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Practice transactions can be tricky. Here’s why you want an expert on your side throughout the process.
On this episode of the Dentist Money™ Show, Ryan interviews Brian Hanks, author, podcast host, and buyer advocate for dentists looking to purchase a practice. Buying a practice is a life-altering decision—and it’s one you need to get right.
Ryan and Brian discuss the five things that banks want to see before they’ll lend. Plus, Brian throws in a secret ingredient that can give you the midas touch when finding and buying the right practice for you.
Ryan Isaac: Hello, Dentist Money Show listeners. Welcome back. This is your host, Ryan Isaac. Today, I’ve got a good friend. Our guest today, his name is Brian Hanks. Brian Hanks is one of those industry go-to experts when it comes to practice transitions. You see, Brian is a CPA, and he worked for a long time in a traditional financial planning, accounting type business model. But, he saw too often that the buyer in practice transitions was highly unrepresented. That led Brian to write a book titled, How to Buy a Dental Practice, which is awesome, very descriptive, and eventually to his current career as a buyer transition advocate.
Ryan Isaac: You want to know the five things Brian says that the bank wants to see in a purchase, plus there’s a sixth secret ingredient. Say that three times fast, that Brian claims is the secret to a good buying decision. As a reminder, book a free consultation with us. We’d love to chat with you. Just check out the calendar at DentistAdvisors.com. Book a call, and we’ll reach out and talk about your questions, your decision making, try to help you take better control of your financial future. Or, you can just call us directly, 833-DDS-PLAN. Thanks again for joining us, really hope you enjoy the show.
Announcer: Consultant an advisor or 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, a registered investment advisor. This is Dentist Money.
Ryan Isaac: And, welcome to the Dentist Money show, where we help dentists make smart financial decisions. I’m your host today, Ryan Isaac. I’ve got a good old time friend here, Mr. Brian Hanks, transitions expert. Welcome to the show, Brian. Thanks for joining us today. How are you doing?
Brian Hanks: I’m awesome. It’s the classic long time listener, first time caller. So, I’m excited to be here.
Ryan Isaac: I’d like to call everyone my old friend. He’s just an old friend. Actually, we probably met, when did we meet you, years ago?
Brian Hanks: Years and years. In fact, the first time I ever talked to Reese Harper, I was standing in a Walmart in Burley, Idaho. I think he’s from Burley, and it was-
Ryan Isaac: Well, he’s across the river. He fought Burley kids. He’s from Rupert.
Brian Hanks: Rupert, right, yes. But, yeah, no, and then I’ve been in the office many times. So, a pleasure to meet you.
Ryan Isaac: Thanks for joining us, man. For our listeners, I’m going to dive into … I’m going to do the awkward intro where I read this professional bio about you, and then you’ve just got to sit there and listen to me brag about you to the public. But, it’s pretty cool. Brian, I’m going to stop on a few of these, and I want to expound before we go anywhere, but you’re a buyer’s rep on dental transitions. So, let’s stop there.
Brian Hanks: Think of a broker and what a broker does, and just flip it, and I just do the same thing for a buyer. So, if you’re buying a dental practice, I represent you. I act as the accountant through the transition. Then, I hand you off to your team of professionals after you own a practice.
Ryan Isaac: Well, so sentence number two is you got into this because you are a CPA.
Brian Hanks: Yeah, so accountant. I got the CFP credentials, which I know you did, but yeah, I don’t do that anymore. I just do transitions.
Ryan Isaac: Yeah, that’s where you began was for some large CPA and dental accounting and financial planning firms.
Brian Hanks: Right, and at the time, I was working with all the younger dentists doing financial planning and doing taxes and doing the whole thing. I got all the guys buying practices, and they’d ask me the same questions over and over. So, I’d answer them, and then I got tired of answering them, so I write a blog post. Pretty soon, I had enough blog posts, I thought, I should turn this into a book. I had such a positive response from the book that I turned it into a business, and been having fun ever since.
Ryan Isaac: Now, a career. Okay, but that was sentence number three. So, you focus on transitions exclusively, but you authored a book. The book is called, How to Buy a Dental Practice. Just for everyone listening right now, we’re going to give you a way to get this book for free by the end of the show.
Brian Hanks: Yeah, and the title is so creative that you can tell I have an accounting background.
Ryan Isaac: How to Buy a Dental Practice. Well, what else do you want? I’m looking for a book on how to buy a dental practice. There’s one appropriately titled, How to Buy a Dental Practice. That’s great, and you also have your own podcast, Practice Purchased.
Brian Hanks: I do, yeah. I love, in fact the very first dental podcast I listened to was Dentist Money, and there are a number of them that I like and listen to. But, this one, I decided to put out there, 20 episodes, 20 minutes or less. Start to finish, the process of buying a dental practice. No ads, no fluff, but the goal was just to help educate people.
Ryan Isaac: Is that an ongoing, you’re adding to those, or you meant to do them just as a series, instructional, easier media than reading it somewhere or watching videos, just here’s a podcast. Are you adding to it consistently?
Brian Hanks: As we’re recording this today, not all of them are live. They will be, but they’ll be in seasons. Season one will just be out and there. Somebody can binge it just like they’d watch an episode of-
Ryan Isaac: So good.
Brian Hanks: Whatever.
Ryan Isaac: It’s like the new Serial podcast, except it’s about dental transitions. Way bigger audience for dental transitions than the Serial.
Brian Hanks: The seven of you that listen to it, if you’d let me know, I’d appreciate it.
Ryan Isaac: Give him a review, man. Go listen to it. It’s called Practice Purchased. So, let me back up to something I said just a few minutes ago, which is you represent just buyers in all of your transactions. Maybe that sounds intuitively like there’s a reason why you’d do that, but explain why you do that. What’s the benefit of that? What does that really mean to your clients?
Brian Hanks: So, think about the journey of a dentist. I did a biology undergrad. I took the DAT. I got into dental school, maybe did an associate-ship, and I think I want to own a practice, go out, start searching, looking for something, maybe find something. Immediately, some big questions come to mind. Am I really going to spend a million dollars on this thing? How do I know it’s a good practice? They’re telling me it’s worth a million. Is it really? How much money am I going to make? There are some big questions that come into play. Traditionally, the model has been to rely on the broker or maybe you have a smart attorney that gives you some advice, but really through dental transitions, the history, no one has really stepped up and said, “I’m just going to represent the buyer, and I’m going to look after the interests of the buyer.” Ryan, you’ll appreciate this. I think the thought process came about for me from the fiduciary world of being a financial advisor.
Ryan Isaac: Oh, cool.
Brian Hanks: As a fiduciary, you say, “I’m going to put my client’s interests ahead of my own.” Time after time, I was helping, while I was doing accounting and financial planning, I’d watch these buyers go through horrendous experiences where maybe they’re getting ripped off, or maybe they’re just getting told things that weren’t necessarily true. I would watch them and think, why isn’t somebody helping this person?
Ryan Isaac: Interesting.
Brian Hanks: The answer is, a lot of the money is on the sell side, but yeah, that’s what I do.
Ryan Isaac: So, okay, so traditionally in the transition industry, when somebody is going out there to buy a practice, and they’re looking for someone to help them, is it pretty common that a new buyer would go out and find a broker who’s also representing the sellers? That’s probably the most common model?
Brian Hanks: There are a lot of brokers out there that will do dual representation. So, yeah, it is probably the most common model today. My argument is that dual representation is no representation. Either there’s zero sum aspects to a deal that a broker has to take a side on, price being the most obvious. But, there are other issues, timing, tax asset allocation, other things. So, yeah, today, most buyers know, I probably need an accountant. I probably need a lawyer, and they’re going to help me get through the transition.
Ryan Isaac: Okay, so lets go to my first question, which is most probably the most common thing. If we ever go to a dental school and give a presentation, or some of our younger listeners, the biggest question clearly is, how do I get started in all this? How do I go about buying a practice? What things should I keep in mind as I’m beginning the process? There’s a lot of them. Let’s start with that question. New grad, they’re looking to buy something. What are some of the first questions they … What’s the process? How do they begin this journey of figuring out what to buy, where to buy it, startup versus an acquisition? Where do they start?
Brian Hanks: Okay, so you’re going to need five things to buy a practice with a secret sixth thing. How’s that for a teaser?
Ryan Isaac: I like this. Everyone get their pens and paper or, I don’t know, iPhones or something out. Five things, and a sixth.
Brian Hanks: You can remember. They’re not hard, and frankly, there’s only two that are really difficult. One is, you’ve got to have a clean credit history. Bankruptcy, short sales, that will be tough for you to buy a practice. Second thing is you need a credit score of 680 or more. That’s a go, no-go. 681 gets the same rates and terms from banks as an 800 plus credit score.
Ryan Isaac: Oh, interesting.
Brian Hanks: You’ll need a production history that’ll get you somewhere in the neighborhood of whatever a seller was producing. So, Ryan’s a dentist. He’s doing $1.5 million of Invisalign, and I’m a brand new grad who’s never done an Invisalign case. I’m not going to qualify for that practice, as good as everything else is, even if I have everything else on the list.
Ryan Isaac: Oh, interesting. Okay.
Brian Hanks: The bank’s not going to say you’ve got to be as fast as Ryan, you’ve got to have as good as Ryan. You’re a young guy, but you’ve got to get close.
Ryan Isaac: That’s something I’ve actually never thought about before, is proving your capacity to take over. Yeah, that’s a great business. Here’s the financials. It’s transparent. It’s good. It’s profitable, but whether or not you can keep that up. How often do you see that, I guess, now that I’m thinking about it? Is that common, that a dentist gets into that situation, but the bank won’t lend because they don’t think they can keep up that production?
Brian Hanks: It’s relatively rare. The most common situations where you’ll see a problem is if the seller was doing specialty stuff that the buyer can’t do, more endo, like that.
Ryan Isaac: That’s interesting, man. I wonder, I’d be curious to hear from anyone if they’ve run into that before. I don’t think I’ve heard of that, but okay. So, that’s number three.
Brian Hanks: Number four would be about a year’s worth of experience. So, your [gunner 00:10:24] listeners, your dental school money, Dentist Money listeners that are positive they’re going to buy a practice right out of dental school, I would tell you, don’t. And, I’ll tell you that you probably won’t get a loan anyway. There are exceptions out there. I’ve helped a few of them. So, if you think you’re the exception, send me an email.
Brian Hanks: We’ll talk about it, but my argument is a year’s worth of time between the end of your education, whether that’s a residency or just dental school, whatever that end of education looks like, and the day you buy a practice will give you hand speed, clinical skills. It’ll give you patient’s acceptance, treatment planning, all of the things, and frankly just a knowledge of, oh, I thought I loved Invisalign. Turns out I really hate it, and I don’t want to buy a practice that does a lot of Invisalign. So, about a year’s worth of experience to be done before.
Ryan Isaac: Do you find that new grads struggle with that concept? Or, is that something that’s kind of widely accepted? Yeah, I’ll go work for a little bit, or is it something people fight against? I just want to buy something day one.
Brian Hanks: There’s 10% that, when I go out to speak at the dental schools, they fight. The other 90, it’s the exact opposite. I’m trying to convince them it’s a good idea to go buy a practice.
Ryan Isaac: They’re like, “I don’t want to get a million dollars of debt.” Yeah, that’s really interesting. Dude, you’re 26. Go work for a year. It’s okay, you can make it.
Brian Hanks: Exactly.
Ryan Isaac: Okay, that was number four, then, a year of experience.
Brian Hanks: So, here’s the hardest, is number five. You’ve got to have some cash. The magic number is $50,000.
Ryan Isaac: Where does that come from? I tell people that all the time, and I don’t know why, other than I’ve heard it from bankers.
Brian Hanks: Yeah, yeah, and that’s where I got it, too. I’ve asked them that question. The real rule is the lesser of 10% of the purchase price or 50 K in cash. Let’s get clear about what the cash is for, right? If you go buy a house, you’ve got to have some cash, too, but you’ve got to hand the cash to the bank as a down payment.
Ryan Isaac: You can keep it in a dental practice.
Brian Hanks: Yeah, in a dental practice, no, no. The bank wants to see that cash liquid, available. It can’t be in an IRA. It can’t be in a 401(k). It’s got to be liquid and available. But, it sits there. It doesn’t go anywhere, so why would the bank want to see it? Well, they want to see that you’re the type of dentist who had a job where you made some money, and you could actually save a little bit of that money. You didn’t go out and buy the Tesla on day one.
Ryan Isaac: Oh, man.
Brian Hanks: Yeah, sorry, man. Then, they also want to know if you had an emergency, that you could handle something.
Ryan Isaac: Take care of it, yeah. The practice won’t go under. That’s really interesting, man, the 50,000. The cool thing about that is usually people are trying to do multiple large life decisions at the same time, practice, first house, building. I mean, would you agree that priority should be the practice above all else? Because, again, like you just said, you don’t have to use that cash. Then, you can actually use that cash for a house down payment later or the building or something later.
Brian Hanks: Right, and I’ll rephrase this in nerdy financial planner talk that you and I understand. What is the best ROI right now? The best ROI on your money as a younger, educated, practicing dentist is a dental practice with 40%, 60% overhead, 40% profit margin. So, yeah, maybe you forego paying down those student loans for a period of time and rack up a little bit more interest, but the return on investment on the dental practice is so much bigger that, had you plunk that $50,000 into your student loans and then went to go try to get a practice, you can’t now. Now, you’ve got to wait. Now, you’re talking about the time and everything else.
Ryan Isaac: Do you find that’s the biggest temptation, that’s the biggest place people want to put the money, student loans?
Brian Hanks: Right, and their response, and again in nerdy financial planner talk is, well, what my emotional ROI is so huge, to feel like I’ve made progress-
Ryan Isaac: So big.
Brian Hanks: Loan, and I get that. I respect that answer, but let’s be clear. There’s a financial cost to that emotional ROI.
Ryan Isaac: Yeah, I think about that a lot, man. A strong dental practice, whatever your career path is going to look like, but if you’re going to be an owner, getting into the right opportunity at the right time and maximizing production and your income as fast as you can, that drives every other decision and opportunity for 40 years, probably more. You just can’t do anything that puts that in jeopardy. That’s got to just take first place at the table. So, what’s the bonus? What’s number six, bonus?
Brian Hanks: Yeah, here’s number six.
Ryan Isaac: Five and a bonus.
Brian Hanks: Anybody listening can start this today. So, you’re a first year dental student. You’re listening to the podcast, and you start today. The sixth thing you need is relationships with other dentists.
Ryan Isaac: Cool.
Brian Hanks: Most people, when they try to go out and buy a practice, they go to brokers. I’m going to go browse a broker’s website. I’m going to sign up for some email alerts. Maybe I’ll go to my local state dental board and browse some Craigslist listings, right? Fine, go do that. Go spend 20% of your time when you’re looking for a practice doing that, but the best practices for sale don’t even see the market. Either they don’t use a broker, the best sellers with profitable practices and the good aspects of a practice that you all see, they don’t use a broker. Or, the broker has a list preferred buyers, maybe DSOs that they shop the good practices to before they even publicly list it. So, I tell people-
Ryan Isaac: It’s their personal network.
Brian Hanks: Bingo.
Ryan Isaac: Seeing it first.
Brian Hanks: Yeah, it’s not networking. That’s schmooze-y. It’s business cards at conferences. It’s just a network of people that know your name, know that you’re a good guy or gal, and are in the market for a practice at some point.
Ryan Isaac: Yeah, it reminds me of real estate in really hot markets, little pockets of cities that are just so popular. They don’t even get listed. What’ll happen is there’s 10 neighbors that want the practice for 10 years. They’re like, “Hey, as soon as you move, let us know.” There’s a list of people. Someone will see on a Friday, and what I’m going to sell. They’ve got an offer Monday morning.
Brian Hanks: Asking price, exactly.
Matt Mulcock: Hey, Dentist Money Show listeners. It’s Matt Mulcock with Dentist Advisors. I want to invite you to join Ryan Isaac and me for a monthly webinar series where we tackle one of the Elements topics each and every month. It’s going to feel a lot like the Dentist Money Show, but you’ll have the ability to ask questions, answer live polls, and get a behind the scenes look at how we work with client. You can sign up for free at DentistAdvisors.com/Webinar. Hope to see you there.
Ryan Isaac: What about, let’s talk in that whole process. It feels like there’s a ton of room for mistakes. So, where are people tripping up? What are the common mistakes that people are making here?
Brian Hanks: The first and most common mistake is people are waiting too long to buy a practice. If you know you don’t want to buy a practice, fine. Skip ahead 30, 60 seconds, whatever. But, if you’d think you got into dentistry because you have a little bit of that entrepreneurial spark, and you want to own something in the future, what would you guess, Ryan, would be the average number of years that people practice … They’re out practicing. They’re doing dentistry, but they’re working for someone else before they buy a practice.
Ryan Isaac: I would guess three years.
Brian Hanks: What I’m seeing is five to seven years. The average dentist out there is working that five to seven year frame, and the most common comment I hear is I wanted to feel like I had my student loans under control before I got my own practice.
Ryan Isaac: Gosh, isn’t that crazy, man? There’s so much that rides on getting the right opportunity at the right time, and maximizing it as fast as possible, and that’s the driving force. What’s funny is five years out of school, no one got student loans under control. You didn’t control 650 grand of student loans. Nothing happened, but mentally, you feel like you’re doing something. You’re just waiting. That’s crazy, man. Wow.
Brian Hanks: I mean, listen, the true cost of waiting isn’t the difference in the interest that you saved on the student loans. It’s the compounding interest at the end of your career for three extra years of ownership or I’ve extra years of ownership. If you’re taking home 200 as an associate, but you could take 400 home working in that same practice as the owner, that $200,000 a year early on in your career, to by the way, pay off your student loans faster and move on, but then have that compound towards the end, it’s just huge.
Ryan Isaac: And, a business equity and business growth and just more learning and more entrepreneurial experience. It’s just so valuable to jump into as fast as possible. I get it.
Brian Hanks: I do, too.
Ryan Isaac: 600 grand hanging over your head before you’ve done anything else, before you’ve even started anything else has got to feel so crushing.
Brian Hanks: So, my argument back is, listen, if you can get out, work for a year, and you can show that you could do seven, eight, 12,000 a month in production, and you can do the dentistry, and you can learn new things, have that sense of confidence that things are going to be fine. Protect yourself with some insurance and everything else, but have some confidence. Go out and do it, and have somebody to help run the numbers to show you how this is going to work out in your favor.
Ryan Isaac: I’m sitting here wondering, in your experience of working with buyers, how often do you come across people that you legitimately feel like, yeah, maybe your personality shouldn’t be at least a sole owner of a practice? Because, that’s a real thing, and there’s no shame in being like, “I just love the work, and I don’t want to own this beast. I don’t want to put up with all the other mess.”
Brian Hanks: Yeah, that’s a good question. So, I’d say 20%, and the exact names of the … I’m just kidding. I’m not going to name people.
Ryan Isaac: Please stand by as we name every person that wasn’t cut out to buy a practice.
Brian Hanks: You’re right. You can’t think of yourself as a dentist who happens to own a business. You’ve got to think of yourself as a business owner who happens to be a dentist. That mentality isn’t for everybody. If that’s not you, and you can be honest with yourself, then yeah, partner up with somebody. Maybe you do work as an associate. There’s absolutely nothing wrong with that, but you’ve got to be smart about how you do it.
Ryan Isaac: Yeah, that’s interesting, man. Let’s just say someone’s in that boat. They’re kind of three to five years as an associate, really not sure if ownership is right for them. What are some options? I think everyone knows, if they own at least some part of a practice, it’s likely that they’ll make more money. They’ll build more wealth. What are some options for those people that might not want to do it for themselves? Find a good partnership?
Brian Hanks: You can dip your toe in in various ways. There are some DSOs out there. I know that’s a dirty word for a lot of people, but-
Ryan Isaac: I think that’s changing, don’t you?
Brian Hanks: I totally agree it’s changing. The average dentist, maybe you don’t want to be an owner because there’s so much to do. That just means that it could be outsourced. It could be done better by somebody else, which is in theory the business model of a DSO. So, go be one of the worker bees for a DSO, but with some equity kicker. There are those models out there. That’s a way to dip your toe. If you’re in private practice somewhere, maybe you’re in corporate, and you know what you could do is just take over some management-like duties for someone. Say, “Hey, listen, I really want to take over marketing for the next six months and see if I can make a go at it. Or, hey, let me handle the hiring and the firing and some of the scheduling and things like that.” So, take on some of the things that an owner would do, and see how it goes. Maybe you’ll find that it’s not that big a deal.
Ryan Isaac: Student loans, waiting too long, any other big mistakes that you would throw in there?
Brian Hanks: The last one, I would just say is analysis paralysis. You’ve got a clinician who is sticking needles in people’s mouths and getting sedation right. This is the type of personality who, Ryan wants to see your spreadsheets and wants to see mine. If I said to you, Ryan, “you’ve got to go pick a gym, and it’s the gym you’re going to be at for the next 30 years,” you would think a little longer and harder before you signed up-
Ryan Isaac: It’s a big decision, man.
Brian Hanks: It’s a big decision, but what I see happen sometimes in enough cases that it’s worth mentioning is that people get that analysis paralysis, and then the opportunity passes. The seller goes to somebody else. They can ever pull the trigger. I would just say that you’ve got to get comfortable with some level of not knowing everything before you pull the trigger.
Ryan Isaac: I like how for me, my analogy is picking a gym, not picking a house to live in. You know me well. I’ll uproot my family and move to another neighborhood, no problem, but I won’t leave my gym. You’re right. You’re totally right. Okay, so along those lines, then, I’ve got two questions. The first one would be, who does a dentist need to have in their life to make that decision so they’re not just stuck in the analysis mode forever? How do you finally pull the trigger? Is it just, you’ve got to have some outside feedback, don’t you?
Brian Hanks: I agree, yeah. A good dentist mentor, I think is a must, somebody that-
Ryan Isaac: Oh, cool, yeah.
Brian Hanks: Right, back to relationships. Have some dentists that know you. So, having a good personal network. I may be biased to say this, but I think a good financial planner that can help you see around the corners and look ahead financially to say, “Here are the pros and cons of moving in this direction. This is what this extra debt is going to do, and this is why it’s either a big deal or not a big deal.” So, those are the two people that come immediately to mind for me.
Ryan Isaac: CPAs and attorneys, a must during this period of time?
Brian Hanks: Your typical CPA for younger dentists or early career dentists is probably doing tax returns. The good dental CPAs that I know that are proactive and thinking ahead generally work with the owners. So, if you happen to be working with that dental CPA that is proactive and isn’t just cranking out a tax return in October because they filed for an extension because they didn’t bother to get ahead of the game a little, then yeah. CPA for sure. You’re going to need a lawyer, but the timing on the lawyer isn’t going to be until you probably found a practice. In terms of making the decision to move forward, that’s maybe a little-
Ryan Isaac: Some of those people are more … Make sure the details in the transaction, lower your CPA taxes, but you need some consultative people in your life, too. I like the dentist mentor. Man, I think that probably isn’t emphasized enough, having another dentist mentor. Someone that you’re like, “I want that life.” How about, this is something I always think about too, and I wonder how it changes over generations. What do you find is the driving decision between, I guess, the location? Do people make the decision based on, this is the place I want to live in, because it’s the city or the town? Or, do people make that decision based on the opportunity? I kind of hate this place, but the opportunity is killer, so I’m going to do it anyway. What do you think drives that?
Brian Hanks: I see some dentists go route number two. They’ll let the opportunity drive their career. Far and away, the first scenario is a lot more common. I want to live in Scottsdale, so I’m going to find a practice in and around Scottsdale, Mesa, Phoenix, somewhere. That decision drives the search process and everything else, which by the way, you’ll hear people say, “Well, that market is saturated. You can’t find any practices there.”
Ryan Isaac: Yeah, okay. When you hear that, what’s your reaction then?
Brian Hanks: My head explodes. My head explodes. It’s not true.
Ryan Isaac: Point to a little bit.
Brian Hanks: It’s not true.
Ryan Isaac: Half the time, it’s not even statistically correct.
Brian Hanks: Right. I mean, listen, here’s the kernel of truth there. There are areas of the country where per capita there are a few more dentists than other areas of the country. Okay, that’s the kernel of truth. But, again, if your method of finding a dental practice is to passively watch some broker’s websites, okay. Yeah, you’re going to have a harder time finding a dental practice for sale in Salt Lake City, or Portland, Oregon, or some of these more saturated markets. But, if you go out, and you have a robust network of dentists, other dentists who know you and know who else might be selling their practice, it’s just not true. There are enough dental practices for sale out there every day. I had two dentists. Ryan, you’ll love this, two dentists, same day, phone calls, prospects for me. Both of them in East Denver. Dentist number one calls me up.
Ryan Isaac: Hot, hot market.
Brian Hanks: Yeah, yeah. Found a practice. It’s okay. It’s collecting mid-500, 600, something like that. The overhead is a little high, but man, I’ve been looking forever, and I can’t find anything. So, I need your help to help me analyze this practice. Okay, yeah, no problem, happy to help. Half an hour, no joke, half an hour later, another totally separate dentist calls me. Hey, Brian. I want your help. I’ve got three awesome, million dollar practices in East Denver that I’m looking at. They just popped up, and I just found them. I’d like your help to help analyze them. I said, “Where again?”
Ryan Isaac: Same zip code.
Brian Hanks: I’m talking to the second dentist. I said, “How’d you find?” Well, this one, I knew this rep about, and this one, I knew the seller had a friend who … It was all the relationships that made the difference.
Ryan Isaac: As you’ve listened to our podcast, maybe there’s a question about your finances you’ve wanted to ask. It’s easy to get an answer. All you do is just pick up that phone, give us a call at 833-DDS-PLAN to set up a consultation. Or, if you don’t want to call us, you can just go to the website at DentistAdvisors.com, click the book free consultation button, and set it up. It’s free. Do it today.
Ryan Isaac: You know, people talk about, the money is always made in the deal. You always hear that in real estate. It’s probably more of a cliché than anything real. It gets tossed around. Where’s the money? Where’s the ROI in buying a dental practice? How do you make sure you’re getting a good deal, and you’re going to get something out of this thing?
Brian Hanks: Yeah, so the money is made in the deal, is that the exact wording of the phrase?
Ryan Isaac: I think. That’s what I hear.
Brian Hanks: I’ve heard that before, too.
Ryan Isaac: People talk about real estate.
Brian Hanks: I want to make sure I get that right so that I can say that unequivocally, that is exactly wrong for dental practice deals. It isn’t made in the deal. If you’re the buyer, the money is made in the year in, year out ownership of an income stream.
Ryan Isaac: Running the thing the right way.
Brian Hanks: Yeah, so the ROI comes in the profit margin. So, your number one concern as a new potential owner looking at new practices, let’s set aside clinical for a second. Let’s sit aside the city. If you just look at the numbers, the number one thing to look at is the profit margin of the practice, because that culturally speaks to how the office runs, the type of patients that come in, how often, and whether or not, how high rent is, and how people order supplies, and everything else. That’s the biggest thing. Now, I will say that similar to value and growth stocks, I drank the DFA Kool-Aid a long time ago. Shout out to DFA.
Brian Hanks: In investing, value stocks typically have a premium. Just like that in dental practices, rural practices tend to have a little bit of a value premium relative to urban practices. You want to live in downtown San Francisco? Great, but do it. Downtown Seattle is great. I used to live there, but relative to eastern Washington or rural Idaho or somewhere like that, you’re going to see a little bit better return on your investment if you do want to live rural. Ryan, you were talking about money and everything. I mean, it needs to be part of the equation, but the ROI without question comes into play with the ownership, the income stream.
Brian Hanks: What I would tell buyers, and I hate to do this, because I’m the buyer’s rep, is don’t go into a deal thinking that you have to negotiate. I feel like people with a home purchase, if it’s not a hot market, it should be just expected that you’re going to haggle a little bit. That is not true in dental deals. You can do it, but $20,000 amortized over 10 years at four percent, it’s nothing. It’s insulting to the seller, and the seller has got six offers anyway. If it makes sense to negotiate, do it. Don’t overpay. I’m not telling you to overpay for your practice, but what I’m saying is, don’t feel like you have to negotiate to get a lower price on it. Saving $50,000 on the asking price is nice, but it’s not literally $50,000 in your pocket.
Ryan Isaac: Yeah, you’ve got to Taylor Swift on that deal and calm down a little bit, because do you see … I was just wondering that. Do you see people blow up deals because they’re just out of ego and principle? There’s a $50,000, they just feel like emotionally they should pay 50 grand less, and they’re going to walk away from a great, 30 year career because of 50 grand or 30 grand? Do you see that?
Brian Hanks: Yeah, I see that, and it’s on the price, and then it’s after they’ve signed an LOI, and they’re starting to negotiate the legal documents. The buyer has said, “Yes, yes, yes,” to seven of eight things, and they’re keeping it back. They’re like, “I’m drawing the line at-”
Ryan Isaac: Man, human behavior negotiation is so funny, and I think we’ve all been in that situation too, where there’s literally no reason to do that, but on the eighth one, you’re just like, “You know what? I’ve conceded seven of eight points so far. I’m taking feed in on number eight. I don’t even care. We’re going back to the table on this one, because I just need something. You’ve got to give me something.”
Brian Hanks: Exactly, right.
Ryan Isaac: How often do you want to see someone bring in a consulting team, like business consulting or even really specific like hygiene or front office consulting right off the bat, even if it’s a well-established practice?
Brian Hanks: Yeah, I’m torn on this. When I sit and talk with consultants that I refer to, it’s a no-brainer. Oh, man, why wouldn’t you get someone in on day one to avoid the bad habits. Then, I’ll talk to another consultant who says, “Oh my gosh, you’re going to be the new boss, and you’re going to show up and try to change things? No, you need to get to know your staff, get to know your people.” So, my bias is to do the same thing that Fortune 500 companies do, and that’s to change nothing for at least 90 days. My sole exception to that rule is the pension, the 401(k).
Brian Hanks: There’s some good [inaudible 00:32:58] not keep the pension going. But, with that sole exception in mind, literally everything else, you bought this practice because it had some potential. It has patients. It has income. The goodwill of the practice is what you purchased. Get your feet underneath you before you start changing things. And, there are some things you need to change. So, the one other tip that I give people is to have what I call a delta file. Delta is, what is it, Greek, symbol for change?
Ryan Isaac: Yeah, it’s the triangle.
Brian Hanks: Yeah, yeah, or mass, whatever.
Ryan Isaac: It’s fine.
Brian Hanks: I’m smart, I promise. Have a file on your computer, your phone somewhere you can jot down all the things you want to change, so you can scratch that itch. Oh, man, Ryan wears his Elements shirt every day to work. We’ve got to change that. Okay, write it down somewhere. 90 days from now, sure, talk to Ryan about his Elements shirt. But, otherwise-
Ryan Isaac: I do. I only appear in public now with Elements shirts on in a work related capacity, and sometimes just personally. I do. It’s just easier on everybody. That’s cool. What about, I always wonder, what are some things … Let’s say you walk into this practice. It’s a great practice, but you know from day one, overhead is 10% more than it should be. And, you know that front office is … There’s just going to be some butting heads. Change is hard. Someone has been in their ways for 20 years in a practice. Is that just, again, to your point, put it down the road, give it a few months, bring in a consultant, bring in a team? How do you handle that, because I’m sure that’s probably the … Everything else is easy. Oh, a lab cost or overhead, but when it’s people, it’s messy.
Brian Hanks: I would think long and hard about buying that practice.
Ryan Isaac: Oh, that might be a red flag, then?
Brian Hanks: Yeah. Yeah, I might pull out of the deal. It’s that big a deal. Now, if everything else lines up, clinically, this is the practice you want, and geographically, this is where you want to be, yeah. You can change the staff. Chances are, by the way, if you are that way, staff will probably change themselves pretty soon. But, yeah, that’s a big deal. The hygienist is going to be standing in the grocery store line. Somebody is going to ask them about the new doctor. If they’re not saying nice things, that can really hurt you.
Ryan Isaac: Yeah, it just seems like that’s pretty common, to walk into especially an older, established practice where overhead just got really high. People are set in their ways. That can be tough. You mentioned a few things for sellers a little bit. Any tips for sellers, even though you’re on the buyer’s side to maximize their end of things?
Brian Hanks: Yeah, kiss of death if you’re a seller is to just put off the decision to sell. You put it off, you put it off, and your hygienist walks in and wants a two dollar an hour raise. So, like we were just talking about, Ryan, so you say yes because you know you’re selling the practice in a couple years anyway. So, your overhead starts to creep up. So, high overhead, plus declining collections equal big, big trouble for bank financing. The bank, there’s kind of a three strike rule with bank. Declining collections is always a strike. High overhead is always a strike. So, you’re going to limit the pool of potential buyers by taking your foot off the gas as a seller. So, I would just keep that in mind. I get it, right? Emotionally, if you’re not ready to walk away from the hand piece, then figure out a way to make it work so that you’re ready to sell and things like good when you sell.
Ryan Isaac: Okay, and one last one here, how should people think about paying a person to get involved with this? How would you pay a transitions expert to be involved on either side?
Brian Hanks: Okay, so my main advice is work with the people that you’re going to pay directly. So, a lawyer, you want to get the lawyer on the transition. You need to be the one that actually writes a check to the lawyer. Same with your accountant or transition buyer’s rep, whatever you want to call them. Make sure you’re the one. There are some dual rep brokers out there who will say, “No, no, no, Ryan. I got you. I will represent you. I’ll make sure this deal is fair.” Then, the question can be, well, how do you get paid? If the answer isn’t, you pay me, and you write me a check, then-
Ryan Isaac: Oh, someone else pays me. Well, who’s calling the shots then? What’s normal? What’s normal for a buyer to go out and pay buyer representation?
Brian Hanks: Okay, so your accountant is going to be somewhere in the neighborhood of 6,000 to 8,000. That’s a pretty good range for everything involved on that side of the transaction. A lawyer is going to be similar, so six to 8,000 depending on complexity and if you have the real estate entities, and blah, blah, blah. So, you’re probably looking at somewhere in the neighborhood of 12 to $20,000 give or take. But, here’s the key, is most of that won’t come due until after you close on the practice, and you’ve got a working capital loan from the bank. You can wrap that into the loan. So, that’s not literally cash you’re handing over to those people in most cases.
Ryan Isaac: And, that’s different from a seller. I always hear a seller pays 10% or 12 or 15% or something. That’s a totally different side of things.
Brian Hanks: Totally, yeah. That’s more like real estate where the broker wants … If they want a higher commission, they need to go for a higher price so that they do a-
Ryan Isaac: Is that still a good model? Is that still a fairly just reasonable model, that percentage for a seller?
Brian Hanks: If you’re a seller, and someone wants to charge you 10%, it can. The answer is yes, if. The big if is if the broker is good. Then, the game becomes, how do you know if the broker is good? That’s pretty tricky for your average seller to know. My advice would just be to ask around in the transitions community, because the good brokers and the bad brokers are very well known amongst the Ryan Isaacs and the dental CPAs and the bankers and the lawyers. So, ask around on who does dental transitions in your geography. Then, ask who the good brokers are. The best names will quickly rise to the top.
Ryan Isaac: Man, that’s awesome. Well, thanks for spending so much time, dude. First thing real quick, how can people find you? If they wanted to, you brought this on yourself. You said, “Email me,” three different times. So, how are people going to contact you if they want to ask you some questions? And, you’re located in Utah, but you do consulting and all this stuff all over the country, right?
Brian Hanks: Right, yeah. I work nationwide. So, I’ll work with buyers anywhere in all 50. I think I’ve hit 44 states, so Delaware. But, the best way to get ahold of me is just on my website, BrianHanks.com. It’s Brian with an I, Hanks like Tom Hanks, and the email address is Brian@BrianHanks.com.
Ryan Isaac: That’s awesome, man. Okay, in the beginning, we mentioned your book that you wrote. It is on Amazon. How to Buy a Dental Practice, normally, normal folk who do not listen to the Dentist Money Show pay what for that book? This is how you made millions of dollars, by the way, right? That’s how authorship works.
Brian Hanks: Yeah, right, right. Then, I learned about passive versus active income on my tax sheet anyway. I think the publisher lists the price, but I think it’s 17, 18 bucks on Amazon.
Ryan Isaac: So, Dentist Money Show listeners, courtesy, thank you very much, Brian, can go get this book. How can they do that, get a free copy of How to Buy a Dental Practice? How can they do that?
Brian Hanks: BrianHanks.com/Money. So, pretty easy to remember, money, Dentist Money is the thought there. If you don’t mind just picking up, I think it’s a couple bucks for shipping. I’ll ship it out to you, and you can save the cost. Yeah, cheers.
Ryan Isaac: That’s really awesome, man. We’ll put that in the show notes, too. Brian, seriously, man, thanks for taking time. This is really super helpful information. We’ll post all the things in the show notes, but I appreciate it, man. We’ll have to do this again another time. All right, thank you.
Brian Hanks: Thanks, Ryan.Practice Transitions