30% of your investment back. That's really all it is. So you're still shelling out 70% of whatever the cost is. And it doesn't make sense again, unless you're going to actually invest the time to understand how to use it and make sure that it's something that will help your patients and something that you can collect money from, right? You got to pay for it.

Rob Montgomery  

If we can circle back to something you talked about a few minutes ago, David and you talk about increase of costs and overhead with payroll and employees. You know, there's really kind of, like increased employee cost, is what you said, but there's, there's really two components to that. It's the expectation and the need to increase salaries, but it's also what I see, is the cost of turnover these days and the cost of not retaining employees. You know that when you're perpetually onboarding people and it becomes a revolving door, that the cost of that is not as easy to calculate as you know, sort of let's add up all the all the salary but I think sometimes that cost can be more than the increase in salary costs.

David Goodman  

Yes, so turnover is actually something we look at. We do a lot of practice transitions, we help buyers evaluate practices. And one of the things that we look at is actual turnover of the employees, because it says something about the practice. And if your practice is experiencing a lot of turnover, or maybe you sense that your employees are kind of like not excited about work, or there's no sense of urgency. It's really a lot has to do with culture, and I do this presentation called 10 Financial Mistakes that Dentists Make, and one of them that I incorporate is three signs of a miserable job. And it's based on a book by Patrick Lencioni, who is a well known business consultant. You may have heard of him in other books that he's written, called Death By Meeting or 5 Dysfunctions of a Team. I love this book called Three Signs of a Miserable Job. And it's three simple things that you learn from the book. And the book is written in allegory form, so it tells a story, and obviously with lessons to it. But one of the number one things that I find in dental practices is that there's anonymity going on, and by anonymity, I mean that the owners the dentist don't know their employees and don't recognize them as having lives outside of the practice. And these are people too, just like you and you have your own issues that go on outside your practice, with your family, your friends, or whatever else is going on, so do your employees. And just to be recognized and and to be to say, Oh, thanks for sharing with me. Now I understand why you're tired today, or why you came in late, or you know why you look disheveled, whatever it might be, I think these are things to engage with employees, to help them, to know that you recognize them as people. And I think that's really important, that this the second part of three signs of miserable job is a lack of relevancy. Relevancy means understanding why you do what you do. It's about getting up every single day for work and being excited about going to the office. And this applies both to the dentist and the team, but it's the dental owner who is really the team leader and sets the example for others to follow. And if you've lost sight as a dentist of why you should be a leader, it start to think back about why you went to dental school, why did you choose this profession? What got you excited about it? Because you spent an awful lot of time learning how to be a dentist, and then you have this vision of what your practice should look like, and you should get it to where that vision was, there's no reason why it can't be what you wanted it to be. And once you have that vision and that drive as to why you're going into the office every day, you share that with your team, because many employees would love to support the leader of their practice, the leader of their business and achieving their goals. That's what they're there for. They're there to help engage you in getting to where you want to be, because they have something to work towards as well. And it's not about the money, because really, when you look at employee surveys, you find that compensation is not the top reason why people work. They work because they have they need a purpose. They need a direction. They are excited to do things together as a team. Keep reminding your employees and reminding yourself of why you come to work every day. And then the third thing is, because I'm a CPA, I say measure something everybody in the office should have, like a fun thing to measure. Doesn't have to be difficult. You know, for example, I would say that whoever is is your scheduling manager, or whoever booking the calendar, one of the things they can try to do every day is see how frequently they can have the entire hygiene schedule filled for the day and every patient coming in. That simple for the person who answers the phone, how many of those phone calls actually turned into appointments? And you learn from these things about getting better at that type of stuff. And then, for the assistant, I really like this one, because doctors appreciate it is that the assistant comes with a tray of what they think they need for the patient that's being seen. And sometimes they are missing items that should have been there, and they have to step out of the room. It slows down production. They have to turn around and find something in a drawer to bring to the tray so the assistant can start to think about, how many times a day did I have a complete setup, and if I can go a whole day with a complete setup, that's perfect. So these are kind of like the interesting things that that kind of help to engage employees and limit that turnover, and the cost of the turnover, and it's really hard to find employees out there now, and so this is a way to kind of keep them in, and keep them involved, and give them a purpose of why they come to work. All right, I'm off my soapbox.

Rob Montgomery  

I think that can be our new intro to the show. That two minute segment, perfect.

Paul Goodman  

I'll share David, you know, as somebody who now owns two dental practices and two companies that I thought up in my head, just to share with our audience and people and some perspective, I have such an easier time doing all the things that you talked about in my Dental Nachos and Dentist Job Connect business. It's not an excuse, hopefully, it's for someone and who's a dentist, to think about it, because many of the dentists and you talk about the E-Myth, they're so with their head down, seeing patients literally, that you either need to partner with someone like our office manager, Kate, who helps us with this, or another reason to hire an associate, because these things are so meaningful to your happiness level, and your team's happiness level, but you can get stuck, literally and figuratively, in a class two composite that makes it challenging to deliver these things. How do you tell your clients to take that next step and say, Okay, this sounds great. What do I do next? How do I start implementing this?

David Goodman  

So I think that the starting point is remembering why you chose to be a dentist. I know why I chose to be a CPA, but somewhere along the line, I realized how I love to help people, that's really what I'm about. And I became incredibly passionate about dentists who did not have any financial background or experience, and here they were busy, and they needed somebody to kind of show them how to be able to become successful financially, even though they were successful as a dentist. So I think the first thing to do is to say, I became a dentist because, and this is my purpose of coming here. This is the purpose for setting up the practice. And then it's like, okay, let's have a team meeting, not a huddle, like an off-site time, where everybody gets together and you say, Here's my vision, here's why I come to work, here's what you guys can do to help me. What do you think? Give me your feedback. Can we do this? And I will tell you that you create this culture in your practice that becomes contagious. And it not only becomes contagious for your employees, but your patients see it. The patients see the smile on the face of the team. They see the relaxed way that the they're being greeted and being treated, and it just kind of can transform a practice. And I'll tell you, I was a business owner, just like dentists, and I needed to do the same thing with my team, because I was sick and tired of people saying I'm going somewhere else, and I was sick and tired of clients calling me and telling me that somebody was not responsive to their needs, and we made a transformation, which was amazing. And it can be done in any business. And it's, it's really just all about culture.

Rob Montgomery  

I think it's really getting help from your people, you know. And as three practice owners, one former practice owner of an accounting firm, a law firm and a dental practice this is one of the biggest challenges that professional practice owners face, which is, you have to make the donuts and you have to wear 15 other hats, you know. And guess what? It's impossible, impossible to do all those things well. And frankly, it's impossible to do most of those things well enough. So how do you do it? You know, you have to get help, either getting help from empowering your team and your staff, getting help from outside consultants, you know, because it's not okay to just not do certain things. And what I see is, that's what adds to the misery factor of any practice owner, and that's what leads to burnout.

Paul Goodman  

Misery and monotony. I mean, let's not get it twisted. Dentistry is a monotonous profession at times, so you have to do things to break through that monotony. And you know, people are willing to bring their complaints about what you do right to your face, which can be demoralizing. So these things are really awesome, David. Really appreciate you sharing them.

Rob Montgomery  

I think we have time for one more topic. We've made it this far in the episode without talking about independent dentists selling to DSOs, I don't think I've ever had a conversation about the state of the dental industry, where that subject did not come up. So, you know, we have to check the box. I say that jokingly, but you know, we all see this transition world, and what's going on the dental industry. And let's talk about where you see things now, David, in that respect, and what you're forecasting for 2025, in that regard.

David Goodman  

Wow. So a lot of pressure. I just don't we were to start, because there's so many things built into that question. But I will say that first of all, the last five transactions that I did, which is probably within the last eight weeks were all between independent dentists. There was no DSO involved, although, when I get to week number nine, there were two practices, one of them that you're familiar with, Rob, that those those practices went to organized DSO dentistry, and the reason why was because they were multi locations. And I am still a true believer in dental entrepreneurship and independent dentists still being able to remain successful. And I think that there, there are a lot of DSOs out there, and every DSO deal can be different, but dentists need to realize that it's not that you're going to be getting a lot of money for selling your practice to a DSO in many cases, what I've seen is that the cash that you get up front is pretty much the fair market value of your practice, and anything over that amount either comes from you having to work for that new entity or for you having to wait for some sort of liquidity event to get your equity paid off. And we know that those liquidity events don't always come, and some may never come. Yeah, so doctors have to consider this really carefully, and I'll give you a really good example. One of my partners here at the firm brought me a dental practice, an independent doctor, and he was asked by a DSO to basically take over their local office and merge his practice in with them, and based on what they had offered, he had to stay on for at least five years. But when I figured it out for him, he would be losing about $380,000 over the first three years of this deal, and he would be losing even more than that, because this was somebody who took 10 weeks vacation every year, and now he was going to be limited to four weeks. And this was somebody who had, like, a lot of what will refer to as discretionary spending in his practice, who now was told you'll get a 401K and health insurance. And so he thought that this was a great deal for him, and you know, he could get rid of his practice and sell it. And I said, if you're willing to work for five more years, let's stay in it, and I know we'll be able to find a buyer who will pay you the same amount of money where you work. When it's all said and done, you get the check and you walk away. So I do believe that there will still be a lot of DSO movement, especially in 2025 interest rates are going down, and that's kind of a really good time for DSOs to be making investments and practices, because low interest rates help with being able to finance these deals. If you remember, when interest went rates went up not too long ago, we saw a big slowdown in the DSOs. With interest rates going down, we'll probably see an increase, but at the end of the day, I don't believe more than 30% of dental practices will be in a DSO model, and I still believe that 70% will remain independent dentists. It's okay if they have multiple locations, but they just won't be operating with some private equity money or investor money being involved in the practices.

Paul Goodman  

Just so our audience knows. And I talk about this on my groups a lot, and dentists get very emotional about it. So you kind of highlighted something. What are the characteristics of a practice that just doesn't usually sell to an independent, private buyer, whether it's revenue, whether it's complexity, whether it's location, if you just, I know we're gonna wrap up in a minute. I just think that'd be valuable. Like, what characteristics of a practice make it unlikely to be transitioned to a private buyer?

David Goodman  

That's a really good question. And I really thinking about this. I would say, you know, some of the DSOs really don't want practices that are collecting less than, like a million two but there are some really good million dollar practices out there that have the potential to grow to a million two or more. And I would say so these smaller practices, which, you know, with with stable employees and good profitability, and possibly mostly fee for service, are really, really good candidates for independent dentists to buy. And I talk to a lot of young dentists, and they all want to be practice owners very early on in their career, and that's encouraging for me, but I think larger practices, multi location practices, you can't sell to an independent dentist, it would be really hard for them to be able to afford it, or be able to operate it.

Paul Goodman  

Or even want it, right? Yeah, it's a whole different business model, and it's just, you know, something that just should be highlighted, right? Multi locations with a lot of revenue come with a unique complexity for someone to operate. And the same dentist that wants to purchase a $1.2 million practice and operate themselves, and take what the  previous dentist has done, I don't blame them for not wanting to take over a complex, multi group location, because that's a very challenging thing to run, you know, if you didn't create it. So I think that was a good answer.

Rob Montgomery  

David, I'm curious, I'm seeing more dentist owned practice groups. Where dentists are getting into more multiple practice ownership and obviously with an eye towards packaging this up and having a big payday, sure, but I feel like I'm seeing more deals where that's an option for somebody who's selling two or three practices, that may not have existed as much a few years ago. And I'm hopefully starting to see lenders or more traditional lenders, embrace those sorts of transactions where before, it may have been outside of their their underwriting capability. And I'm curious what your thoughts are on that.

David Goodman  

Yeah. So I have, I just had a DSO transaction where a group of practices were sold to a a larger group. The doctors were relatively young, and they knew they wanted an exit strategy now, and that was helpful for them, but I have been seeing some of the lenders out there being open to these types of opportunities. Now I remember, I'm going to say, probably 15 or 20 years ago, I got a call from one of the lenders. They were in New York City, they were in their car, and they called me up and they said, Can you audit a dental practice? And I'm like, yeah, we can. And I said, But why would you need an audit? Because we've got these guys who want to open up, like, six practices, like this was, like, unheard of, right, right? And we want to finance them, but we can't give them the money unless we, like, have an audit, because that's what the underwriters told us. And I said, you know, based on the cost of doing this, it may not be worth it to have this done, and then, you know, realize you can't finance this or something like that. And but it was, it was the very beginnings now of I think the the lenders looking at these practices differently, and now they don't ask for audits, they don't ask for any type of Certified Financial Reporting from a CPA. They still feel comfortable doing this based on the information that's presented to them from the practice. And I think that we're going to see the opportunity for independent dentists to be multi location owners and get financing from the same names of banks that they were getting financed from for their first practice.

Rob Montgomery  

Yeah, it's funny. You say that I agree. I think I had one of those deals 20 years ago. It was an eight figure refi of a group practice and audit of financials. And it was, it was treated more like a, a traditional commercial loan, as opposed to what we now, and all are familiar with in the, in the dental world, you know, it's definitely, it was a, it was a kinder general time, though, in a lot of other ways. But yeah, I love to say, and just kind of tag on that, I challenge the the dental lenders and healthcare lenders to continue to offer products that make it possible for that to happen, if only for their own, you know, survival. You know, because you know, if they can lend money to a dentist that has two or three practices with a good track record who wants to buy two or three more, you know that that's an opportunity for those lenders to make more money, and the risk on that loan should be relatively low. You know, it's, I love the fact that these lenders are willing to lend young dentists $700,000 for a startup. That's awesome. But, you know, they might want to think about being a little more open to lending a seasoned, experienced operator $3 million to buy three more practices too, and not say, Well, you've, you've kind of gotten to the end of where we're willing to lend the money. So, you know, any lenders that are out there listening, you know, continue to be relevant and provide a mechanism for dentists to be owners of these group practices, so that sellers of a certain size or a number of locations have more than one choice when it comes to time to think about transitioning their group. That's awesome. Well, David, it's been amazing having you on good to reconnect with you and talk to you, and really appreciate the the insight that that you've been able to offer to our listeners. It's come from all the years of experience that you've had in the industry, if, if. People want to learn more about what you do your firm. How can they get in touch with you?

David Goodman  

So they the website for my firm is P as in Paul Goodman, k as in kite, F as in Frank, O as in oxygen, and D as in david.com is pkfod.com it's PKF O'Connor Davies. And you can look under industries, and you can find there under healthcare, dental, and you would learn more about what we do there. You can find my beautiful mug, as well as all the contact information to reach out. And you will also find access on that page to our dental book. Within the next few days, it should be changing over to the 2024, version, and certainly welcome to download it. You can also email me at dgoodman@pkfod.com.

Rob Montgomery  

Awesome. And as always, folks, those links will be up on the show notes, and I'm curious, and look forward to checking out this year's dental practices by the numbers to put in my calendar for next week, to check in and and look at it and again, thanks, David.  That lived up to expectations.

Paul Goodman  

For sure, it was. It was a fun tour of the 2024, trends. We want to make that our end of the year episode every year.

Rob Montgomery  

Line up David for that. So, I mean, you know, it's awesome. You know, he's so passionate about what he does. And I get inspiration from from people like David and him specifically, and it's really cool. And I think what this is the value of a good team and a good counselor, you know. And David is that he's a CPA, but, you know, he's, he's helping clients with business issues. He's not just filing tax returns. And then, as he likes to say, isn't just check in once a year to hand over the the tax return and tell you to file it. And this is about, you know, getting help from somebody who is just so seasoned and seen so much. And you know, the more you see, you know, as that type of professional. And we see it too with lawyers. You know, you're what you're able to add, the value you're able to bring just grows exponentially when you get to this stage of your career. And and David is definitely at that place where it's just so much wisdom and great advice. And I love talking to him. I love listening to what he has to say. And he's a good, a good actor.

Paul Goodman  

Sure. I just say that, you know, when you talk to people like that as a practice owner by yourself, they give you the context of what hap what's happening with other practice owners just like you. Yeah? And it makes you feel less alone. It gives it remanages expectations. It can be both ways. So it's so valuable to have people like that in your team to give you the context of what's happening.

Rob Montgomery  

Yeah, you don't have to solve all the problems by yourself, and I don't think you can.

Paul Goodman  

I 100% agree. All right, as always, it's a pleasure.

Rob Montgomery  

Thanks, Rob. Thanks everybody.

Bumper  

Thanks for listening to another great podcast with the Dental Amigos, and don't forget to tune in next time to have the dental business demystified. If you're looking for more information about today's podcast, you can find it on thedentalamigos.com if you're looking for Paul, you can find Paul at DrPaulgoodman.com and if you're looking for Rob, you can find him at yourdentallawyer.com This podcast has been sponsored by Orange Line Media Group, helping dentists and other professionals create content people love. Find out how we can help you take your business to the next level at www.orangelinemg.com, till next time.

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