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Understanding Ortho Partnerships & Transitions with Doug Copple · Hey Docs!

0:05
Speaker 1: Welcome to the Haydocks Podcast with your hosts Jill Allen.
0:09
Speaker 1: Today I am welcoming back Doug Kopple, partner of Benson Copple,
0:13
Speaker 1: Patterson and Associates, a firm that works with orthodontics across
0:17
Speaker 1: the country on practice transitions, partnerships, and long term strategic planning.
0:23
Speaker 1: As the orthodonic market continues to evolve, more practices are
0:27
Speaker 1: exploring partnership structures as a way to grow transition ownership
0:32
Speaker 1: and create long term continuity. In this episode, we're breaking
0:35
Speaker 1: down what's happening in the ortho transition market, how partnerships
0:39
Speaker 1: are typically structured, and what doctors should think about before
0:43
Speaker 1: entering into one of the most important business relationships of
0:46
Speaker 1: their careers.
0:47
Speaker 2: So let's jump in.
0:49
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1:34
Speaker 2: Forward slash Jill Allen.
1:40
Speaker 1: Doug, I am so excited to have you back on Haydocks.
1:43
Speaker 1: Thanks for being here.
1:45
Speaker 3: Hey, thank you so much for having me back on, Jill,
1:47
Speaker 3: I'm really looking forward to it.
1:49
Speaker 1: Yes, well, you're always I shouldn't say this, but one
1:52
Speaker 1: of my favorite guests to have on, and it's always
1:54
Speaker 1: great that you're willing to come back on and share
1:57
Speaker 1: your knowledge with all of my listeners. In the event
2:01
Speaker 1: that somebody has not listened to a previous episode does
2:05
Speaker 1: not know who you are, would you mind just a
2:08
Speaker 1: real quick what you do, how you got into this,
2:11
Speaker 1: and just give us a little bit of history on yourself.
2:13
Speaker 3: Yes, thank you so much, Jill. It's honored to be
2:15
Speaker 3: on honor here. I mean, you to do such a
2:17
Speaker 3: great job these podcasts, so I'm just truly honored to
2:19
Speaker 3: even be a part of it. So thank you so much.
2:22
Speaker 3: So a little bit background I'm on myself. I majored
2:25
Speaker 3: in accounting. I started out big accounting firms before I
2:27
Speaker 3: got involved in the orthandonic community. And I worked at
2:30
Speaker 3: the big public accounting firms for four or five years,
2:33
Speaker 3: and then Chris Benson contacted me out of the blue
2:36
Speaker 3: and joined Chris when we were just a little flashing
2:39
Speaker 3: company back in two thousand and four. So you know,
2:41
Speaker 3: I've been doing this together. The name of our company
2:43
Speaker 3: now is Benson, Copple, Patterson and Associates, which is a
2:46
Speaker 3: little bit of a.
2:46
Speaker 2: Word salot there.
2:47
Speaker 3: But Chris is starting to slow down a bit. And
2:50
Speaker 3: Shannon Patterson's my other partner now or she and O
2:53
Speaker 3: are co partners now, and she's been with us. We've
2:56
Speaker 3: been partners for actually longer than people think because we
2:59
Speaker 3: just changed the name of couple of years ago. But
3:01
Speaker 3: we do we do valuations, transitions, and recruiting services for
3:05
Speaker 3: orthodontis throughout the country, and so any change of ownership,
3:08
Speaker 3: whether somebody wants to sell their entire practice to either
3:11
Speaker 3: relocate or retire, or bring in a partner and do
3:13
Speaker 3: a partnership transaction, or mergers or buying a competitors practice,
3:18
Speaker 3: anything that relates to change of ownership. And also Shannon
3:21
Speaker 3: her team do recruiting for worth the dons throughout the country,
3:24
Speaker 3: So even doctors that may not want to sell their
3:26
Speaker 3: practice ship but they want to bring on associate. We
3:28
Speaker 3: help recruiting to find doctors, buyers and associates for practices.
3:33
Speaker 2: And my portion of the businesses.
3:36
Speaker 3: Again with my accounting background, I really handle the heavy
3:39
Speaker 3: lifting with our valuation services and our transition services. So
3:43
Speaker 3: do the majority of the negotiations for the transactions and
3:46
Speaker 3: partnership deals and sales. So that's our background and our
3:49
Speaker 3: company in nutshell. Yeah, and doing this in two thousand
3:51
Speaker 3: and fourths over two decades. That's where the gray is
3:54
Speaker 3: coming from.
3:55
Speaker 1: Yeah, exactly. I always tell my hairdresser what you see
3:58
Speaker 1: and what you tell me secret circle right there, you know,
4:01
Speaker 1: so I don't get to see my grades is basically
4:05
Speaker 1: what I'm saying.
4:07
Speaker 2: I'll ask.
4:09
Speaker 1: Yeah, it's so amazing when we look back at how
4:12
Speaker 1: long we've both been in this industry and just looking
4:15
Speaker 1: at the changes that continue to just evolve. I mean
4:19
Speaker 1: that is part of the industry and the space that
4:22
Speaker 1: you guys hold in working in all of these areas
4:25
Speaker 1: very similar to what I do as well, but I'm
4:27
Speaker 1: not doing brokerage and transaction. It's more helping the doctors
4:31
Speaker 1: once they have decided to start the practice or have
4:34
Speaker 1: done the acquisition or getting ready to sell the practice
4:37
Speaker 1: and saying, Okay, I got to get my p and
4:39
Speaker 1: ls ready to go so I can get the numbers
4:41
Speaker 1: that I want so you guys can help sell it.
4:44
Speaker 1: But I think it's always fun when we look at
4:47
Speaker 1: this because we really get to see like that full
4:49
Speaker 1: life cycle of an orthodonic practice and what works all
4:54
Speaker 1: the way through and how each doctor can really have
4:58
Speaker 1: a pretty big impact on what it's going to be
5:00
Speaker 1: from the start to the finish if they're thinking about
5:03
Speaker 1: everything in between. So one of the areas that I
5:07
Speaker 1: wanted to focus on today because I know we've talked
5:09
Speaker 1: about startups and we've talked about partnerships and you know,
5:12
Speaker 1: different things along the way, but I want to talk
5:15
Speaker 1: about the transition market right now and what you are
5:21
Speaker 1: seeing as far as partnerships and why we're seeing that
5:25
Speaker 1: I think become more common, and just talking about some
5:30
Speaker 1: of the trends that you guys are starting to see
5:32
Speaker 1: in that area.
5:34
Speaker 3: Yeah, so probably multiple trends that we could talk about.
5:37
Speaker 3: But you know, obviously the DSO market has had a
5:40
Speaker 3: big impact only orthodonic market the last over decade. Now
5:44
Speaker 3: Harland started back in the late eighties or early nineties,
5:46
Speaker 3: and small doctors really came in. Was the first orthodonic
5:49
Speaker 3: centered DSO which we call osos and how orthodonic service
5:52
Speaker 3: organizations and so I think they came on the scene
5:55
Speaker 3: around twenty fourteen or twenty fifteen, and that's really had
5:58
Speaker 3: an impact. There's plenty more that are out there now.
6:01
Speaker 3: A lot of doctors are considering joining those practices, and
6:04
Speaker 3: along with that we've seen a bigger increase or just
6:08
Speaker 3: in partnership deals. And I think some of that is
6:12
Speaker 3: a combination of some of the younger doctors coming out.
6:14
Speaker 3: They like that relationship with another doctor, the mentor relationship,
6:18
Speaker 3: and also the coverage and not doing this alone. I mean,
6:21
Speaker 3: you do think when you're a business owner, especially a
6:23
Speaker 3: solo business owner, you always feel like you're on an
6:25
Speaker 3: island by yourself making every decision. So I think that's
6:28
Speaker 3: some of the allure of DSOs SO also become the
6:31
Speaker 3: allure of.
6:32
Speaker 2: More and more partnerships, people sharing the burden and having coverage.
6:36
Speaker 3: If you're out and being able to bounce ideas off
6:39
Speaker 3: of someone else, and so we're seeing a rise in
6:42
Speaker 3: orthodotic partnerships to compete also with the larger groups that
6:45
Speaker 3: are out there. We sort of looked at this last
6:47
Speaker 3: year when before we went with the AO, that used
6:51
Speaker 3: to be twenty to twenty five percent of our transactions
6:53
Speaker 3: our partnership deals. Now it's more like thirty five percent,
6:56
Speaker 3: sometimes closer to forty percent year by year on partnership deals.
7:00
Speaker 3: And these partnership deals can take years to form, so
7:03
Speaker 3: we work with them for longer. And it's all the
7:05
Speaker 3: ages of doctors. You know everybody thinks about transitions. Well,
7:08
Speaker 3: that's when you turn sixty years old, you start thinking
7:10
Speaker 3: about selling your practice. But we have doctors that are
7:13
Speaker 3: in their late thirties or early forties that are talking
7:15
Speaker 3: about transition plans and creating partnership deals because their practices
7:18
Speaker 3: are growing so much. So that's the big trend we've
7:21
Speaker 3: been focusing on lately.
7:22
Speaker 2: Too.
7:23
Speaker 3: People are also looking at acquiring growth or expanding their
7:26
Speaker 3: practice in one way to do that sometimes through mergers
7:29
Speaker 3: which end up being partnership deals, or buying another competitor's
7:32
Speaker 3: practice and bringing somebody in to expand, so we're seeing
7:35
Speaker 3: all those trends that are really affecting market.
7:37
Speaker 2: Yeah.
7:38
Speaker 1: I think it's just interesting when we think about what
7:41
Speaker 1: is impacting this and I'm even seeing it. And this
7:45
Speaker 1: is one area that you didn't necessarily touch on, but
7:47
Speaker 1: I'm even seeing partnerships starting right from the beginning with
7:51
Speaker 1: my startups, where I'm seeing more and more doctors that
7:54
Speaker 1: are going in and saying I don't know that I
7:57
Speaker 1: want to do this on my own from the beginning,
8:00
Speaker 1: and I'm going to start that up now. I know
8:02
Speaker 1: that's a little different than the associate buying in, but
8:05
Speaker 1: I do think it's been an interesting shift even in
8:09
Speaker 1: what I see on the startup realm, where I am
8:12
Speaker 1: working with more and more doctors that are partnerships from
8:16
Speaker 1: the beginning, thinking about that long term strategy.
8:19
Speaker 3: That's interesting, Yeah, because usually the thing with partnerships of
8:22
Speaker 3: the cash flow, and so if you're spreading between two
8:24
Speaker 3: people with the startup, that's a little more difficult, but
8:27
Speaker 3: it can be a great situation. And we've seen we've
8:29
Speaker 3: actually even seen sometimes younger or older doctors say older,
8:32
Speaker 3: you know, I mean really old, but you know, they
8:35
Speaker 3: may bring in a younger doctor and they're starting in
8:36
Speaker 3: on the location. They're a partnership in that situation. So yeah,
8:39
Speaker 3: it's even that some of the startups are going that way.
8:42
Speaker 1: Great, Yeah, yeah, yeah, it's interesting. I mean, I mean,
8:45
Speaker 1: nothing surprises me anymore for sure. And we have definitely
8:49
Speaker 1: gone past the traditional way that things were done. I
8:52
Speaker 1: mean there's a lot of different options out there now
8:54
Speaker 1: for sure for doctors and what they're going to do.
8:56
Speaker 1: So partnerships, for when you and I think about old
9:00
Speaker 1: school partnerships and how they were created to how they
9:05
Speaker 1: are being created now, can you talk through how are
9:09
Speaker 1: partnerships typically structured and maybe things of the past, maybe
9:14
Speaker 1: some old ideas on how it was done, to what
9:18
Speaker 1: is being done now and what is appealing if we
9:21
Speaker 1: do want to think about doing some type of a
9:24
Speaker 1: partnership ramp up in a practice.
9:27
Speaker 3: Yeah, so I would say now, and maybe it's somewhat
9:30
Speaker 3: similar even in the past, but typically what we see
9:32
Speaker 3: and we work with a lot of doctors who are
9:35
Speaker 3: as one doctor practice and now they're bringing somebody younger
9:38
Speaker 3: in and they're going to create the two doctor practice.
9:40
Speaker 3: So that's how the partnership is forming, or maybe it's
9:42
Speaker 3: a two doctor practice that's becoming a three doctor practice.
9:46
Speaker 3: It's a little bit different obviously, when you have maybe
9:48
Speaker 3: two doctors who are already partners and one of them
9:51
Speaker 3: was going to retire and leave, so he has some
9:52
Speaker 3: money come in to buy them out to replace that person.
9:55
Speaker 2: That's slightly different.
9:56
Speaker 3: But in every single one we use, we always command
10:00
Speaker 3: is that there's always an association period beforehand, and so
10:03
Speaker 3: when that doctor comes in, you know, at the end
10:04
Speaker 3: of the day, this is a business marriage, right, and
10:07
Speaker 3: so we're not going to force anybody to get married.
10:09
Speaker 3: We don't want anybody entering into a marriage without really
10:12
Speaker 3: knowing the other person and understand what's going on, and
10:15
Speaker 3: so we always have that partnership or we always have
10:17
Speaker 3: that association period before the buy in starts, and usually
10:21
Speaker 3: we want it to be at least twelve months, you know.
10:22
Speaker 3: Sometimes usually it's even longer than that. And if you're
10:25
Speaker 3: going from a one doctor practice to create a two
10:28
Speaker 3: doctor practice. In those situations, it just depends on the
10:31
Speaker 3: size of the practice. It may be that we need
10:33
Speaker 3: a growth threshold for the practice really to be big
10:36
Speaker 3: enough before the younger doctor buys in. In that case,
10:39
Speaker 3: we're going to value the practice. Before the young doctor
10:41
Speaker 3: gets in there, the price will.
10:42
Speaker 2: Sort of be fixed.
10:43
Speaker 3: It will be fixed with maybe some adjustments for asset
10:46
Speaker 3: editions and things like that. But then once the growth
10:49
Speaker 3: threshold is hit, then the buy in starts. And I
10:52
Speaker 3: would also say that it's almost always the case that
10:56
Speaker 3: these are some type of incriminal buy ins, just depending
10:59
Speaker 3: on the size of the practice and things. And sometimes
11:01
Speaker 3: you have these younger doctors that say, no, I should
11:03
Speaker 3: be fifty to fifty immediately, Well, am I not getting
11:05
Speaker 3: to be fifty to fifty? You know, I'm paying half
11:07
Speaker 3: the value the practice. Well, the reality is there's only
11:10
Speaker 3: certain ways that the sellers would allow somebody to buy
11:13
Speaker 3: in and become an owner in the practice, and they're
11:15
Speaker 3: going to understand that structure. And at the end of
11:17
Speaker 3: the day, these practices usually value for say, suit two
11:21
Speaker 3: times net. So to make that number easy, if you
11:24
Speaker 3: have a two million dollar practice with a million dollars,
11:27
Speaker 3: if total income to the owner doctor you know, may
11:30
Speaker 3: value two million dollars, right, So you think about somebody
11:33
Speaker 3: selling half of their business basically for one year's worth
11:36
Speaker 3: of income. That doesn't make a whole lot of sense
11:38
Speaker 3: unless the practice grows, right, and so there's various.
11:41
Speaker 2: Reasons to do these partnership deals.
11:43
Speaker 3: We always tell people that either you're trading money for
11:47
Speaker 3: time and you want to sort of maybe extend your career,
11:50
Speaker 3: or know how, I'm going to take a big pay cup,
11:51
Speaker 3: but I want to do this to sort of secure
11:53
Speaker 3: my retirement and allow me to.
11:54
Speaker 2: Practice a little longer.
11:56
Speaker 3: Or you're growing your practice so much you want that
11:57
Speaker 3: equity partner that's going to remain with you to be
12:00
Speaker 3: their long term with you. So in those cases, you
12:02
Speaker 3: want the practice to grow because ultimately, until the practice doubles,
12:05
Speaker 3: the selling doctors taking some type of pay decrease. Right,
12:09
Speaker 3: So we always have association periods. We may have the
12:12
Speaker 3: growth threshold, and then we usually have some doctor incremental
12:14
Speaker 3: buy in, so it takes some period of time before
12:16
Speaker 3: the young doctor becomes fifty to fifty equal with them.
12:19
Speaker 3: So it's not like we're trying to squeeze every dollar
12:21
Speaker 3: out of the buyer. It's just we're trying to look
12:23
Speaker 3: at both parties perspectives and make sure this is going
12:25
Speaker 3: to work. And one of the biggest pieces is the
12:27
Speaker 3: financial ramifications of both the doctors.
12:29
Speaker 2: Right. We tell people, don't matter how much you like.
12:32
Speaker 3: Each other, right, you love each other all you want to,
12:34
Speaker 3: but if both of you aren't comfortable with the financial
12:37
Speaker 3: outcome of this, you want to have resentment and this.
12:39
Speaker 2: Thing's going to fall apart.
12:40
Speaker 3: So I always want to make sure that's one of
12:42
Speaker 3: the biggest things we look at. Now. Again, let's say
12:44
Speaker 3: you have a two doctor practice already and somebody's joining
12:47
Speaker 3: to replace that doctor. You're still going to have that
12:49
Speaker 3: association period because the remaining partner wanted to make sure
12:52
Speaker 3: the right fit for the business, and there's still may
12:54
Speaker 3: be some type of difference between the remaining doctor and
12:57
Speaker 3: the new doctor coming in, but you don't usually don't
12:59
Speaker 3: have have so much of a growth bekaus sorry a
13:01
Speaker 3: two doctor practice, right, yeah, or three doctor whatever it
13:04
Speaker 3: may be. So that's sort of overall what we see.
13:08
Speaker 3: There's variations that we have. You know, we've had some
13:10
Speaker 3: older doctors before that, say I'm sixty two. If I
13:12
Speaker 3: don't get so outy in here, I can't do this
13:14
Speaker 3: much longer, and so maybe they'll sell fifty percent immediately.
13:17
Speaker 3: But there's also a trade off of that to say,
13:19
Speaker 3: a young doctor, you're going to work more than me.
13:21
Speaker 3: I'd like to work three days a week you're going
13:23
Speaker 3: to work for but we'll do fifty to fifty straight
13:25
Speaker 3: up and then eventually, you know, you can buy me out.
13:27
Speaker 3: So those are the various things that we see. And
13:29
Speaker 3: I do always want to point out that, you know,
13:31
Speaker 3: when you have the buyers or the buyers and buyers
13:33
Speaker 3: or request that like, hey, they need to be fifty
13:36
Speaker 3: to fifty immediately. There's not many advisors out there that
13:39
Speaker 3: are willing to sell half of their business to a
13:42
Speaker 3: young professional coming out that's been there six or twelve months.
13:44
Speaker 2: So just keep that in mind.
13:46
Speaker 3: You know that these are the livelihoods of the doctors,
13:48
Speaker 3: and it's got to make financial sense for everybody.
13:50
Speaker 1: Yeah, that was great and I think it was a
13:52
Speaker 1: good overview of how this is going to work. And
13:55
Speaker 1: I'm wondering if we could dial that in even more
13:58
Speaker 1: so in you could give a general of what are
14:03
Speaker 1: you suggesting is that I know you said it could
14:05
Speaker 1: be as little as a year, but when we're looking
14:08
Speaker 1: at that buy in period, would you mind giving us Yes,
14:11
Speaker 1: there could be the fringes that go on, but what
14:14
Speaker 1: does that timeframe look like? Also just to give doctors
14:18
Speaker 1: who are listening that may be thinking about this partnership
14:21
Speaker 1: opportunity even just like, what does it look like from
14:25
Speaker 1: ownership being divided? I know you said, you know, most
14:29
Speaker 1: stocks won't start with just a fifty percent right from
14:31
Speaker 1: the beginning, but what does that look like?
14:34
Speaker 2: How is that building?
14:36
Speaker 1: Yes? Yes, exactly? And then what happens with income as
14:42
Speaker 1: either that period is ramping up or when it comes
14:46
Speaker 1: to an end, and was it evaluated differently in the
14:50
Speaker 1: beginning or at the end, Like do you mind breaking
14:53
Speaker 1: that down a little bit? Because I feel like these
14:54
Speaker 1: are all the kind of gray areas where I think
14:58
Speaker 1: people can kind of Oh I heard this in the
15:00
Speaker 1: Facebook group, and oh I heard this on this group,
15:02
Speaker 1: and I think it gets a little muddy.
15:05
Speaker 2: No, it does, it does.
15:07
Speaker 3: So you hear so many different things, right, I've even
15:08
Speaker 3: had clients that have preferred other clients to me and
15:13
Speaker 3: the new one that comes in says, my buddy told
15:15
Speaker 3: me that, you know, you sold this practice for one
15:17
Speaker 3: hundred and fifty percent of collections and did all this
15:19
Speaker 3: other stuff, and it was like, no, it's not exactly
15:21
Speaker 3: how it happened, right, So sometimes the stories between the
15:24
Speaker 3: doctors get a little fuzzy too.
15:26
Speaker 2: Yeah, So I would say.
15:28
Speaker 3: A more common one that we do, and we never
15:30
Speaker 3: do cookie cutter stuf because I always want to understand
15:33
Speaker 3: the actual goals behind everything and everybody's financial situation. But
15:38
Speaker 3: the typical one maybe that somebody starts to practice in
15:41
Speaker 3: July June July, after they finish the residency, they're an
15:45
Speaker 3: associate for say eighteen months, and then get to buy
15:47
Speaker 3: in January one of the year and a half later.
15:51
Speaker 3: And with that, we would value the practice before the
15:53
Speaker 3: doctor gets into the practice typically, so that price is
15:56
Speaker 3: set right before they step in. And then we say, okay,
16:00
Speaker 3: because your goal is to continue to grow the practice, right,
16:02
Speaker 3: I mean, the doctor that is there now can manage
16:04
Speaker 3: the practice doing what it's doing right, so they don't
16:08
Speaker 3: need you if this thing doesn't grow. So again, maybe
16:10
Speaker 3: it's a growth threshold before that buying actually happens. Well,
16:13
Speaker 3: let's just say it's eighteen months or so, so it's
16:15
Speaker 3: on the right track. Everybody knows it's on the right track.
16:18
Speaker 3: We're achieving the ejectives we want. And then usually we
16:21
Speaker 3: do something like that doctor thing, get to buy twenty
16:23
Speaker 3: five percent of ownership interest in the practice, okay, and
16:26
Speaker 3: then a set time period later three maybe four years later,
16:29
Speaker 3: they get to buy another twenty five percent, So it
16:31
Speaker 3: takes them four to five years to become equal with
16:34
Speaker 3: the incumbent doctor that's in the practice. Okay during that
16:37
Speaker 3: time and again and we usually have that first fifty
16:40
Speaker 3: percent set on the valuation. Now again if there's adjustment,
16:43
Speaker 3: there could be adjustments in there. Say, for example, if
16:45
Speaker 3: they decide to go buy a brand new nice X
16:48
Speaker 3: ray machine, that original valuation is going to be adjusted
16:50
Speaker 3: for that long term asset that's going to be used
16:52
Speaker 3: for the next ten years or even we've had situations
16:55
Speaker 3: where they say we're going to do another location and
16:58
Speaker 3: so they go build another location for a half a
17:00
Speaker 3: million dollars before the young doctor buys in, and that's
17:02
Speaker 3: really an investment in the future, so that price will
17:05
Speaker 3: be adjusted for that investment in that.
17:07
Speaker 2: New office location or buying can competitor. Okay.
17:09
Speaker 3: So then when they buy in, they buy twenty five percent.
17:12
Speaker 3: We typically then have the profit allocations split portion based
17:16
Speaker 3: upon days worked and then the other portion may be
17:19
Speaker 3: based upon ownership interest or maybe something slightly different. It
17:22
Speaker 3: just depends on the size of the practice. So to
17:25
Speaker 3: make it easy, let's say you have two hundred dollars
17:27
Speaker 3: of profit that can be split between the two doctors. Okay,
17:30
Speaker 3: we put that into two pools of money. Fifty percent
17:33
Speaker 3: of that, or one hundred dollars, is then paid to
17:35
Speaker 3: each of those two doctors based upon the number of
17:37
Speaker 3: days work. So if they're working the same number of days,
17:40
Speaker 3: they get fifty dollars each of that pool of money.
17:43
Speaker 3: The other one hundred dollars a second pool of money
17:45
Speaker 3: is split maybe based upon ownership interest. So if it's
17:48
Speaker 3: seventy five to twenty five, so it ends up that
17:50
Speaker 3: the seventy five percent owner is getting one hundred and
17:52
Speaker 3: twenty five dollars versus seventy.
17:53
Speaker 2: Five dollars of the income.
17:55
Speaker 3: Okay, So some people say, well, shouldn't you just based
17:57
Speaker 3: upon an ownership interest the young doctor's going to be
17:59
Speaker 3: a twenty five percent ownership, don't they just get twenty
18:01
Speaker 3: five percent of the overall profits. Well, that can't really work.
18:04
Speaker 3: You've got to have that clinical pool in there, because
18:06
Speaker 3: remember they were a zero percent owner and you're still
18:08
Speaker 3: paying them a salary, right and so, and if you
18:10
Speaker 3: think about, like the easiest example to think about, let's
18:13
Speaker 3: say you've got a practice is thrown off a million
18:16
Speaker 3: dollars of income to the doctors, and if you have
18:20
Speaker 3: an associate come in that's going to be getting paid.
18:22
Speaker 3: I'm just going to use two hundred and fifty thousand
18:24
Speaker 3: dollars as a salary.
18:25
Speaker 2: Right.
18:26
Speaker 3: Well, if they were bought in at twenty five percent,
18:27
Speaker 3: now they have paid a half a million dollars or
18:29
Speaker 3: whatever it is, a million dollars for this twenty five
18:31
Speaker 3: percent interest. And if they only get twenty five percent
18:33
Speaker 3: of a million dollars of profit, they're still making two
18:35
Speaker 3: to fifty you know, like they were making as an associate.
18:38
Speaker 2: Now I have a debt service.
18:39
Speaker 3: So you're trying to split that million dollars based upon
18:42
Speaker 3: day's work, your clinical pool, and then some type of
18:44
Speaker 3: ownership pool. Now we'll say there's some situations based upon
18:47
Speaker 3: the size of the practice and things like that, we
18:50
Speaker 3: may allocate that second pool of money, maybe like a
18:53
Speaker 3: ten percent per year increase to the younger doctor. There's
18:55
Speaker 3: some differentials in there, and there's reasons for that that
18:58
Speaker 3: you know, I'm not going to get all the way
18:59
Speaker 3: in to here, but basically you're just trying to define
19:02
Speaker 3: that there's got to be some way to reasonably and
19:04
Speaker 3: equably divide that income. The other reason I talk about
19:08
Speaker 3: like those incremental increases, is we're trying to structure these
19:11
Speaker 3: and even though these are very complicated transactions a.
19:14
Speaker 2: Lot of things going on.
19:15
Speaker 3: We don't want people to have a transaction every single year.
19:18
Speaker 3: You know, if you're actually selling ten percent per year
19:20
Speaker 3: and you're having to do the legal docums in the
19:22
Speaker 3: accounting work and go get a loan every year, you
19:24
Speaker 3: just can't do that. So some of this is based
19:26
Speaker 3: upon just a method that makes sense. At the end
19:28
Speaker 3: of the day, we're trying to shift money between the
19:30
Speaker 3: two doctors. That makes it fair and reasonable, sure, and
19:33
Speaker 3: and everybody's going to pull their weight right. Probably another
19:36
Speaker 3: topic on this, but we always tell the young doctors
19:38
Speaker 3: you got to act like an owner before you're allowed
19:40
Speaker 3: to become an owner. So going the extra mile to
19:42
Speaker 3: make sure you're involved. You know, this isn't just checking
19:45
Speaker 3: in at seven point thirty and leaving at five. I mean,
19:47
Speaker 3: you've got to be involved. And if you don't do
19:49
Speaker 3: those things, you're not going to have the opportunity to
19:51
Speaker 3: buy into the practice anyway. So those are I would say,
19:54
Speaker 3: the sort of a normal process. But you know, we
19:56
Speaker 3: also have sometimes things in there about especially for maybe
19:59
Speaker 3: a larger practice, for maybe three or four after practice,
20:02
Speaker 3: where you have one person that's clearly like the managing
20:04
Speaker 3: partner that's doing more things. You may have like a
20:06
Speaker 3: third pool of money, like you know, C suite compensation,
20:09
Speaker 3: or add in day's work on top of clinical day's work.
20:11
Speaker 3: So there's various ways to allocate the income to reflect
20:14
Speaker 3: really what's going on.
20:15
Speaker 2: In the practice.
20:16
Speaker 1: Yeah, that's great. Thanks for breaking that down. And again,
20:19
Speaker 1: I know and probably anybody listening understands that there's a
20:22
Speaker 1: lot of ways that you can make this work. But
20:24
Speaker 1: I think just having that basic understanding, and I love
20:27
Speaker 1: what you said about you can't be an owner until
20:30
Speaker 1: you act like an owner, and that is so true,
20:32
Speaker 1: and I think that is such a big shift when
20:35
Speaker 1: you go from being an associate who that can be
20:38
Speaker 1: a very appealing position. I think because you do you
20:42
Speaker 1: get to show up, you get to do your thing,
20:44
Speaker 1: and you get to go home. You don't get the
20:45
Speaker 1: weight of the practice on your shoulders on Friday night,
20:48
Speaker 1: Saturday morning, Sunday morning, you know, like you do as
20:51
Speaker 1: a business owner. And I think as you start to
20:54
Speaker 1: take that step towards ownership, starting to think like an
20:59
Speaker 1: all owner and picking the brain of your partner and
21:02
Speaker 1: carrying some of that burden on. We are going to
21:05
Speaker 1: grow this practice, What do I have to bring to
21:07
Speaker 1: the table. It isn't just them continuing to do the
21:10
Speaker 1: heavy lifting. So I love what you said there.
21:12
Speaker 2: We could probably think about specific examples.
21:14
Speaker 3: All day, right, But I remember I had one doctor
21:16
Speaker 3: who was visiting one of our clients to think about
21:19
Speaker 3: buying in and they had dinner that night with their
21:21
Speaker 3: spouses within the owner doctor had a computer issue and
21:25
Speaker 3: had to go to a satellite office that night to
21:27
Speaker 3: work on some stuff and didn't get home till like eleven,
21:30
Speaker 3: and the younger doctor and his spouse were both like, man,
21:33
Speaker 3: does he do this all the time? Does he want
21:35
Speaker 3: to do this? And it's like he doesn't want to
21:36
Speaker 3: do right. But when they was like that pop up,
21:39
Speaker 3: you have to right, you can't, Yeah, you can't just
21:42
Speaker 3: check out. So it's obviously you have to think about
21:45
Speaker 3: those things.
21:46
Speaker 2: Yeah. One other things we'll say, talked about that structure.
21:48
Speaker 3: It's so hard to talk about those things you know
21:51
Speaker 3: in the abstract right and think about it. So I
21:52
Speaker 3: will say that's why we always do partnership projections like
21:56
Speaker 3: financial modeling to actually show everybody because what I said
21:59
Speaker 3: probably sounds like a foreign language of word salid to
22:01
Speaker 3: some people. So you want to put that on paper
22:03
Speaker 3: to really illustrate. Here's what we're saying is happening, and
22:06
Speaker 3: here's what you can expect. So you can see if
22:09
Speaker 3: I'm buying it this percentage with this cost and have
22:11
Speaker 3: this loan and this profit allocation model and the ars
22:14
Speaker 3: are my tax framivications. This is why I kind of
22:16
Speaker 3: can expect in that way, or I can get on
22:17
Speaker 3: the same page, and that helps everybody understand.
22:19
Speaker 1: Yeah, yeah, I think that that's wonderful. And again it's
22:22
Speaker 1: not just a handshake and a wink, wink and yeah
22:26
Speaker 1: we're going to get there. I think everybody needs to
22:28
Speaker 1: see that and see the work that it takes to
22:31
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Speaker 1: suite of excellence. I'm wondering if you can now talk
24:41
Speaker 1: a little bit about some of the key operating and
24:45
Speaker 1: tax considerations that doctors need to think about when they
24:49
Speaker 1: are saying, Hey, I think I want to form a
24:51
Speaker 1: partnership because I've got to imagine there's got to be
24:54
Speaker 1: some tax issues that we got to think about.
24:57
Speaker 3: There are there's usually two ways to do it, like
24:59
Speaker 3: an asset action creating new entities and things, or you
25:02
Speaker 3: can do some type of stock and buy in model.
25:04
Speaker 3: And there's different task time of cases that but at
25:06
Speaker 3: the end of the day, from the seller's point of view,
25:08
Speaker 3: what they're trying to do is get capital gains in
25:10
Speaker 3: the transaction right and not pay ordinary income because capital
25:14
Speaker 3: gains rates. The highest federal tax rate is twenty percent
25:16
Speaker 3: plus whatever your state income tax rate is. Ordinary income
25:20
Speaker 3: tax rate can be thirty seven percent plus any payroll
25:23
Speaker 3: taxes you know employer and employee payroll taxes that you
25:26
Speaker 3: have on top of that, so there's a big difference
25:28
Speaker 3: in the tax rate. So ultimately the seller's trying to
25:29
Speaker 3: get capital gains. From the buyer's point of view, they
25:32
Speaker 3: want to make sure they're getting tax deductibility. So you know, hey,
25:35
Speaker 3: if I'm paying five hundred thousand dollars to buy in
25:38
Speaker 3: this practice, I want to make sure I'm getting some
25:39
Speaker 3: tax reductions to offset my income that I'm receiving from
25:43
Speaker 3: it and the loan payments that I'm making. So typically
25:47
Speaker 3: that's the balancing act, and we're usually trying to do
25:49
Speaker 3: some type of asset transaction that allows the seller to
25:53
Speaker 3: for a large portion of the purchase price, receive capital
25:55
Speaker 3: gains treatment and then from the buyer's perspective, to be
25:58
Speaker 3: able to write off all of the entire purchase price
26:01
Speaker 3: over some period of time. And it also allows for
26:04
Speaker 3: flexibility of payment terms and things like that. So stock
26:07
Speaker 3: sales are always the worst, well for the worst for
26:09
Speaker 3: the buyer. Okay, if you sell stop, the seller receives
26:12
Speaker 3: all capital gains, but the buyer receives no tax deductibility.
26:16
Speaker 2: So we usually try to avoid.
26:17
Speaker 3: Those or make them really alter the structure to allow
26:20
Speaker 3: some deductibility for the buyer, and there's a lot of
26:22
Speaker 3: ways to manipulate that. Okay, So capital gains versus deductibility
26:26
Speaker 3: and everything is the big key there. And then I
26:29
Speaker 3: will point out too, for family members, related party taxation
26:34
Speaker 3: is much different than unrelated party taxation. The IRS looks
26:37
Speaker 3: at family members so much differently than two unrelated parties,
26:41
Speaker 3: I mean too, and related parties can shake hands and
26:43
Speaker 3: sell for a fifty percent discount if they want to,
26:46
Speaker 3: but then if two family members do that, then it's
26:48
Speaker 3: considered a gift or could go against their state and
26:51
Speaker 3: things like that. There's also even amorization of good will
26:55
Speaker 3: purchases between family members as not usually allowed, so it
26:58
Speaker 3: either ends up being converted to ordinary income for the
27:01
Speaker 3: selling doctor or not deductible to the buying doctor. So
27:04
Speaker 3: with family transactions, you really want to make sure that
27:07
Speaker 3: that's looked at and the structure properly to allow for
27:10
Speaker 3: maximum deductibility and production and taxes, and there's ways to
27:14
Speaker 3: get around that.
27:15
Speaker 2: So just one thing to be very aware of for
27:17
Speaker 2: family members.
27:19
Speaker 1: You know, that is such a good point and I
27:21
Speaker 1: have never thought about that when I have my younger
27:24
Speaker 1: ducks coming in and saying, Hey, I'm purchasing my dad's
27:28
Speaker 1: practice or my mom's practice, or going to partner in
27:31
Speaker 1: with an eventual buyout or whatnot. I just want to
27:34
Speaker 1: go down a rabbit hole for a minute with that,
27:36
Speaker 1: because it just has never even dawned on me that,
27:40
Speaker 1: which is probably bad on my part, that we really
27:43
Speaker 1: need to be it isn't just a transaction, like we
27:47
Speaker 1: really have to be thinking about that and the impacts
27:50
Speaker 1: of the taxation component and how that is set up.
27:54
Speaker 1: And I guess my leading in question is should doctors
27:59
Speaker 1: be reaching out out to a group like you, even
28:01
Speaker 1: if it is a family transaction like that, to say
28:05
Speaker 1: how do we best structure this versus just I'm coming
28:09
Speaker 1: in and I'm taking over the practice.
28:11
Speaker 3: I would say yes, I would say yes, obviously right,
28:14
Speaker 3: But some CPAs will handle it, and they might do gifting,
28:18
Speaker 3: which can be fine too, and especially if you're underneath
28:21
Speaker 3: the state tax limitations before you start paying estate taxes
28:24
Speaker 3: and things like that, but most people are trying to
28:26
Speaker 3: preserve those to make sure that they have the maximum
28:29
Speaker 3: deductibility and the estate tax limits in place when they
28:32
Speaker 3: were pass away. So yes, I would say, look at that,
28:36
Speaker 3: because there's anti turning rules, you know, the IRS enforces.
28:39
Speaker 3: There's controlled entities issues, which the anti turning rule says
28:43
Speaker 3: that related party buys goodwill from another related party, you
28:47
Speaker 3: can't advertise that good will unless the selling doctor pays
28:50
Speaker 3: the highest ordinary income tax rate. Well, that's the whole
28:52
Speaker 3: purpose of selling good will, right, is get those two things,
28:55
Speaker 3: deductibility and capital gains rates. There's also things about with
28:59
Speaker 3: the controlled entities situations where the buyer may not be
29:04
Speaker 3: able to deduct.
29:04
Speaker 2: The purchase price paid.
29:06
Speaker 3: Or if the let's say the mother or father decides
29:10
Speaker 3: to sell or finance the transaction, they could end up
29:12
Speaker 3: having to pay the full gain on the cell of
29:15
Speaker 3: the assets in the year of the selle even though
29:17
Speaker 3: they're going to sell our finance and over a period
29:18
Speaker 3: of time. Because usually that's what's called the installment method,
29:21
Speaker 3: which means the RS is you can recognize the income
29:23
Speaker 3: as you receive the money. So if you sell or
29:24
Speaker 3: finance something over seven years, and it's really the capital
29:27
Speaker 3: gains piece of it, as you receive that money over
29:29
Speaker 3: the next seven years, you'll pay the taxes you receive it. Well,
29:32
Speaker 3: in family transactions, it could be that the selling doctor
29:35
Speaker 3: has to recognize the entire gain in the year of
29:37
Speaker 3: the sale and pay the tax on it. So you
29:40
Speaker 3: just want to be aware of those things. And again
29:42
Speaker 3: there's ways around most of them usually, but you just
29:45
Speaker 3: want to make sure they're all in place, everybody's aware
29:47
Speaker 3: of them. And I would say it's nothing against the CPAs,
29:50
Speaker 3: but we have seen some CPAs that don't know all
29:53
Speaker 3: these rules and they are complicated, So you just want
29:55
Speaker 3: to be aware of them, and sometimes you can't get
29:57
Speaker 3: around them, but you want to know what the situation
29:59
Speaker 3: is if you have a tax libility wasn't aware of.
30:02
Speaker 1: Yeah, yeah, to your point about the CPAs, I mean,
30:05
Speaker 1: this is going to sound like a slam a little bit,
30:07
Speaker 1: but there are definitely ones that understand our industry and
30:10
Speaker 1: understand the level of complexity of this. And there are
30:13
Speaker 1: others that are like the family friends that have been
30:16
Speaker 1: you know, we're just kind of plugging along doing the
30:18
Speaker 1: taxes and don't understand the complexity of what this transaction
30:24
Speaker 1: is going to look like. And I think to any
30:27
Speaker 1: of our listeners out there, if you are setting up
30:30
Speaker 1: to be in that situation and or maybe you've got
30:33
Speaker 1: some friends that are this is probably a good episode
30:35
Speaker 1: to be like, you need to listen to this and
30:37
Speaker 1: at least give Doug a call and be like, Okay,
30:39
Speaker 1: let me just make sure we're on the right track here.
30:42
Speaker 3: Yeah, and a lot of telling you that the CPAs
30:43
Speaker 3: don't know it, right, It's just that they don't communicate enough.
30:46
Speaker 3: They're just trying to get the tax work done and
30:48
Speaker 3: they're trying to make sure everything's okay. But the doctor
30:50
Speaker 3: doesn't know to tell them some of these things, and
30:52
Speaker 3: so they could be involved more if they were allowed
30:55
Speaker 3: to be. But it's like we could all do much
30:57
Speaker 3: much better financial planning, right, But it actually means you got
31:00
Speaker 3: to be proactive and let your financial planner.
31:01
Speaker 2: Know what's going on and talk to them. So some
31:03
Speaker 2: of us just that, right.
31:04
Speaker 3: So you want to make sure the communication is happening
31:06
Speaker 3: and is planned for no surprises, right.
31:09
Speaker 1: Yeah, yeah, for sure, for sure. So I want to
31:12
Speaker 1: switch gears a little bit and I want to talk
31:14
Speaker 1: about partnerships as Okay, we've made the decision, we've got
31:20
Speaker 1: the buy in happening. Now we're past associate, we're into
31:24
Speaker 1: the buy in process, and I want you to talk
31:27
Speaker 1: a little bit about what that looks like in real
31:32
Speaker 1: world decisions in a practice and how successful partnerships handle
31:40
Speaker 1: things like who gets final authority on decisions or who's
31:45
Speaker 1: responsible for what? Or I want to go buy that
31:50
Speaker 1: new car and roll it into the practice and this
31:53
Speaker 1: that or the other. I'd love for you to talk
31:55
Speaker 1: about that, because I see this can become a real
31:59
Speaker 1: sty situations sometimes if we aren't clear about how we're
32:03
Speaker 1: going to handle these things.
32:05
Speaker 3: No, it's very interesting, right because even in the deals
32:08
Speaker 3: that we do, like you're incrementally buying in right, we
32:11
Speaker 3: may have one doctor that has voting control for a
32:13
Speaker 3: period of time, and it's a double edged sword. I
32:15
Speaker 3: could talk out of both sides of my mouth here
32:17
Speaker 3: and take positions on either side. So from the seller's
32:20
Speaker 3: point of view, sometimes when we have voting control for
32:23
Speaker 3: the senior doctor for saying, you know, some of your
32:25
Speaker 3: time four or five, six, seven years, the young doctor
32:28
Speaker 3: says that's not fair. Well, the response could also be,
32:31
Speaker 3: we're also joining this practice for a reason, right, and
32:33
Speaker 3: this doctor has been very successful and so they should
32:36
Speaker 3: be able to continue to operate the practice and you
32:37
Speaker 3: should trust them to do that. But even if I
32:40
Speaker 3: say that, what I'm telling the senior doctor too is
32:43
Speaker 3: Remember this is a partnership. It doesn't matter if you
32:45
Speaker 3: have voting control or not. If you're always pulling your
32:47
Speaker 3: trump card, this thing's going to fail. And so you've
32:49
Speaker 3: got to talk about these things. You've got to get
32:51
Speaker 3: them on the same page. No matter what the decision is.
32:54
Speaker 3: You need to act like partners. And even when we
32:56
Speaker 3: have somebody with voting control, there's always usually a list
33:00
Speaker 3: of things that says this must be Unani's flag root
33:03
Speaker 3: upon which may be bringing another a doctor and other associate,
33:06
Speaker 3: selling ownership, interest in the practice, entering into big contracts,
33:10
Speaker 3: relocating the offices, things like that. To make sure that
33:13
Speaker 3: you guys have to be on the same page on
33:14
Speaker 3: these things. It doesn't matter if it's a minority own
33:17
Speaker 3: it or not. But I just try to stress to
33:19
Speaker 3: them that you need to hit each other on the
33:21
Speaker 3: same page. And that almost needs to start even during
33:23
Speaker 3: the association period too. If you know that they're going
33:25
Speaker 3: to become partners, you want to involve them in the
33:26
Speaker 3: decision making process one so they know what's going on too,
33:30
Speaker 3: so they're ready to make these decisions too as they
33:32
Speaker 3: become involved in the practice. So we still sometimes have
33:36
Speaker 3: voting control in practices, but you sort of have those
33:38
Speaker 3: speeches and make sure everyone's on the same page.
33:40
Speaker 2: But ultimately i'd say I want to fire this person
33:43
Speaker 2: for example.
33:44
Speaker 3: Ultimately that may come down to one person making a
33:46
Speaker 3: decision if you can't quite get on the same page,
33:48
Speaker 3: but you need to have multiple discussions about it before
33:50
Speaker 3: that decisions made. Now, I will say we've had something
33:54
Speaker 3: really large successful practices, you know, doing ten, twelve, thirteen
33:58
Speaker 3: million a year, and obviously there's one doctor who is
34:01
Speaker 3: the lead person. I had one large practice that he
34:04
Speaker 3: was the leader and the executive of the group, really
34:07
Speaker 3: handled both the decision making and he was still the
34:09
Speaker 3: biggest producer in the practice, and it was very clear
34:12
Speaker 3: and everybody was okay, like he gets to make the
34:14
Speaker 3: majority of decisions, right, And so it's just something to
34:17
Speaker 3: be aware of. Other things to think about, like discretion.
34:20
Speaker 3: Your expenses are a big one, you know, like you
34:22
Speaker 3: were talking about and say, hey, I want to hound
34:24
Speaker 3: a the cord allowance here, you're driving to Porsche over here.
34:27
Speaker 2: I've got an issue with that.
34:28
Speaker 3: So you know, one thing is if, depending on how
34:31
Speaker 3: we structure it, they may actually have separate entities that
34:34
Speaker 3: they're running the discretion expensis through our own corporation or entity,
34:37
Speaker 3: and so the doctors don't even see what the other
34:39
Speaker 3: one's doing. But at the end of the day, when
34:41
Speaker 3: you own your own practice, it's completely up to you. Right,
34:44
Speaker 3: you can do whatever you want to. Put your kids
34:46
Speaker 3: on payroll. You can if you own the facility and
34:49
Speaker 3: pay yourself excess rent for tax planning, go on vacations
34:53
Speaker 3: and say it's continued education. Take your best friend who's
34:55
Speaker 3: not a dentist out for golf all the time, right,
34:57
Speaker 3: so you can do all those things. Or if you
34:59
Speaker 3: have more money in your bank account was just distributed
35:01
Speaker 3: out to myself. When you become a partner, that's no
35:03
Speaker 3: longer the case. You have to consider how does me
35:06
Speaker 3: spending money affect the other doctor. And we try to
35:10
Speaker 3: tell people ultimately, put yourself in the other person's shoes. Right,
35:13
Speaker 3: if they were to spend that money and expect you
35:15
Speaker 3: to pay half of it, would you be okay with that?
35:18
Speaker 3: So those things are usually tracked and charging against their
35:20
Speaker 3: share of the income, or they're within their own companies.
35:23
Speaker 3: The two it's not always the two biggest ones, but
35:25
Speaker 3: the two biggestes. I talk to people about are really
35:27
Speaker 3: marketing ce right? Like if marketing, Hey, if your best
35:30
Speaker 3: friend is the biggest referral of the practice, or your
35:33
Speaker 3: partner's best friend is the biggest referral of the practice,
35:36
Speaker 3: you probably shouldn't get upset with him if he's taking
35:38
Speaker 3: them out to golf and dinner a lot, right, I mean,
35:40
Speaker 3: let him have those expenses. That's a big piece of
35:42
Speaker 3: the practice. Continue education. Typically say that should go against
35:46
Speaker 3: your own side of the money. But hey, if you
35:48
Speaker 3: both decided you're going to go to this conference to
35:50
Speaker 3: learn all this stuff and bring it back to the
35:52
Speaker 3: practice and then implement it, well maybe that's a practice
35:55
Speaker 3: share expense, right, So you just have to be aware
35:57
Speaker 3: of those and track them as the best you can.
36:00
Speaker 3: This it becomes a mathematical calculation. You're going to track
36:02
Speaker 3: it and make sure you know how to handle it.
36:04
Speaker 3: And as long as you're tracking it, then you can
36:07
Speaker 3: decide what's the difference and how do we handle this
36:09
Speaker 3: versus if you don't track it and you're hiding it
36:11
Speaker 3: from each other. That's where a lot of the issues
36:13
Speaker 3: come in. Yeah, another one, you know, talking about control
36:16
Speaker 3: and what tears people apart. I mean we've had partners
36:19
Speaker 3: just really get upset with like just credit card points.
36:22
Speaker 3: You know, if somebody's buying in and it's like I
36:24
Speaker 3: want him to buy in, but I keep all the
36:26
Speaker 3: credit card points.
36:27
Speaker 2: I'm like, we're talking like three grand a year. Really,
36:29
Speaker 2: I mean, you know, this should just be shared. Why
36:31
Speaker 2: are we having such a big issue about this.
36:33
Speaker 3: You guys are both doing pretty well, So again, think
36:35
Speaker 3: about that, if the other person was really taking that
36:38
Speaker 3: strong with a stance, would you be upset about it? And
36:40
Speaker 3: at the end of the day, that's what we try
36:42
Speaker 3: to do on a lot of these deals, is we're
36:44
Speaker 3: trying to make each person understand the other one's perspective, right,
36:47
Speaker 3: and what you're requesting, usually to your benefit, means just
36:51
Speaker 3: coming out of the pocket of the other doctor, And
36:53
Speaker 3: so you've got to be aware of that and how
36:54
Speaker 3: would you feel and just try to be as fair
36:56
Speaker 3: as you can. And most partnerships fail because of either money,
36:59
Speaker 3: just like normal marriages, money or decision making, you know,
37:03
Speaker 3: whether they're not communicating to make decisions together. So we
37:06
Speaker 3: just try to stress that as much as we can.
37:08
Speaker 1: Yeah, Doug, I think those are all such good points.
37:10
Speaker 1: I want to bring up just one more. And I
37:12
Speaker 1: want you to talk about this one for just a second,
37:14
Speaker 1: because I do see this a lot with my younger
37:17
Speaker 1: docs going in and having that partnership opportunity with a
37:22
Speaker 1: senior doc that maybe has been practicing for a while.
37:25
Speaker 1: And where I see maybe some rubs or people getting
37:29
Speaker 1: a little upside down is differences and treatment philosophies and
37:33
Speaker 1: how money is going to be spent. You know, if
37:36
Speaker 1: we've got a practice that we'll just say it was
37:39
Speaker 1: a very analog practice, and we've got a younger doc
37:41
Speaker 1: coming in that has been trained and once to do
37:44
Speaker 1: digital and once to bring in this that or the other,
37:47
Speaker 1: and just kind of that, Okay, I can manage this
37:50
Speaker 1: for a while as an associate. But now that I've
37:52
Speaker 1: got this partnership opportunity and we're moving towards ownership now
37:57
Speaker 1: and we're into that, I want to start bringing this in.
38:00
Speaker 1: And I kind of see this where people just kind
38:04
Speaker 1: of get a little sideways on philosophies and while it's
38:08
Speaker 1: worked this way, why should we bring this in? And
38:10
Speaker 1: I'm wondering, have you guys had to start dealing with
38:13
Speaker 1: this a little bit, because I think this is all
38:15
Speaker 1: part of that we got to like, put all our
38:17
Speaker 1: cards on the table and talk about this, or it's not.
38:21
Speaker 2: Going to work.
38:22
Speaker 3: No, I agree. That's when we try to say can
38:24
Speaker 3: you call it Jill Allen or somebody like that to
38:26
Speaker 3: figure out what you do. But because that is a challenge,
38:31
Speaker 3: so we've seen it that. Sometimes we have had people
38:34
Speaker 3: that are like, I don't do any liners, and I
38:36
Speaker 3: don't want to, but I'm going to bring the new
38:37
Speaker 3: partner in and they're going to do that, and then
38:39
Speaker 3: they do have a little bit of rub about, well, god,
38:41
Speaker 3: I'm two three hundred dollars a case on my brackets
38:43
Speaker 3: and you're spending sixteen seventeen eighteen hundred dollars a little abathy,
38:47
Speaker 3: so I think they have to get on the same
38:48
Speaker 3: page with that.
38:49
Speaker 2: That's just part of the growth model.
38:51
Speaker 3: And if you're not cannibalizing your other normal treatment starts
38:55
Speaker 3: and you're doing this with the liners, that's how we're growing.
38:57
Speaker 2: So we have to take this into account.
38:58
Speaker 3: Hopefully you got some fixed costs will stay the same
39:00
Speaker 3: as we're offset some of that. And some of the
39:02
Speaker 3: young doctors have not been trained on this type of stuff.
39:05
Speaker 3: I remember we have one doctor buying a practice is
39:07
Speaker 3: still to paper charist and goes, really, how do I
39:09
Speaker 3: do paper?
39:09
Speaker 2: Charts? Paper? And you're write stuff down right? But they haven't. Yeah,
39:14
Speaker 2: they haven't been trained.
39:16
Speaker 3: On the non technological stuff and so they're used to
39:18
Speaker 3: the digital workflow. So I think that's just something they
39:21
Speaker 3: have to evolve into. And I probably would recommend, hey,
39:24
Speaker 3: you do need to talk to consultant. Get you guys
39:26
Speaker 3: on the same page, okay, because we have seen a
39:29
Speaker 3: lot of our partnerships end up not having separate patient pools.
39:33
Speaker 3: They end up sharing a patient. So that's what I
39:35
Speaker 3: was talking about, Like the profit allocation, a lot of
39:37
Speaker 3: times ends up being on day's work. You end up
39:39
Speaker 3: having separate patient pools. You can do okay, this is
39:42
Speaker 3: my production or my collection, so we get paid on
39:44
Speaker 3: that with some ownership pool too. But we have seen
39:47
Speaker 3: some practices when they do have some separate patient pools
39:50
Speaker 3: like that or one doctor's heavy heavy aligners and the
39:53
Speaker 3: other one doctors not they do actually track those expenses then,
39:56
Speaker 3: so you end up sort of having two practices within
39:59
Speaker 3: one or three or four actually win one depending on
40:01
Speaker 3: the number of doctors. So then they get very specific
40:03
Speaker 3: and like I said, it's all about tracking, right, so
40:05
Speaker 3: maybe here's my collections, here's my clinical staff, here's my
40:09
Speaker 3: aligner bills, and here's the other things that I'm doing.
40:11
Speaker 3: And then they have the other expenses like rent and
40:13
Speaker 3: things that they're sharing fifty to fifty because that's just
40:16
Speaker 3: a fixed cost. But I would say the majority of
40:18
Speaker 3: our practices are sharing patient pools, so they end up
40:22
Speaker 3: having to get on the same page with that. Again,
40:24
Speaker 3: otherwise you're really having to track that. And I would say,
40:26
Speaker 3: you guys got to get on the same page. I mean,
40:28
Speaker 3: you just have to figure out what you want to do.
40:29
Speaker 3: You end up being separate and doing your own thing
40:32
Speaker 3: because then they don't want to touch the other's patient anyway.
40:34
Speaker 3: But we've seen some successful practice like that too, So
40:37
Speaker 3: it's just again to me, it's a matter of tracking
40:39
Speaker 3: it and understanding it and be on the same page
40:41
Speaker 3: because otherwise it gets in the falling apart. We've seen
40:44
Speaker 3: people do that. It's like we're not doing enough and
40:46
Speaker 3: we have two locations. Whyon't you just start going over
40:48
Speaker 3: here and I'm going over there and we'll go our
40:50
Speaker 3: separate ways.
40:51
Speaker 1: Yeah, yeah, yeah, for sure, for sure. And I think
40:54
Speaker 1: the bottom line is if you're looking at doing a partnership,
40:56
Speaker 1: whether you're the buying and partner or the doc that's
40:59
Speaker 1: bringing in, and there's.
41:00
Speaker 2: Got to be give and takes. It's like a lease.
41:02
Speaker 1: We've got to have everybody giving a little bit to
41:05
Speaker 1: get to that middle ground so that it's going to
41:07
Speaker 1: be successful. So I know, you and I could just
41:10
Speaker 1: keep going and keep going and you know, keep talking.
41:12
Speaker 1: But the last question that I just want to talk
41:15
Speaker 1: about because I'm sure somebody's like, Jill, this is a
41:18
Speaker 1: burning question for me. But let's talk just a little
41:20
Speaker 1: bit about the financing perspective. You talked a little bit
41:24
Speaker 1: about the buy ins and whatnot, but how are they
41:27
Speaker 1: typically funded? Are doctors just expected to have this lump
41:31
Speaker 1: of cash? Are they going out and getting a loan?
41:33
Speaker 1: Is it coming out of their salary? What does that
41:36
Speaker 1: look like? And to make this even more complicated of
41:40
Speaker 1: an answer for you, what happens if there's real estate involved.
41:43
Speaker 1: So we're not just talking about buying into a practice,
41:45
Speaker 1: but now we've got real estate that is part.
41:48
Speaker 2: Of this deal as well.
41:50
Speaker 3: Yeah, so let me talk about the real estate first
41:51
Speaker 3: very quickly, because the real estate is always a separate
41:53
Speaker 3: transaction from the partnership.
41:55
Speaker 2: Or the orthodontic practice.
41:57
Speaker 3: So the young doctor has to think this is just
41:59
Speaker 3: like any other right that as long as the rental
42:01
Speaker 3: rate is okay and it's fair market value, then.
42:04
Speaker 2: It's a separate transaction.
42:06
Speaker 3: And usually we want them to go through the fair
42:08
Speaker 3: market appraisal process to talk to some realtors say hey,
42:10
Speaker 3: are you at the correct rental rate for this office,
42:13
Speaker 3: because we're want to make sure we're including that the evaluation
42:15
Speaker 3: and the operating expenses. Anything and excess to that is
42:18
Speaker 3: really a discretionary expense for the owner doctor. And usually
42:23
Speaker 3: if they're allowed to buy into the real estate is
42:25
Speaker 3: after some of your time, usually after they become equal
42:27
Speaker 3: because what they don't want is you have a buy
42:29
Speaker 3: in and then something happens and then they decide, oh,
42:31
Speaker 3: this isn't working, and now you've got to get out
42:33
Speaker 3: of real estate deal too. But I would say sometimes
42:35
Speaker 3: it's even the selling doctor. You know, that could be
42:37
Speaker 3: part of the retirement plan. So it's just a negotiated
42:39
Speaker 3: piece and it's separate. We're not real estate brokers, and
42:42
Speaker 3: so we end up handeling a lot of it in
42:44
Speaker 3: the transaction. But I try to tell people this is
42:46
Speaker 3: a separate thing that we can talk about. But there's
42:48
Speaker 3: no promises as you're buying in right, as long as
42:51
Speaker 3: it's a fair lease. Then the other one then's about financing,
42:55
Speaker 3: and depending on how you structure it, is it a
42:57
Speaker 3: stock sales and an asset sell. We do have sometimes
43:00
Speaker 3: have income shifts in the buyout where we take some
43:03
Speaker 3: of the income that should be going to the young
43:05
Speaker 3: buying partner and it's shifted to the selling doctor as
43:09
Speaker 3: compensation or as payment for the purchase price. We usually
43:12
Speaker 3: try to avoid that because the tax rum lovocations are
43:14
Speaker 3: not great for the seller or's really shift a lot
43:17
Speaker 3: of the tax burden to the seller.
43:18
Speaker 2: So usually if we structure as an asset sell.
43:21
Speaker 3: With what we call a partnership professional corporations, which is
43:24
Speaker 3: like a three D type structure and create some new entities,
43:27
Speaker 3: usually there is flexibility that the young doctor can go
43:30
Speaker 3: to a bank and get a loan and pay the
43:32
Speaker 3: selling doctrine cash, or the seller can elect to finance
43:35
Speaker 3: it just like he's a bank. In there's normal long terms. Okay,
43:38
Speaker 3: a little nuance about this. I can probably spend they
43:40
Speaker 3: ten or twenty minutes talking about this. But the things
43:42
Speaker 3: to know is that We've got to stress for the
43:44
Speaker 3: seller is if.
43:45
Speaker 2: Your buyer, your future partner.
43:47
Speaker 3: Goes and gets a loan from the bank, that bank
43:50
Speaker 3: is not going to loan the money unless they have
43:53
Speaker 3: a lean on the operating assets.
43:54
Speaker 2: Of the practice.
43:55
Speaker 1: Oh good to know.
43:56
Speaker 3: Yeah, those operating assets are now co owned by you
43:59
Speaker 3: and your partner, right, and so that means, in some way,
44:01
Speaker 3: shape or form, the seller is somehow guaranteeing, and it's
44:05
Speaker 3: usually a corporate guarantee, not a personal guarantee.
44:07
Speaker 2: So some sellers are not satisfied with that, or they're
44:09
Speaker 2: not okay with that.
44:10
Speaker 3: They're like, hey, if I'm going to take on the risk,
44:12
Speaker 3: I'd rather just get paid the interest and I'll sell
44:14
Speaker 3: their finance it so if something happens, I can deal
44:16
Speaker 3: directly with my buyer and get my ownership back or
44:19
Speaker 3: whatever it may be. The problem with that sometimes is
44:22
Speaker 3: that sellers say, hey, I'm going to loan this a
44:24
Speaker 3: prim rate or I want to make eight percent, and
44:26
Speaker 3: right now the lending market is some of these young
44:28
Speaker 3: doctors can get interest rates at four point seven.
44:31
Speaker 2: Percent one hundred five percent.
44:33
Speaker 3: So then the seller is like, well, I'm not going
44:35
Speaker 3: to match that, and the buyer saying, well, I'm not
44:36
Speaker 3: going to pay a lot more for this, you know,
44:38
Speaker 3: I can get a loan. So that's just a negotiating
44:41
Speaker 3: process that to the out page. We use a term
44:43
Speaker 3: a buyer go talk to some banks and then let's
44:45
Speaker 3: see what the terms are, and then the seller can
44:47
Speaker 3: decide what they want to do. But I've had too
44:50
Speaker 3: many to count where I've explained that heavily to the
44:53
Speaker 3: seller and tell them this is what's going to happen.
44:55
Speaker 3: And then we get to the signing process and they
44:57
Speaker 3: see what the bank's making them sign they're like, I'm
44:59
Speaker 3: not going to do this, and we've talked about this
45:01
Speaker 3: a lot, so I would say there it can be
45:03
Speaker 3: a cash transaction, but you just got to understand all
45:05
Speaker 3: the nuanced with it.
45:06
Speaker 2: And the other thing is, let's say if the seller
45:07
Speaker 2: has loans outstanding.
45:08
Speaker 3: Already in the practice with that bank, their lender already
45:12
Speaker 3: has a first lean position on the operating assets. So
45:15
Speaker 3: that means the buyer, if they get another loan, the
45:17
Speaker 3: seller has to use those proceeds to pay off their
45:19
Speaker 3: loan and release the lean, or they got to use
45:21
Speaker 3: the same bank that the seller already has in place.
45:23
Speaker 3: So yeah, there's a lot of little detail in there
45:25
Speaker 3: that you can talk through. But I would say, in
45:27
Speaker 3: this interest rate environment, you're sort of on the fence.
45:30
Speaker 3: I mean, right after COVID rates went down to two
45:32
Speaker 3: point seventy five percent and no seller seller finance that's
45:36
Speaker 3: two point seventy five.
45:37
Speaker 2: Percent, they say, give me a cash, I'll deal with
45:39
Speaker 2: the I'll deal with the risk with the bank, right. Yeah,
45:42
Speaker 2: for sure.
45:42
Speaker 3: It's a pretty safe loan too. I mean that's it's
45:44
Speaker 3: not too risky. I mean, as long as the practice
45:46
Speaker 3: keeps doing what it's supposed to do, the buyer has
45:48
Speaker 3: the money to pay the law. Right, So unless there's
45:50
Speaker 3: just a terrible person and refuse to pay the bank back,
45:53
Speaker 3: it's a pretty risk fee loan that they can get
45:55
Speaker 3: because it's going to be paid by the cash flows
45:57
Speaker 3: of the practice.
45:58
Speaker 1: Yeah, yeah, for sure, for sure. Well, thank you for
46:01
Speaker 1: explaining that. I know somebody was like, Jill, why didn't
46:04
Speaker 1: you ask this question earlier?
46:05
Speaker 2: So there you go. You're welcome. Thank you.
46:09
Speaker 1: So Doug again, I know you and I like a
46:11
Speaker 1: cocktail party. We could just sit and talk and talk
46:13
Speaker 1: and talk, but I know we're going to have to
46:15
Speaker 1: bring this to a close here. So if somebody wants
46:18
Speaker 1: to learn more about Vincent Copple Patterson, what you guys
46:22
Speaker 1: are doing, if they are looking at any of the
46:25
Speaker 1: different items that you guys represent, what's going to be
46:28
Speaker 1: the best way that they can get a hold of
46:31
Speaker 1: you or Shannon or anybody else on the team to
46:35
Speaker 1: get some answers.
46:37
Speaker 3: Yes, So website is the easiest way. Bcpdash Advisors dot com.
46:42
Speaker 3: Our email addresses are the same, so Doug at bcpdash
46:46
Speaker 3: advisors dot com or Shannon at bcbdash advisor dot com, Chris,
46:49
Speaker 3: same thing. So all will contact informations on the website.
46:52
Speaker 3: So that's the easiest way. We also have the web
46:55
Speaker 3: inquiries to send us email through the website.
46:58
Speaker 1: Yeah, perfect, Well, thank you, Yeah, And as always, I
47:01
Speaker 1: love having you on. I love the information. And I
47:04
Speaker 1: know a lot of people were like, let me go
47:06
Speaker 1: back and re listen to that and get that information.
47:09
Speaker 1: So thanks for what you guys do in this space.
47:11
Speaker 1: And I think you do such a good job from
47:13
Speaker 1: representing my startup docs, through my associates, through my acquisition
47:17
Speaker 1: docs that are like I'm going to buy a practice
47:21
Speaker 1: and it is.
47:22
Speaker 3: Such a like I said, honor to be on here.
47:24
Speaker 3: You're such a wealth of information. You give everybody a
47:26
Speaker 3: voice to tell their story on your podcast. I really
47:28
Speaker 3: appreciate it, and I know we've had some great mutual
47:30
Speaker 3: clients and so we speak highly of you and just
47:33
Speaker 3: really appreciate you having me on here.
47:35
Speaker 1: Yes, absolutely, all right, Well, you know how I like
47:38
Speaker 1: to finish up our hey docs, I know everyone's like, yeah,
47:40
Speaker 1: it's it's a speed round. I'll keep it easy on
47:45
Speaker 1: you today, So here we go.
47:46
Speaker 2: You ready, Yes, all right?
47:48
Speaker 1: What is one business trend you think more people should
47:52
Speaker 1: be paying attention to right now?
47:54
Speaker 2: All right?
47:55
Speaker 3: Well, this is the easy cop out, right because I
47:57
Speaker 3: mean I hear it all the time, but I do
47:59
Speaker 3: think it's true a boom. I mean, you're just you're
48:01
Speaker 3: seeing it more and more. I mean, there's so many
48:03
Speaker 3: things that you can do with it. We're still trying
48:04
Speaker 3: to learn it here. But it's not just how it
48:07
Speaker 3: can make you more efficient. I'm I also think about
48:09
Speaker 3: how's it going to train you orthodonic industry in the
48:12
Speaker 3: future with competition. I mean through the aligner companies that
48:15
Speaker 3: are using it to get smarter at the treatment they
48:17
Speaker 3: can provide, competitors will be using it to do more
48:20
Speaker 3: and more orthodonics, pediatric dennists and GPS and so just
48:23
Speaker 3: understanding all the technologies that's out there to make yourself
48:26
Speaker 3: more efficient, to be able to.
48:27
Speaker 2: Do more and less is just it's all over the place.
48:30
Speaker 3: And I know everybody's answered that that same question like that,
48:32
Speaker 3: but that's where everything's headed.
48:34
Speaker 2: So I really got to stay on top of it.
48:36
Speaker 1: Yeah, I could not agree with you more. All right,
48:39
Speaker 1: what is one industry challenge that you think is going
48:43
Speaker 1: to shape the way.
48:45
Speaker 2: We're working challenge? Oh gosh, let me think about that.
48:50
Speaker 3: I think from our perspective, what I see is still
48:54
Speaker 3: the DS market that is still out there. There's going
48:57
Speaker 3: to be more consolidation of some of the smaller groups
49:00
Speaker 3: that are out there. There's going to be some that
49:01
Speaker 3: probably still don't do well. I mean there's some that
49:03
Speaker 3: you know, did not do well and had some a
49:05
Speaker 3: little bit of consolidation and some issues with doctors there
49:08
Speaker 3: and getting their ownership back and things like that. We
49:11
Speaker 3: went from seeing a lot of doctors that that's what
49:14
Speaker 3: they want to do, and that's what they did.
49:15
Speaker 2: They joined some of the bigger DSOs.
49:18
Speaker 3: Now we're seeing some doctors who were in the DSOs,
49:21
Speaker 3: and now they're trying to find more practices to buy.
49:24
Speaker 3: Where you have the young doctors who have been working
49:26
Speaker 3: in a DSO for three or four years and they're like,
49:27
Speaker 3: I'm ready to get out. We're also seeing we've worked
49:30
Speaker 3: with some DSOs that are selling non productive locations, you know.
49:34
Speaker 3: So I still think that's going to continue to change
49:36
Speaker 3: the market. And I'm not bashing the DSOs. I mean
49:39
Speaker 3: there's I think it's a great exit strategy for a
49:42
Speaker 3: lot of doctors. You just understand why you're doing it
49:45
Speaker 3: and the risks that are involved, how it's overall changed
49:47
Speaker 3: in the marketplace. You know, they're going to be the
49:49
Speaker 3: ones heavy in marketing and AI utilization and things like that.
49:52
Speaker 3: So how will they affect the overall market for the
49:54
Speaker 3: single doctors. It's still evolving over time, but I still
49:58
Speaker 3: think there's so many single doctors that are on so well.
50:00
Speaker 3: They're not going away anytime soon. But it seems like
50:03
Speaker 3: the DSOs are really can alter the landscape quite a
50:06
Speaker 3: bit with achievements or wins or failures, so and the
50:11
Speaker 3: way they can market and do various things in their practice,
50:14
Speaker 3: and maybe it's not as easy for individual doctors to
50:17
Speaker 3: easily adopt and adapt to.
50:18
Speaker 1: Yeah, I love that. Yeah, I think you're right on
50:21
Speaker 1: with that. All right, final one, this will be an
50:23
Speaker 1: easy one. If you could give your younger self one
50:25
Speaker 1: piece of career advice, what would you tell yourself?
50:28
Speaker 3: Oh? Man, well, I'm still probably trying to tell myself
50:31
Speaker 3: this more because I probably rely on other people, you know,
50:34
Speaker 3: Shannon and Chris and my business. But really to understand that,
50:37
Speaker 3: really business is all about relationships and sales, right, I
50:39
Speaker 3: mean we focus so much on mastering our trade with
50:43
Speaker 3: the technical aspect of it, but after you get really
50:45
Speaker 3: good at your trade, I mean it's all building your
50:47
Speaker 3: practice based on or your business based upon relationships and
50:50
Speaker 3: really selling yourself and selling your services. And we say
50:53
Speaker 3: that to young doctors all the time, as you probably
50:55
Speaker 3: know how to trade and teeth pretty well.
50:56
Speaker 2: You so we got a lot to learn. But you know,
50:58
Speaker 2: you've never.
50:58
Speaker 3: Sold a case, and doesn't matter how good you are,
51:01
Speaker 3: it's more than honest, You've got to get up there
51:03
Speaker 3: and build relationships and sell yourself. And so I wish
51:06
Speaker 3: I had to focus on that more when I was younger,
51:09
Speaker 3: and you'll need to focus on more now, right for sure?
51:13
Speaker 1: Well, Doug thank you so much for being on Haydocks.
51:16
Speaker 1: This was great and again you and the team. You
51:19
Speaker 1: guys always stand in the space really well and do
51:21
Speaker 1: a great job, so thank you.
51:23
Speaker 2: Well, Thank you Gil. Thank you again for having me.
51:25
Speaker 3: Really appreciate it and look forward to talk with you
51:27
Speaker 3: again soon.
51:28
Speaker 2: Yep, thank you all right, Sea, Hi, by bye.
51:31
Speaker 1: Are you ready to start a practice of your own?
51:34
Speaker 1: Need a new fresh set of eyes or some advice
51:37
Speaker 1: on your existing practice? If so, reach out to me
51:40
Speaker 1: Jill Allen at www dot practice results dot com. If
51:45
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51:48
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Speaker 1: an episode. Remember, new episode drop every Thursday. See you
52:02
Speaker 1: next week, hmm.