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As your practice grows you might consider hiring another dentist to help you manage your workload. Partners and associates can be a great way to multiply your efforts, but before you make the commitment, you should clearly understand what you’re getting into. This episode of the Dentist Money Show™ dives into the financial ramifications of hiring another dentist and the questions you should ask before bringing on another producer.
Speaker:This is Dentist Money, now here’s your host Reese Harper.
Reese Harper: Welcome to the Dentist Money show, where we help dentists make smart financial decisions. I am your host, Reese harper, here with my co-host, Sir Ryan Isaac.
Ryan Isaac: How you doing today Reese?
Reese Harper: It’s an excellent day to be in the studio here at Dentist Advisor headquarters.
Ryan Isaac: Reese, do you know how long we have been working together? We were talking about this recently.
Reese Harper: Ya, I was telling my wife what a pain in the…
Ryan Isaac: There is a lot of honesty between us, that’s fair. Do you remember how long it’s been?
Reese Harper: You began working in two thousand and…
Ryan Isaac: Ocho!
Reese Harper: Eight?!
Ryan Isaac: You hear of the seven year itch in marriage, or perhaps you have lived through it. You made it. I made it. Does it exist in business? Are you itchy?
Reese Harper: Lucky for us, I haven’t had that a lot. However, I have been through a few ups and downs in business with partners and what not. I’ve had enough to know it does exist.
Ryan Isaac: It happens. There are little things and nuances.
Reese Harper: Are you asking if am I mad at you right now? I thought everything has been fine and good.
Ryan Isaac: No, you are right. It’s fine, but there are things that we drive each other nuts about.
Reese Harper: Yes, I would agree.
Ryan Isaac: We used to sit in this office for hours and hours and hours talking and working.
Reese Harper: So you are saying you regret the three hour meetings that I have where I just yell?
Ryan Isaac: If someone asked me, which happened yesterday, “what is one thing about Reese that might get on my nerves a little?”. I would say that sometimes he calls me at 10 o’clock at night or barges in my office and we will have a three hour discussion.
Reese Harper: It might be 2.5 hours. That’s a little bit of an exaggeration, but yes, there are things that need to be said. Those things needed to be said.
Ryan Isaac: Ok, they needed to be said. What about you?
Reese Harper: Well, I mean, its pretty easy. You come in with your interview questions for new hires asking things like, “how much gains you got lately? Do you cook a sweet potato for lunch?”
Ryan Isaac: What kind of protein powder you using?
Reese Harper: I am like, dude, just leave this guy alone and back off a little bit. Some of us like our white bread!
Ryan Isaac: Now, in fairness, there have been some good habits established and the three hour meetings have resulted in some positive things.
Reese Harper: Yes, I am exercising now and you have some tolerance for intellectual rigor.
Ryan Isaac: Intellectual rigor? Ok, that is fair. I can tolerate it. That’s totally true. Today we are going to talk about our long history and think about all of the things that have developed and all of these little nuances. Dentists also go through a long history of business ownership and time with employees. Also, dentists are frequently entrepreneurs. Some are not, but most of them own businesses and they have to make really big decisions concerning their business. That is one thing that I would say about you, Reese, even though I am mostly joking about the three hour meeting, I am kind of serious. You have a tendency to really think through big decisions. You know when we have to hire somebody or grow in a certain direction and we have a strategic marketing decision you are really deliberate about those decisions.
Reese Harper: Well, I uh, thanks.
Ryan Isaac: Even small food decisions.
Reese Harper: Which burger should I get?
Ryan Isaac: I mean, ultimately, I think big decisions require a little bit of patience and time, you have got to dive deep, and today we are going to talk about a subject that is crucially important for almost everyone of our listeners. That is, when should I hire an associate, or how many associates should I hire? We will also discuss the process of hiring an associate, and expanding beyond associates to a partner.
Reese Harper: Essentially, when do I train the next Jedi?
Ryan Isaac: Yes, the force is starting to awaken within our listeners.
Reese Harper: It’s awakening in the practice.
Ryan Isaac: So let’s jump into the associate question. I wanted to bring up a few scenarios where I think people start asking if they should bring on a partner or associate. The first one that I have is that the dentist just starts to feel really busy. They get booked out weeks and weeks maybe months and they start fearing that they are going to lose patients. People are going to start going somewhere that is more convenient.
Reese Harper: You are saying that’s the motivation?
Ryan Isaac: Yes, that might be the motivation. The second one might be that some by nature of personality or business they just get overwhelmed by the business side of the practice. There is so much to deal with besides just the clinical training that they have had for ten years.
Reese Harper: I think it’s important to contrast those two things. We are saying in one case the motivation is, I am getting slammed, I’m booked out, and I don’t want people to stop coming. I am twelve weeks out, I am eight or ten weeks out, and that kind of drives the decision. Then the second thing is, I hate all of this business stuff. I am lost. I have gone through three office managers, and I am tired of managing people.
Ryan Isaac: You know, how do I do marketing?
Reese Harper: Totally. Maybe a third thing we want to hit on as well is the tendency to say, I want to make more money and the way to do that is by expanding, growing, and adding someone. It is funny because they will ask you the question like it is obvious. It will double production, right? I will make more money! Then when you question them it is kind of surprising. Most people assume growth means I’m going to make more.
Ryan Isaac: Ya, two doctors, double production.
Reese Harper: It seems like a logical thing. I am booked out, so I got to add an associate. I am overwhelmed by the business and if I had an associate he could help me. I just want to make some more money.
Ryan Isaac: Yes, and I think another one is when they start thinking about retirement and transition. Do I just wait until the end and sell this to somebody new, or do I bring someone in and transition them in and cash out some of my equity now? Any others you would like to add?
Reese Harper: I mean there are a bunch but those are the primary reasons.
Reese Harper: Well, wait, I’ll add one more rare one. Some people just really are driven to grow. They just want to grow. They are entrepreneurial and in business terms we refer to those people as technicians over entrepreneurs. An entrepreneur gets a lot out of seeing what they are building grow. It’s not so concerning about the money, it’s just about seeing their ideas come to reality. I can relate to that, that is a real motivation. It is probably not as common within dentistry, but I think you will see that happen with large, multi location practices.
Ryan Isaac: Ya, they are usually the head of those or something like that.
Reese Harper: Ya, that’s why corporate dentistry exists! Let’s talk about a few reasons that some guys succeed and some guys struggle. I think hiring an associate or partnering with someone is not easy. Your style, personality traits, the way you treat patients, could be very different. Then patients have different experiences with different doctors and that can result in friction. It is a challenge to find the right fit because people are used to being dealt with in a different way.
Ryan Isaac: Clinical confidence is different between doctors as well. You may have a tendency to do certain procedures and don’t want to let go off that.
Reese Harper:Yes, they work differently. Then the production doesn’t get diversified across doctors very well. One doctor ends up doing really low margin procedures and he is still super slammed but his production isn’t as high, so he just wants to take on some of the low hanging fruit instead of tougher cases. That can be challenging. Work tolerance? As in your ability to handle work and long hours, that is different between guy to guy. We have seen female doctors that outwork male doctors and we have seen doctors where one guy can go three tens and one person has to work four eights.
Ryan Isaac: We just met someone the other week when we were speaking at an event, and he was an associate in a practice. He was saying, “look I have a chance to buy this guys practice, but he produces double. He is a machine!” And let’s just assume, in all fairness, that is exactly what was happening. In this case, it was a GP practice. I think the younger, slightly less experienced doc was still producing a lot. I mean it was a very highly productive practice, but it is sometimes hard depending on how you practice to sort of produce in a similar way as a partner or associate.
Reese Harper: That was a huge concern when he was thinking about buying it.
Ryan Isaac: Over time that creates tough dynamics. Maybe the next thing isn’t as much personality or clinically driven, but the financial math of it. I think that is the biggest thing. This is the first place you notice an impact. In twelve months, you will be able know if you made more money or not.
Reese Harper: You don’t necessarily have to make more for it to be worth it in that period of time. I think one of the financial trade offs of bringing on a partner is that you will have waste occur. Actually, I don’t prefer to think about it as waste. If you are trying to be proactive and grow, you have to think of this as investing in your infrastructure. If you are giving away your production to help someone else come in and help get to a larger production than its an investment. Let’s say you are at a million in collections yourself and you want to get up to two million with two people. At some point you are going to have to give up some of your own personal production to give that to someone else that is coming to join you. You have to think about the waste that will happen during that period.
Ryan Isaac: Can I stop you there for a second? Is it fair for the average person out there to assume that it might cost them in income a little bit in the short term?
Reese Harper: Oh ya, most definitely.
Ryan Isaac: We tell clients all the time to just kind of expect it. Don’t expect that the guy shows up and production doubles all of a sudden.
Reese Harper: I think the important thing is to look at the fundamentals of the finances of a dental practice. If you have two producers or multiple producers some of the cost start to become a lower percentage of your collections so when you are a single person producing 750…
Ryan Isaac: Unmarried?
Reese Harper: Well, no.
Ryan Isaac: That could have got dicey.
Reese Harper: Single location doc producing 750, your front desk expenses and your office rent are costs that won’t really change as production goes up. Some of your front desk expenses might increase but those salaries are salaries or those hourly rates. Most people want full time jobs. So it’s interesting because we have seen payroll expenses go from 25-26% down to 14-15% of collections. It’s not that they have added more employees or anything. You don’t need to add more staff. So as a percentage of your collections you get to keep more of it. It takes a while to get to that point. You have to know at what point, well, here is an example. If I am producing a million and wait, let’s make it smaller. More of the average John.
Ryan Isaac: Sally.
Reese Harper: Tony.
Ryan Isaac: Anita.
Reese Harper: Bill.
Reese Harper: If I am producing 500, and I’m making 250. That is good profitability. I am doing great. If I can get to a million with another person there with me, then when we are both at a million we are both making 350, then that is worth it right?
The only way that will happen is if some of your costs do not go up. You can’t have double the staff, and double the space, and double the supplies, and double the marketing costs.
Ryan Isaac: Double fish tanks.
Reese Harper: Yes, double fish tanks. You have to figure out the financial math and say, “I’m collecting X today, and with a second person we can get to this point because in my location there is enough demand. The competition isn’t saturated.”
Ryan Isaac: Those are some of the things we have here. You need to know what marketing levels you are going to have to achieve. That means know the market that you are in, the competition, and how much money you are going to have to put into marketing to see if it is actually going to grow and increase enough to pay us both.
Reese Harper: You have to have a good dial in on that, and you have to have a good dial in on your facility size. For example, do I have a big enough space to essentially double my production without really cramping patient flow, or making it a really unlivable practice an unworkable space? Is it efficient enough to handle double the production? Is it large enough to handle that many operatories? We have seen this happen a lot. Doctors join up thinking they are going to double their production and then they realize that on six operatories they are only going to be able to add another $300,000 in collections, and no one wants to work nights and weekends.
Ryan Isaac: Well, young dentists might.
Reese Harper: Analyzing facility is a big deal. Also, like you said, the marketing plan is a big deal. You have to know how much you are going to have to spend in order to double production. Theoretically, in a really efficient model when you bring two guys together the sum of collections should be greater than just a two to one. If you are doing $500,000 on your own you shouldn’t be able to just get to a million. If you are doing a mill on your own, you should be able to get up to 2.2, 2.3, or 2.4. with a partner. You should be able to get more efficient. I would just make sure that people understood the target level that they are trying to get to in terms of collections. This is called a performa.
Ryan Isaac: Ya, that’s my next question. If I’m listening to this, I say, “that sounds good, but how do I even go about this? How do I figure it out?”. There are smart people that have these kinds of statistics and data and know how to execute it.
Reese Harper: A lot of good consultants and practice transition brokers will be able to help advise on this kind of a thing, but just be aware that some people have a weaker financial background than other people. Some like consultants or advisors that might be more conceptual, more production oriented, like top line growth type of consultants. You want to make sure you are getting advice from people who have a lot of financial insight as well.
Ryan Isaac: One that has seen data and knows data.
Reese Harper: Ya, good accountants and good tax preparers sometimes have enough dental clients to give you good insights. Financial advisors like us see this type of stuff all the time so it’s easy for us to look at the math of an existing P and L and determine in an hour where it would need to be to make sense.
Ryan Isaac: This is probably for another day, but it just makes me think of the importance of having clean books. I think it is overlooked a lot because it is an inexpensive service or a spouse or doctor will do it themselves. But if you are worried about the way your books look or they don’t actually give you insights to these things, find someone to do it for you.
Reese Harper: You should probably know, I have a pretty strong financial background, but I don’t use my time to do the preparation of my books. My books are prepared for me every month in a really accurate way. One of our team members could do it, but there are people who are just really good at that. That way I can spend the time really analyzing the finances of the business so that we can make good decisions about when to add new employees. Or in your case, when to add an associate, when to add another hygienists, when to add an assistant, or when that second location finally makes sense. Let’s talk about when it actually works. What makes the thing work.
Ryan Isaac: That’s what I was going to say, everything starts with good data. I mean you just can’t make decisions, and we see this happen a lot, when you don’t know what percentage of your budget goes to marketing, to office staff, to the back, or facility cost. It is not uncommon for somebody to not know exactly how much they are collecting or how much they are actually making off of that collections. It just starts there.
Reese Harper: If you are listening to this and you are like, “I got all that down”, know that you are in a relatively small camp. You also might be the guy that thinks he has it down, but actually doesn’t.
Ryan Isaac: Don’t feel bad though.
Reese Harper: Ya, don’t feel bad, but don’t be too confident that you have all of your financial ducks in a row. Even very confident entrepreneurs and financial experts have a board of directors that help them with this kind of stuff. Your finances need to be really dialed in before you make big strategic decisions. Be thoughtful about it, and don’t be emotional. Then make the decision based on data.
Ryan Isaac: You are talking about two pieces of financial data: good clean books and a performa. Do you want to talk about that a little bit?
Reese Harper: Ya, a performa will show you, “hey your books look like this this year, and this is what we want your books to look like in year one, two, three etc.”
Ryan Isaac: According to projected growth…
Reese Harper: And we are going to make these assumptions about how we are going to grow. We are going to get 19 new patients a month.
Ryan Isaac: We are going to triple.
Reese Harper: We are going go to get 55 new clients a month! We have seen people have expectations about how their new patient flow is going to grow with a new associate, or increase by moving locations, just make sure that you are conservative on that a little bit. Don’t be overzealous. I would make sure that the second thing is that that a performa basically tells you exactly what your production needs to be in order to meet certain financial goals for yourself. You want to know that if you are going from wherever you are at in income today, you can end up at a higher place in order to have made it worth it.You need to know that you will make more money or you have to be content with the time that you bought yourself back.
Ryan Isaac: Have a realistic expectation and a time frame. Assume it is going to make you more money if it works in year or two or three maybe? Give it time. Be patient.
Reese Harper: I think thats realistic. Give it a few years.
Ryan Isaac: You are saying when you hired me eight years ago, you didn’t make money on me immediately? I wasn’t profitable? I’ve worked a lot of hours!
Reese Harper: But, in time, maybe.
Ryan Isaac: Alright Reese, that was good advice.
Reese Harper: That was a lot of information.
Ryan Isaac: I know, I feel like we could go on for another two and a half hours. But I don’t think you want to do that. We can carry on up in my office. Thanks everyone for listening. Remember if you get a chance please review this podcast on line. Go to our website and sign up for the free newsletter, dentistadvisors.com, and if you ever want to talk to us our number is on the website. We will pick up the phone and chat with you, or if you want to put something on our calendar you can book a free call and chat with one of us anytime.
Reese Harper: Thanks for listening.
Ryan Isaac: Thank you.
Reese Harper: Carry On.Practice Value, Practice Management