What Every Dentist Should Know About Private Equity Opportunities – Part One – Episode #588

On this episode of the Dentist Money Show, Matt and Ryan discuss the complexities and risks associated with private equity in the dental industry. They break down some of the misconceptions surrounding DSOs, the emotional appeal of these investments, and the need for dentists to be informed and cautious when considering private investments. Tune in to hear some of the factors every dentist should understand before entering the world of private equity.

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10 Mistakes that Can Cost Dentist $10,000 or More

4 Ways Dentists Get Duped

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Podcast Transcript

Intro: Hey everybody, welcome back to another episode of the dentist money show brought to you by dentist advisors. On today’s show, Ryan and I have a spicy one for you. We’re talking, private investments. This is a, part one of a two part series where Ryan and I talk about the differences in private investing, from public investing in real estate and what’s happening really in dentistry, specifically around the private investing landscape that has really, bothered us and things that we want to address and some of the misconceptions and myths out there around private investing and things you should be thinking about to avoid the mistakes of other dentists out there in recent history. As always, we hope you get something out of this and we hope you enjoy the show.

Ryan Isaac: This is like a big deal. This topic, private equity investing is a huge deal. And it is. So, I mean, it’s always 16 years of doing this. It’s always been a topic and it goes through phases of like what’s exciting and cool and what really, what the scare tactics are. You know,

Matt Mulcock: Actually speaking at that, I want to ask you. Do you feel like, because you’ve done this longer than me, you’ve been a DA for 16 years?

Ryan Isaac: Yeah I’m in year 17. Yeah. So like 16 years. Uh com. Yes. On my way

Ryan Isaac: Gosh

Matt Mulcock: That’s crazy. But, and so I’m wondering from your perspective, you said this has always been a topic, but do you feel like it’s worse lately?

Ryan Isaac: No, I feel like it has the feel of certain, time. Like, it was really frothy post 08, through like 2012, before the market, before people noticed that the market recovered.

Because it recovered immediately in 2009, but no one noticed until like 2014. Yep. But it was really hot item then because it was all like, Oh, the market will, you know, it’ll leave you destitute. Therefore you have to find your returns in your investments somewhere else. And it was I mean the real estate crashed obviously, but it was just the rally of real estate, real estate investing, private equity investing, get out of the, you know, there was like, that was like really hot somewhere in the teens.

I don’t know why it felt like this, maybe it’s just the way I remember it, but it feels like there was a lot of talk about Oh, the, Yale endowment fund uses private equity for 30 percent of their holdings. Therefore I should do that too. As a dentist with 200 grand in the bank, which is operating capital for the business.

Matt Mulcock: Stand those arguments, by the way we’re going to talk about that of how

Ryan Isaac: Buffett did it. I should do it. Yale does it. I should do it.

Matt Mulcock: John D. Rockefeller strategy.

Ryan Isaac: And we’ve done podcasts on this stuff. I mean, this goes way back when like Reese was talking about this too. So I feel like it goes in phases, but it’s the same thing every time. Um, And we’re seeing the scams again. We’re seeing the people steal money, flee the country, go bankrupt. People are left holding the bag. Like, Oh, there goes hundreds of thousands of my money and it’s gone. So

Matt Mulcock: People, that’s all you know, like

Ryan Isaac: Yeah. A in the dental

Matt Mulcock: Hundreds of thousands of my money behind this dog,

Ryan Isaac: Yeah. It just sucks to see what’s happened to

Matt Mulcock: I’m so fed up with it. I’m so tired of trying to do the right thing with good intentions and then watching, let’s be honest and we’ll talk more about this, but watching a better story, cause that’s all this is, is, a more believable or this is their whole saying, right? Jason’s wife says. Uh, you, you lie to someone that wants to be lied to and you’re going to make a fortune. And I get really tired, I think sometimes of telling the truth to people that want to be lied to and coming up against this wall and then seeing what happens, what has happened over this 2024 year in dentistry with two major events within this space and seeing real humans who we care about get just completely screwed

Ryan Isaac: Over stolen from robbed. Yeah. Conned, completely manipulated, lied to stolen from.

Matt Mulcock: Yeah. And it’s not like, uh, I told you so angry. It’s like, uh, I’m just frustrated with these con men out

Ryan Isaac: Yeah. Uh huh. Yeah, that’s exactly what it’s like. And yeah, you’re referring, we’ll be very specific.

You’re referring to, investment clubs that have formed over the last handful of years in the dental industry. They got people super excited and, put people into unsavory private investment funds that, were Ponzi schemes, went bankrupt, stole money. People have fled the country. I mean, you’re hearing this is going to go on for a while. And, I mean, I don’t, the fallout’s going to take a while and

Matt Mulcock: It’s bankrupted dentists in these groups. It’s ruined lives. It’s,

Ryan Isaac: Yeah. Have you seen bankruptcies from this already? Like personal bankruptcies or you can see the writing on the wall

Matt Mulcock: Well, and I’ve, I’ve talked to several people that are connected to these groups who, and there’s a varying spectrum here, but, yeah, I think there’s, there’s people out there that are, I mean, a wrapped up in multiple lawsuits now.

And then depending on the varying degree of involvement in these groups, I’ve heard multiple stories of dentists who are either a starting over completely back to the drawing board, or back to owning practices back to working because they have to and we’re talking like in their 60s and 70s. And I think there are going to be bankruptcies out of

Ryan Isaac: Yeah, there will be, we, this is like parallel related. You and I were just talking about this earlier today. we were getting emails from clients like, you know, mid to late stage career clients just saving gobs of money

Matt Mulcock: Money gobs.

Ryan Isaac: Their boring brokerage account, you know, diversified, low costs, world diversified funds or whatever. And we were just talking about how like they did it, they did it like their net worths are growing so much and they’re just doing the most boring, repetitious things. And they’ve just done them for a long time. And now. The momentum is so big from people who just stuck to running a good practice, focused on profitability, focused on a high savings rate and stuck to like a couple investment plans, maybe a little bit of real estate, their retirement plan, the brokerage accounts, boring stuff.

And the momentum that these people have gained, it’s crazy. And it’s not like not all these people are not like, 10 location DSO owners. They’re just a lot of one location, one doctor practices, maybe an associate or two.

Matt Mulcock: I’m not even kidding you. This is not, this is, this was not a setup. I just got a phone

Ryan Isaac: Okay. All right.

Matt Mulcock: From one of my favorite clients, it was actually, so he’s the dentist and the wife called me and we’re very good friends. We’ve worked together for years now, like five years and this exact thing came up. So they have no debt, right? They run one location. They absolutely crush. they’ve been investing a ton of money into their brokerage account, built a massive brokerage account. They’ve got real estate, so they own their building. They own a couple of other properties around, nothing crazy. And then they have their practice, and they’re slowly transitioning out of their practice, selling to their associates. And she called me, and we’d made some adjustments because they were doing some stuff with building a new building, whatever. And she wanted to call me to kind of readjust some stuff on the brokerage side. And she started talking about like, Okay, so we’re going to kind of get our drafts going and get into the brokerage account. But like, Matt, is this like, like, what else should we be doing? By the way, they are, they are, Easily financially

Ryan Isaac: Yeah, total terms like a 40 plus or

Matt Mulcock: 40 50 I think plus so she said like matt and they’re by the way, they’re

Ryan Isaac: Are in their late 40s or early 50s or, Yeah.

Matt Mulcock: Yeah, they got they’re still working for like the next 10 15 years because they want to But she literally said to me she goes matt so is this what we’re gonna do? Like this is is this the smart thing to do? What what else should I do with this money? And I said You Enjoy your life.

Ryan Isaac: Don’t, don’t ask that

Matt Mulcock: Go enjoy your life. Take a big trip and

Ryan Isaac: Yeah.

Matt Mulcock: Spend some time with your family. Ask like, what crazy things can I do in my life and my hobbies and my personal relationships and my time, and while my body still works? I literally said go invest in your life go invest in some experiences. You’re done

Ryan Isaac: Done. You’ve made it. You’ve

Matt Mulcock: Made it and she I’m not kidding. I’m not kidding you she got emotional And she’s like, Oh, I didn’t

Matt Mulcock: really

Ryan Isaac: See it coming like

Matt Mulcock: I thought there was something else you’re supposed to be

Ryan Isaac: This could be a whole podcast on the behavior of just like small and simple things. And it will happen. And you don’t have to be an extraordinary dentist with crazy, a huge practice or multiple look. It’s just, so all this is to say that the path of a dentist to be successful and have money and be retired and be comfortable and retire early and young too, is. it doesn’t have to be crazy. The investments don’t have to be crazy and sexy. It’s

Matt Mulcock:  It should be boring. You should find your excitement somewhere

Ryan Isaac: It is boring. Yes. Don’t, don’t find your excitement in your

Matt Mulcock: And I would say

Ryan Isaac: Unless you’re a hedge fund manager, unless that’s your career. Good luck.

Matt Mulcock: If you’re listening to this, you’re not

Ryan Isaac: You’re not a hedge fund manager.

Matt Mulcock: And by the way, the hedge fund industry doesn’t exactly do that well

Ryan Isaac: No, they get killed

Matt Mulcock: Winners out

Ryan Isaac: Average hedge funds underperform like the S and P 500 on average, like year after year after year after year.

Matt Mulcock: Totally. By the way, just really quick. It should be hard. It should be hard. It should be hard to get to the NBA. It should be hard to go professional in anything. So if you’re out there thinking like this is easy, I can do this. No, you can’t. And no, you shouldn’t. You shouldn’t be able to do this. 85 to 90 percent of professional mutual fund managers underperform the S and P 500 every year. And again, it should be like that. If it were that easy, there would be no premium to

Ryan Isaac: Premium. Yeah. There’d be no extra money. So, Let’s begin with, That’s, that’s

Matt Mulcock: Anyone listening right now. It’s like, Oh, this is when we’re beginning. Yeah.

Ryan Isaac: Let’s begin with the reality of the private equity market. What does that even mean?

What is it like, this is not new stuff. I feel like sometimes, things like this will get presented new in an industry and everyone thinks it’s like the new crazy thing and you have to jump on it. It’s kind of like private equity consolidating dental practices through DSLs. That’s been happening in other industries for decades and decades when things feel new, they feel exciting and novel. And so let’s just maybe shed a little light on private equity as a whole.

Matt Mulcock: There are only three areas to place your money, right, to put your capital. There’s public markets, the stock market.

Ryan Isaac: Which is the smallest out of all three. Yes,

Matt Mulcock: Yes. It is. So the private markets, and that’s, by the way, that’s, let’s say, public markets being stocks and

Ryan Isaac: And bonds, which the bond market makes it way bigger. Bonds are huge. Yeah, bonds,

Matt Mulcock: the stock market itself is actually relatively small. Um, so you’ve got public markets, stocks, and bonds. You’ve got private markets, which is actually huge, pretty huge.

Ryan Isaac: Yeah, it’s everything that’s not a publicly traded

Matt Mulcock: Yeah, I was gonna say.

Ryan Isaac: 90 percent of the world’s

Matt Mulcock: Businesses. Exactly. If we define private markets Private investing. that’s the way exactly what it

Ryan Isaac: Traded

Matt Mulcock: Everything that’s not

Ryan Isaac: Dental practice, private equity. do you ever like That hits me all the time when people want private equity and we pull up a pie chart of their balance sheet of their assets and 70 percent of their assets are sitting in their dental practice. And I think, 70% of what you own is in private equity right now. It’s called Johnson

Matt Mulcock: Yeah, exactly

Ryan Isaac: Like you’ve got it already. It’s already

Matt Mulcock: That brings up a whole other point and a whole other podcast around I would say Before you and we’ll get to this later. But it before I guess we’ll just kind of say this now. Before you jump into any other private investment, how about you start treating your own practice as a private investment meaning Until that practice can function without you

Ryan Isaac: Mm hmm.

Matt Mulcock: You probably shouldn’t even be touching anything private.

Ryan Isaac: No, no. And you should treat it like, a private equity investment, which is higher risk. The chance of failure is higher. You’re one single business has a higher failure rate than, you know, all 5000 stocks in the United States or whatever. But you get a higher return and more money from it because it’s way harder to run. It has more risk. You’ve got 20 employees, you’ve got floods that happened. I mean there’s just so many moving pieces, which is where the risk comes from and it’s all concentrated. 70 percent of your assets on your balance sheet are one thing. So yeah, you own, if you’re a practice owner, you own private equity. It’s a higher returning asset than public. Stocks and real estate and it carries way more risk. The thing is we talked about this a lot in the past too, when you’re just so used to doing the thing, it doesn’t feel risky anymore and they work in it. They’re trained in it. They have control over

Matt Mulcock: Have control

Ryan Isaac: Which is the main

Matt Mulcock: I was gonna say, I think, I think dentists out there probably hear this and they’re like, it doesn’t feel like private. And you just hit on a couple key ones, I want to, I think the second one you said there is the most important, is because they work in it, and I think part of this too is because dentists out there are not well organized, they don’t have a quality P& L, they don’t understand. Like, if you’re working out there in a single location as a dentist, and you’re chair side, and you’re not organized and understand your true profit margins, what you probably have is just, you own a high paying job.

Ryan Isaac: You got a good, you have a job that you started, you created a job for

Matt Mulcock: Yes. But, if you don’t work it, and this is why so many dentists we talk to are burnt out, I can’t take vacations, because they’re not treating it like an actual private

Ryan Isaac: Investment. Uhhuh . and

Matt Mulcock: And then you get the DSO space that gets involved, or the private equity group that comes into dentistry. And it forces dentists, I think, a lot of times to start maybe thinking a little bit more about I think it would feel a lot more like a private investment if you treated it like that.

Ryan Isaac: Measured

Matt Mulcock: Measured it. Started getting organized and started saying, Okay, here’s a key out there. You start paying yourself like a true associate, and then all your expenses and everything, and then what’s left

Ryan Isaac: What’s left over? That’s your profit. Yeah, that’s your passive income.

Matt Mulcock: Yes. And it’s either it’s either good or bad, right? We gotta, we gotta look at that. But if you started getting organized around it and shifted your mindset around it, and then again started slowly moving your way away from chair side and treating it like a business, I think dentists out there would feel a lot different about their, about their own

Ryan Isaac: practice. Totally. So we divert a little bit, but private equity is the second asset class you’re going through. And anyone who owns a practice owns private equity. And if you’re like the normal dentist, it’s the majority of your assets on your balance sheet for most of your life. It’s the, it’s the majority of the assets you own and category three.

Matt Mulcock: Third is real estate.

Ryan Isaac: So again, public markets, private markets, and real estate, real estate dwarfs the stock market and bond market and private markets dwarf all of

Ryan Isaac: A lot of times real estate and private markets get mixed, like private investments, private equity has to do with real estate, but yeah, Those are the three

Matt Mulcock: That’s it. So, so what is private equity or private equity specifically? Private investing is anything that’s not public markets and not real estate. Everything else. So that could be VC. That could be private equity. That could be your buddy down the street who’s doing an options thing.

Ryan Isaac: That could be your buddy down the street who’s doing an options thing. I guess technically that’s investing in the public

Matt Mulcock: And I guess technically that’s investing in the public markets. So it’s a bad example, but, you know, could be your buddy down the street starting a, their own business and need some funding. Right. That’s a way to do it. but again, anything that’s not public or real estate is, is

Ryan Isaac: Yeah, those are the categories. Those exist. They’re real. They’re gigantic. They’re huge. Endless opportunities. They always have been and always will

Matt Mulcock: Yep. And the best example right now that I think most dentists are going to relate to is the DSO space. Majority of DSOs are backed by private equity. So these are just large groups that have, I guess to maybe back up a little bit on this, maybe dentists out there don’t fully understand how this works. These private equity groups go out, they find a bunch of investors. generally like what they call limited partners. This could be pensions, this could be a pension groups, this could

Ryan Isaac: Depending on the size of the private equity

Matt Mulcock: Yeah, it could be family offices, could be just really will wealthy individuals, they’re giving money to this private equity group that’s run by a team, then they’re taking that money and they have very strict deadlines, timelines, and

Matt Mulcock: So now this is happening in dentistry. They’re gathering all this money. They have to deploy a return back to their investors in a certain timeline. They’re going out gathering all these practices. How do they make money? They then sell those packaged practices to another bigger group.

That’s what’s happening in dentistry. but that happens in a ton of different industries.

Ryan Isaac: Has for so long. Yep. Yep.

Matt Mulcock: So, I think the key here would be, so we’ve kind of broken down

Ryan Isaac: Yeah, what is

Matt Mulcock: What is it?

Ryan Isaac: How does it fit into the landscape of other types of

Matt Mulcock: Exactly. I don’t know if you want to get to like, what to consider if you’re going to actually be doing

Ryan Isaac: What are some of the questions we have on our mind what to consider if you’re going to do it, what position you should be in personally. And from a business standpoint for you, what are other, I already forgot the bullet points we

Matt Mulcock: That’s okay. So we’re talking and I should have sent this to you. but the next just being again, literally what to consider before investing in private equity. The first thing, and we’ll break these down

Ryan Isaac: It was a good

Matt Mulcock: Would be the first thing is This is going to sound counterintuitive, but it has nothing to do with the investment

Matt Mulcock: Say, well, I should say this before you even get to the investment itself. There’s a whole bunch of things you need to consider around your financial situation. And the reason I’m emphasizing that is I think dentists out there are like, they don’t even consider their own situation. They go right to the investment and let’s be real, the story that’s being

Ryan Isaac: The story. Do we want to talk about how the story is sold?

Matt Mulcock: Sold? Sure.

Ryan Isaac: It’s like the life insurance story. Like, why do so many people They don’t go shopping for it, but they end up buying it. You know? It’s sold, to them. They don’t, they don’t buy it. Yeah. They don’t buy it. They get, they get it sold to them. So what’s the private equity story? Like what’s the scare story or what, you know, what’s the private equity story that’s always,

Matt Mulcock: I think

Ryan Isaac: And by the way, hold on, I’m sorry. I just want to say private equity is a legitimate billionaires and lots of people like invest in equity. It’s the biggest market in the whole world. It’s everywhere. This isn’t like, Oh, it’s wrong or it’s fake or something. It’s like, it’s a legitimate thing. It’s just, there’s a lot of risk there that is unknown. And so, yeah. Well, so what’s the story? How does it get sold?

Matt Mulcock: To that point, the biggest, greatest companies in the world all, all started via private

Ryan Isaac: It was all private equity.

Matt Mulcock: Yeah, we’re not, we’re not saying, like, there’s a role in private equity.

Ryan Isaac: It’s the majority of businesses in the

Matt Mulcock: Exactly. Either VC or private equity. so, but the main stories, I think there’s kind of two main ways it’s pitched. and you tell me if you think differently or if there’s something else you’d add. So I think the first one that I hear a lot is, it’s kind of this status chasing thing where, meaning, it’s like, do it different. Like, it’s always like, everyone’s invested in the stock market. Like, the stock market’s not the way to do this.

Ryan Isaac: Do what the smart people do or the rich people do or the people who really know. Okay. So it’s like, yeah, it’s like a status or an inclusion kind

Matt Mulcock: Or it’s this feeling of like,do it differently than everyone else. And I think people really harp on that that are trying to sell this

Ryan Isaac: Yeah. Well, cause like you were, your client was saying they’re wildly successful doing this really boring stuff and they’re wondering like, are we, aren’t we supposed to do something different? It plays do our human need to like Always need to find something novel or stand out or be

Matt Mulcock: Exactly. Yeah. Yeah. I think the next one I would say that this is the second one I hear the most, which is, and it’s I think pretty obvious it’s pitches a fast track.

Matt Mulcock: It’s a shortcut. It’s faster. It’s again. whenever it comes to marketing, it’s always like, name your enemy, right? So you got to name your enemy. And a lot of these guys and gals out there naming the enemy, let’s be real. It’s always guys, they’re naming the enemy of the stock market or the traditional way of doing this. And it’s always like,

Ryan Isaac: It’s always like, do what you want

Matt Mulcock: Foreman K’s are a scam. Like get out

Ryan Isaac: 401ks don’t get

Matt Mulcock: Exactly. And they’re, I’m sorry, people. It’s not a way the government is like seizing your money. Stop it. those two things are combined. It’s like, don’t do it the traditional way. And if you do it this way, it’ll be faster.

Ryan Isaac: It’ll be faster. kind of related to that is just higher returns.

So we were going through like the most ridiculous actual, like compliance for our business this week, as we, we, you know, we have to roll through this stuff all the time. You hear the sales pitches from some of this like private equity stuff. Are they not regulated the same? They’re not, are they

Matt Mulcock: No

Ryan Isaac: Like, we can’t have a picture on a blog post. It literally could be talking about being profitable in your dental practice, nothing to do with investments. And there’s a picture of money in the thumbnail and we have to take it down and replace it or else we’ll get fined.

Matt Mulcock: Yep.

Ryan Isaac: A salesperson raising money for a private equity or venture capital fund can say some pretty outlandish stuff and it’s fine.

Matt Mulcock: Of these are, a lot of these are, not regulated by the SEC, uh, they’re

Ryan Isaac: Unregulated

Matt Mulcock: So it’s not under the SEC, they’re under an exemption called Regulation D or Reg D.

Ryan Isaac: Reg D that was so big in the 2000s. Reg D private placements. Uh huh. Oh man. Those were

Matt Mulcock: Huge.

Oh yeah. And it’s still, a lot

Ryan Isaac: Google it. Google anything from the 2000s. Reg D, scam, fraud, Ponzi. Oh yeah. Wow.

Matt Mulcock: So you can just Google regulation D and it’ll tell you, the difference between an investment under reg D versus an sec filing.

And yeah, we can’t, we’re not doing, we’re doing everything under the sec. So yeah, we are in much where we’re highly

Ryan Isaac: Yes.

Matt Mulcock: Over the top scrutinized.

Ryan Isaac: Okay, so pitched as returns, which is ridiculous because there’s no regulation or oversight on these pitches. The other thing too is the correlation pitch. And that always comes at times when markets and economies are turbulent. And as if private equity doesn’t have turbulent volatility. I mean, how many people have been stuck in real estate funds when real estate crashed or rates went crazy and they got

Matt Mulcock: Exactly.

Ryan Isaac: 40 percent we hear, 40 percent of some of the, of the DSOs that exist right now in the dental space alone or in some type of receivership or trouble. They get caught the economy and markets and rates and the powers that be things out of our control will catch everyone at some point in every type of investment. There’s no safe

Matt Mulcock: No that’s the whole point of

Ryan Isaac: There’s no safe place where you can’t get caught.

Matt Mulcock: The trade off of, the, your, the payoff of getting gains for doing nothing comes at the cost of the chance that you might lose it. That’s the whole point of investing.

Ryan Isaac: Yeah, exactly. So that that usually comes when there’s a lot of turmoil, a lot of turbulence and volatility. The pitch always comes up like the word they use is uncorrelated, which technically is true. They’re saying this private investment. It isn’t correlated or it doesn’t track with public stock markets.

So, which feels really good in times when stock markets are going down because you go like, Oh, I want my investment. That goes up when markets go down, who doesn’t, right? So yeah, it’s fast. It’s do the smart thing. It’s do the different thing. Do the thing that people and rich people know better returns, non correlated.

And it’s just cooler. It’s just, it’s just like ego cooler.

Matt Mulcock: Cooler. by the way, we get it.

Ryan Isaac: A hundred. I mean, ask me if I’m not constantly like about to buy surfboards because someone cooler is writing it. And this is what the cool people do. And you’ll surf it like, I mean, we’re all going to be suckers for some of this

Matt Mulcock: And believe me, it’s, I understand. It’s not like when people find out what we do, right. And I don’t know if you get this, but like when people find out what we do, you know, what, what do you do? Oh, you know, we do financial planning or investment management for dentists. Oh, you’re a financial advisor. And they started asking about investing and about your portfolio. Or what do you invest in or whatever? I understand. It’s not fun. It’s not cool to be like, I have a diversified

Ryan Isaac: I own four mutual funds, literally. That’s all I

Matt Mulcock: And I just keep doing

Ryan Isaac: And I just put money in there and I just, I’m going to check them in 30 years.

Matt Mulcock: My life. but so I get it. It’s, it would be way more fun to be like, Oh man, I’ve

Matt Mulcock: SAS company. I’m investing in. From

Ryan Isaac: well, you have friends that do this stuff. I mean, the bitcoin, the whole crypto thing when it was going crazy, like I feel like I miss out all the time. Like I’m an idiot. You know? Yeah. I don’t know how to, I don’t know how to do that. I don’t know how to get it on that. I didn’t have a buddy who started some crazy tech company and I, I didn’t, I don’t, I don’t know how to do that. I feel it too. Yeah. It’s a very human feel.

Matt Mulcock: How to get on that. I didn’t have a buddy who started some crazy tech company and I didn’t, I didn’t, I don’t know. I feel it too.

Ryan Isaac: Yeah, that’s okay. Yeah, it’s fine. It’s normal. So this stuff, okay.

So that this is what it is. This is how it fits into asset classes. These are the emotions and the stories that people go through when they engage in this stuff. Again, to circle back on the legitimacy of private equity investing, it’s the biggest pot of investing in the whole world. It’s the biggest Type of market and, people engage in it all the time. Tons. Do you want to talk a little bit about when we see clients engage in like legitimate, what does it look like to engage in a legitimate private equity investment fund or to engage with a legitimate private equity company from what you’ve seen clients go through? Okay. Yeah. Yeah. Oh, please. Yeah. Yes. Uhhuh and like, what should we think? Oh, where should I be before I even Yes, that’s where we were at. Yes. Okay. Even bigger. Yes. Let’s go there. And this Yes. Before who’s a good candidate. Exactly. And we, there’s probably if you went to dentist advisors.com, and just hit the search bar for like private equity. Yep. Or private investments. We’ve done a few podcasts on this, so. there’s a couple hours of content on there too, to hammer the sump.

Yes. Let’s go there for sure. What does it look like to be a good candidate for private equity investing? where are you? with the private equity investing you already hold? You know, the thing that’s 80 percent of your balance sheet. How is that doing? yeah, you wanna, we’re not ready yet if, if you are not investing in the marketing, in your practice, if you don’t have the right people, enough people, if you don’t have the right tech and equipment, if your building is old and dumpy, if you’re running out of space, if you don’t have parking, if you don’t have a good referral network, if you don’t have any internal patient marketing, if you don’t have options for people who can’t pay, if your case acceptance is dropping and it’s low, if your AR is behind, like on and on.

If, if all of those things aren’t. Adequately taken care of, then you’re not attending to the private equity you already hold. there’s nothing, no, no, no. Yes. Okay. So, dude, it’s just like, yeah, point one, you already own private equity and it, it already drives everything in your entire life. And if it’s not okay, there’s no, we’ll tell you.

I mean, how many clients have you told? No, you can’t even invest in a stock market right now. All the time. Like, no, I’m sorry. We’re not doing a brokerage account. No, we’re not doing a 401k. No, we’re not doing the investment homes. Your practice is not in a good place or it isn’t a good place, but you still have priorities to take care of.

It needs money right now and attention and resources. We’re not doing anything else for six months or 12 months or something. You, you say that all, I mean, that’s a very common, yes, all the time. Yeah. Yeah. Cool. You got 10 grand a month left over. Awesome. You know where that’s going to go? It’s going to sit in your operating account until you can hire the next person or start that marketing campaign or clean up your AR.

The first place you is back in the business you already owned. Yeah, if you’ve got half a million dollars in student loans, you’re already half a million dollars invested in private equity. And then your million dollar private, your practice loan and your equipment loan and your building loan, like you’re 2 million in the hole in private equity already. And it, yeah. And by the way, your private equity, you, you happen to buy private equity in the industry that yes, you are working in it, but it can kick off like 50 percent of the profits to you. Yes. You’re working in it. 30 percent of that is your pay, but like you work in private equity that you already invested in that can literally kick off like 50 percent of the profits of the revenue, the revenue that’s wild. we’ll bury Yeah, energy, everything. No, I want to be a DSO. Like, go build in you actually know. The other very rare thing about the field of dentistry, besides the profit margins, which are like so much higher than almost any industry out there. I mean, there’s a few that have higher profit margins, but not many and not by much is you own private equity, your dental practice with high profit margins in an industry.

Where you have unlimited funding options. Oh, you need a hundred grand for more equipment. You need to hire some more people. You need to expand. You need more chairs, any more ops. You need to move into the building next door. You want another location. You want a third. There’s just banks beating down your door to just give you the best rates.

They’ll compete with each other. You got the funding in two weeks and you know. How many industries can you even just go to a bank, get as much money as you want, even as a brand new graduate with no work experience and you want to start a business? They’re like, yeah, a million dollars. You want that? Here’s some working capital. Here’s a million dollars. Default rate for startups according to one of the biggest banks Lending to dentists in the country is less than a quarter of a percent. And that’s usually to like death or disability or divorce. It’s just like, you know, you, you already own private equity in an extremely profitable industry with unlimited funding and growth opportunities and lifestyle. We’re big fans. We’re big fans of the dental industry. Yeah. Oh, yeah. It’s just so good. It’s such a good space. The indicators from the biggest money in the the smartest people, Yeah. look, look around. I mean, there’s a reason why they all want in. There’s a reason. number one, by the way. That was some belaboring. get your order.

Yeah. anywhere, which is kind of a never ending list. We, I mean, you know, it’s like you will invest money outside of a dental practice, I mean, eventually. Sure. And a lot of dental practice funding comes from debt anyway.

Yeah. Which is a whole other podcast. But I mean, you will have cash flows that’ll go somewhere else. Sure. So, but take care of it first. Probably the same But, or, Not even a question in my not even a question. It’s not even remotely a question. Go after your debt, because I, okay. I was just on a phone call this morning. Client makes, I like 550, single location, practice owner, good margins, great income, but 150 a year goes to debt payments on one loan.

That’s just one of the loans. Cause he was asking the age old question. If that’s really the gross cashflow that came out of this thing. I didn’t feel that. Where did it go? Well, your personal spending your taxes. And then you do this alone. So, yeah, like, let’s get rid of that debt Yeah. No, no, no. Yeah. After tax dollars. You get tax. We looked at it as P& L. The same thing. It was like 150, 000 a year in payments. And about 23, 000 was actually written off as interest expense.

So, you know, uh, 130, 000, 125, 000 of that is after tax money. That’s your after tax money. You’re paying tax on it. Federal and state taxes on it. Yeah. And then to reduce the principal, it’s very costly. So to your point, when we’ll get to this, many of the other things, your business is fine, you’ve got, you’re building, look, it’s very important for dentist to build liquidity outside of their practice.

I’m never not amazed at the amount of events. Unpredictable, unplanned events in a dentist’s life. And it, it, half the time they’re like benign, just weren’t expecting a tax bill or property thing, or, you know, I’ve got to remodel something. The amount of events that recur in a dentist’s life yearly that require chunks of money, any given time I need 20, I need 50, I need 90, I need 120.

It never stops. Dentists need as much liquidity as possible, which is probably point number two or three. Yeah, so what’s number two? horizon? want? Yeah. Have you ever, anyone out there listening, or any of this stuff? Yeah.

Yes. Yes. wall. It’s like your client call yesterday. Like where else should we put money? What should we do? We’re like, you’re fine. Just keep it going. Go do something else. Don’t worry about this part. So when take. this. which How much time you got, what do you need to spend money on, what events you have coming up, yeah. Uh, huh. Yeah. And it’s surprisingly very little for most dentists. It’s very little. And again, to go back to the first thing we’ve been talking the whole thing about the you’re already putting the most risk that you’re taking in the practice. You own. You don’t feel like that because that’s your education, your training, and you spend your week there and you have some control.

You have a lot of control over it, but it is more. It’s a multimillion dollar business that literally relies on your faith. Fingers functioning. Lose one of those and you might lose your entire livelihood. The risk is higher than you think. You’re just used to it. Yeah. Having that many people under your, you know, leadership and management is way more risk than you think.

You’re just used to it. That amount of a, a p and l that size is a ton of risk. You’re just used to it. So, by Paying down debt and And removing yourself, yes, slowly, slowly building up your profit outside of your own production. Exactly. is so Yep. higher. Yeah, or man, I mean, again, private equity I was just gonna start listing things, but it’s gigantic. Yeah, it’s so huge. So number three on the list is liquidity be liquid. I’m getting a little bit more stodgy. That’s probably not the word. Grumpy, curmudgeony, the longer I go in this career.

And when someone’s like, when I want to do, I want to do private equity. I want to do different investing. My personal take, this is just like a general line in the sand. I will draw and I’ll defend this with, We can get into it another time, but I will say I want to see a dentist sitting on a million dollars of liquidity Before they start jumping into private equity and I have some reasons for that we could get into another time But that’s my personal line If you don’t have a million dollars in like liquidity and I mean a dentist spending average spending will blow through a million dollars in Like three years.

So if you don’t have a million dollars on top of your healthy practice Then I’m not interested in helping push you into private equity investing. Oh, okay. Good. Oh yeah. Okay. Uh huh. No. Yeah. We’re going to create like a cool, yeah. Yeah. I like this. Yeah, you know, okay. You know what? Yes. Next thing, you know, it’s insane. What is the accredited investor checklist right now? Currently? What do you, okay. So, and by accredited investor means legally, this is the stuff you have to be, you have to pass off in order to get into some private investing. And it’s so dumb.

The bar is, it’s like make a hundred grand. Is it two 50 married? 250 net worth of a million or more and like a dentist practice in a house. You’re like, you’re a millionaire. And then they have like 15 grand in the bank and they’re qualified for private investing. The accredited investor checklist is so stupid.

So I’m excited for this checklist. We’re going to make be really healthy. Yeah. Uh huh. Yep. Don’t Outside your own pay. After debt and associate. Yeah, okay, okay. That came from some of our consulting friends recently. I like that. Christine PDA, thank you. After debt though. Yeah. Yeah. And Which again, stupid.

It’s just the ones we’ve seen lately are very stupid. my don’t talk about it.

Don’t worry about it. at least And if we’re talking about the type of dentist who is going to be Liquid enough and ready for private investing incomes probably gonna be high enough where it’s gonna be like a 20 percent plus I like to I like 20 because the profile the dentist who’s ready for legitimate not Nickel and dime, hokey pokey, Mickey Mouse, private investing, but like legitimate private investment, like engage with legitimate private investment firms.

That kind of a dentist is going to be a higher income net worth and 20 percent savings rate at least. Yeah. We might be talking about a 25 percent savings rate, but 20 for sure. investment. debt of liquidity. Yeah, so a year’s worth just means what do you spend in a year, and do you have access to that in like after tax liquid investments, Not 401k, not IRAs, not real estate equity. Accessible Non penalty money. We’d say a Yeah. worth. Yep. worth Yes. Of saying a years worth of your spending in like one way to think about this too. And maybe you’re going to go here too, is like most actual legitimate. And by legitimate, we mean like time tested, private investment firms who have, you know, like a board of people, like 30 people, they’re all experts in the industry.

They have like a hundred years of experience combined or whatever. They have external accounting and auditing firms. They have reporting, they have investor calls. I mean, even that still gets scammed, right? But legitimate firms, they’re not taking 20 grand. They’re not taking 50 grand. They want two 50, 500, a million.

They have minimums that are very high in order to meet that and not wipe out all your liquidity. You need millions of dollars. Cause if you’re like, all right, I’m going to take 10 to 15 percent of my liquidity, my liquid investments and do something a little higher risk or private equity. Alright, 10 to 15%, but I have to meet minimums.

That means you need millions of dollars to not take all of your money and still hit some of these minimums for some of these legitimate private equity opportunities. Kick us 10, kick us this? Well, that’s really a story. No one will give them real money. So they need 20, grand from hundreds of people because no one will give them real money, which tells that tells a lot. So yeah, that’s why minimums tend when we go engage with some of these private, equity firms, like when we’ll help clients vet a little bit, you know, and interview people, these firms are like, yeah, like, Maybe we’ll go down to 500 minimum.

You know, we want a million dollar buy ins. Like our firms are, our funds are huge. Yeah. So someone’s asking for 10 grand from hundreds of people. That’s because they can’t get real money from big sources. And then what’s the point? Yeah. Maybe it feels like a little gamble and it’s fun. Maybe. Come on and be optimistic.

Maybe they’re going to a thousand exit. You are curity a recent event. Yeah. of I love this checklist. this is great. And yeah. Uhhuh . Yes, yes, 10 percent for high risk stuff.

Yes, that’s it. So yeah. So again, if you got 250 grand in a brokerage account, that is not a small amount of money. Applaud you. That’s awesome. You know, so many people will never have that much money in their lives, but that means 25 grand can go to high risk private investment stuff. That’s not enough to buy you in anything meaningful or probably that legitimate or that’s going to protect you enough.

If 10%, you know, 500 grand minimums or two 50 minimums, and that’s 10%, then you need a lot of money sitting around. Here’s the other thing that I’m thinking about back to your client call yesterday, the dentist who is in the position where they’ve checked this checklist of the practice and debt reduction and liquidity and five years of spending and emergency funds, a high savings rate.

That is the dentist who, back to your question of risk need, who doesn’t even need to do that. That the PR that profile of a dentist. Is already either there or easily on their way easily on their way. And so this, which actually makes a ton of sense because I’m sure your clients is my clients who have engaged in legitimate private equity opportunities.

They fit this profile and they go. Into these opportunities with usually single digit percentages of their liquid investments. And it’s usually for kind of fun, to be honest, they have an interest in a certain sector or sphere of something that like actually interests them, but they don’t even remotely need it. They’re helping starting young businesses. Yeah. Or they’re super into something, you know, they’ve always had a passion for farming or ranching or cattle’s and like, I’m going to get into this sector that like. Always dreamed of like developing something. They’ll get into it. But it’s funny because the profile, the dentist that you’re describing, that is the profile of the person you should be there before you consider this stuff.

You should be there. That person is already set, which is beautiful. Yeah. the point. And it’s not going to ruin you. Nothing is going to ruin you. Yeah. and if that dentist in that profile lost a quarter million dollars, they’re still gonna be okay The people that we see chasing these opportunities that’s generous to call them opportunities They’re, they’re losing 250, 250, 000, but that’s all they had. That was everything. That was their practice liquidity, their, their emergency fund.

That was the down payment for the dream house that was supposed to happen in a couple of years. That was their everything. That wasn’t 10 percent of their liquid net worth, not even their total net worth, their liquid network. I love this checklist, man. Strange I’m such a sucker for that stuff though. I’ll see like what is the best surfer in the world do, like I’ll do that. No I won’t. Yes. week in steroids No, but like Totally. You get your It’s the elite of the elite of the elite. Exactly. Yeah. Yes. And again, go back to the profile, this profile and the profile of our clients who engage in this stuff when they are at this point in their lives, sometimes they’re successful with it. Sometimes they lose their shirts in these, in these private investments and they’ll, and, and pants, and they’ll talk about it openly and it didn’t ruin them.

And it’s just like, yeah, uh, that sucks. You know, that wasn’t even my ticket anyway. The ticket anyway was all the boring stuff I’ve been doing for 25 years. And now I tried. You tried? I tried. Uh, Yeah. ’cause I think a second part of this, is definitely like, okay, if I’m to this point Yep.

Then how do I engage with this stuff? What do I look for? Who do I go to? What are the trustworthy sources to help me find these opportunities? How do this, how do I vet this? How do I keep myself? How do you just keep yourself safe? That’s literally all we care about. Yep. Because all the recent events in the dental industry is people were not protected.

Now again. Sometimes you can’t see things coming, but people were not protected. They were preyed upon. They were manipulated. They were lied to and they weren’t protected. There was no fiduciary role. There was no trusted role. Third, none of it. So how, if I, if I’m at this point, how do I engage part two coming soon we need to move on. Okay. Thanks everybody. Thank you, Matt. Thank you, world. Go to DentistAdvisors. com. If you want to just talk to a trusted source and get a good piece of advice, we’ll point you in the right direction.

We’ll tell you, hey, don’t hire us. Go do this other thing. Go to DentistAdvisors. com. Talk to a trusted advisor today. And, thank you very much. Bye bye. Bye bye.

Keywords:private investments, private equity, investment risks, investment strategies, DSO, liquidity, risk profile, investment checklist

Investing, Practice Value