Three Hats Every Future Dental Practice Owner Must Wear | 5

The moment you become an owner, your decisions reach far beyond patient care.

In this episode, Dave and Sandy break down the three roles every practice owner must learn to balance: clinician, manager, and owner. While most dentists are trained heavily in clinical care, the manager and owner “hats” are often the ones that determine whether a practice becomes financially healthy or quietly stressful. They revisit three common paths into ownership, including listed practices, retirement-bound practices that are not yet on the market, and outdated practices with strong fundamentals.

You’ll also hear why clear expectations, confidentiality, and financial preparation can make or break a transition. Dave and Sandy explain how to define seller mentorship, understand sale timelines, avoid destabilizing the team, and resist the urge to make sweeping changes too soon. They also walk through what banks look for, how to build the right advisory team, and why new owners need to think carefully about cash flow, taxes, reserves, insurance, and family support before signing on the dotted line.

What You'll Learn in This Episode:

• Why practice ownership requires more than strong clinical skills.
• The three “hats” every dental practice owner must learn to wear.
• How to clarify seller mentorship before buying a practice.
• Why the seller’s timeline matters before you invest time and energy.
• How confidentiality and NDAs protect the value of a practice.
• Why immediate sweeping changes can damage staff and patient trust.
• What to do when staff turnover happens during ownership change.
• Why written protocols protect your practice from knowledge loss.
• What banks typically want to see before approving a loan.
• Why production history, savings, credit, and cash flow matter.
• How to choose a dental-experienced advisory team.
• Why aged accounts receivable can create hidden financial risk.
• How taxes, payroll timing, and reserves affect owner take-home pay.
• Why involving your spouse or family early can reduce stress later.

Listen now to learn how to prepare wisely, avoid costly surprises, and step into dental practice ownership with clearer expectations and stronger confidence!

Reach Out to Dave & Sandy Here!

Website: https://www.dentalassociateedge.com/

Email: dentalassociateedge@gmail.com

Action Items For Next Episode:

1. List 5 banks you want to schedule appointments with to discuss their specific requirements and recommendations for purchasing a practice.
2. Research and interview a dental-specialized attorney, CPA, and transition/practice management consultant. Start building those relationships now, even before you're ready to buy!
3. Start conversations with your spouse, significant other, or family about what practice ownership will require: savings targets, credit score maintenance, and conservative lifestyle spending in the early years. They need to be part of the process.

Transcript

Dave: There's a clinical hat, which you go to dental school to learn how to wear, but then there's a manager hat, which is what's happening operationally throughout the practice. Nobody teaches you about that generally. And then there's the owner hat, which also nobody teaches you about, but that really is probably one of the most important knowledge sets that dictates the financial success you'll have as a practice owner.

Welcome, everyone, to The Dental Associate Edge, where practice ownership isn't a dream, it's a destination. I'm Dave Striegel.

Sandy: And I'm Sandy Baird. Together, we're consultants who work with dental practices every day, and we created this podcast to help dental associates and dental students build a clear path toward practice ownership.

Dave: In the last episode, episode four, we posed a series of questions that we left with you to ponder and hopefully answer.

Those revolved around answering what you needed to know before walking through the three practice opportunity doors. If you recall, door number one was a practice that's actually on the market currently. Door number two was the practice of a dentist who is approaching retirement, but the market is not being actively advertised yet. And then door number three is a practice that, from the outside looking in, looks outdated, perhaps needing some TLC, but still is a prime candidate where you have a dentist who's going to be looking to retire soon, but just has not been able to keep up on the aesthetics of the practice, nor likely the operational elements around protocols, systems, maybe even technology.

But there are good bones. Those are the three doors that we had these questions revolving around. I'll let Sandy walk through the questions.

Sandy: Okay. Question number one. Let me pose the situation because what you're doing is preparing to talk to dentists who want to sell their practice. Whether you're going to talk one-on-one or by email, phone, whatever, you need to have some answers to some questions that you have to clarify from the get-go. The most important thing you need to remember is the silver bullet to a successful purchase is setting clear expectations and communicating.

Without being clear about expectations and communicating those effectively, it's going to be a nightmare of a purchase. So we're going to help you prepare for this. Do you expect to be mentored? A lot of associates and a lot of dentists who are selling, more so the dentist who's selling, would love to be able to mentor the new person who's going to buy their practice.

They're very attached to their practice. They know the patients. It's something that's part of their soul, and they want to nurture you into that. But not every associate is open to that. You need to make that clear from the get-go. If you're not interested in mentoring, you need to make that statement. You need to make sure that is clear from the get-go. And if your purchasing dentist wants to mentor, right there, you've got a conflict of expectations, and you've got to work through this.

The most important thing is first to define what mentorship means. What the selling dentist and you consider mentorship may be two totally different things. Does it mean coaching meetings? Does it mean treatment planning, coordination, and sharing? How would you treatment plan this, doctor? Well, how would you treatment plan this, buying doctor? Is that what you're expecting?

And you need to find out from the selling dentist, how long do you want to stay on? Once we purchase this, how long do you want to stay on? Do you want to stay on for two weeks like my husband did, or do you want to stay on for two years like some of my clients did? Then you two need to discuss that. What are your expectations for this seller to stay on, and what are the seller's expectations?

Another important thing is you need to know when he or she wants to sell. Is it next year? Is it five years from now? You need to get this upfront and at the beginning so you don't waste a lot of time for either one of you. And then the final, very important thing you need to discuss right up top is confidentiality.

Dave: I would like to jump in there real quick, Sandy, because the confidentiality elements of this are crucial. Depending on where the selling doctor is in their process, and I have a client right now who's going through this, they have needed to keep the whole process confidential from their team because they're vetting potential buyers, and they've already been down the path a couple of times with interested buyers whose purchases didn't work out.

Had the team gone through the emotional upheaval of thinking, "Okay, the practice is being sold. What does that mean for me?" and all those types of things, that would really put the practice at a disadvantage. So don't be surprised if you're asked to sign what's called an NDA, a nondisclosure agreement, which effectively binds you to keeping it confidential and also limiting who you can share documentation with.

You may need to be prepared to provide a list of the advisors who you will be sharing information with as well. It can vary as far as how stringent the NDA is, but don't be surprised if the selling doc has you sign one because they really want to keep it under wraps until you collectively agree to disclose.

Sandy: Great points. I was just reflecting back when Bruce and I sold his practice, how long we agonized over when to tell the team and when the right time was to tell the team. It's a very hard decision, and it needs to be thought about carefully.

Do not tell one team member and not the others. Don't do it. They will find out. And don't expect the team members to keep it confidential. It's impossible when you have team members because it's just going to get out. So it is a very hard decision, and it will vary for each team and each seller and dentist.

Dave: On that note, being on the associate side of the equation, it's going to be tempting to run situations or information by friends and colleagues. You'll need to be very careful about what you share because, as I think we've all experienced, the dental community is very small, even in metropolitan areas.

Dentists tend to know each other. Information circulates. Then you've got dental reps who are in and out of practices all the time. It's really a small community when it comes to information.

Sandy: It can ruin a practice, actually. It really could. So you have to be very sensitive to that. Why don't you ask the next question, Dave?

Dave: The next question is, are you energized by making owner-level decisions or drained by them?

Among the questions that we encourage you to ask yourself is, can you multitask? Now, multitasking is an interesting concept because, from the brain's perspective, you actually multi-switch.

Sandy: Yes.

Dave: Can you remain organized and track your thought processes and decision-making on multiple levels and with multiple types of information?

I like to think of it in the context of wearing different hats. There's a clinical hat, which you go to dental school to learn how to wear, but then there's a manager hat, which is what's happening operationally throughout the practice. Nobody teaches you about that generally. And then there's the owner hat, which also nobody teaches you about, but that really is probably one of the most important knowledge sets that dictates the financial success you'll have as a practice owner.

So it's being able to balance the demands that go along with wearing each of those hats, which are doable if you're able to stay organized and you have a good set of advisors.

Sandy: Exactly. Another question you need to ask yourself is, can you prioritize? You're going to be faced with lots of questions, lots of concerns, lots of financial decisions, and lots of hiring decisions.

When you're a business owner, your priorities have to change. Your first priority always has to be your patients. If your patients are not happy, you're not going to have a successful practice. One of my favorite questions to answer is if somebody asks me, "Hey, Sandy, from your point of view as a practice management consultant, what would you consider the silver bullet of practice success?"

And I say, "It's easy, simple. All you have to do is exceed your patients' expectations." That's it. That's all you have to do. Easy to say, hard to do.

Dave: Sounds so easy, Sandy.

Sandy: I know. Those patients have to come first. Your team has to come second. That will make your business healthy. If you put your personal expenses and your personal lifestyle first, you're going to get in terrible debt, and you're going to be very frustrated and stressed out. So you have to be able to get the right priorities.

Dave: Prioritization and multitasking have to do with managing information and making decisions.

Are you patient? Meaning, do you have the ability to delay gratification? Can you give people time? Can you give team members time to learn? Can you give yourself time to learn? What happens when you become the owner of a business is decisions become bigger, but timelines become longer. That requires you to be able to step out of the weeds and the emotion of what often can be a frustrating process and step onto the roof of your business, so to speak, and look into the future as to why you're doing all this.

It'll test your patience, but as long as you have a clear vision and are clear as to why you're doing this, then you'll be able to navigate through virtually anything.

Sandy: The tendency as an associate is often, "If this was my practice, I'd never do it this way. I would change this if I bought this practice."

The tendency is to want to do that. If you buy this practice that you're working in, the last thing you need to do is jump in with both feet and say, "Okay, this is what we're changing now. All right, everybody, this is it. We're changing this and this and this." That is the kiss of death.

You're going to lose team members. You're going to create resentment. You're going to cause all kinds of problems. So when we say you need to be patient and be able to wait, as Dave said, it's going to take time. You're not going to reach your financial potential overnight. You're not going to be able to buy that speedboat and that other house the first year you buy this practice.

You have to be able to wait for this to grow. You're nurturing this practice. You're growing this practice. It is a day-to-day process. It will come to you. It does if you're patient. If you're impatient, it will be more frustrating.

Dave: You're going to experience a lot of heartache if you become impatient. One of the areas that's hardest to be patient with is likely the management of your team because you may see that there are certain team members who are not in alignment with you or your philosophy. They end up, you feel like, being a barrier to making decisions or being obstinate with trying to get in line with what you're trying to do.

You may be right. However, every step you take with respect to gradually turning the ship, it's like turning a cruise ship, not a speedboat.

Sandy: That's right.

Dave: Often, I think Sandy and I see it where people need to be clear on the decision they need to make first. So, what to do.

The second part to that is how. If you make a decision around a certain staff member who needs to go, that's the what. Decision made. They just are never going to get in line with who I am, what I'd like to do, and the way I'd like to do things, so I need them to move on. The question then becomes how to make that happen so it affects the practice and patients the least.

That may have a different answer than, "I want it right now." The decision itself may be easy. The execution or implementation of the decision may be a different timeline. You have to be okay with both.

Sandy: Exactly. The last thing I want to emphasize here is you have got to learn to be flexible.

I'm going to tell you right now, when you own a business, employees are going to come and they're going to leave. Employees are not going to stay with you the whole time. In fact, you'll be lucky to have an employee five years nowadays. Seriously.

Dave: That's true.

Sandy: It's part of owning a business. You can't get all out of sorts and get yourself in a bind every time an employee comes in and says, "I'm handing over my notice, Doctor."

Don't take it personally. I think it's fair for you to sit down and do the exit interview and say, "What could we do better? Could you share with me why you're leaving so I can make sure this doesn't happen again?" Engaged employees will be honest with you about that.

It may have nothing to do with you. It may have nothing to do with your practice. But you need to do that exit interview and find out what it does have to do with because you can learn from that. Don't get your feelings hurt. It's the way business works. Employees come and go. Patients come and go.

You may see Mr. Smith in the grocery store or at church and think to yourself, "He hasn't been back for two or three years. He used to be a regular patient. What have I done?" That is the first thing you're going to think. You can't let yourself do it. You'll eat yourself up.

In the middle of the night, you'll wake up and say to your wife, "Why isn't Mr. Smith coming in?"

Dave: "I thought they liked me."

Sandy: That's exactly right. I'm speaking from firsthand experience here. Patients' expectations change. The expectations that patients had from their dentist when we opened our practice in the 1980s, and even in the early 2000s, were totally different from what patients' expectations are now.

A lot has to do with changes in technology, changes in techniques, changes in the economic environment. Also, you've got to be flexible because your income is not predictable. It never will be predictable. It's going to vary from day to day, from week to week, and from month to month.

You may average out very similarly after a certain point. That's a normal business growth curve.

Dave: The more years you do it, the more you get a sense of, okay, the first quarter is like this, the second quarter is like this, and the summer is like this. You start to get the pulse of your practice and be able to make it a little more predictable. But that's why, from a financial standpoint, Sandy and I always preach a conservative approach to spending, especially at home to start.

We want you to build buffer, build reserves, and build room to breathe. That gives you peace of mind, number one, and choices, number two. I do want to add one thing, Sandy. You were talking about flexibility and the fact that team members come and go. The transient nature of staffing today feels more so than 10 years ago, and certainly pre-COVID.

Sandy: Yes.

Dave: It puts a premium on you being clear with your leadership philosophy and your vision for your practice. Not just in your own head, but being consistent with how you convey those things to your team verbally as well as in writing. It puts a premium on you being consistent with your approach to team building, your approach to meetings, your approach to protocols, your hygiene protocol, your perio protocol.

All those things become easier to implement if you have them enumerated in writing as opposed to in people's heads.

Sandy: Exactly.

Dave: When a longtime team member leaves, the risk is knowledge leaves with them.

Sandy: Exactly.

Dave: But if you have it written down and you have your systems outlined, this is what we do. Yes, they may do it a little bit differently, or they may have some relationships that can't be replicated. That's fine. You hope they have great relationships. But today's leadership is different and requires more detail-oriented focus on having protocols outlined and having your leadership approach outlined so that any time someone comes in, you can show them, "This is how we do things."

Sandy: That's what I spend most of my time doing. This is what I do. I always love to say operating systems are recorded, and the team is trained on them. You discuss them and design them. And give you notice, they never say, "I'm leaving in two weeks."

They're written down. They're there for you to revise and review. But the biggest mistake dental practices make when we get these systems designed, written, and agreed upon is they don't use them to train new employees.

That's where the real value comes in, to use these systems and give them to the new employees so that knowledge will be passed on. That's such an important topic. I could go on for hours about that. But Dave, why don't you go to the last question that we had from last time?

Dave: The last question we had was how quickly or how soon do you want to become a sole owner or have full ownership?

There are different pathways. There's gradual buy-in, which means you become a partner with the existing owner for a period of time, and then through your structured agreement, you buy more and more, a greater piece of the practice over a period of years. You might buy 25% when you join, then another 25% in three years, and then the remaining 50% three years after that.

This part of it is structured a lot of different ways. It really depends on what fits the selling doctor as well as you.

You could be in the practice you're buying, which is a real advantage because you're effectively kicking the tires from inside, getting a sense of where the strengths and weaknesses are, what you're walking into, and the personalities.

That's really valuable, a valuable viewpoint. At the same time, there are some pros and cons to that. If you're the associate for, let's say, five years before you buy in, now all of a sudden, is the team supposed to look at you like an owner when they've been looking at you like an associate for five years? That can be tricky.

Sandy: With the appropriate preparation and making sure that everyone knows what's coming, how that's going to change, and how the hierarchy of decision-making might change and things like that, it can be done and navigated successfully. But it does need to be anticipated.

My piece of advice here is, if you are an associate, do not sign any agreement until you've worked in that practice for a year. You need to make sure. I can't tell you how many times I have witnessed this mistake happening. "Oh, yeah, you're coming in as associate. You're going to buy in." You sign off. Then after a year, you hate the dentist you're working with. It's not working out. Your kids aren't happy in school. You never know.

You've got to give yourself at least a year to get to know the patients, the practice, what the patient expectations are, and the team. Do you want to work with this team? So don't jump into anything. Don't sign the bottom line before you are really prepared. That's the bottom line of everything we're talking about. Don't sign that bottom line until you have really been thorough in preparing for it.

Dave: Do you want to move on to episode five?

Sandy: I think so.

Dave: I think we've done a really good job of recapping episode four, and now we're moving into episode five. These things are more informational than philosophical because it's pretty cut and dried in many respects, the financial preparations that go along with buying a practice.

I think it's easy to say but more complex to navigate. Buying a practice is not just one transaction. It's a series of decisions that you have to make beginning multiple years in advance before you sign anything. That's why both Sandy and I are big proponents of you being an associate first, ideally in the practice you buy, but at least in a practice before you decide to become an owner.

Sandy: That's where the edge of associateship is in our minds.

Dave: Among the things that you need to prepare for when it comes to buying a practice is getting a loan. When it comes to getting a loan, there are multiple loan requirements that go along with that. Depending on which bank you end up doing business with, they may have subtle nuances on requirements as far as down payment, reserves, etc.

We highly recommend that you meet with multiple bank representatives to get a sense of not just what their criteria are, but also who's going to be responsive and willing to work with you. Because often, and Sandy, I'm sure you've seen it just like I have, there might be a unique aspect financially in the practice you want to buy that requires the bank's underwriting to find a workaround, or how can we compensate for that weakness, or how can we overcome this and still make the deal work, versus, "It doesn't fit our box perfectly."

So really get to know the lending process, the loan requirements, and how much savings you need to buy a practice. Often 7% to 10% is what we see typically.

Sandy: You've got to prove to that bank and that banker you're talking to that you are able to manage your money. The proof they want is that you have saved approximately 7% to 10% of the buying price of the practice that you want to get a loan for.

So you've got to start thinking about this long before the day you go talk to the banker. If you go in there and say, "I have $30,000 in my bank account," right there you're going to be disqualified.

Dave: Right there.

Sandy: You've got to think about this ahead of time. You also have to be able to prove that you can produce about 80% of what the practice you're buying is producing.

As an associate, typically you're not going to produce as much as the owner, but you've got to prove that you can at least produce 80% of it, or around there, close to that.

Dave: In other words, production reports.

Sandy: Yes.

Dave: We also make a distinction between the practice you're buying, whether it's a solo doctor practice or a multi-doctor practice. If you think of it from a banker's perspective, from the bank's side of the table, they want to make sure that the loan they've given you gets repaid.

Do they really care if you do more of it or less of it, or if an associate does more or less? I don't know that they really care as long as the money they lend you is repaid to them in the timeline that you've promised.

But suffice it to say, one of the benefits of you associating somewhere before buying is you get to build up your treatment planning skills, hand speed, and communication skills. I have a client right now who's looking for an associate, but not just an associate fresh out of school.

Because of the pace that this practice operates at, there's an opportunity for an associate to step in and produce $6,000 to $10,000 a day from day one if they can handle it. But too many brand-new dentists right out of school aren't ready for that. So you've got to make sure that you're a good fit for the practice you're buying.

I like to think of it as driving on a freeway. Which lane of the freeway are you comfortable driving in? The slow lane, the middle lane, or the passing lane?

Sandy: That's right.

Dave: Each practice will have different lanes, so you have to understand that. And that goes to the due diligence process.

Sandy: So the bank will want to see your production reports for at least the last year. Two years is even better. And your procedural reports. What procedures can you do? If this is a big implant practice you're buying, how much experience have you had placing implants? Then they want to know, of course, how many years you've actually been wet-hand practicing out of school, and they want two or three years of tax returns and W-2s.

Then, of course, they're going to need lots of information from the other practice. The bank is very interested in the other practice.

Dave: In the end, a good banker will walk you through a lot of this information, as will the team involved with helping you navigate this process. And when we say there's a team involved with helping you navigate this process, we mean it.

Because the banker is part of the equation, but the banker represents the bank. Your CPA represents you. Your transition consultant, if you have one, represents you. Their job is to make sure that you're buying what you think you're buying. That's what everyone's job is, to make sure that this asset you're purchasing is able to repeat what it's done with you as the owner.

If it can, then you have a chance of being very successful. So don't be surprised if the bank asks you questions around, why are you choosing to do this? Why this location? What about this practice? What is your growth plan? What do you see happening in the next one to three years? What procedures do you expect to add?

You need to have thought through what the current procedure mix is and where you see it growing. How will I use specialists?

All these things are part of it, and it may seem overwhelming, but once you get the right people in place to help you, it really does fall into place.

Sandy: Approaching the bank, you've got to have reports. They're going to look at your credit score. They'll want to see over 700, how many years you've practiced, and they want to look at all the financials and all the information from the other practice.

But they also want to hear your story. They want to hear how thoroughly you have thought through this decision. They may ask you, "Why do you think ownership is the best decision for you? What makes you think that you want to own a business? Why this particular practice? What is it about this practice and this location? What's your plan for sustaining this production once you get in there? What's your growth plan?"

They want you to prove to them that you've thought through all this and you've really done some research. That's what we're trying to prepare you for, this story. But I think this team that Dave was referring to, let's spend a little bit more time on that. I think there are specific roles in that team.

Dave: As I already mentioned, your banker.

Sandy: Yes.

Dave: You need to interview multiple bankers. Think of it as different buckets. Banks like different buckets of loans, and depending on what their loan mix is on their balance sheet will dictate the type of loans they're looking for right now when you're looking. They may have funded a loan for a friend of yours six months ago that you can't get now because their mix has changed.

Being in regular contact with two or three different bankers to get a sense of interest rates and terms, prepayment penalties. A lot of times when you take out a loan, the bank puts what's called a prepayment penalty in place for, let's say, three years. That's pretty common, where if you repay the loan or pay the loan off within those first three years, then the bank collects a penalty for paying off early because they want their interest money.

These are things that an advisor, a good CPA, practice management advisor, and an attorney as well, will help you understand. The banker is the source of the money. Then you often have a broker who might be helping you look for a practice or might be representing the seller. So it could be either way.

You could have someone representing you, or there could be somebody representing the seller. Their job is to put the deal together. But you need to be clear on who they represent.

Sandy: Exactly. Because if they represent the seller, which is often the case, they're going to want a higher price, want you to pay more, and want it to be done quickly so they can move on to their next sale. Be really careful when you work with a broker specifically about who is paying them.

Dave: Right. Who their client really is. And don't be afraid to ask, "Who is your client?"

Sandy: There is no reason you can't have your own broker work with you.

Dave: Exactly right.

Sandy: I advise it, actually. I think that's an important thing. You can work with several brokers at one time.

Dave: This is an interesting question, not so much about the broker question, but what you reminded me of really has to do with the accountant, the attorney, and even the practice management consultant.

Let's say you're associating in a practice, and the current owner, let's say the owner you get along great with, wants to sell you their practice. Seems like a great idea. You still need your own advisor. You still need your own CPA and your own attorney. I don't care how much you like who you're buying it from.

If it were me, even if you are buying it from your parent, you still need your own representation. Because there may be topics that are uncomfortable for you and the seller to address that your advisors have no problem bringing up, duking it out if they have to, and coming to an agreement.

Then it saves you and the seller from those uncomfortable conversations. Sandy and I have been part of bargaining tables, and it can lead a relationship to really being affected.

Sandy: It can.

Dave: So do yourself a favor and go in knowing that you want at least a CPA, if not also an attorney, and likely both, to review the financials and then the legal agreements and the contracts.

Sandy: Absolutely.

Dave: Without question.

Sandy: They both have to do it because the attorney knows little about taxes, and the accountant does. But one word of warning: a mistake that so many dentists have made is hiring a friend just because he's a CPA. "Oh, I have a friend who's a CPA." No.

Dave: Or my brother's a CPA.

Sandy: Yeah. No. This purchasing team has to have experience in the dental industry. You will get in so much trouble if you don't have that type of expertise.

Dave: At the same time, Sandy, that's a great point. You don't want there to be any barriers between the advisor telling you the truth.

Sandy: Exactly. A friend or a family member is naturally going to be biased.

Dave: They are, and they're going to want to protect you in different ways that they think are a favor, but really may not be. So it doesn't matter who you buy it from, you need to have your own representation.

Sandy: You do. And your banker, when you take out the loan, is probably going to require you to have some insurance too.

You need to have a banker, brokers, an accountant, an attorney, an insurance agent, and then a practice management and transition consultant because there's nobody better who knows how to analyze the data. That's what we do. We analyze data from lots of practices. We analyze the operations.

We know what best practices are for accounts receivable, salaries, operating systems, and how the practice is really performing. Can you really grow this practice? This practice might be at its top production level due to restrictions to space or location.

Dave: Great point.

Sandy: It is. If you think you're going to grow that and you don't know the facts, or you may buy a practice that has $200,000 outstanding accounts receivable at more than 90 days, and you're buying a patient base that thinks they don't have to pay. Talk about a battle.

Dave: Boy, isn't that a hornet's nest?

Sandy: That is a hornet's nest. Without having somebody who really is experienced looking at lots of different practices and knowing how practices work and how the operations should be performing, you could buy a real problem.

Dave: It looks great on the outside, right? It's very shiny and nice, but when you get under the hood and start driving it a little bit and figuring out how it runs, now it's not quite as smooth as you thought it was.

Sandy: Exactly. Some practices' real niche is, I'm just using a wild example, a certain religious identity or a certain ethnic identity, and these are hard to break out of. If you buy that kind of practice and you don't fit in to that particular niche, and I'm not saying that's bad, I'm just saying you need to be aware of that.

Dave: That speaks to fit. There are different types of fit based on geography, background, etc. To your earlier point about being thorough, being clear with expectations, and clear with the information, the more you can know exactly what you're buying, the easier you can make a decision on whether this becomes a practice that you can use as a platform to build your financial future.

Sandy: As an associate, you don't have the skills to do all this. You don't.

Dave: Not on your own, no.

Sandy: Not on your own. This is another part of owning a practice, learning how to delegate certain things that are not in your toolkit. You're a dentist. You're an amazing dentist, but there are a lot of tools as a business owner you'll need that you don't have.

That's where you need to be able to say, "Okay." I had one dentist who tried to set up their own 401(k) from scratch. I said, "No, no, no." He was losing his mind, and he was wasting so much time. You have to realize you make more money as a dentist practicing dentistry than any of these other people you're hiring. Just know that.

Dave: Yeah.

Sandy: Always keep that in mind.

Dave: There are a few elements of the financial realities of ownership that we wanted to share with you. Sandy, I know you're a big proponent of making sure that any new owner understands that they get paid last.

Sandy: That's right. You know it as well as I do. It's a hard reality. My husband always loved to say he never got a paycheck. He didn't say it with glee either.

Dave: He wasn't proud of that, huh?

Sandy: No, he was not. I got a check. Everybody else got a check and a bonus.

Dave: Yeah.

Sandy: He never did. No. You get what's left over.

Dave: That's what's called profit.

Sandy: But you don't get a check for it. You don't get pay that's going to be dropped in your envelope.

Dave: To the point we're making here, it's not guaranteed.

Sandy: Right. The paychecks of virtually everyone else in the practice are, for all practical purposes, guaranteed.

Dave: Even though we know under very rare circumstances they might not be, but for all practical purposes, the bank gets paid first. The team gets paid next, and then what's left over, the owner gets paid.

There are frequent times early on in a practice's life where there's no paycheck at the end.

Sandy: One month you might not make any profit.

Dave: And you need to be okay with that.

Sandy: The month that you pay your quarterly taxes, if you haven't saved for them, you may make zero, I mean negative money. Lots of negative.

Dave: It's like, quarterly taxes? Wait a minute. Isn't that just once a year? Nobody told me about quarterly taxes.

Sandy: No, no, no.

Dave: That's why, again, a good CPA will help prepare you mentally. From a financial standpoint, we advocate strongly that you really are tight with your lifestyle expense to start with so that you buy yourself the most room and flexibility for the first few years of practice life. Then you can get a handle on, all right, I'm getting a sense of what's predictable about my practice and what I can count on.

Then I can start to loosen things up a little bit or pay myself a little bit more, etc.

Sandy: I know it's so tempting because every day, this is one of the perks of ownership. You get paid.

Dave: Oh, yes. If you're basing your pay off your checkbook.

Sandy: That's right. You're going to be depositing money every day, and it will give you a false sense of security. You'll think, "Whoa, look at all that money I have."

Dave: Good point.

Sandy: Before you've paid all your overhead, before you've got three payrolls this month, before you have taken out anything.

Dave: Pause there for a second, Sandy, on the three payrolls.

Sandy: Okay.

Dave: That happens twice a year. You're chugging along. Every payroll is, let's say, $20,000: $20,000 the first half of the month, $20,000 the second half of the month, about $40,000. All right, you've got your mind wrapped around that. Then all of a sudden it's $60,000.

Sandy: That's right.

Dave: Now, wait a minute. Now I don't have money to pay myself. What just happened?

Sandy: All that money you had in the bank.

Dave: Someone's cheating me. Right. That's exactly right.

Depending on how you pay, biweekly ends up being two months every year where you have a third payroll, versus twice a month, where you can manage that a little better. But these are things about the reality of cash flow and payroll that oftentimes you don't realize.

Sandy: No, the cash flow can be very deceptive. What we found worked is we set up a whole different bank account. Every month, we took out 20% of what we made and put it in this tax account because we learned very fast that Uncle Sam comes knocking several times a year.

Dave: And you do not want to start that process.

Sandy: If you don't do that, you're going to have to borrow money to pay your taxes. You need to get yourself disciplined and start from the beginning with this discipline. You know you're probably hopefully going to be paying at least 20% of your taxes. I say hopefully because the more taxes you pay, the more money you've made. So don't complain about taxes.

Dave: The other thing Sandy mentioned earlier is the need for insurance. You'll need various kinds. It's not just to cover the practice, or liability insurance, or malpractice insurance. There are different types of insurance that can protect you if an employee decides to bring a lawsuit against you.

One of the types of insurance that we often see younger doctors forgo is disability insurance. I've had clients who have relied on disability insurance for their livelihoods, and it was unexpected.

Sandy: Of course.

Dave: There are very specific and strict criteria for policies like that. It's very, very important for you to have business operations insurance if there's a flood and the business can't operate. I've had clients who have had that happen.

Sandy: We had an ice storm and couldn't practice for two weeks, and we used our business operations insurance.

Dave: Yeah.

Sandy: You just don't know about that. Insurance is really a reality of ownership. We've stressed the lifestyle expenses, how the reality of ownership is don't be deceived by what's in the bank. It's not all your money.

Dave: That's right.

Sandy: You may decide to set up a personal account, a tax account, and then your main account, and feed things out so that you don't get deceived by that.

And, of course, you have to start planning for your retirement and savings from the get-go. If you have a family or children, you want to be saving to buy a house or for education for your kids. A financial advisor will help you on debt management and employee benefits. It's a team, and you'll work with some of these people your entire practice.

Our accountant, we started from day one, and we still work with them after it's been, oh gosh, from '81 to now. This can be a very long-term relationship. They're instrumental. They're very important. But don't be bashful or feel like you are weak if you have to get these experts to help you.

You're not weak. You're going to make a lot more money practicing dentistry. Why waste your time?

Dave: Exactly. You don't have to know everything, but you need to know who does.

Sandy: Exactly.

Dave: And it's oftentimes not one person.

Sandy: Rarely.

Dave: Let's finish up with some questions that we can leave the listeners with, Sandy.

Sandy: Sounds good. Let's start with number one. I think it's a good time to sit down and list five banks that you want to schedule an appointment with and discuss their specific requirements and recommendations for purchasing a practice. Start it now. Usually, the larger the banks, the more they're used to handling these kinds of debts. But don't get less than three quotes. You need that comparison. So start the relationship now.

Go ahead and list those five banks, set an appointment up, and just go talk to them. Talk to them about what you need to get, find out what they need, and also talk to them about your story up to this point. What is your story?

Dave: That's a great point, Sandy, and I want to shine a little bit of a light on that. The banking relationship, while there are criteria that are black and white, there are parts to it that will matter that you just have to have. But there's also a lot of gray.

There are a lot of decisions they can make to help someone out and maybe relax a certain requirement if you maximize something else. So starting this early, not coming in with your hair on fire saying, "I need money tomorrow."

Sandy: "I have a practice I want to buy right now."

Dave: And showing them that you really are a planner, you think things through, you want to know what it takes, and you want to know what their criteria are because you're going to be buying a practice, and maybe not just one. You may buy one practice and then stack it on top of another someday or something like that.

There are multiple transactions that a banker will be looking for from you, and it's always nice to have somebody who you can call up by first name and say, "Hey, Sandy, here's the situation I've got. What do you think? What do I need to be looking at from a banking standpoint these days?"

I think that's really important to highlight. The same thing goes for talking to and getting to know a dental-specialized attorney, CPA, and transition consultant. Certainly, the CPA and accountant are a must. The transition consultant can make the transaction and the process really go smoother and faster and help you be confident that you're not missing anything.

Again, starting those relationships sooner can only help you because all of these people know other people, and they know dentists. They may be your best ally with respect to introducing you to somebody.

Sandy: They will be. Absolutely. And just make sure they have been working with dentists for years and working in the dental industry. That's question number two: go ahead and research and interview. Start these relationships now.

The final question is, if you haven't by now started talking to your spouse, your significant other, or the family that will be affected by these decisions, start sharing this information with them. Start talking about what you're going to need to have saved, what kind of credit rating you're going to have to sustain, and how, at first, you're going to have to be very conservative. They need to know this all ahead of time, too, because this is a partnership. Whatever you do will affect their lives and your family's lives. It will affect their feelings as well.

I think it's really important, and we are going to have a specific podcast for your spouses and significant others or family members who want to hear about this. Basically, we want to hear from you.

We want to hear from you. We've set up this website. It's dentalassociatesedge.com. There's a comment page in there that you can go to, and you can send us your questions. You can send us topics you want us to touch upon. You can ask us questions. We would love to hear from you. I promise you, no question is stupid.

If you have a question, I guarantee you a million people out there have asked it.

Dave: We've had to answer it at some point. Our greatest passion is just to be able to help prepare you for what can be the adventure of a lifetime.

Sandy: Absolutely. Well put, Dave.

Dave: That's it today for episode number five of The Dental Associate Edge, where practice ownership isn't a dream, it's a destination. We thank you so much for attending with us. We'll see you next time.

Sandy: And we would love to hear from you. Bye.