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Could Your Lease Agreement Affect Your Ownership? – Episode #393


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Dentists have diverse legal needs whether it’s incorporating; real estate—purchasing, selling, or leasing a building; associate agreements; and don’t forget the issues that come when selling a practice. A lot can go wrong. On this episode of the Dentist Money™ Show, Ryan welcomes dental-specific attorney David Cohen to talk about legal concerns that come with ownership.

Show Notes
CohenLawFirmpLLC.com

 

 

 


Podcast Transcript

Ryan Isaac:
Hello everybody. Welcome back to another episode of the Great Dentist Money Show, brought to you by the fantastic dentist advisors, a no commission fiduciary, comprehensive dental only financial advisor for dentists all over the country. You can check us out @dentistadvisors.com. Today on the show, a new friend David Cohen, attorney at David Cohen Law Firm, cohenlawfirmpllc.com. Man, we’re talking DSO transactions. We’re talking big time common mistakes and pitfalls with a buy or sell transaction that involves real estate and leases. I was kind of surprised at some of the things he talked about that seemed to be common mistakes that can be quite costly. We talked about associates and partner agreements and a few other things that were just super fascinating. David and his firm are doing 400+ plus transactions with dentists alone all over the country on the business side and involved in real estate as well. So, he is very well informed and had a lot of really helpful things to say. So, thanks to David for spending time. That was great. We will for sure do this again. Thanks to all of you for joining. If you have any questions, as I always say just go to dentistadvisors.com. There’s a big green button on there, click it, chat with us. We will answer your money questions and point you in the right direction, and we love doing that. Thanks for being here. Enjoy the show.

Announcer:
Consult an 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 dentists make smart financial decisions. I’m your host, Ryan Isaac, and I’m here with what I think is an old friend, but a new friend of the show. David Cohen. What’s up David? Thanks for being here, man.

David Cohen:
Yeah, thanks for having me. I feel privileged to be on this podcast. I know that it’s quite popular and get a lot of attention. So, I feel privileged to be here and looking forward to it.

Ryan Isaac:
You’re setting a high bar right out of the gate. Yeah, I was saying maybe an old friend ’cause I swear we have probably worked on client cases together in the past. Like you said, we’ll have to dig through emails, but thanks for being here. Anyway, someone recently connected us and how about, let’s just start with this. Can you explain what your law firm does, what you guys specialize in, what you’ve been working on for years? I’m also just personally curious how you got into all this. What led you into law and dental specific legal work? So, just give us a little rundown that’s, I’m really curious about that.

David Cohen:
Yeah. So, first and foremost I own Cohen Law Firm, which is a dental law firm, and we specialize primarily in practice transitions, helping doctors buy, sell and partner in practices. And we do between three to 400 transitions nationwide, yearly. So, it’s definitely something that we’re well involved with. And we also do quite a bit of real estate work, and I also own Cohen Property Law Group, which is real estate law firm for non-healthcare, but that’s really, there’s a lot of synergy from the standpoint that we have a lot of doctors who end up wanting to do things with their money after closing of a deal, and they’ll do projects that aren’t related to healthcare in the real estate realm. So, we get clients that are coming over from the dental side and we also have non-dental clients, but really the real estate is a big part of the dental transaction because every dental transaction for the most part has a lease, has a lease assignment, or has a building purchase. And so we’re, it kind of plays an integral role in what we’re doing. And I grew up in a dental family. My father is a periodontist. And so, we always grew up around it. He is in the continuing education space as well, he started a group called Seattle Study Club. And so growing up…

Ryan Isaac:
Oh wait, hold on. We’ll skim over that. That’s gigantic. That’s a big group. Okay.

David Cohen:
Yeah. Yeah. It’s a big group. Really high quality. And so, I grew up in that. I grew up going to dental meetings and just was always around it. So, when you asked how I got into it I think I just always felt acclimated to dentistry in one way or another. I played basketball through college and at pretty early in college realized I wasn’t gonna play at the next level or even close and I had to do something else. So, I went to law school, but I always wanted to kind of loop back with dentistry just because that’s what I grew up around. So, that’s how I ended up getting into it. And then in around 2010, I started Cohen Law Firm and here we are and working with dentists doing transitions and general business law work firm.

Ryan Isaac:
Yeah, that’s, so I am curious about what made you not become a dentist yourself.

David Cohen:
[laughter] I think my father was big on not forcing me or pushing me into anything. And I think he sort of wanted me to navigate for myself. And so, it took a bit for me to kind of circle back to it. I think originally I wanted to do something with basketball or something in that capacity and then just kind of like hit me, that made a lot of sense to be able to help people in the dental realm. But yeah, I don’t know. I don’t have a good answer for why I didn’t actually go to dental school. But…

Ryan Isaac:
We’re gonna get deep. This is like therapy, so we’re gonna do this in front of 35,000 people. No, that’s really cool. Thanks for that background. I am curious in the, even in the legal world, even in the dental niche, it still seems like there’s a lot of ways you could have gone. There’s a lot of transactions that dentists are involved in, or even on the personal legal side with estate planning and other legal aspects on the personal financial side. Was there something that drew you to the business side? Maybe it just was the being around the business of dentistry for so long with your dad and family?

David Cohen:
Yes, really interesting question. I grew up in a very competitive atmosphere, playing basketball and at a competitive level. And so, you would think that what would follow from that might be the more adversarial side of the law, like litigation. But actually it was the opposite. I do enjoy competition, but I think what I realize is that I like more than anything in life, seeing people make deals and come together. And that’s what the transactional side of the law really is all about, is making a deal and helping parties come to an agreement so that they can fulfill both of their needs and have a win-win where both succeed.

Ryan Isaac:
Yeah. We’ll get into this, but would you, would you describe the landscape of the business of dentistry as being very, very different than when you started your firm?

David Cohen:
Oh. Absolutely.

Ryan Isaac:
So, like it’s just like night and day now?

David Cohen:
It’s night and day. And it’s funny that you ask that because it doesn’t really hit you until you like actually look back and say, “Whoa, like, where are we now?” As as opposed to… I guess I’ve never looked that far back to 2010. I was kind of more looking back like, “Oh, how was this three years ago or four years ago?” But actually, yeah, 2010, completely different world.

Ryan Isaac:
I do. Yeah. I always think back on, like, one thing that I just still remember was we started in oh ’07, I think, and I remember the first couple of clients who were telling me their student loan balances that were in like the high 100s and I was, my mind was blown that someone had almost $200,000 of student debt. And now fast forward today, we have clients who are couples where they both went to dental school in like seven figure student debt.

David Cohen:
Wow.

Ryan Isaac:
And it’s just like, the world is just so different. So, I think what would be maybe a good list of topics to cover, we can do like… I love hearing pros and cons. I love hearing what is like hot topic in these areas. What common mistakes or what’s becoming, what’s trending. But the areas would be, you mentioned real dental real estate, which I think is really fascinating. I would love to just hear maybe some of the transactions you’re involved with. And I think you’re right, many, many dentists… It’s a rare profession where you have this like professional kind of medical career track that’s very clinical based. But then you also have this opportunity to be an entrepreneur and a commercial real estate owner. I don’t think there’s a lot of industries that are like that. So, I’d love to hear about real estate.

Ryan Isaac:
I’d love to hear about DSOs, the kind of deals you’re working on pros and cons, common mistakes and then partner… If we have time, like some partnership associate stuff is really hot right now. I feel like this week alone, I’ve already had two or three conversations with people who are just scrambling to find partners and associates and grow. And it’s just kind of a wild world. So, we can take this wherever you want, but maybe we’ll just, just camp in that little real estate spot for a minute. And what’s a normal transaction? Are you saying people are maybe buying and selling the real estate when they transition, or you have to work on the lease agreements and just the, just how the leases go? Maybe it’s all of it.

David Cohen:
Yeah. I think the number one thing that I wanted to do is before getting into that is lay the foundation. And the foundation is, I’ve got a law firm that is in the non-healthcare space dealing with non-healthcare related matters and matters that aren’t even in the realm of what healthcare practitioners are doing. For instance, we do a ton of hospitality projects where we’re helping owners and developers of land build hotel condos, both internationally and nationally. And so, we’re seeing the value of real estate and how the client values real estate on that side where it’s the main event for them. And then we’re also seeing to the contrary in doing three to 400 dental transitions a year, how dentists view real estate in general. And the biggest thing that I’m finding is that, I’m generalizing and I’m sure there are many dentists that are not doing this, but for the most part, I would say that the majority of our clients don’t value real estate as much as they do with the practice.

David Cohen:
They value the real estate as almost like a throw in. Like, “Oh yeah, I’m selling my practice. Yeah, just throw a lease together for me. Or… And it’s not to put, it’s not to put down dentists. I think that it’s more about educating them on the importance of the real estate and not just in a purchase and sale situation, but in a leasing situation. And it could be because you’re the owner of the building and it could be because you’re buying a building or gonna be leasing the building, whether it’s from the owner or a third party landlord. But I think the biggest thing that I can emphasize is that real estate matters significantly. And there are a lot of mistakes that are being made by dentists that are catastrophic, in my opinion, that dentists need to be aware of, that are in these, particularly in like the leases that we’re seeing more recently. And just to kind of give an example, we’re seeing a lot of leases recently that have, that are with third party landlords that are saying that if the dentist sells their practice that the landlord gets to share in a portion of the sale.

Ryan Isaac:
No way.

David Cohen:
For instance, today…

Ryan Isaac:
Oh my gosh.

David Cohen:
We’re seeing that and this is…

Ryan Isaac:
Wait. This is… Sorry, this is something they sign when they move into the space originally and they just didn’t notice it in the contract?

David Cohen:
Yeah, exactly.

Ryan Isaac:
Oh, swap.

David Cohen:
They either didn’t have the lease reviewed because again, it was maybe they did a startup and there was a throw-in, they felt like it was a throw-in or they bought the practice and it was a throw-in or they did get it reviewed and it wasn’t found. And I will say that sometimes it’s black and white, it’s upon transfer of any assets of your or equity in your business, the landlord will be entitled to 10% of the proceeds period. It could be as black and white as that, but it can also be very tricky, in what I should have done and did not do. But I could have probably done a share screen and pulled up like a paragraph provision that is, would be on first look, you would think that it does not say what it really says, but that it’s interpreted and there’s significant precedent that it’s interpreted to mean that the dentist would have to cut the landlord in essentially to a proportion of their sale.

David Cohen:
And so, like this can be catastrophic because it affects the financial plan obviously of the doctor that owns the practice that’s leasing from that building. It also significantly restricts the marketability of the sale of the practice because a buyer’s gonna come in, a buyer’s gonna have legal counsel review, and then they’re gonna say, “Wait a minute, this is what we’re taking on. Like yeah, I mean, we realize that upon this sale we’re not affected, the seller is affected”. Because we do get a lot of sellers that say, “Hey, like I’ll pay the fee just buy… I’ll figure that out just buy the practice”. But it’s like they’re stepping into the same lease that’s getting assigned. Right?

Ryan Isaac:
Whoa. Yeah.

David Cohen:
And so, we’re having to see from time to time doctors have to pay off landlords and say, “Hey, I’m not gonna cut you into 10%, but I will give you 3% and three percent is better than 0% and it’s still a significant amount of money. And if you don’t agree, I’m just gonna not sell the practice and you’ll get nothing. So, why not agree to 3% and I’ll cut just to get outta this, the problem is this, the buyer is now gonna take on that landlord and that lease. So, part of that negotiation is gonna have to be, not only is the landlord getting the 3%, but the landlord is now gonna take out of the lease that same provision. And that can be tricky as well. And so, it kind of depends on who the landlord is and how they operate. And we’ve actually seen these provisions and leases before where the landlord actually doesn’t even enforce it. It’s rare and it’s a risk, but it happens. So, point being is that this can materially affect the future of the doctor who owns the practice and it can also affect the future of the doctor that’s buying the practice.

David Cohen:
And that’s just something that’s in a lease that’s not, it can be glossed over or a lot of times these dentists don’t even get the lease reviewed. I can’t tell you how many times buyers of practices say, “Well, I’m just getting the lease assigned to me and I can’t change it anyway because why would the landlord change, make a worse lease for themselves when they don’t have to? I’m just taking the lease as it is. Why would I even get it reviewed? I can’t change anything”. Well, the reason you get it reviewed is because you wanna understand what you’re signing up for. And if there’s, on rare occasion a catastrophic clause, like I just said, that’s nuclear, that could impact the decision to buy the practice. Now I do wanna emphasize that’s on the rare side. It’s not like we’re seeing the majorities these leases have them, but I will say that it was the type of thing where we may have seen it once a year and now just this year we’ve probably seen it five times already.

Ryan Isaac:
Whoa. Wow.

David Cohen:
So, it’s definitely happening more and more and it’s just something that doctors should be aware of. That’s one example that I would give of doctors failing to invest in getting help with reviewing of their leases because they don’t feel that the lease is that important of a component of the deal because they’re dentists and the dental practice therefore would be the main event and the thing that they’re focused on the most, but the lease matters. Also, with respect to just whether or not they own the building or whether the seller is gonna sell the building if you’re on the sell side that’s a consideration that I think is often taken lightly as well from time to time. I think sellers often make the decision based on like, what they feel like, as opposed to talking to their team, talking to their advisors like yourself about, “Hey, does this make sense?

David Cohen:
What would this look like if I continue to own it and lease it?” Versus “What if I just sell it now? What can we do with the money if I sell it now? How is that all… What does the whole picture look like?” And I don’t feel like that analysis is done very often as it should and or done as often as it should. And so, this kind of circles back to long story short, I think that there needs to be more of an emphasis on the real estate components of the deals to be equal to the dental side of the deal. You’re doing two different deals in the same deal and they both have equal importance. They’re just based… They’re based on other things. So long way to answer your question, but… [chuckle]

Ryan Isaac:
That’s really.

David Cohen:
I don’t even know if I directly answered your question. Kind of babbling.

Ryan Isaac:
No, you totally did. And you gave me… No, you did, you gave me more questions too. One thing that you said was in dentistry, and I think this is totally right that the real estate just becomes like this side component that it’s not the main show. What did you call it? The main show? The main…

David Cohen:
Oh I think I said the main event.

Ryan Isaac:
Main event? Yeah, the main event. It’s totally not, and it’s funny that you ended saying what you said because I often see dentists will buy the commercial real estate that they’re in for whatever reason. And even though mathematically their best interest from an income standpoint, are returns percentage standpoint return on investment standpoint, their best interest would be to hold that property now that it’s paid off, they’re gonna leave, someone else will be the tenant, it would be in their best interest to hold it many times, it’s like mathematically to actually get the return out of this thing that they’ve been working in for 15, 20 years. But they get to a point where the practice is done and they’re kind of just like, I’m just washing my hands of all this stuff. I’m so tired. Like I don’t wanna be connected or tied to any of this. And so, they will kind of discard the real estate, having been the only tenant while there’s a loan on the practice for 20 years and like the return on it might not even be positive after all the stuff is factored into it and it’s only gonna be a good investment if it’s held past that point. But is often not.

Ryan Isaac:
So, I do think that is a product of just most dentists, I think it’s fair to say don’t get into commercial real estate because they’re trying to be commercial real estate investors. It’s just a thing that you do as a dentist and it gets treated as such. The other thing that’s really interesting and I want to circle back on is so, you’re right, man. I don’t think I see many dentists who are taking over a practice and just assuming a lease, actually hire a separate real estate attorney to look at the lease. They might have an attorney looking at the business sale, like you said, the main event, but not the practice and the lease. And I hear this over and over from real estate people like have representation. You have no idea how crazy these leases can be. So one advice, advice number one I would take would be if you’re going to buy a practice or assume any lease, like not only have someone representing you in the deal of the of the business but you got to have someone representing you looking over that contract for sure.

David Cohen:
Yeah absolutely. And also on the sell side we also in a similar fashion have the sellers that have a third-party landlord often will not get the lease assignment process reviewed when they’re assigning over the lease to the buyer and that is also a mistake, because first of all what if they have a clause in their lease that they didn’t get reviewed to begin with or it was missed or something where it would… They’re about to sell the practice and all of a sudden the landlord comes with their handout and is like, “Okay, you owe me 10%”. And they’re like, “What? Where is this coming from?” Also, what the seller needs to be careful of is in a lot of of these leases, no joke, they will say, if you so much as give notice to the landlord, that you intend to assign the lease, the landlord actually has the right to terminate the lease, or they can permit assignment upon blank conditions and one of them might be paying…

Ryan Isaac:
Oh my goodness, man.

David Cohen:
That percentage. So, the seller runs the risk of, wait a minute, okay, if I just give notice that I want to sign this lease, they could terminate it and I could have no place to practice and the buyer hasn’t even closed on their deal with me yet. Now, from a practical standpoint, the vast majority of these landlords want that tenant in there and they likely control him.

Ryan Isaac: Yeah, it’s on their best interest.

David Cohen:
It’s very unlikely that they would terminate the lease, but also we’ve seen some crazy markets where, you know, the real estate is crushing it. The landlord doesn’t have the best lease. They want, they feel like they can get someone in there. So, point being is that the seller really needs to know what they’re… What the consequences are of assigning that lease, if there are any. And in many cases, there are no consequences, right? But in addition to that, the seller also is gonna want to at least try to get released from liability under the lease because most landlords will want to keep the seller on the lease as a guarantor moving forward. And so, just being able to try to negotiate that is something that’s worth reviewing. So we also see the sellers, oh, I’m just, you know, assigning this lease and transferring it over. The other thing that we see sellers do from time to time is they think that because the buyer enters a brand new lease with the landlord sometimes instead of assigning the lease that now they’re out of it. But from time to time, even in a brand new lease with the buyer and the landlord, the landlord will often try to still add the seller as a guarantor on the lease, at least for a period of time. So these are all things to look out for and not be taken lightly in lease assignments, whether you’re on the buyer side or the seller side.

Ryan Isaac:
Geez.

David Cohen:
All just examples of why it’s really important to get these things reviewed.

Ryan Isaac:
Yeah, and I’m trying to think of some of the representation I’ve had. I’ve seen clients acquire and it doesn’t seem like it’s very common that the same attorney in most firms who will be looking at the actual like practice contract or the sale of the practice will also be well versed enough to look at the real estate side. Is that fair to say kind of just in general in your industry?

David Cohen:
I think, yeah, I think it definitely depends. The standpoint that I have is that I think that it’s really important to have someone who specializes in real estate, look at the real estate and someone who specializes on the dental side, specialize on the dental side. At my firm, we have attorneys that do both at several others I’ve seen have attorneys that do both. And then at others, I see the same attorney doing both and I feel that sometimes that attorney has enough experience in both that it works great, right? And sometimes they don’t as much. So I think it’s kind of a crap shoot, but I’m a big believer in if I can provide value to the client and give them somebody who all they do is real estate, focus on the real estate and all they do is dental, focus on the dental, that’s gonna be an optimal result.

Ryan Isaac:
Let’s go to the other like really hot button thing right now. DSOs, love to have you take this wherever you would like. Our audience is always just really interested in the landscape, what’s happening, what trends are going on, what’s changing common pitfalls, mistakes people are making? So, love to just leave that open-ended. What do you work on commonly with DSO transactions and what are you seeing out there?

David Cohen:
Yeah, so we do have some clients that are DSOs, but most, we mostly work on the sell side. And I think the sell side is what’s gonna apply most to this podcast, because I’d imagine that most people that are listening or watching are gonna be owners of practices who would be on the sell side selling to a DSO. And I think one thing that’s really important, I’m a huge proponent of team, I think to surround yourself as a dentist with the proper team is really critical because either A, you don’t know you’re not a professional in the realm that they are, or B, if somehow you happen to be a jack of all trades, you probably still don’t have the time to focus on doing what needs to be done to do a good job. And so, I think that it’s really important to surround with the team. And I think anybody who has a practice that’s marketable to a DSO that’s a good practice, can go to a DSO and say, “Hey, I wanna sell my practice to you”. And there’s probably going to be interest, right? Depending, you know, certain DSOs have certain requirements that they’re looking for and all that. But like in general, there’s a general statement, if you have a good practice and you want to sell to a DSO, you probably could just go yourself to DSO.

David Cohen:
But I think that getting a really good broker involved who understands these DSOs is really important because it’s critical that a seller sell to the right DSO. And the right DSO could mean a number of things, right? If that seller is interested in money as the number one thing, then they need to go look obviously for this DSO that is gonna give them the most money, right? If other things are important, like their quality of life or making sure that things continue in the office the way they always have. And that the thing that they built for 30 years stays the integrity of that, stays intact. And that it’s almost as if they wouldn’t even know that a DSO bought the practice because everything’s running so smoothly normally afterward. Maybe that’s what they need most. And that won’t be the most money potentially in the transaction, or maybe it will. But that’s their priority, right? So, I think just to be able to have a resource that a dentist can bounce thing off and say, “Hey, these are my priorities”. And then have the broker be able to take it to market, get multiple offers so that they can potentially have a bidding war or benefit the most from a financial standpoint, but also to find the right fit for their practice is really gonna be critical. And that’s something that I don’t see done enough. I definitely see…

Ryan Isaac:
I agree.

David Cohen:
Doctors who will just be like, “Oh yeah, this DSO approached me, I think I’ll sell to them”. Right?

Ryan Isaac:
Yeah. They emailed me their packet. I’m good. Let’s go.

David Cohen:
Right, exactly. And it may not be the best fit. And in general, I think, you know, we do probably half of what we do is DSO stuff. And half of what we do is non DSO stuff. So, we see both sides of it. And I’ll say that not only is it critical as a seller to find the best fit of a DSO or the best DSO fit, if you’re doing a DSO deal, but it’s also important to examine whether a DSO deal is even a good fit for you as a dentist to begin with. And I think the DSO deals are amazing for some, and they’re not a good fit for others. And I think that they’re, it’s really important that each doctor does some soul searching and really looks into what their goals are and what they want, and not kind of listen to the noise or see what everybody else is doing, and to really focus on what their needs are and you know what they want to do. And that can be a number of things, right? I mean, if you’ve got a doctor who’s five years away from retirement and wants to make the most amount of money that they possibly can.

David Cohen:
A DSO could be a good route for them, because they’re probably gonna get more money from a DSO than a private buyer. And every DSO is gonna pretty much mandate that the seller work for three to five years afterwards. So, it’s a perfect opportunity to, if the legal work is right, guarantee that you’re in your own practice and get to take chips off the table and benefit from the fruits of the money you get, have some stock, have some other potential earn out opportunities.

David Cohen:
And still be able to benefit and stay in the practice and ride out those five years, I guess is what I would say, right? If the dentist wants to retire and if they wait four more years, they may have just eliminated DSO from the whole equation because they only wanna work one more year and most DSOs won’t do it or if they do do it, they’ll do it where they won’t allow you to have stock where they’ll offer you a lot less money, I’m in one of those right now. So, I think that it’s important really to plan out and see what’s best for you. Now that same doctor might say, well, I don’t ever want to sell to a DSO. I don’t ever want to answer to somebody else in my own office. Well, then selling to a DSO is not gonna be the right fit no matter what, right? You don’t wanna answer to somebody else. You’ve done it for 30 years. You’ve done it a certain way. You don’t want someone to come in and change it. So, I think it’s critical to A, understand what DSO to sell to if you want to, but before you can do that, determine if a DSO is even the right fit and how do you determine that? You build a team of advisors and you talk to them about the pros and cons. So that would be what I would say about DSOs.

Ryan Isaac:
Yeah, I’m glad you said that. I think it is becoming more and more common to have a broker involved. I know that that can be tricky, finding the right broker that is, I mean, we’re all getting paid to make a living, but the right broker that also, really will have the best interest of the dentist selling in mind and really do their best work to find the right deal and not hurry anything along. I know that can be tricky. There are more and more good options out there, but it’s becoming more common. And I’ve just seen anecdotally more deals come across someone’s plate who are looking better deals, better negotiated deals, higher amounts, enough to justify hiring a broker. Like every time I’ve seen one, they’ve made a good difference in the clients I’ve seen use them. So, I’m glad you brought that up. Yeah, it’s a really… The ones that are tricky for me are the people who are like mid-career trying to decide whether or not to sell. Those still seem about 50/50 to me. Even the ones who have been approached with kind of like retirement amounts of money, like you’re done, 43 years old kind of money.

David Cohen:
Right.

Ryan Isaac:
It’s just wild in dentistry to think that’s where things are at right now. But those feel a little bit tougher just because of the amount of time they have ahead of them. But to your point, having the right offer on the table might just make that so much more clear and easier to figure out than just engaging one by yourself as a dentist, getting their packet and their information and their financials, and then trying to figure that out. And that’s tough to do.

David Cohen:
Yeah, and there’s a pretty big, I totally agree with everything you just said. And I think there’s a pretty big sea change with COVID. And post-COVID, we were seeing a lot of doctors that were, like you said, mid-career, where they understood the value of quality of life and family and time outside the office more during COVID. And that’s what they kind of wanted for themselves. And so, they felt like doing a deal with the DSO where they could offload all the nonclinical dental, management services would be the best path for them. Even if it wasn’t the best financial path, it was the best life decision for them. And so, we saw a lot of that after COVID, and it’s actually continued. But we also see doctors who just do it because they think they wanna do it and they’re not getting the right advice and they’re not surrounding themselves with the proper team and really looking at, “Okay, what does it look like if I sell now? And what does it look like if I don’t sell now, but the practice continues to grow at the same rate that it has? Which of course, there’s no guarantee that it will, but you know, obviously you would hope that it would continue”. So, that yeah, it’s a dilemma, I think for some doctors particularly like you said that are mid-career.

Ryan Isaac:
Yeah, that’s a tough one. I wanna save some like teaser content that we can put out on a webinar actually. But let’s hit, I’ll let you choose actually. I think there’s the topic of some of these like key mistakes or things to think about with associates and partners, which seems to be just really hot with the hiring and job market right now, employment market. And same thing, like you mentioned that there’s a lot of things to consider post-sale that people probably don’t think about. So how about you pick one of those topics, we’ll save the other one and dive in more detail on a webinar.

David Cohen:
Yeah, I think I’ll talk about just the entrance into the partnership.

Ryan Isaac:
Cool.

David Cohen:
I’m seeing more and more doctors, and this goes both ways, I’m seeing more and more doctors that aren’t ready to sell to a buyer a proportion of their practice yet, but want them to be an associate. I’ve seen a lot that want to almost like guarantee that the buy-in occurs even before the associate sets foot in the office. And I’ve also seen a lot of associates who haven’t set foot in the office want to be guaranteed ownership. And I think the biggest things to take away from it, let’s just take one at a time. So if you’re looking at the, as an associate that’s coming into the practice and wants to be guaranteed, you have to understand that that’s gonna go both ways. So, if you want to be guaranteed that you’re gonna be buying into this practice, then you’re also probably gonna have to guarantee that you’re going to buy into this practice. And for an associate that’s never stepped foot in the office yet, how do you know this is going to be the right fit for them? I hear quite often on podcasts, and I hear from my own clients, we work with everyone, we have tons of associates that are clients, and we have tons that come right out of school that are going to associate ship. So we see it all. And I can’t tell you how many times I see them say, “Hey, you know, I don’t want to get screwed and have this person not sell to me.

David Cohen:
I need to be guaranteed ownership going in”. But they don’t think that they also need to make sure it’s the right fit for them. And they don’t want to be stuck if it’s not. So, I think that’s one thing that’s missed quite often. And I also think as on the sell side, I’m seeing a lot of guarantees of associates or desires to guarantee ownerships to associates before that associate steps in without evaluating how do they produce? How do they interact with the staff? How do I get along with them from a decision making standpoint, and feel that out. So, I feel like it’s a big, big opportunity to tell everyone to just slow down and just make sure that it’s a good fit before guaranteeing any ownership or right of first refusals on practices. All of that I think it can be can be very premature. So I think from that standpoint, that’s the foundation that I would definitely say needs to be evaluated. And then the second dilemma, and I don’t know that there’s a right answer you would know better than me. A lot of associates are saying that they… How does the practice get valued when they contributed to the growth of the practice? And I don’t know that there’s a right answer.

David Cohen:
I mean to me I look at it kind of in two ways. I say sure okay as an associate I could understand that the practice grew, but how did it grow? Was it because you as an associate brought in new business or is it because you just produced dentistry that was being fed to you by, according to the practice?

Ryan Isaac:
Totally.

David Cohen:
And I think there’s a big difference there. And I think there’s a disconnect on that front because to me personally, I feel that they add value if they bring in patients and referral sources and things like that. But I know there’s another side to it. I don’t know if this is the right answer, you’d know better than me, but I think that’s something that’s not examined as closely as it probably should be. And then you get to the time where the associates going to buy in and they already invested in, you know, advisors and all this. And then they find out that they’re not on the same page about how it’s even going to be valued to begin with.

Ryan Isaac:
Everyone rushing to get married after the first date is really interesting. Why do you think that happens? Like, well, it seems like it used to be where associates would spend more time in a practice before they or the owner would be willing to even talk about partnership, but it does feel like a very rushed thing nowadays, kind of anxiously, like I haven’t even started yet, but I’ve got to make sure that there’s a buy-in opportunity. What do you think affected that or changed that?

David Cohen:
I think what’s affected it on the senior doctor side is that you have some senior doctors that like have gone over their financial plan with their advisors and they’ve set a retirement plan and the time that they’re going to get out and transition out of the office, and they bring in associates, and they teach them everything and get them up to speed, which is very time consuming and takes a lot of effort. And then the associate leaves them. And now they’re back to square one. And they’ve gotta…

Ryan Isaac:
And they’re two years older. And yeah.

David Cohen:
Yeah. Two years more, and now they’ve gotta find someone else, make sure they’re the right fit, make sure they want to buy in, make sure they are the right, et cetera.

Ryan Isaac:
True.

David Cohen:
So, I think we’ve seen some doctors get burned on that side, and that’s why they’re super sensitive. I’ve also seen on the other side of things, doctors be told that they’re gonna be able to be an owner of a practice, and then they’re in there forever, and then they’re just never, it’s always…

Ryan Isaac:
That seems common.

David Cohen:
Never good start. Seems common. Yeah. So, how do you fix that? I think that one great way to fix it is potentially, each party can put some skin in the game. I mean, this is a little more than many want to do, but each can put some money in escrow that if one party backs out, they keep the other’s money, and so forth.

Ryan Isaac:
Like a house, yeah, like a real estate transaction. Yeah, that’s why that’s used in real estate. I haven’t seen that used in a partnership in dentistry much, are you seeing that more? That kind of approach?

David Cohen:
I don’t see it often, but I do from time to time see it.

Ryan Isaac:
Cool, it’s great.

David Cohen:
And it’s something that I think could be, it just holds everyone accountable, because the associate, if they’re gonna have to put money into escrow or use some of their paycheck to go into escrow, they’re not gonna commit to that dynamic unless they’re serious about being an owner to begin with.

Ryan Isaac:
Yeah, it’s true.

David Cohen:
So, it kind of already that’s the seriousness of the associate if you’re on the senior doc side, because you know if they’re willing to do that, that they’re serious about this, right?

Ryan Isaac:
Totally.

David Cohen:
And then I think on the flip side of it, it’s same thing. It just shows that the senior doc is serious because they never would have put up money if they weren’t serious about this dynamic. So that sort of takes away, it makes everybody take a look in the mirror before they start to make sure this is something they wanna do, as opposed to thinking about this great idea of doing this. But when it comes to pulling the trigger, realizing that that’s not really what they want to do. And then wasting everyone’s time for a couple of years. So I think that’s, hopefully that answers your question.

Ryan Isaac:
Yeah. No, that’s really interesting, man. You hear the stories all the time of an associate, I mean, even the owner side, too. You don’t know until someone’s been in the practice working for at least a little while. There’s such a human dynamic that you just can’t gauge just because someone fits some criteria on some paper. How they interact, how they come across the patients. Can they be the type of producer that draws new patients and new business and doesn’t just take capacity? Yeah, those are really good points, man. I really appreciate you doing all this. There’s so much more we can go into. And let’s totally, we’ll set it all up. We’ll do like a webinar. We can share a screen, spend more time, have some like live audience interaction it’d be really cool. How do people reach out and find you? How do they get in touch? What can they expect when they reach out? What’s kind of like the process of doing all that?

David Cohen:
Yes. The best ways to reach me. And I’ve done this, and it’s worked out to this point. No one’s ever used it, but I’m happy to give them my cell phone number.

Ryan Isaac:
Dude, at your own risk. Let’s go. All right.

David Cohen:
It’s 206-919-9060. I’m always happy to have a chat. And then with respect to email it’s david@cohenlawfirmpllc.com david@C-O-H-E-N L-A-W F-I-R-M P as in Paul llc.com.

Ryan Isaac:
Cool.

David Cohen:
Those are the two best ways to get in touch. I also have a Facebook group called, Practice Transitions Revolution, and that is another good way just try to kind of put people together that want to collectively help each other with transitions and be a supportive group where there’s kind of defenses down. So, those are the best ways to get in touch.

Ryan Isaac:
Yeah, awesome. Very cool. Thanks for doing that. Thanks for spending time. It was great to have you on the show and I think we’ll be able to do a lot more content in the future. So I really appreciate it, man.

David Cohen:
Yeah, I can’t thank you enough for having me. I really appreciate it. It’s like if there’s a podcast you want to be on, This is the one you want to be on.

Ryan Isaac:
My gosh, that’s wild.

David Cohen:
And so, I definitely feel privileged to be part of this and just want to thank you for it.

Ryan Isaac:
Yeah, for sure. Thank you, man. Thanks for everyone listening and we’ll catch you next time on another episode of the Dentist Money Show. Take care now. Bye bye.

Practice Management, Practice Transitions

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