#214 3 Steps to Get Your Dental Financial House in Order

📥Resource Download: https://go.smcnational.com/resources/3-common-mistakes-to-avoid-when-scaling
🚀Check out our new Dental AI Receptionist! It schedules better than humans:  https://bit.ly/48RHMt2
🚀Grow Your Practice with Cherry Payment Plans: https://bit.ly/4p48qoC
➖➖➖➖
Are you thinking about expanding your dental practice or adding a second location? 
In this episode, Gary Bird with Jared Duckett and Bill Ladd break down the financial blueprint for smart dental practice growth, covering KPIs, profit and loss statements, cash flow, fixed vs. variable costs, production per operatory, and how to scale a multi-location dental practice without multiplying chaos. If you want to increase profitability, strengthen systems, and grow your dental practice the right way, this video will show you how to build a stable foundation before you scale.

Connect with our Guest Here ⤵️
Podcast: https://www.youtube.com/@DentalMomentum
Website: https://duckettladd.com/

Connect with our Host, Gary Bird, Here ⤵️
SMC: https://bit.ly/4jFhb5T
Personal: https://bit.ly/3SCEQZy

Want the strategies we talk about delivered to your inbox? Subscribe to Dental Marketing Digest: https://hubs.la/Q0436vZG0

➖➖➖➖
Dental Marketing Theory gives dentists real strategies to grow smarter and scale faster. Hosted by Gary Bird, founder of SMC — recently recognized as the best dental marketing company — the show features candid conversations with top dental leaders about marketing, operations, and what’s actually working in today’s practices. If you want predictable, profitable growth, this is your podcast.

➡️Want to see how SMC can help you grow?
📅Book a call here:➡️https://smcnational.com

🎙️ Check out our 3 Dental Podcasts ➡️ https://smcnational.com/podcasts/
📅 Upcoming Events ➡️https://smcnational.com/events

Transcript

SPEAKER_01 0:00

If you don't have your house in order at the beginning and you start growing and adding additional practices, what you are doing is not just multiplying. You are multiplying the chaos that you have already.

SPEAKER_02 0:08

Do you have good data to make good decisions? I mean, that sounds super simple. It's kind of like a wasting people's time to come on here and say that. But if you don't have data that helps you make good decisions, then your financial house is not in order. By the time they get to three, there's just no physical way they can be in three locations in any any meaningful capacity. And that's where we tend to see it's kind of that inflection point, man. You're either gonna say it too, or if you want to keep growing, something's gonna have to change.

SPEAKER_01 0:32

We've seen practices lose, I mean, hundreds and hundreds of thousands of dollars on the third, fourth, whatever location that's just taken away from the Bill, you call it the flagship dilemma. It's just taken away from the flagship practice.

SPEAKER_00 0:43

Welcome back to another episode of Dental Marketing Theory. I'm your host, Gary Bird. I'm the owner of SMC National, where we help offices just like yours level the playing field against the big guys out there, so you can grow the way that you want, but you can't grow if you don't have your house in order when it comes to your finances. Today, my guests, they're for this is not their first time. They've been on the show many times. Jared and Bill from Ducket Lads, they're going to be breaking down the things that you need to have in place before you scale when it comes to your financial house. This is a great episode. If you're thinking about growing, you really need to know some basic numbers. And it really does boil down to math before you jump in. And we've all done that before. I'm an entrepreneur. I've kind of put the cart before the horse before. But today they're going to break down how to actually do this correctly. And there's a free resource down below the three common mistakes that people make when it comes to scaling and their finances. So make sure you check that out and stay tuned. This is a great episode. All right, we are live for another episode. And today I have uh Bill and Jared, and we're going to be talking about the financial getting your house in order before you grow. And nobody talks about this because everybody's just like, just go grow, get a loan, and we kind of move forward. I'll be honest with you, I've done that before. And so before we jump into this topic, if you're thinking about growing, this is the episode for you. If we're if you're thinking about taking the next step, maybe buying another practice, maybe expanding your office. This is the show for you. But before we jump into it, I want you, number one, make sure to go check out Bill and Jared's podcast. We'll link that down below for you. Ivor is just recently on it, and they have some great content that you should definitely check out. And number two, we have a resource down below. We we took the three common mistakes to avoid when scaling your practice portfolio. And from a financial standpoint, like the three common mistakes that they see, you can access that down below. It's free, it's very informative, great stuff. So let's jump into this conversation. Like, what do we need to think through? Why can't I just like run and gun? Because that feels really good. When I want to grow and I just start growing, why can't I just do that?

SPEAKER_01 2:58

Yeah, I'll jump in there first. You know, and Bill, I'll also say a quote I don't know if this came from you, I don't think it did, but you say it all the time. Is if you don't have your house in order at the beginning and you start growing, adding additional practices, what you are doing is not just multiplying. You are multiplying the chaos that you have already. Right? And and that's that's super easy to do, right? I mean, you've got chaos. I mean, just go buy another practice that's gonna multiply. You have to really take a step back and say, okay, let's just say you have one practice, let's just keep it easy. You've got one practice. Is that practice dialed in from a system standpoint, from a profitability standpoint, from a KRA, KPI perspective, to really have your house in order first before you then go multiply? Because what you want to do is multiply the simplistic environment you've created, not the chaotic one. And everybody out there always running and gunning. I'll use your deal. Let's run in the gun and let's go buy another practice, get number two, and six months later get number three. And then you're gonna sit back and be like, crap, man. Like I've got three times the mess that I had at the beginning. So just don't just go out willy-nilly and buy practices. You have to get your house in order first from a lot of different aspects. Um, but first get that one main baby, that baby of a practice in order.

SPEAKER_00 4:12

What is that, what does that look like? So uh and and I love that quote, don't uh don't uh chaos. So if your life is chaotic, or if you're the centerpiece of everything and you're gluing it together, even if it doesn't feel chaotic to you, don't scale that either because it's not you can't if you don't have a lot of time, right? You don't want to add four more practices. So I can definitely speak to that. But from a financial standpoint, how do I know my house is in order to begin to grow? Like what are what are what are the first like health checks that I would should be checking in on?

SPEAKER_02 4:46

Yeah, so just a super simple flash test is do you have good data to make good decisions? I mean, that sounds super simple. It sounds uh kind of like a wasting people's time to come on here and say that. But if you don't have data that helps you make good decisions, then your financial house is is not in order. Now, what that could look like is that could look like somebody who just pulls up their bank account. Yep, we got enough money, we're good to go, we can keep spending, or uh, we need to go drawing a line of credit or whatever the case is, you know, that's what it could look like. It could look like, hey, I haven't seen a profit and loss statement in three months, but that's okay. My accountant's working on it, and I just don't want to answer their question. So we'll get to it when we get to it. It could look like, holy, you know, whatever at the end of the year, I owe a lot of taxes. I didn't realize I was gonna owe a lot of taxes. Why is that? Well, it's because I made a lot of money, but I never knew that along the way. So I mean, it could look like any number of things when it when it comes to something, but at the end of the day, you're just not getting good data to make good decisions. And if you're not making your decisions on data, to us, we think that's a mistake.

SPEAKER_01 5:56

You know, I'll jump in there real fast and and and to maybe riff off this analogy of the the, you know, data is kind of equate this a little bit to a dashboard of a car, right? And a lot of people, Bill, what you're saying is they don't even have a dashboard in their car to look at to know if they're going the right way, how much gas they have, et cetera. But how I would take it maybe one more step further on that dashboard is first off, a lot of people are buying number practice number two when they've got that uh check engine soon light on. And how do you get that check engine soon light off? Well, it makes sure that you're, you know, first off, your overhead and all your KPIs are in a really good spot and you're you're growing. Um, but then you're you're not just um how do I say this? You've got a really good set of tires underneath you to where you've gone for a while and you know you're getting really good gas mileage. Because if you're if you've got a clunker here and you're you're driving fairly slow and you've never really revved that thing up to 60, don't go get another car yet. You've got to make sure you're hitting on all cylinders in that car, and that's looking at that dashboard, like Bill's saying, to make sure you're in a good spot. And I would say 50% of practice owners, Bill, I don't know if you agree with that, 50% of practice owners either don't have a dashboard or they're not looking at the right gauges on that dashboard to make sure they're in a good spot.

SPEAKER_00 7:12

Yeah, so and we host a mastermind, and this is like the number one thing is like, okay, what's your goals? And they'll say, you know, I want to do this, this, and this. And it's like, okay, where's this, this, and this at? I don't know. Okay, go get clear on those numbers because we can't even help you turn right or left unless we know these basic numbers. And if you're guessing, you're probably gonna be wrong. And that's what I see all the time in marketing and our mastermind, like everywhere. So now that someone's watching this and they're overwhelmed now, so they're like, stink, I gotta know all my numbers. There's like a position, and you know how dentists are. Dentists get extra overwhelmed at this because they're super analytical, and so they'll get into a number and they'll just like tweak out on that number, and then they'll realize there's like four billion numbers underneath that number, and then like four, and then it just gets really, really messy. Okay, and I've seen that like spin off the spin off in the wrong direction, also. It can like put you in a really bad spot mentally. So someone's watching this and they're like, okay, I need to know my numbers, but there's all these numbers. What are like, give me like four or five basic numbers that I just got to have a grasp on to so that way I don't go and spin my wheels and get four billion numbers to look at.

SPEAKER_02 8:26

Yeah. So I I think where you kind of got to start with that is even before the numbers, we kind of need to figure out what data are we going to be looking at as far as a global level. And you start with and you say, okay, you know, everybody knows about financial statements, right? Heard of them, but what financial statements are we even looking at? You know, and and some people really don't know. So, you know, you start with uh a profit and loss. Everybody kind of knows that. If you have multiple locations, you need to see each location listed separately so you can see how each one individually is doing, you know, from a profit and loss perspective. We'll kind of get into some numbers buried in there in a second. Uh, you want to see your balance sheet, you see what kind of cash you have, what kind of debt you have. These are things that are important that a lot of people don't necessarily pay attention to. And I think the report that nobody talks about that Jared loves to talk about is the cash flow statement to know where's my money going. You know, a lot of times, Gary and, you know, business owners, they come in, they didn't learn the business of dentistry. So they come in and they they maybe look at a few things, but they don't understand sometimes that what's on your profit and loss isn't necessarily what's gonna hit your bank and and like what uh or what's going out the door. It's not necessarily entirely complete. So, you know, you got to start with a very basic, you know, framework and let's figure out first of all, what financial reporting are we gonna do? Once you do that, then you got to say, okay, what's the framework we're gonna do? Because you're right, people can overcomplicate things like crazy. And I think the more you overcomplicate financial data, the more it's gonna become white noise. It's gonna, it's gonna really uh overwhelm you. And you can kind of create something that's so complex that it's not meaningful and you just ignore it, right? So, you know, our first piece of advice for one of them is keep things very simple. It doesn't have to be overly complicated. Gary, there's only a handful of categories that should be showing up on a PL that you should be worried about when you kind of summarize them down. You know, you got all your variable costs or your, you know, provider comp, you have your labs, you have your supplies, you know, you have on your opex side, you know, you have your facilities and general mystery and all the stuff.

SPEAKER_00 10:37

Do you define uh variable cost in opex?

SPEAKER_02 10:40

Yeah. So variable costs are like what you would say tend to change as you produce more. You know, that's uh it they tend to go up as you produce more. So think through like an associate comp, you know, as they produce more, you pay more. Same with hygiene, typically is the same way.

SPEAKER_00 10:55

Which is different than like your rent, because your rent stays the same no matter what costs. It's different than your power bill because it's pretty much the same month, right?

SPEAKER_02 11:03

Right. Exactly. And so if you kind of understand what these ratios should be, you can almost look at it as percentages, Gary. And like, am I in a right percentage to be in a healthy environment? Because guess what? If the percentages tend to work out, your overall profitability tends to shake out, you know, where you want to. So, I mean, we can get into detailed numbers if you want, but that's a general framework there.

SPEAKER_00 11:26

I love that. And and the reason that's so important, I think, um, and understanding that is that a lot of times we've opted a lot of dentists have operated their business at a fixed expense for so long, five years, seven years, they're very comfortable with it. They know it like the they don't even have to think about it. If I have this much money in the bank account, I know I'm good because I can just pay all my bills and then I can pay myself at the end and we're good. The problem is as you scale, you have a certain number of those expenses that stay the same, but then you have other ones that scale with your growth and causes a lot of problems because you think you're good, because you're doing napkin math, but you're really not good. That's that's one of those ones that I've seen really creep up. I've done it before, and I've seen other people do it before where it's like, oh, I didn't consider that this particular number was gonna climb with my growth.

SPEAKER_01 12:16

Well, one thing to hit on there too, I'll riff off that fixed and variable component, is a lot of people, right? They're going to go buy that practice number two, but they haven't fully maximized practice number one. And if you think about what you're gonna add with practice number two in this example is basically all those additional fixed costs, again, right? You're gonna rack up an additional rent payment, additional utility payment, more marketing and that sort of thing, if that's a fixed component. But what you need to look at before just don't add those additional fixed, figure out on your existing practice what those fixed are. Keep them in check. Figure out what they are, keep them in check. And then, Bill, as you were saying, every additional dollar of production that you can produce, an X percentage that should go directly to the bottom line, because the fix stays in check, right? So one of the key metrics we look at at times too is net production per operatory in a practice. And Bill, we like to say somewhere around 30-ish. Is that kind of where we're at now? 30,000 a month? If you're doing 30, you're getting it done typically.

SPEAKER_02 13:14

You know, 25 to 30 for depending on what kind of services you're providing. That tends to be a solid metric that we look at, you know, that tells us a lot about not necessarily just are you being do you have a production problem or but also um, you know, are you kind of stretching the capacity of of you know your operators? You know, are you getting a point where you may be stretched to for the the amount of production you're doing and the number of ops you have? So that's a super meaningful, easy metric to track that we think everybody should look at. And 25 to 30 is pretty healthy on that.

SPEAKER_00 13:49

So I'm I'm gonna take this in another direction with multi-location because there's been some things over the years that I've learned and I would love your guys' thoughts on it. So there's there's numbers and then there's these hidden things that go inside of a practice that you just don't account for and you learn over time. So initially, when I got into dental, I worked with all single locations, all of them, like almost a hundred percent. There was maybe one or two that had two locations. And all of a sudden, they all started adding second locations, like all like it was just like and so we're like, hey, this is great. I had no idea what was going on or why it was happening or any of those kind of things. It was just like great, you need marketed for uh for this second location, and let's do it. What I realized was these second locations struggled. The ones that didn't struggle were the ones that it was a husband and wife team, and the wife would go start the other practice. I saw this over and over and over again. And those did well. And I started to look at it, and they, you know, you they knew their numbers. Let's say they had all their numbers in place, but there was the this this tangible thing that wasn't on paper where it was like the business owner's not at this location, so nothing happens like the first location. Or in if there was a husband and wife, it was the third location that would get them. And what would happen is the owner would have to leave the first practice, go over there and be like, I'm the owner, I'm gonna make sure everything's running correctly. No, get all these numbers back in line. But guess what would happen when they did that? The first practice they left, numbers would start to tank. And I'm just talking about like high-level numbers, like number of new patients would drop. Why? Because patient referrals would drop. Why? Because customer service would go down a little bit. Why? Because the owner wasn't there. And we that would happen just a little bit across the board, but it would be meaningful enough to the overall uh performance of the office. And that's something that I've really seen over and over and over again is like you you almost can never produce an owner-operated business at a second location without the owner-operator being there. The numbers are not going to be as good.

SPEAKER_02 16:02

Yeah, I would say we would agree with that. And a lot of times we can see two locations do pretty well, depending on the doctor's skill set. But you're right. A lot of times they're driving production one side or the other. You know, they're trying to drive culture one side or the other. And we always say, like, where the sun shines, that's where the grass grows. And that's exactly what you're saying. When they're focused over here, that that practice is going crazy. But when they take their eye off the ball over here, you know, we tend to see it losing traction. Now, you know, with people who are pretty good operators, we usually find two practices. They can kind of make it work, but three is where it usually is.

SPEAKER_00 16:39

So, like two, two, you're saying there's two, they're really close to each other and they practice at both of them. Yeah, they and they practice at both of them, exactly right.

SPEAKER_02 16:47

Way they can be in three locations in any any meaningful capacity. And that's where we tend to see it's kind of that inflection point, man. You're either gonna stay at two, or if you want to keep growing, something's gonna have to change. And that's where we tend to see some of this infrastructure that we try to talk about on the finance side, and I'm sure you on the marketing, that's where it has to come into place, Gary, or you're gonna crash and burn.

SPEAKER_01 17:08

Well, I think you said the key thing, Bill. Is it fair to say typically when you get up to two practices going into three, you know, we say all the time that that director of ops, that person needs to come into play and come first. Because usually what we see, if you don't have that person in place because that doctor is busy producing over here and cake over here, they're not gonna get anything done. You know, and that director of ops is the person that can come in and implement those systems at the new practice, oversee the team and that sort of things, and actually get stuff done. If they don't have that position from an accountability charge structure, it's really hard to wear all three, four different hats as an operator or as a owner to get that stuff done.

SPEAKER_00 17:45

I I did a podcast with Mark Costas, and I'm curious to how this would play out in the financial side of things. So we had the same exact conversation because he actually went through this personally. He's seen people go through it. And I said, How do you how do you solve this? Like, what do you do? Do you not grow? And he said, No, what you do is in your practice, you implement systems and then you remove the key player in that system to see if it operates at the same level. And I'm like, what do you mean you would remove them? He's like, go on vacation or give them another job and tell them they are not allowed to touch this process, whatever the process is. Let's say it's AR. Okay, we built it, it all works, great. Who's in charge of it? Who's running it when you're not here? Great. Now you disappear or you're not allowed to touch it. You can work in the office, do not answer questions about it, do not touch it for two to three weeks, four weeks, whatever the timeline is. If it dips, then now you know it's the system is not sound and it's gonna dip when you go to your next practice. And then when you, if you just have one thing that dips, it's not a big deal. But when everything in the whole practice dips, it's a huge deal. So he called it like redlining, I think, uh redlining the system. So you redline the person, get rid of them. Um, what do you think about that from a financial standpoint? Like, how do you how could we do something like that and stress test the first office before we jump off into office two, three, four?

SPEAKER_02 19:15

Well, I'm gonna kind of go high level and give you our overview of how we see the world of business of dentistry. And I think you'll probably agree with this. And it is, I'm not gonna lie, this is a traction-based model, but we look at there's three core components of a business, and that's ops, that's finance, and that's sales and marketing. And, you know, and there's different permeations of those, obviously, but those are the three big ones. And like Jared was saying, we have enough humility to say you may disagree on the marketing side, but I think ops comes first. And if your ops are broken at your single location, then you should never even consider a second location. But to Mark's point, let's say that those things are dialed in and all of a sudden you have a really great practice. And we always like to say, how closely can you copy and paste that into another location, those process procedures, you know, culture, whatever else you need to do in there. And then you start monitoring, you start tracking it. You know, when it comes from the, you know, to his specific point about how do you, you know, uh know if if it's performing, you know, I think that we kind of come from a finance seat and say you should look at each individual practice separately and you should have, you know, metrics starting with their net operating, their contribution margin will tell you are they performing or not. And if they're not, we're gonna be extremely deferential to those operators and say, hey, we're finance guys, we don't know why it's broken, but clearly it is broken. And, you know, you provide that data, and you know, that's where someone like Mark would come in and probably would already know it, could feel it, but they see the data and they say, okay, you know, we need to look at this because the system here is more of a person, it's not a true system or process, and we need to either fix that through training or maybe it's the wrong person. So, you know, again, when when you're speaking specifically to Mark's point, I think that almost entirely comes down to operations. I I don't think financing is that complicated. I mean, to be completely honest, what we do, what your internal bookkeeper do.

SPEAKER_00 21:20

So you're you're saying it's more math, it's the culture, removing people, adding people. That's more on the operator side that they got to figure that out.

SPEAKER_02 21:29

We we've historically found that. I mean, but again, you need to have good data and you need to have good, you know, on your side, the sales and marketing team that's actually driving at bats and opportunities so people can, you know, actually have opportunities to do their job and to have a profitable office. But when it comes down to it, you know, when you're looking at these, we're able to pull out and look at a 10,000 foot view. And to us, it's very clear when an office is broken. And, you know, we see this a lot in multi practices, you know, five to eight practices, Gary. Is almost always one that is so broken, we almost recommend just get rid of it.

SPEAKER_00 22:04

Yeah. I've seen that over and over again. Get rid of it.

SPEAKER_02 22:06

We don't need this practice. Is it costing you money when you look at it?

SPEAKER_00 22:09

I've seen so many times where like the second or third practice just absolutely sucks the practice dry and the amount of stress that it causes. Yeah. Because a lot of people think, well, what's the worst that can happen? Like it breaks even, and and you know, it's no, you have a huge amount of risk. Huge amount of risk because you're not there. So you got sexual harassment stuff that could happen, you have uh clinical stuff that could go south, you have all this risk that you now a patient gets hurt, a team member gets hurt, well, all these things, right? And you could lose money. Like you could actually lose money to the point where you're losing more money at that location than you are at the one that you're making all your money at. I've seen it over and over and over again.

SPEAKER_01 22:54

Same for whatever location that's just taken away from the Bill, you call it the flagship dilemma, it's just taken away from the flagship practice. And it's it makes so much more sense to just get rid of that practice. I hate to say it that way, but it's the issue with the owner, though. They just don't want to because they feel you know they got that pride of ownership with it. Or that's is it the sunk cost fallacy or whatever? You'd sunk so much. But if if you don't if you don't pull the trigger and get rid of that practice, you're gonna continue to, in my example, hundreds of thousands of dollars into it. So sometimes you just gotta make the right decision and move on.

SPEAKER_00 23:26

That's so good. All right. So I know we could talk about this stuff forever, but if someone wants to reach out to you, wants to learn more about what you guys do, what's the best way to get in touch with you guys and have them have you help them with the math part?

SPEAKER_01 23:40

Yeah, but the best way to reach out to us is just go to our website, you know, go to duckitlad.com, two ts, two Ds, hit the work together form. Um, we've got a great YouTube channel. We're trying to be good, good marketers, right, Gary, like you, and trying to put good content out there. Um check out our content. It takes a lot of work. It's hard, huh?

SPEAKER_00 23:58

It's a lot of work, right? Most people are like, oh, marketing, you just do it. It's like, no, it's not, it's not that. I wish it was that nothing in business is good.

SPEAKER_01 24:06

Go check out our content. I think we put out some good stuff and just we just want to educate, help dental practice owners get better and achieve, you know, whatever their goals are.

SPEAKER_00 24:13

That's awesome. Good job, guys. Thanks so much for stopping in. Great episode. If you want the resource, it's free down below. Reach out to Duckin' and lads and ask them questions. They're very open. You don't have to pay them money to go ask them some questions. See, see what they think and see if they might be able to help you. Thanks, Gary. Thanks so much, guys.