Episode 5 - DENTAL PRACTICE TRANSITIONS: INSIGHTS FROM THE EXPERTS AT DDSmatch

SUMMARY: 

In this episode of The Fulcrum Podcast, host Karen Wood, Director of Operations for VDA Member Perks, discusses practice transitions with Todd and Sheryl Garfinkel from DDSmatch. The conversation covers essential topics such as what dental students need to know about practice ownership, the role of dental transition specialists, and the importance of assembling the right team for a successful practice transition. The episode also provides an overview of the timeline for purchasing a practice, key factors for valuing a dental practice, and advice for dental students aiming for future ownership. The session concludes with tips on finance management and maintaining confidentiality during the transition process.

HOST:

Karen Wood manages the VDA Member Perks program. She has been in the dental field for over 20 years with experience as a dental assistant, managing a periodontal practice, and working with dental teams as a sales consultant and trainer.  

GUESTS:

Todd Garfinkel is a dental industry professional who has been working with doctors for over 20 years. Todd’s main objective has been to explore and understand his client’s unique needs and circumstances. Successfully serving doctors in establishing, building, and growing their practices has been a benchmark of his own professional success. Applying a proven, systematic process and utilizing a trusted circle of influence, including CPAs, lawyers, valuation specialists, and suppliers, Todd successfully guides his clients through the sometimes unfamiliar world of practice sales. His primary focus is to facilitate a smooth and harmonious transition for all involved.

Sheryl Garfinkel brings more than 35 years of in-depth dental industry experience and knowledge. Sheryl started her dental career as a crown and bridge lab technician before becoming a dental business manager, where she learned the industry firsthand. After many years in business management, Sheryl joined Patterson Dental as a software and technology advisor. She has also worked privately with dentists in a consulting capacity, focusing on profitability, efficiency, and team building. Now, as a transitions professional, she helps her clients navigate the detailed transition process and believes in guiding them with care and respect.

DDSmatch: 

Visit us online at: https://ddsmatch.com/ 

Call the experts at: 855-546-0044

VDA Member Perks: https://www.vdamemberperks.com/ The Virginia Dental Services Corporation (VDSC) was created as a subsidiary of the VDA to recommend products and services to the members of the VDA. By utilizing the VDA Member Perks-endorsed vendors, VDA members can enjoy the peace of mind that comes with using recommended companies, take advantage of special benefits, and receive discounted pricing, all while supporting the VDA. Since 1997, the VDSC has been pleased to provide over $3.7 million in funding to the VDA, VDA Foundation, VCU School of Dentistry, and others.

EPISODE CREDITS

Producer: Paul Logan

Host: Karen Wood

Guests: Todd Garfinkel and Sheryl Garfinkel

Post-Production/Editor: Shannon Jacobs

Subscribe, share, and send your feedback and topic ideas to thefulcrumpodcast@vadental.org.

The information, opinions, and recommendations presented in this Podcast are for general information only, and any reliance on the information provided in this Podcast is done at your own risk. This Podcast should not be considered professional, medical, or legal advice.

Music in this episode from Epidemic Sound

Transcript

[00:00:00] Paul Logan: Making big decisions around practice transitions can keep dentists up at night, but those aren't decisions you have to or should be making alone. Karen Wood, the Director of VDA Member Perks, sat down with Todd and Sheryl Garfinkel at DDSmatch to ask the questions she hears most from our member dentists who are preparing for practice transition. They share valuable insights from the field on what they're hearing from both potential sellers and buyers.

[00:00:25] Paul Logan: Welcome to another installment of The Fulcrum, a VDA podcast.

[00:00:29] Karen Wood: Hello and welcome to another episode of the Virginia Dental Association's podcast, the Fulcrum. My name is Karen Wood, and I am the Director of Operations for VDA Member Perks, which is the Member Benefit program for all VDA members. Today, we have the pleasure of speaking with Todd and Sheryl Garfinkel from DDSmatch Practice Transitions, which is an endorsed vendor of the VDA Member Perks program.

[00:00:50] Karen Wood: We're excited to have their expertise and experience as they can assist VDA members in so many stages of their career to make the right decisions to achieve their goals. Those could be short-term goals with an associateship position, a practice purchase or partnership, and ultimately a solid retirement plan.

[00:01:06] Karen Wood: So welcome, Todd and Sheryl. 

[00:01:09] Todd Garfinkel: Thank you, Karen. We're excited to be on. 

[00:01:11] Sheryl Garfinkel: Thanks, Karen. 

[00:01:12] Karen Wood: So let's start with the earliest stage of a dental career, and that would be dental students. Why should dental students care about practice ownership, especially right now? 

[00:01:22] Todd Garfinkel: Great question, and it's a question we hear quite a bit from dental students. You know, like anything else in life the more you plan the better it's going to go when it comes time to move forward with something. Um, you know, start to have the, the frame of mind around um, ownership early on is gonna give them the advantage to start thinking in that way and asking questions, shadowing people digging into the financial side, not just the clinical side of dentistry. And then there's there's the side of ownership in general, which really opens up the door freedom in a lot of ways.

[00:02:04] Sheryl Garfinkel: Yeah. And I think, understanding of what the options are early on and really exploring their goals. Do they see themselves associating for their lifetime? Do they wanna have some transient abilities and therefore want to be an associate or do they wanna settle into a community and buy a practice and really gel in the area that they've decided to set roots into.  

[00:02:33] Todd Garfinkel: And I would add, just to tag on to that, Sheryl. When we see people weigh out that associateship versus ownership path the big piece that comes forward for ownership is really again, I'm going to use the word freedom. Freedom around your schedule. Freedom around the income that you have, the ability to earn. Freedom around the type and way you wanna do your dentistry. So it opens up a lot of doors for people and that's, that's part of why it's early on, I think, a good idea to start to explore those ideas. Obviously, you're not gonna settle on 'em completely. They could be evolving as they move forward, but it's always good to plan ahead.  

[00:03:17] Karen Wood: So tell us what you guys do as dental transition specialist and why having the right team matters. 

[00:03:26] Todd Garfinkel: I think a great way to look at it is we're kind of matchmakers, right? So we're gonna bring the buyer and seller together to kinda work through the process, that's the big picture. 

[00:03:42] Todd Garfinkel: When to comes down to it, Sheryl and I and DDSmatch as a whole, focus up front on the right fit. So there's a lot of different pieces to consider when you're buying a practice. And fit is a big one that a lot of people put off to the side, believe it or not. So as dental transition specialists, dental brokers, we're taking a look at what is it that the buyer really truly wants? What are they looking for? What's the geography they wanna be in? What is the financial status, state of the practice that's gonna really suit them well? We dig into the value of the practice. The financing, the negotiations of the deal itself the due diligence through the process, the closing and all the moving parts that come together for the closing. Literally, we counted at one time, Karen, there was over 800 emails that went back and forth around one one deal, like one transition. 

[00:04:48] Sheryl Garfinkel: Yeah and to just tag off of that, although Todd and I as DDSmatch only represent the seller, we find that it's really important to also be a resource for the buyer. Not that we're representing 'em necessarily, but that we're helping to guide them for having a good dental transition lawyer. If they don't have a dental-focused CPA to help with that. If they need to work through credentialing, which they will most likely, unless they're buying a fee-for-service practice, we can set them up with somebody in, in that regard. We're trying to prepare all the parties involved to have a win-win transition. We don't want anybody feeling like they lost at the end. We want it to be just like our name, a good match. 

[00:05:43] Todd Garfinkel: Yeah. And going back to the tail-end of that question, the ask asked, when we focus on why is it a good idea to build a team around you? We all have our expertise and specialties. Dentists don't generally get a lot of business education in their dental school. And there are experts in each field that's gonna surround the transition, right? The CPA who's gonna look at the numbers, the lawyer who's gonna assess and manage the risk side of it and come up with the contracts. You know, each professional is gonna be able to guide the buyer through the process and give them that feeling like that they can be kind of sure, more sure of the decision that they're making.

[00:06:31] Karen Wood: Okay, so you get the right fit between a buyer and a seller. You've assembled a team of professionals. All the boxes are checked there. What's the typical timeline and process for someone purchasing a dental practice from the search to close? 

[00:06:47] Todd Garfinkel: So the way we roll is that, our website and most brokers websites will have their listings, posted up, you know there will be a general description of the practice opportunity. On our website, you can search by geography, which is really a big piece of that decision, right? Um, You know what's gonna be the actual location of the practice. It's not gonna give you the physical location, the address, because confidentiality is a big part of the process. But it starts out with seeing that listing, getting a general vibe from that verbiage and then taking that next step of talking to the transition specialist or the broker. From that point there's kind of a conversation around the practice. Kinda going through the general basics of how it might fit for the for the buyer. Again, we at DDSmatch actually have a conversation with every single buyer. So we're going through the process of trying to understand what's a good fit for you as a buyer, what's gonna be a good match. From that point moving through the actual process further they're gonna usually go and visit, we insist that they go and visit the practice and in most common situations meet the seller. And then if they like it, they're gonna submit what's called a letter of intent. And the letter of intent is basically the offer. It's a non-binding agreement, but it's the offer to purchase the practice. It's gonna outline the important pieces of what the final agreement will entail. Right?

[00:08:22] Todd Garfinkel: And then at the same time once that letter of intent is accepted, a whole bunch of things start to move forward. Bank financing so that the buyers working with a banker going through that entire process, lawyers are doing their thing. They're starting to have conversations back and forth.

[00:08:41] Todd Garfinkel: A draft asset purchase agreement, which is referred to as an APA a lot of times is is created and that's shared back and forth and there's adage made until its its agreeable to both sides, to both lawyers. There's something called a due diligence that takes place. The due diligence is where the buyer has the opportunity to dig a little bit deeper into that practice, not to try to find issues with it. They're not looking for decay like they do in the mouth.

[00:09:12] Todd Garfinkel: Right? 

[00:09:13] They're looking to make sure that the practice is what they think they're buying, right? So they get to take a look at the schedule. They have conversations around charts around specifics around patients. They might have an equipment specialist come into the practice and uh, check out all the equipment. So they go in that next deeper level into making sure it's what they think they're buying. 

[00:09:36] Karen Wood: So on that note, what makes a good practice to buy and how do you measure growth opportunities?

[00:09:43] Sheryl Garfinkel: That's a great question, Karen. The finances are a really important piece to that. The cash flow. Is the seller working the full four or five days? Is a growth there? Is the seller marketing? Is there growth there? Has there been any fee negotiations with the in-network insurance companies? Is their growth there? So there's a lot of different moving parts that would allow a buyer to see a practice that has good bones, that the facility is the size that they want it to be. It's in a location that they want it to be in, that the clinical profile between the seller is somewhat aligned philosophically. The other piece that we see often is that buyers may have a greater scope of clinical skills. So for instance if a seller is referring out, let's say implant surgery in some placements. And the buyer is able to do that skill set then something they can keep in house and increase uh a practice and therefore it being a good opportunity for them to buy. 

[00:10:55] Todd Garfinkel: And then of course, the financial side has to be taken into account. In this industry in the world of dental transitions you'll hear the phrase cash flow is king. Cash flow basically is the overall collections that the practice is bringing in. Take out the expenses that have to be, accounted for, and what money is left over. Alright, so that's your cash flow. And is it a positive cash flow or a cash flow that's within the national average? You know and when they're taking a look at the cash flow, there's going to be more than just looking at the bottom line of the taxes, and this is part of where a good advisor comes into play, or we can certainly assist with it too. They're gonna take a look at what overall compensation is, right? Not just what dollars are put in your pocket at the end of everything. But is the health insurance paid for on the profit and loss statement? Is there automobiles listed? Are there cell phones incorporated in? All these little bits and pieces that are part of the overall, and I use quotes around this, compensation for the owner has be put in as part of the equation to that picture. That's a big piece is the financial health of it. A lot of times we see buyers focusing only on that, and we try to wake ‘em up and kinda bring 'em back to all the points that Sheryl focused on or talked about and make sure it's a good fit other than just financially. 

[00:12:32] Karen Wood: That's a lot of moving parts and pieces that you guys manage for these sellers and buyers. With that, we're gonna take a quick break and we'll be right back.

[00:12:40] Dr. Justin Norbo: Hi, this is VDA President, Dr. Justin Norbo, asking you to save the date of September 26th and 27th for the Virginia Dental Showcase in Norfolk. This is the VDA's premier annual event, and this year we'll be providing more hands-on continuing education. Along with CE tracks for dental team members and some special new social events and opportunities to unwind. I can't wait to see you there. September 26th, 27th at the Virginia Dental Showcase in Norfolk. 

[00:13:07] Karen Wood: So once you found the right fit for a buyer seller, and you've assembled a team of professionals to guide the process, what is the typical timeline and the process for purchasing a dental practice from search to, to close?  

[00:13:21] Todd Garfinkel: Once the final agreements are all set and put into place and the financing is in place and everything else is kinda in check all the boxes have been checked. There's a closing date that is established and focused on and everybody targets that. If we look at it from an overall timeline, typically from the moment letter of intent is accepted by the seller until the closing date itself, we usually see it around 45 to 60 days. It's on the longer side, if there's real estate involved, that takes a little bit extra due diligence on the bank's side, but in general, we see the timeline about 45 to 60 days from the beginning point where we look at the, of intent being accepted to the point where we hit closing date and the money exchanges hands, the legal ownership exchanges or is transferred, and then the buyer's, from that day forward, are the new owner.   

[00:14:22] Karen Wood: And, it seems like a daunting task, but from the dental students I've spoken with they're up for it. So what goes into valuing a dental practice? We talked about the moving parts and pieces in the background, but what do you look at for the value of the actual practice that a person's purchasing? 

[00:14:38] Todd Garfinkel: Yeah that's another great question. We go back to that cash flow that I mentioned earlier. That's the main focus of most valuations at DDSmatch, we use a certified valuation company, and I don't know brokers do it differently. Some do it themselves, some have CPA's do it. Some others use valuators. We use a well-established certified valuation team. So we're neutral in the process. We're not the ones actually coming up with the value. And what they do is they're diving into the cashflow of the practice. So they're looking for all reasonable, what we refer to as add-backs. And when you hear the term add back, that means things like cell phones and automobiles and health insurance that the practice has and the associate working there. Then the associate salary and any salary that goes to the owner doctor is added back to look at what are the absolute necessary expenses and what is the profit that's left over after those expenses are accounted for. So the valuation team is digging into that level of nitty gritty around the finances, just to understand the cash flow.

[00:15:54] Todd Garfinkel: And that's really what the value is based on. Typically across the country, we're seeing practices value from the rough ranges between 60 and 80 percent of collections. And that has, that's based on a lot of pieces. Cash flow being number one. Location being really the next biggest piece. And we, for instance, have in Virginia a whole variety of different locations from inventory versus demand, right? All up through Virginia. Northern Virginia, being an anomaly for the rest of the country.

[00:16:31] Karen Wood: Right? 

[00:16:31] Todd Garfinkel: Very high demand and relatively low supply, which like in any market. For any product starts to nudge the price up a little bit. So the valuators have to take a look and work with that as well. It's kind of part, I'd say a large part science, but there's definitely a piece of art in there too, that they're looking at the overall desirability of the area. What does the facility look like? Believe it or not, that the actual assets, the physical equipment of the practice is a relatively small part of the value because it's looked at as the tools that are necessary to create the income that they're using to establish a value with. But they do look at it. How contemporary is it? How much technology does it have? Those sort of pieces all go into the soup, if you would. But that's mostly based as I said on cash flow. 

[00:17:30] Karen Wood: So setting expectations. If you're buying a dental practice from a retiring dentist, what would be your expectations there?

[00:17:36] Sheryl Garfinkel: Yeah, so interestingly, buying a practice from a solo dentist has a lot of moving parts, and interestingly enough, it isn't always just from the seller's point of view about the money. When we're working with the seller, one of the, probably the number one thing that a seller says to us is, I really wanna make sure my patients are cared for and that my staff is cared for. So really that legacy holds a very important part. Typically, a seller has been working and building this business their community for 30 to 40 years. That holds a lot of importance. And so when they're looking to sell, they're looking for a buyer who has a potentially a similar philosophy that they find that the fit works for them as they're conversing back and forth. It's not always the same but we find that to be a very strong piece and as I mentioned sometimes it hold a higher importance than top-dollar.

[00:18:46] Todd Garfinkel: Yeah, we've got a number of examples where there was a competitive situation for a particular practice. Where they're competing and they're putting higher offers in financially. And It often is not the highest dollar amount that's taken, but the best fit. As Sheryl said we've had a number of dentists that we've helped sell their practice that have been working in their practice for over 50 years. And now you look at a timeframe of 50 years and there's generations of families that they've seen they've gone to weddings, gone funerals. This is family that they're part of. It can be a little tough emotionally for sure to let go of all that. They're more emotionally invested in every piece of it. Most sellers come to a point where they're ready and they feel it in their heart. They feel it in their soul, that they're ready to let go and to move on, and that it's time to retire. In fact, I often will get that question from sellers, Hey Todd, Sheryl, when do I know it's the right time to retire and to sell my dental practice? And our simple answer is, you will know. There's no indicators that you're gonna have.

[00:19:57] Karen Wood: Right? 

[00:19:57] Todd Garfinkel: You'll know in your own mind, in your own heart that it's time. You know that's a kind of a, when it's a retiring dentist, there's a lot more emotional connection to it. It's not a business. It's something that they've built from scratch often. It's their baby and they're looking to hand that off to somebody who's gonna take good care of it. 

[00:20:22] Karen Wood: We talked earlier about the timeline for the purchase of a practice, but it sounds like a lot of digging and investigating to make sure you bring the buyer and sellers together to carry on that legacy and have the right fit. What does that look like in terms of time? What should someone expect or look at, say, maybe it take a year to find that right one that, what's the average that you see out there? 

[00:20:43] Sheryl Garfinkel: Yeah, that's a great question, Karen. For us on the national average is six to 18 months. Sometimes it can go a couple years, specialties a little bit more challenging to sell only in that there's less people looking. But that is typically the timeframe to sell. And we will often recommend that sellers begin to have those conversations in advance so that they are hitting their mark as far as is there, is their practice in an upswing versus a decline? Often unfortunately, we see that a seller may wait a little bit longer thinking it's not gonna take me too long, and I lost my hygienist and I'm getting tired and I don't really want to replace him or her and so it's a little tough right now. So they just let it go. And now a practice that had been worth perhaps 700,000, is now only producing 600,000. And then that can be a slippery slope. So we recommend that we start having those conversations in advance to answer questions, explore opportunity, and make sure that they're taken care of when it's time to sell.

[00:21:57] Karen Wood: That's solid advice. New grads coming out they have to finance the practice and they have student loans. What are lenders looking for there?   

[00:22:06] Todd Garfinkel: First of all, great news lenders are not worried about student loans, right? So the dentistry is actually one of the most risk-free businesses that banks deal with. Statistics have been thrown around. 99.5% of dental practice are successful. So from a bank's point of view that they're excited about it. They want to lend to dentists. From a financing point of view, the hardcore pieces that they're looking at. Number one, liquidity. And when we say liquidity, that means money in the bank, right? So money that they could fall back on after ownership if they needed to. So banks like that comfort of knowing that there's some money in the bank for the buyer, it doesn't mean they have to put a down payment with it. It's money that's available to them if they were to need it, right? So that's the number one thing. Credit score, obviously you gotta keep your credit score healthy. And with anything, any other big purchase is the same thing, right? Credit scores are important. Productivity ability. So they're not just gonna let somebody who has a track record of 400,000 a year in collections buy a practice that has 1.2 in collections because they're gonna wonder, hey, we did our math on this 1.2-million-dollar practice. Are you gonna be able to step into those shoes and fulfill those numbers? Right? Keeping kind of a thumb on the productivity side of it and having reports available are important for bankers. And then of course the obvious one is they don't want somebody with bankruptcy, right? The obvious thing. But if we take a step back, even from bankruptcy, they want to see buyers that aren't overextended on the debt side or the credit side of things, right? So they don't wanna see four credit cards that are maxed out, two homes, a couple of cars. This is out of balance and it's really gonna be tough for them to come up with what they call a global cash flow ratio. And I'm gonna explain that real quick. When banks are doing their math, and this is something that not a lot of people hear about, but when banks are doing their math, they're looking at a global picture. What is the cash flow of the practice, which we talked about, right? So what's the money side of the practice and how much is left over? What is the expenses of the practice? And they look at the buyer, right? How many personal expenses did they have? What is their debt that they're going to have to pay on each month, annually, et cetera? And then they put all that together and they took a look at, okay, with the practice side of things and your personal side, how much expense do you have. What sort of collection is the practice going to provide. And are we at a ratio of at least 1.2, 1.25? It varies from bank to bank, meaning everything's gonna get covered and there's gonna be point two or point two five left over for you to live on and to put in the bank and to have as a buffer, et cetera. So to kind of recap all of that. You know it's important, I think for students and young dentists to keep track of their credit, start to put money away. Start to save money. Start to build good financial habits early on because they will carry through and matter later on. And then just also from the productivity side, just keep track of your productivity. Kind of be mindful of that side of, you know that side of the process is that they're actually banks are gonna wanna know, hey how productive are you as a dentist so that you fit well with the practice that you're looking at. 

[00:26:08] Karen Wood: That's a lot of information. And if you could summarize that for dental students who want to own a practice someday, what advice would you give?  

[00:26:18] Todd Garfinkel: What advice? Well, I think that importantly consider the lifestyle, not just the financial side of it. Wouldn't you agree? 

[00:26:29] Sheryl Garfinkel: I would. Yeah. Yeah. Yeah. 

[00:26:30] Todd Garfinkel: So geography. 

[00:26:32] Sheryl Garfinkel: Geography. I think being curious about the business side of dentistry a lot of students and associates just feel like I just, I'm gonna get outta school, I'm gonna find a job, I'm gonna put my head down and I'm gonna be doing dentistry. And they haven't necessarily stopped to consider what kind of dentistry do I wanna do? What kind of lifestyle do I wanna live? Do I wanna take insurance? Do I wanna be a fee-for-service practice? What kind of procedures fit with my goals. Can I, you know maybe being a little bit afraid, to talk to a business owner or if you're working in a practice to get the monthly reports about their production. Really just to begin to be curious about, what does it take to run this business besides just, and I don't just lightly, but more than just doing dentistry. Because its a lot of hats that dentist owners wear and the successful ones do it with a lot of foresight and knowledge. 

[00:27:38] Todd Garfinkel: Yeah. And there's lots of podcasts out there, dental oriented podcasts. Start listening to podcasts. Start networking. Ask dentists about their experience. They like to talk about their practices. The good. The bad. The things that they would've chosen to do differently. Don't be afraid to put yourself out there and start to understand the ownership side of it not just the metrics that are involved in the obvious pieces. I think it's important to, to connect with professionals and we mentioned earlier. Start to build a team early on. A good banker, a good lawyer, a good CPA, an insurance broker, maybe even somebody who could act as a consultant once they own a practice. So, there's a lot of work that can be done ahead of time, a lot of consideration. There's lots of resources out there. Just as Sheryl said, be curious and start the process. 

[00:28:38] Karen Wood: The VDA is very lucky to have you guys as a resource for our members. So tell our members the best way to reach you. Reminding everybody that all contact with DDSmatch is confidential. 

[00:28:49] Todd Garfinkel: It is, one hundred percent confidential. We take that as very very seriously. It's one of our main focuses is confidentiality. The easiest way though is if you visit DDSmatch.com you can find us as pretty straight forward very easily. You'll get to see the website, get to see how it works. There's thousands of practices up there, nationwide. Sheryl and I are lucky enough to be two of the owners of the business. We happen to live in Annapolis, Maryland, and we work very focused on dentists in, in Virginia, but we do have people all across the country as well. So there's resource on the website. There's articles. There's blogs and resources. And then of course our associate broker who works closely with us who has almost 20 years of dental industry experience is Nancy Blanche. 

[00:29:42] Karen Wood: Wonderful, and we'll add all of that contact information to the show notes. And I wanna remind all of the VDA members that you can visit the VDA member Perks website at vdamemberperks.com and you'll find DDSmatch teams contact information under the heading there as well for practice transitions.

[00:29:59] Karen Wood: So thank you guys so much for your time today. You provided some great advice and we're happy to have you as a resource for all of our members. I know this will be one of many times we have you on The Fulcrum and other VDA media to help our members and we really look forward to having you back.

[00:30:13] Sheryl Garfinkel: Great. Thank you so much, Karen. It's been an absolute pleasure. We are always a resource for students, associates, sellers, buyers. If it's in dentistry, we're there to help.