#3: The Build-Up Weekly

Dear friends and colleagues,

Welcome to the 3rd edition of the Build-Up Weekly, where we’ll be delivering weekly insights and inspiration for dentists on every stage of the private practice journey! Thanks for joining us on St Patrick’s Day! ☘️

March Madness is now in full swing (and no, I’m not talking about Silicon Valley Bank or Credit Suisse). Unfortunately, in typical Trevor fashion, my bracket already has me feeling like this kid…

I hope you all made better predictions than me, though according to NCAA March Madness Twitter, only 787 perfect brackets remain after day one (from the millions submitted).

Here’s what we’ve got lined up for this week:

• 🚀 The Acquisition: Loans and Liquidity

• 🪴 Growth Stage: Building Your (Emotional) Bank Account

• 🤝 The Transition: DSO Deal Deception

• 💡Weekly Inspiration: Luck of the Irish

And with that, let’s get started!

Loans and Liquidity

As part of our ongoing series on obtaining dental practice loans, this week's topic is liquidity.

For our purposes here, liquidity = cash. Technically, it also refers to assets that can be easily converted to cash without losing their market value. But at the end of the day, cash is what counts.

If you want to get a loan for a dental practice, having adequate cash on hand is crucial for a couple of reasons.

• Demonstrates Financial Stability: The bank wants to see that you’re good with money. Honestly, this is the number one reason that the bank requires liquidity. If you can’t maintain your own healthy emergency fund, then they will be concerned about your ability to manage cash flow in your practice.

• Unforeseen Expenses: Things happen. Unexpected expenses can crop up during a transition and are part and parcel of running a business. Even with working capital, ample liquidity enables you to handle emergencies, such as equipment malfunctions or temporary dips in revenue, without incurring additional debt.

Importantly, your cash on hand is NOT about saving for a down payment. Banks generally offer dentists 100% Loan to Value (or LTV) financing for dental practices, which means that nearly all of the financing that we help buyers with requires no down payment.

And while it’s very important to have an emergency fund, the primary goal of having liquidity is to look like a low-risk borrower.

So how much money do you need on hand?

The general rule is to have 5 - 10% of the purchase price of the practice you are planning to buy. Shoot for 10%, but if you’re buying a practice under $1M, you probably don’t need more than $50k. Over $1M, you’ll need to show more cash on hand.

Again, this is about showing the bank that you’re good with your money and aren’t living paycheck to paycheck.

If In Doubt, Evaluate Your Budget

If you don’t have that much money in the bank and you’d like to purchase a practice, it’s time to start reconsidering your budget.

We all have a budget, whether we commit it to paper or not. At the end of the day, a specific amount of money came in and a specific amount of money went out.

If you need to save more, work to increase the money coming in and decrease the money going out. I know it sounds ridiculously straightforward, but this is at the root of almost every personal liquidity issue.

If possible, hold off on the luxury items until after you purchase your practice. Consider waiting to buy your dream home.

Avoid any debt that doesn’t provide an income (like a car loan) so that you can take on the debt that does provide an income (like a practice loan).

Once your business is up and running, you’ll be able to enjoy those luxuries.

But until then, hold off.

And if you haven’t already registered as a buyer with us, please do below!

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We have 60+ listings for sale at Integrity Practice Sales, with new listings coming on the market every week.

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Compliments and the Emotional Bank Account

Since we’ve been talking about money in the bank, I thought it would be worthwhile to also discuss the emotional bank.

As a practice owner, it’s crucial to have a team that is motivated, engaged, and committed to providing excellent patient care. The emotional bank account is one way to think about building a high-performance team.

So what is the emotional bank account?

An emotional bank account is a metaphor promoted by Stephen Covey in his book, "The 7 Habits of Highly Effective People." It represents the trust, goodwill, and positive feelings that people have toward you.

This came up for me a few different times this week. I was talking to a friend yesterday morning at a coffee shop, and she mentioned that her manager sent her a positive review that mentioned her by name.

She was thrilled but then was surprised when the manager said that it wasn’t the first one she’s received. Apparently, the owner told the manager not to forward the other compliments because “she already knows she’s doing a good job.”

Yikes. What a wasted opportunity.

We all like to be recognized for our hard work, and one way to build your team's emotional bank accounts is by complimenting them regularly.

Genuine compliments help boost team members' confidence, morale, and motivation. When giving compliments, be specific and provide examples of what they did that you appreciate.

Just for fun, here’s a scene from the 1997 rom-com As Good As It Gets.

You’ll notice that Jack Nicholson’s character isn’t initially keen on giving a compliment, but the eventual compliment is specific and tied to the actions of the recipient. And Helen Hunt’s character is transformed by the compliment because it acknowledges her in a profound way.

Don't give compliments because you’re supposed to. Instead, make a conscious effort to notice your team members' efforts and acknowledge them.

True compliments should be genuine and heartfelt, and if you want to start giving great compliments, you first have to pay attention.

When team members feel genuinely appreciated, they are more likely to go the extra mile and contribute to the success of your practice.

So it’s not just kind - it makes good business sense as well! A real win-win.

The DSO Deception

Ok, so this title is designed to generate clicks, but I don’t think it’s clickbait per se because this is a real problem that bugs me all the time.

This is NOT a post about how DSOs or corporate groups are bad. We can discuss the pros and cons of the consolidation trend in dentistry at another point.

What I want to do today is ensure that everyone is comparing apples and apples when evaluating offers. Too often, I hear dentists comparing apples and oranges because they neglect the structure of the deal.

Imagine you had a practice that was collecting $1.2M with a total doctor take-home income of $480k and EBITDA (i.e. your cash flow after paying an associate to do the dentistry) of $230k.

Consider the following two offers:

• Deal One (from a DSO)

  • 5.5x EBITDA = $1,265,000

• Deal Two (from a private doctor)

  • 2x Dr Take Home = $960,000

It looks here like the DSO is making the higher offer, but let’s take a shallow dive into the deal terms. (I don’t want to overcomplicate the matter or get too technical.) This is a simple point that is mostly about time.

The DSO will require that you stay on and practice for 2 or 3 years. And if you want the entire $1.27M purchase price, you need to keep up your production.

So the DSO is offering $1.27M that is paid out over 3 years, plus the money you make working in your former practice as an associate.

But if you just worked in your practice and kept up your production for 3 years and then sold your practice, the math looks like this:

• Private Sale with Time Included

  • Year One: $480k

  • Year Two: $480k

  • Year Three $480k

  • Practice Sale: $960k

  • TOTAL: $2,400,000

The DSO deal will pay you $1,265,000 plus 3 years of working as an associate. Assuming 70% of the collections come from restorative and you take home 30% of collections as an associate, then your annual associate income would be $252,000.

• DSO Sale with Time Included

  • Sale Price (assuming you hit all targets): $1,265,000

  • Year One as Associate: $252k

  • Year Two as Associate: $252k

  • Year Three as Associate: $252k

  • TOTAL: $2,021,000

That’s an almost $400,000 difference in favor of the private sale.

Now there are a lot of different ways that you can structure a DSO deal. And there may be some upsides that I didn’t capture with my math.

But my point here is simple - be sure that you’re actually doing the math and comparing apples to apples, not apples to oranges.

And if you’d like to review an offer or talk about your transition options, one of our professional brokers would be happy to sit down with you for a confidential, no-obligation consultation.

Get connected with your local Integrity Practice Sales agent here.

It’s worth having a conversation no matter your current transition plans. You never know what you’ll discover together.

Back in earlier iterations of this newsletter, I often included music that lifted my spirits, in the hope that it would do the same for some of my readers.

Today, I’m doing the same, but I wanted to make a quick comment about luck before pivoting to some down-to-earth Irish music (a so-called ‘trad session’) at an Irish pub. Happy St. Patrick’s Day!

And speaking of the Irish (and since Ted Lasso season 3 just came out), I’ll leave you with a quote of Ted’s from the show (taken, I believe, from South African golfer Gary Player):

Now here’s the music:

And with that, I hope you enjoyed our third edition of The Build-Up Weekly!

Please consider using the link below to share our newsletter. 🙂 

With best wishes to you and your families,

Trevor Kimball, PhD

p.s. feel free to respond to this email! I’d love your feedback and suggestions.