3 Things You Should Know Before You Buy a Practice – Episode #414

Thousands of dental practices are bought and sold each year. Make the right purchase decision and both your professional and even your personal life run smoother. Make the wrong purchase decision and troubles await. On this episode of the Dentist Money™ Show, Ryan welcomes Brian Hanks of Dental Buyer Advocates to talk about the mechanics of purchasing a practice.

Show notes:
DentalBuyerAdvocates.com
“How to Buy a Dental Practice” Book

 

 

 

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Podcast Transcript

Ryan Isaac:
Hello everybody. Welcome back to another glorious episode of the Dentist Money Show, brought to you by Dentist Advisors a fee only no commission fiduciary, comprehensive financial advisor just for dentists all over the country. Check us out at dentistadvisors.com today on the show, a long time friend Brian Hanks, dental Buyer Advocates Brian Hanks is, as they say, a wealth of knowledge. I emailed Brian a couple weeks ago after a client called me and said, “Hey, how do I, what questions do I ask, to hire a broker? How do I, how do I weed through the good and bad brokers?” And I had no idea.

Ryan Isaac:
So I reached out to Brian, he sent me an email back with a lot of good questions, and I said, let’s do this as a podcast. So, here we are today. Many thanks to Brian for spending his time and expertise. He is truly like an educator in the industry and really, really wants to help and improve the lives of dentists around the country, and he does that. So, thanks, Brian. Thanks to all of you for joining us. If you have any questions, as always, go to dentistadvisors.com and feel free to book a free consultation. We’d love to answer your money questions and point you in the right direction. Thanks for being here. Everybody enjoy the show.

Victoria Hughes:
Hi, this is Victoria with Dentist Advisors. Money is different for dentists. If the complex world of dentistry has you asking questions about your finances or if you just wanna validate your strategy, we’d love to chat. Book a free consultation today. All you have to do is visit dentistadvisors.com That’s dentistadvisors.com We’ve been helping dentists make smart financial decisions for 16 years, and we can help you to.

Annoncer:
Consultant advisor. Conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by dentist advisors or registered investment advisor. This is Dentist Money. Now, here’s your host, Ryan Isaac.

Ryan Isaac:
Welcome to the Dentist Money Show, where we help dentist make smart financial decisions. I’m your host, Ryan, and I’m here with Brian Hanks. Brian, thanks for joining us back on the show. What’s happening, man?

Brian Hanks:
Thanks for having me. Always good to talk to my favorite, dental financial planning group.

Ryan Isaac:
You say that to every dental financial planning group, what’s happening, man, thanks for being on here, we are gonna hit a topic today. I emailed you in the last couple weeks, a client had asked me, Hey, I need to go hire a broker to sell my practice. What questions should I ask a broker to like, find the right person? And then that just got me thinking like, I don’t know [chuckle] but I know who knows and then I reached out and then you sent me an awesome email back and I’m like, we gotta do a podcast about this.

Ryan Isaac:
So that’s what we’re gonna do today. And you, I’m glad you brought this up earlier. We’re gonna talk to two different groups of people, maybe an older crowd towards the end of a career, and then maybe a younger crowd just maybe buying into their first practice or navigating first though. Can you do an intro for yourself, which is always awkward. A little bit like, who are you? And also like, where did you begin, man? Like how did you jump in all this? Why this world? I we get that question all the time. Like, why dentistry?

Brian Hanks:
Right. Right.

Ryan Isaac:
They are like why.

Brian Hanks:
Because they’re rich and they pay us now.

Ryan Isaac:
Because they’re rich.

Brian Hanks:
A terrible answer. Sorry audience that I don’t mean that at all. Isn’t that fun? No. So just, this is an aside, but when I was doing dental financial planning, which is part of part of my answer, I would just tell dentists like, just plan on burning $50,000 at some point in the first five years, you’re a dentist. Like someone, a family member’s gonna ask for a loan, somebody’s gonna pitch you on an investment. That sounds like a sure thing. Like, just pretend that you’re gonna put $50,000 in a bag, light it on fire ’cause that’s gonna have the same exact emotional result as, how the pain you’re gonna go through. [chuckle]

Ryan Isaac:
What do you that’s actually a really good, I mean, it’s probably might be more costly than that. Like, what do you think those things are? Like what are they, what money gets burned? What, what’s happening?

Brian Hanks:
So the family loan is a must. Right?

Ryan Isaac:
Okay.

Brian Hanks:
Every dentist is gonna be pitched by family loan, like, it’s always gonna be pitched as a loan, but just kiss the money goodbye.

Ryan Isaac:
Just give them 25 grand.

Brian Hanks:
Yeah Exactly.

Ryan Isaac:
Yeah, Okay.

Brian Hanks:
And then getting pitched on the investment is tricky ’cause sometimes that comes from the family, but in the form of can you give me a loan to start a business? But, you know, I’ll just it’s usually a real estate, a be your own bank life insurance or something along those lines. And the joke and so again, partial answer to your first question, did some investment banking, private wealth stuff on Wall Street at Goldman and the joke in the halls, no joke. I’m dead serious about this. The joke in the halls at Goldman Sachs at the time it was 180 maiden lanes south Manhattan. They’ve moved offices now shipped across on the other side by the Hudson. And the joke was, I don’t know who we’re gonna sell this to. And the answer always was, no problem. We can always sell it to dentists.

Ryan Isaac:
Wait hold on. Okay That’s scary, hilarious, and alarming and all those things things the same time.

Brian Hanks:
Its both those things right. Exactly.

Ryan Isaac:
That was, you’re saying you worked in that industry. I didn’t know this by the way I didn’t know what [0:05:00.2] ____ that’s what we did.

Brian Hanks:
Yeah.

Ryan Isaac:
And that was like an actual running kind of thing?

Brian Hanks:
An actual running joke on Wall Street is if you can’t sell it to anybody else, don’t worry. Dentists will bail you out. And this is terrible, right? This sounds like we’re ragging on our own clients, which we are absolutely not. We love our clients. But if they don’t understand their blind spot and we’ll talk about the broker blind spot here in just a second, but if they don’t understand their blind spot that they are so freaking smart about a very narrow set of things. But they’re equally as dumb as the average person, and maybe not equally. Maybe they’re a little bit smarter than the average person in other areas beyond clinical dentistry, that if you think that you are so super smart at everything that your blind spot and you have to have some ego to go, yeah, I’m gonna do biology for my undergrad. Like, yeah, I’m gonna go do dental school. Yeah.

Ryan Isaac:
Just be an entrepreneur in general.

Brian Hanks:
Very Right. I’m gonna, with 350 grand in student loans, I’m gonna go borrow another million to buy a practice. You gotta have some ego. But the blind spot, the flip side of that ego is you are going to be tempted by some investments that are a terrible idea which is kind of back to what you did, Ryan. Like somebody asks you a question, you’re like, I don’t know the answer, but I know somebody who does. If you’re a dentist, and well, if you’re the person listening to this podcast, this probably isn’t a problem for you because you are a podcast listener. That means you’re probably also the guy that does the same thing Ryan did. Like, okay. I don’t know the answer to this question. Somebody says, I can be my own banker. What does that mean? I’m gonna go ask Ryan Isaac.

Ryan Isaac:
I just two hours ago just got off the phone with a call just like this, where someone was pitched by a family member. And this is a very, very successful person with millions in liquidity, but they’re still gonna take a multiple six-figure chunk of money and give it to this person. Now, it’s not, to their credit, it’s not an outright scam at all. I would’ve been very, very vocal about that. But they’re gonna give a multiple six-figure amount to someone, and they can’t even explain back to me what they’re doing at all.

Brian Hanks:
Yeah.

Ryan Isaac:
The call was just returns were really big and this person seems smart, so I’m just gonna do it. And my job as a financial advisor, I’m sure you feel this way too, isn’t… Isn’t usually. Yeah. Isn’t usually to tell people what to do or not to do. A lot of times it’s just exploring in curiosity with people.

Brian Hanks:
Yeah.

Ryan Isaac:
I think most people know the answer to a lot of their own things if they have someone to explore with, right?

Brian Hanks:
That’s right.

Ryan Isaac:
So it’s kind of, I, unless it’s very clearly a scam or something very dangerous, it’s my job to kind of explore in curiosity with people. But we couldn’t even go past two basic questions about like, well, what is it and how does it work? And why did it get triple the return that average markets got last year? I don’t get it. Do you get it? And it’s like, no, but I’m gonna do it. So to your point about the Wall Street, we can find a dentist to buy it. I think there’s a curse to a high steady, consistent income that kind of never goes away. And that is, you kind of feel a little financially invincible sometimes. So anyway, that was a really, that’s an interesting anecdote. Let’s, another episode on that another time.

Brian Hanks:
[0:08:20.2] ____ about dental transition. So I was doing what Ryan is doing now, just not as well. And I was the union guy at a couple…

Ryan Isaac:
Got it.

Brian Hanks:
Dental CPA firms, and I got handed all the associate dentists for financial planning taxes, bookkeeping, etcetera, who were also in the process of buying their practices. And of course, any good, millennial or I’m actually Generation X.

Ryan Isaac:
Yeah. Where like, are you a cusper, right on the border of the Millennial. Yeah me too.

Brian Hanks:
Yeah. I’ve heard eight different names for…

Ryan Isaac:
Elder millennials. That’s what I, yeah…

Brian Hanks:
Geriatric millennial. Thank you very much. Yeah.

Ryan Isaac:
Geriatric.

Brian Hanks:
But I went to Google and I was like, okay, where’s, who wrote the articles? Where’s the podcast? Where’s the book on how to buy a dental practice? There wasn’t one, so I wrote it, it’s on Amazon. So I’m the author of How to Buy a Dental Practice. I got so many phone calls from that book. I was like, oh my gosh, there’s a much bigger need than I realized for people to have help through the dental transitions on the buyer side. So that’s what I do full-time. We do 120 to 150 transitions a year all for buyers all around the country. And that’s all we do. We don’t try to…

Ryan Isaac:
So cool.

Brian Hanks:
Nothing we sell after the fact. I’m not trying to get into wealth management and compete with Ryan. I’m not trying to be a tax accountant and do the tax filings every year.

Ryan Isaac:
Yeah.

Brian Hanks:
And we have a blast doing it. There’s five of us now, and…

Ryan Isaac:
Oh, cool.

Brian Hanks:
Yeah, so we help a lot of dentists and we have a lot of fun doing it, but in the process, I’ve interacted with almost, I’m sure not all, but almost all the brokers in the country. All the banks, all the dental attorneys.

Ryan Isaac:
Yeah.

Brian Hanks:
I can tell you, who’s good, who’s bad. And I’ve gotten to know the themes of, hey, if I were selling my practice, these are the things I would think about. And similarly, if I were buying a practice, how do I interact with brokers and things? So I think, I think that’s what we want to talk about.

Ryan Isaac:
Yeah, we do. I’m just curious when did you write the book? When was it done and published?

Brian Hanks:
Let’s see, it’s been five years now. 20… Almost six years. 2017 when I wrote.

Ryan Isaac:
So the industry’s changed so much in 5 years. And if you have that many interactions every year. Could you write another book with things you’ve learned since then?

Brian Hanks:
I’m actually thinking, talking with a couple people about, the next book should be the DSO decision, right?

Ryan Isaac:
Oh yeah. I was gonna ask about that.

Brian Hanks:
Should I sell to private equity or not? And how do I navigate that? And that could be a whole separate discussion. I will say just on dental transitions as a kind of broad umbrella the industry has gotten a lot more transparent, a little bit more honest.

Ryan Isaac:
Okay.

Brian Hanks:
And there aren’t as many bad actors in the space as there used to be. We’ll talk about how identify the ones that are remaining.

Ryan Isaac:
Yeah.

Brian Hanks:
But and I’ll go through name. No, I’m not gonna go through names.

Ryan Isaac:
We’re gonna name, you’re gonna name names today.

Brian Hanks:
No.

Ryan Isaac:
Okay. So I actually, I like that it is probably a different discussion. We should have some time. I’d love to hear your opinions on just the landscape of the industry and DSO decision, which is a little, we might touch on that a little bit, but let’s go back to the question.

Brian Hanks:
Sure. Okay.

Ryan Isaac:
What should I ask though? If I’m a seller, I’m a dentist in general, what should I ask? How do I know, how do I interview a broker?

Brian Hanks:
Right.

Ryan Isaac:
That was where the question came from. So you take that however you want. You sent me a lot of good questions, but where would you begin with that question?

Brian Hanks:
So let’s start with the foundational, you gotta have some foundational answers and some foundational knowledge to then layer on the next set of questions. Right. Everybody wants to go to what’s your fee? Are you a 10% broker? Are you an 8%?

Ryan Isaac:
Yeah.

Brian Hanks:
That’s not a bad question, but it’s a second level question. So let’s go to the first level questions first, right? And the first, first, first, first thing to know is do you wanna sell to private? Do you wanna sell to a DSO or are you not sure? And you need help evaluating that decision?

Ryan Isaac:
Okay.

Brian Hanks:
So that’s, that’s your first question.

Ryan Isaac:
That’s tier one. Okay.

Brian Hanks:
Tier one. Yep. Exactly. And then a little bit of tier one knowledge would be what type of broker? Oh, well, it’s what do you need help with?

Ryan Isaac:
Okay.

Brian Hanks:
Most sellers need three things, but not everybody needs three things. Right? Most sellers need a valuation, okay. They need help with the process of selling the practice. In other words, they need a guide, they need the personal trainer, they need someone kind of walking side by side with them saying what to do when. And then the third thing that some sellers need is a buyer. But not every seller needs that, right?

Ryan Isaac:
Yeah.

Brian Hanks:
So do you need a full service broker that can do all three of those things? Or do you just need a valuation? Or do you just need someone to coach you through the process of selling a practice to your existing associate, your daughter.

Ryan Isaac:
Okay.

Brian Hanks:
Someone that you already know and like, and trust.

Ryan Isaac:
Yeah.

Brian Hanks:
‘Cause that can affect the next level of question. So let me give you a little more knowledge. There are lots of brokers in every market, some of whom are totally independent, right? There are the Cafe that is, has the local menu and etcetera and then there are McDonald’s brokers.

Ryan Isaac:
Okay.

Brian Hanks:
And there are names, like Shine has a brokerage, [0:13:16.8] ____.

Ryan Isaac:
Just huge. Yeah. Giant, yeah.

Brian Hanks:
ADS, there’s some, DDSmatch is another one that does a lot of business all over the country. But in all of those cases, even with the big national brokers, the way the model works is very much like a franchise. In other words, there’s a national kind of team of folks that then tells the Kansas City DDSmatch broker, how he or she should run their business and what they can do and how they value practices, etcetera. So no matter which broker you pick, that broker is probably going to be someone that lives in your area, or at least in a three state radius of you.

Ryan Isaac:
Okay. Yeah, no, that’s really helpful. Some questions going back on what you’re saying. What’s most common in the industry? Is it more common that brokers are kinda that full service? Or how has the industry broken out?

Brian Hanks:
It leans more independent but it’s increasingly, that’s one of the things that’s changed in the last 5 to 10 years. It’s increasingly kind of franchising a little bit.

Ryan Isaac:
Okay.

Brian Hanks:
The reason it leans independent is there is no certification or process to become a broker.

Ryan Isaac:
Okay.

Brian Hanks:
You can just raise your hand, throw up a website and say, I’m a dental broker now. So it’s leaning… It still leans independent though, because there’s no barriers to entry. And if you hurt your shoulder water skiing as a dentist at age of 52…

Ryan Isaac:
Go brokerage…

Brian Hanks:
You got some time left to go and Ryan says, I can’t retire yet or just goes to a broker for some practices, how hard can that be? Well, the answer is it’s actually very hard, but not everybody thinks that, so.

Ryan Isaac:
Yeah. Yeah. What about the… How many firms out there are doing all the three things that you mentioned versus people being more common they just have one or the other?

Brian Hanks:
If you throw dental broker Seattle into Google…

Ryan Isaac:
Okay.

Brian Hanks:
All 5 of the top results will give you all the options. So most dental, no, not most, every dental broker will give you all three of those things as an option on the menu. What you can do though is if you only need one or two, I’ve got my buyer, it is my existing associate, I just need valuation. You can go talk to the broker and I would probably steer you in that direction all things considered or some CPAs will do it. There are some attorneys that will kinda walk you through the process and things like these. So there are other options if you don’t need the full service.

Ryan Isaac:
Okay. And that’s tier one? Actually, another question on that, the valuation thing is actually really common for a lot of reasons. Is that a reasonable business service for people to reach out and request? Whether it’s for the associate or they’re the associate buying in maybe, or they’re just testing the waters with something.

Brian Hanks:
Or it’s good a state planning reasons, sometimes there’s those unfortunately, or partnership is breaking up or…

Ryan Isaac:
Yeah a lot of reasons.

Brian Hanks:
Right. Listen, standard practice, this is you should go to the dentist every six months not everybody does, but the standard device in the industry is valued officially value practice every 5 years or so.

Ryan Isaac:
Oh, okay.

Brian Hanks:
There’s a paper trail and you can understand things, but even if you don’t really do that, totally normal request, you’re not necessarily selling your practice.

Ryan Isaac:
That’s a normal thing to do.

Brian Hanks:
Yeah. It’ll cost you a few thousand dollars depending on who you get it done by.

Ryan Isaac:
Okay.

Brian Hanks:
And yeah.

Ryan Isaac:
Okay. That’s good to know. And then alright, so that’s tier one. I had some other questions, but I wanna keep hearing, I’m gonna derail us, I’m just peppering with questions here. Tier one, yeah, knowing I’m just hearing you say you gotta know what direction you’re even headed in the first place. In today’s market, private or DSO is probably the main fork in the road. The first one that we come up to.

Brian Hanks:
Yeah. Yes.

Ryan Isaac:
Okay. And then that’s some tier one knowledge, like who? Okay. All right. So that’s tier one.

Brian Hanks:
Okay.

Ryan Isaac:
Are there more tier one level kind of…

Brian Hanks:
Lemme let me just give one more little piece of tier one knowledge of we’re bleeding into tier two, but there are brokers that have been around for a really long time that have a really old way of doing things.

Ryan Isaac:
Okay.

Brian Hanks:
Now this is what’s changing. The old way of doing things is a model that’s called dual representation.

Ryan Isaac:
Okay.

Brian Hanks:
Where the dental broker who is being paid by the seller on a commission basis, has everyone sign a form buyer, seller, both sign a piece of paper that says, I am representing both of you.

Ryan Isaac:
Okay.

Brian Hanks:
And on paper, there are some maybe legitimate reasons why I could logically spin a tail. Why that’s a good idea. But just know that there are dual representation brokers and there are non-dual representation or solo representation brokers and no spoiler, I think you should lean towards the solo representation, which we can get into.

Ryan Isaac:
Yeah. Well, it just seems it’s like that in real estate. It’s kinda rare where people will have dual representation brokerage services, even in real estate.

Brian Hanks:
Codified in real estate in the law, in the legal world.

Ryan Isaac:
Yeah. Legal world.

Brian Hanks:
You can be disbarred if you tried to represent both parties.

Ryan Isaac:
Yeah. It’s actually, isn’t that fascinating how some industries have taken a much harder stance on just how that works because there is a lot of gray lines there. I think about that too in our industry. This isn’t as like, I don’t think this is that big of a deal as like legal representation on two sides, one attorney, but firms that do a lot of the same stuff in-house, they’re a financial advisor, they’re a CPA, they’re a broker, they’re a consultant, they…

Brian Hanks:
Private equity fund. We have our own private attorney…

Ryan Isaac:
They have private equity funds, they’re attorneys, yeah. Not that there’s anything legally or morally wrong with that. It’s just at some point, there’s just, having a fresh pair of eyes just thinking about you and only you and only the one service that you need from them at that time is just gonna be the cleanest way to approach things. So I like that approach too. I was thinking of another question really fast on the valuation side of things. How common is this? And we could just kick this to another question, but I get a question all the time about when is it time and how do I know it’s time to bring in an associate, if it’s one doc practice and I’m hitting 1.2 to 1.4, 1.5, and it’s like, : I’m busy, I want some help.” Does that fit in this category of services of… Or is that a more of a, you gotta find a consultant that can do that kind of a thing?

Brian Hanks:
Well, okay. The answer is yes, you can do it with a broker and, yes, you could do it with, like here at Denton Dental A Team like…

Ryan Isaac:
Yeah, yeah, yeah.

Brian Hanks:
Really good practice management consultant.

Ryan Isaac:
Yeah. Real comprehensive something, bigger picture. Yeah.

Brian Hanks:
But I mean, yeah. I mean, the short answer is dental brokers do have associate placement service as one of their menu options.

Ryan Isaac:
And they know, and they know when it’s, yeah. I guess the question becomes how do I know how this is going to affect me?

Brian Hanks:
Yeah.

Ryan Isaac:
And can someone just look at my collections, my procedure codes, some of my processes that are happening and how collections break up between me and hygiene and whatever, and tell me, am I gonna lose money? Or is this a good time? What’s my new patient count? What’s the flow? Just logistically, how is this gonna play out? Is that a good broker question?

Brian Hanks:
No, it’s not. That’s a good consulting question. Now, the broker can, and/or CPA but probably the broker can answer the financial side of the question. And there’s some rules of thumb. 1.3 to 1.5 in collections, busy, booked out X number of weeks. Some of those things.

Ryan Isaac:
Yeah. Good marketing.

Brian Hanks:
Broker can be really good there. Actually getting down to brass tax of, and we’re gonna schedule these two columns for this associate, these are the codes that are going…

Ryan Isaac:
Flow.

Brian Hanks:
And then Suzie at the front desk is gonna, this is, these are the phrases she’s gonna use when she talks about the new associate.

Ryan Isaac:
Okay.

Brian Hanks:
That’s your consultant.

Ryan Isaac:
Yeah. That’s someone who’s gonna come in and say, “Hey, your business is changing pretty dynamically, so we need some new systems, processes, flow, team training. You just need some new stuff in here ’cause it’s something you’ve never done before.” Yeah. And that makes sense. Okay. I don’t remember, I think we were still on tier one dipping into tier two.

Brian Hanks:
Yeah. Yeah. So…

Ryan Isaac:
It’s like when I go to Disneyland, I don’t remember where we parked, like which level is it.

Brian Hanks:
No. It’s okay.

Ryan Isaac:
Like, is it Mickey or is it Goofy level or is it like Daffy or, I don’t remember which level we parked on.

Brian Hanks:
So Daffy, is Warner Brothers, terrible, Ryan. He’s in Southern California.

Ryan Isaac:
Wait, Daffy is Warner?

Brian Hanks:
Yeah. You’re thinking of Donald, but that’s okay.

Ryan Isaac:
Oh, geez. Okay.

Brian Hanks:
Yeah, Daffy gets his bill shot off by Elmer Fudd and Bugs and anyway. Okay.

Ryan Isaac:
Yeah. Okay.

Brian Hanks:
Yeah. Yeah. So, all right. Sorry. Now I’m off on a tangent. So let’s go through that client that emailed you and asked, “Hey, what questions should I ask?” All right. So we’ve got the basic knowledge. Here’s some actual questions.

Ryan Isaac:
Okay.

Brian Hanks:
How many listings do you currently have right now? Okay? In other words, how busy are you?

Ryan Isaac:
Okay.

Brian Hanks:
Would…

Ryan Isaac:
Can I… Sorry, can I pause there?

Brian Hanks:
Yeah.

Ryan Isaac:
Is there a guideline for what’s okay, what’s too many, how will you know if someone will have time to pay attention to you? Should you ask about the size of the team? If you have like 50 listings, you’re like, well, do you have 10 people or what should you be asking in regards to that?

Brian Hanks:
Ten to 15 listings per broker is probably a max. You start getting 20 listings and a broker can’t focus on you. So how many listings, and then you can look on their About Us website, and you can ask. Who’s gonna… Yeah. Which broker is working my deal. Super common, by the way, to have associate brokers. So you can have the main guy that gave the speech on the epic steak dinner you went to. And you call them up thinking he’s gonna be the one listing and…

Ryan Isaac:
And it’s someone else.

Brian Hanks:
Working with all the buyers, and it’s the junior person, which is not necessarily a bad thing. I have found some of the junior people to be better, but you wanna know. Okay?

Ryan Isaac:
Yeah. Okay.

Brian Hanks:
And that’s a fair question, but I would say, yeah, 15, 20 is probably 10 to 15 range.

Ryan Isaac:
Okay. Good to know. Okay. All right. So that’s question one. Okay.

Brian Hanks:
Yeah. What is your buyer pool look like? How do you find them? How do you stay in touch with your buyers?

Ryan Isaac:
What’s normal? How does your industry work? How do you normally find… Or maybe that’s like a Coca-Cola recipe secret that you can’t really dish out.

Brian Hanks:
No. No. No. Yeah. That’s, yeah. The broker will tell you that. I will tell you. Not having seen the internal workings of tons of brokerage rooms, I’ve seen a few, it is a lot less standardized and process driven than you would imagine. You imagine the broker has got like the Mission Impossible wall with like strings and people’s pictures and…

Ryan Isaac:
Oh, yeah.

Brian Hanks:
Talking to… Oh, no, no, no. Like there is an email list maybe, if they’re organized enough to have a CRM or some kind of MailChimp or something like that, and if they have an email list, they are emailing when they get a new listing or there’s something that goes out, that’s typically about what I see. The average broker is having a lot of phone conversations with buyers who are calling them and is trying to remember, oh, that’s right. This dentist wants to be in St. George, Utah, not Salt Lake City. Okay, got it. But it’s a little bit less organized than you would think. And so asking them some detailed questions on like, how do you keep track of your buyers? Are they tagged in a system somewhere? How do you know how many people are looking strictly in Albuquerque, but would actually look in, somewhere else, in New Mexico and not just Albuquerque? So just trying to get a sense for, right, because one of the things you’re paying for, assuming, of course, you need the buyer matching service, is you are assuming as a seller, this person’s going to go find a buyer for you.

Ryan Isaac:
Yeah. Yeah, especially the maybe the more rural the market. Or which the buyers become very, very necessary. Okay. That’s a good question to ask then.

Brian Hanks:
Yeah. Another good question to ask will be, it’ll depend a little bit on your collection size, and I’ll clarify here in just a second, but the question is, are you gonna shop my practice to DSOs? Okay? Super standard practice, in the practice brokerage world is to get a listing of a dental practice and tell the dentist, no problem, we’re gonna value this practice. We’re gonna get you top dollar from the private buyer you want, take that information, take it over to a DSO and say, Hey, just got a dentist who’s looking to sell. Not sure if you guys would be interested, but if you were, how much would you buy this practice for? Then the broker can come back to the seller and say, Hey, I know you said you wanted to buy from a private buyer. I know you said, but Hey, I can get you this dollar amount. Would you consider a DSO offer? Why would the the broker do that? Well, because the list, their commission is based on a percentage of the sales price.

Ryan Isaac:
Yeah.

Brian Hanks:
And the sales price from DSO is bigger, right? So and frankly, let’s not attribute it all to greed. It is, I mean, if the seller is open to that as an option, good for the broker for giving the seller all the options. Another, and this is the dual representation question.

Ryan Isaac:
Okay.

Brian Hanks:
Ask this, the broker, are you gonna charge the buyer in any way to sell my practice?

Ryan Isaac:
Okay. I wouldn’t have thought that that happens.

Brian Hanks:
But yeah. Okay. Tell me why. If you don’t mind, I’ll flip it and ask you a…

Ryan Isaac:
No, I’m saying I wouldn’t have thought that if…

Brian Hanks:
Oh wouldn’t.

Ryan Isaac:
Yeah. If I’m a seller and I hire a broker that they’re gonna charge my buyer, I would’ve never thought that before.

Brian Hanks:
I will estimate somewhere between 25 and 35% of the brokers can’t answer that question with a no. In other words, a significant portion, somewhere around a third of the brokers in the country try to charge the buyer a fee of some kind.

Ryan Isaac:
And that’s based on they just, they can?

Brian Hanks:
They can. Exactly. That’s…

Ryan Isaac:
Okay.

Brian Hanks:
When I got one of these brokers, I won’t say who, he’s in the northeast. Got him at a bar. There were a few drinks in him. I asked ’em that question and I pushed him and I kept pushing, pushing, and he finally said, “Brian, it’s because I can, and no one can stop me.” And…

Ryan Isaac:
That’s a great answer, dude. All right, fine. Okay.

Brian Hanks:
$16,000 from the buyer in addition to whatever the buyer’s paying for the practice, just for the privilege of being at the table, and the broker makes no promises that he or she is going to do anything special for this buyer. It’s just a fee that they can charge. And there’s, because there is no credentialing body in the industry.

Ryan Isaac:
Yeah, yeah, yeah. And it’s a big transaction. You can pack a lot of stuff in there and, yeah.

Brian Hanks:
But a savvy seller may say, Brian, I want that guy. I want the really, balls to the wall, like, really aggressive broker, and I’m here to tell you that’s a mistake, and here’s why. Buyers are savvy enough to ask that question. And when they see that $16,000, a lot of times it’s five grand, sometimes it’s a percentage, when the buyer sees that, the buyers run the other way. So you as a seller are limiting your pool of buyers by hiring that broker.

Ryan Isaac:
Yeah. I’m, I would’ve never thought about that before, that that actually happens. So I’m glad. Okay. I’m glad you brought that up. I don’t know if that was question three or four, but… That was a good one. Who cares.

Brian Hanks:
I can’t remember. I’ve got one more that you didn’t think happens, or, you know, it’s not obvious. And once you think about it, you’re like, of course they do that. But you ask the broker, are you going to make money off of introducing the buyer to any other services? Now, the big one are banks.

Ryan Isaac:
The buyer?

Brian Hanks:
The buyer.

Ryan Isaac:
Okay.

Brian Hanks:
So, Ryan you’re selling me your dental practice, I… I’m sorry. You’re using me to sell your dental practice. I’m the broker. Okay? I get this guy, his name’s Reese. I’ve never heard of him before. He’s kind of shady looking, but he is…

Ryan Isaac:
He’s some dude.

Brian Hanks:
He wants to buy Ryan Isaac’s dental practice.

Ryan Isaac:
Yeah.

Brian Hanks:
Okay? I now have Reese as a potential buyer. Reese is about to borrow $2 million to buy Ryan super successful dental practice. That introduction to a bank is worth something.

Ryan Isaac:
Yeah. Maybe in the ballpark of like 20 grand.

Brian Hanks:
Yep, exactly. 1%. So, now, again, is that shady and unethical? We can have a debate about that, but what all you want to know is you’re just trying to figure out…

Ryan Isaac:
You just want disclosure.

Brian Hanks:
And where is the banker, or excuse me, where is the broker making money on this deal?

Ryan Isaac:
Yeah. It’s just transparency. It’s just disclosure. I mean, my industry is way worse than yours for like, not disclosing fees and hiding them in all kinds of cracks and crevices, so, yeah.

Brian Hanks:
Marketing.

Ryan Isaac:
I mean, it’s everywhere. Okay. I think that might’ve been five questions.

Brian Hanks:
Cool.

Ryan Isaac:
But those are really good. What, okay. So, because everyone does want to know how people charge, can you just say like, what’s typical for how brokers charge? Like how can it work, how can compensation work for a broker? And we’re on the subject anyway.

Brian Hanks:
The very most common way to do it is eight to 10% of the sales price of the practice. It is negotiable. You wanna be careful negotiating, just like you don’t want your buyer killing goodwill in the deal by negotiating the heck out of you as the seller.

Ryan Isaac:
Yeah. Same thing.

Brian Hanks:
You don’t wanna take off your broker and have the broker put in their C-level effort. So my advice is if you need a broker, you happily accept whatever fee they’re willing to charge you and manage them very closely and make sure they’re giving you optimal value, or is the communication frequent? Are they putting high quality buyers in front of you? Does it seem like they’re educating you through the process? All of those things.

Ryan Isaac:
Okay.

Brian Hanks:
But there, I think there is this belief that 10% is the standard fee for brokers, but it’s expected that you’re gonna try to negotiate that down.

Ryan Isaac:
Yeah. Yeah.

Brian Hanks:
And that’s not necessarily true.

Ryan Isaac:
Okay. So that’s pretty standard, typical, a percentage. Just in my, like I said, I don’t know this world, in my mind, I assume there’s probably like discount flat fee kind of things out there. But then I would feel like, I’m just guessing they might violate some of those questions. Like, okay, if your firm is like a discount flat fee kind of broker, you’re probably trying to pick up that extra revenue that everyone else is getting and you’re not somewhere else, and maybe loading yourself with 30 listings instead of 15, because you gotta make up the difference somewhere. Like it’s gonna cost you somewhere, I’m assuming.

Brian Hanks:
There’s a a prominent, well, semi-prominent name that says we’re a 3% brokerage, and that’s their sales pitch. Right? And you’re like, “Wow, three is way better than… ”

Ryan Isaac:
It’s like a third of what everyone else gets in revenue. You’re like, why would you run a company making a third? So you’re either gigantic, or you are making money somewhere else.

Brian Hanks:
And the way they’re making their money is they’re charging the buyer 3%. And so they’re, and so they’re up to six, then they get lots of side deals and everything else, you have to use this lawyer, and you have to use this bank and everything else. So you’re exactly right. And that’s just a real world example. And by the way, not a lot of buyers want to go sign up with that broker and see their listings because they don’t wanna pay 3%, they’re [0:32:32.9] ____ a bunch of money.

Ryan Isaac:
They’re gonna violate some of the other questions. And why… You’re not gonna run a business, it’s just capitalism. You’re not gonna run a business on a third of the profit… On a third of the revenue everyone else in your industry, your competitors are getting, for no good reason than just to be… Unless you had like three times, 300% scale on everyone else.

Brian Hanks:
That’s right, yeah, no.

Ryan Isaac:
Like that’s not gonna happen.

Brian Hanks:
If you’re Microsoft, you can sell Microsoft Office [0:32:57.7] ____.

Ryan Isaac:
Yeah. Like you gotta… Yeah, you’re not gonna Walmart everybody. You gotta get gigantic for that.

Brian Hanks:
You can, if you don’t pick the full service of brokerage needs, I just need an evaluation. I just need someone to walk me through the process, completely reasonable to ask for a flat fee.

Ryan Isaac:
Tell… Okay. Yeah. That, that makes sense. Tell me who is the archetype personality situation that calls you? Who reaches out to you?

Brian Hanks:
Yeah. The associate who’s been out of school 2 to 5 years, they’re fed up working for a boss or a DSO. They want some autonomy. They’re ready to pay off their student loans faster and they know they wanna buy a practice. They’re not sure how to do that, or even how to find one.

Ryan Isaac:
Okay. And your job is to help line those people up with a potential opportunity. You do that?

Ryan Isaac:
Yeah. Except… So here’s the caveat, is unlike a broker, I’m not a matchmaking service. So what I teach the buyers, and I have a ton of… A crap ton of free resources, [0:33:54.5] ____ where I teach buyers how to find a dental practice to buy. Once they have found that practice they come to me and they can hire me. Two reasons for that. Number one, finding a practice to buy is a lot like, and this is admittedly bad analogy. But it’s a lot like finding a spouse, okay? It’s highly personal. It really is a logistical and philosophical match of clinical philosophy, etcetera. And I can teach you all day long, you need to have this Tinder profile and this picture needs to look this way. And on your first date you should say and do these things and not these things. But, and when it comes right down to it, the dentist needs to be the one to have that first meeting with the seller. And, I did try for a while to charge multiple, multiple thousands of dollars to match-make buyers, and it was a colossal waste of money and a waste of everyone’s time. So, I teach the general principles, the dentists come to me with a practice they have in mind. If it falls through, no problem. Our service, and not to sell me or my service, but we’ll look at an unlimited number of deals. That’s our buyers of this community.

Ryan Isaac:
It’s great. Yeah. I’m asking. Yeah. Yeah. Great. Okay.

Brian Hanks:
And we’ll walk them through the process.

Ryan Isaac:
What about, later stage career people?

Brian Hanks:
Yeah. So later stage career people…

Ryan Isaac:
Who’s getting in touch with you?

Brian Hanks:
They’re usually calling me because they know I know buyers. So I’m not the person to call if you’re looking to sell your practice and you don’t wanna hire a broker. And I may know a buyer in your area, but, usually they’re looking for valuation or they’re looking for, the savvy, by the way, can we go back to your questions?

Ryan Isaac:
Yeah.

Brian Hanks:
And you just asked broker. I’ll put my name out there tentatively, but there’s a better version of this. You can call me if you want. Say, Hey Brian, I’m in Philly. Which broker should I hire? ‘Cause I’m the guy that’s negotiating against all the Philly brokers. I’ll tell you, it’s good. But there are better people than me. Right. I have a national presence. The bankers and the lawyers in your area, deal with these brokers all the time. And if you can build a very small, but just a little bit of a relationship with, and again, you can feel free to ask me who the bankers are, who the lawyers are in your area, those folks will be very blunt with you. Do not, for the love of God, do not hire X, Y, Z broker, of which you’ll hire, option D. [laughter]

Ryan Isaac:
I feel like an attorney would say it exactly like that too.

Brian Hanks:
Yeah.

Ryan Isaac:
They’re just gonna be super blunt with you.

Brian Hanks:
And so of course you want to call three or four different people and then orient those answers, because you may get slightly different responses based on who got screwed on the last deal, etcetera. But, the cream will rise to the top. You’ll start to hear the same names over and over.

Ryan Isaac:
I do like that. And you’re very active in social media, in our Facebook group, and you’re a person who delivers education and content to the masses for free, because that helps the industry as a whole. And it’s obviously grown your business just fine too. Where can people find you directly and the book again?

Brian Hanks:
Dentalbuyeradvocates.com.

Ryan Isaac:
Okay.

Brian Hanks:
If you just google Brian Hanks, or if you want go out to Amazon, probably the best way, just on Amazon is, again, How to Find a Dental Practice. No, no, sorry. How to Buy. [laughter]

Ryan Isaac:
How to Buy. It’s been 5 years. It’s time to write another one. Maybe that’s…

Brian Hanks:
How to Buy a Dental Practice.

Ryan Isaac:
Yeah. Okay. Dude, thank you for doing this. I appreciate it, man, and…

Brian Hanks:
Thanks again for having us and we, we really enjoy the partnership. We refer a lot of business to you. I just want folks to see me, because I touch so many dentists, I get a lot of requests for referrals. There are a lot of good financial planners out in the world. There’re only a handful in the dental space, and dentist advisors really is, and again, I know it because I lived in the industry. If you haven’t consider hiring dentist advisors, they do an amazing job.

Ryan Isaac:
Dude. We’re just gonna hire you for ads from now on, on the podcast. That’s perfect. Thank you. And thanks everyone for listening. If you have any questions, go to dentistadvisors.com, and thanks Brian. Thanks everyone. We’ll catch you next time, on another episode of the Dentist Money Show. Take care now. Bye-bye.

Practice Transitions