Preparing to Sell Your Practice

Transcript performed by A.I. Please excuse the typos.

00:00
very first mistake is selling too late. They’re ready to sell when they’re ready to be done. And that’s the wrong time to sell. Really, you should be selling minimum three to five years before you’re actually ready to be done. Your EBITDA may have been $200,000, but your adjusted EBITDA may have been $350,000. Huge difference because you’re getting paid a multiple EBITDA, say, four times, five times, seven times, eight times that adjusted EBITDA. Signing agreements that say,

00:29
something along the lines of, if you don’t sell to us, you will be charged up to $50,000. You’re locked in to only working with us through this due diligence process, call it 120 days. You don’t get all of your money up for it almost all the time. You’re get paid, say, 65 % to 85%, and then the rest is gonna be terms.

00:54
This is Dental All-Stars, where we bring you the best in dentistry on marketing, management and training.

01:02
Welcome to Dental All-Stars. I’m Alex Nottingham, founder and CEO of All-Star Dental Academy. And with me is Elijah Desmond, the CEO of Dental Pitch Brokerage. We’re talking about preparing to sell your practice. Please welcome Elijah. Hey, Alex. Thanks for having me. So happy to have you. We spend a lot of time in the green room, kind of connecting, and we’re local. We’re buddies locally. We’ve been following each other for, gosh, almost a decade.

01:31
And we never got a chance to chat and shame on me for not reaching out. Shame on you for not reaching out. We’re buddies here, local, footloaded L, South Florida. But anyways, but we’re so happy to finally connect with you and we have a lot in common. Like I said, you’ve been following us, All Star for a while. We’ve been following you for many of the businesses you’ve done. You’re a serial entrepreneur, very well-liked and well-known in the industry. And you’re a DJ too. Let me start with that. You’re a DJ? That’s fun. What’s that all about, man?

02:00
First off, think everybody loves music, right? Yeah. I mean, I haven’t met one person that said like, don’t like music. Maybe it’s different genre, but everybody loves music. So do I. I have been DJing for about four or five years now, four years. I went to Scratch Academy in a North Miami, Hollywood area and took me two and a half years. And I did that with the intention of actually DJing motivational concerts.

02:29
So I’m a motivational speaker, motivational speaker specifically for kids. save kids lives from the stage and I was tired of saving one or two lives at a time and I wanted to make a bigger impact. So I said, let me create an event called a motivational concert where I put five to 10 high schools in one football stadium and I will be the DJ, the hype man, the MC, and I’ll be the last speaker of the three speakers that we have. And so that’s the reason why I went to scratch Academy to become a DJ.

02:59
However, I’ve got the opportunity to DJ in 10 different countries and about 35 different cities specifically in dentistry. And it has been an insane fun, fun ride. actually just DJed the Florida Dental Association’s national or not national, but state conference. And we had like three to 4,000 people in there this past month and going having a good time. So I love DJing. I figured out how to incorporate it with.

03:29
uh, what, what I do and in the dental industry, and it’s been a great run. It’s very interesting. I’m happy to ask that question because it, sounds like that was kind of a catapult. I doubt you’re like, I’m going to be becoming a DJ to go ahead and build all these dental businesses. I don’t think that you had that vision in mind. Otherwise you would give me your stock picks for tomorrow and the next week. But, but you, you know, it seems so passionate about it. It’s so nice to see.

03:57
Much like with my story, right? I didn’t plan to be on dentistry, doing dentistry. My dad’s a dentist. was Tony Robbins and blah and this, but I don’t know. You know, life takes you in a certain way, but you were passionate about it and ended up, I can see a lot of the businesses that you built in travel, in events and so on, and, hype and excitement and personal growth that seemed to come from the heart of what you, your passion was and still is. Yeah, absolutely. Um,

04:27
I’ll tell you that as time went on in my entrepreneur career, I started doing less things and things that I absolutely loved the most. And DJ, DJing met me in my career about a little over halfway, halfway in. And so I only do things that I really enjoy. And look, I’ve, I’ve now successfully exited seven different businesses.

04:56
sold seven different businesses that are personal businesses. And I only have a couple left and I don’t consider DJing a business. I consider it marketing. Right. And ultimately I don’t have to ever say a word about my business. But as long as I can make you laugh and dance and sing and jump. And when you find out that I sell dental practices you probably are like oh man he’s such a down earth fun guy. I want to have him sell my practice. He looks like he knows a lot of people.

05:25
And I do. That’s a good point. That’s a good point. The ultimate networker. Who would have thought, right? Man, DJ, the connector, because the DJ knows everybody. They connect. again, I mean, you’ve been in the space for quite some time. let’s talk about, let’s go on to that and we’ll talk more because I’m so interested. know the listeners are as well. And our topic today is about preparing to sell your practice. This is a big issue, right? dental practices.

05:55
They, we all want to maximize our investment and in a dental business, there’s a lot of blood, sweat and tears put into it. And a lot of, uh, and we want to make sure of course, that we’re able to exit it as you’re talking about exit the businesses, right? You’ve done it and to do it where it’s at a premium and we’re not going downhill. We’re kind of at the apex. So I always like to start whenever we’re addressing.

06:23
an educational piece of the podcast about mistakes, right? So where are people making dentists, making mistakes, practice owners, when looking to exit or sell their business? Yes. I want to say the very first mistake is selling too late. A dentist, you know, they typically, unless being educated differently, when they, they’re ready to sell.

06:52
when they’re ready to be done. And that’s the wrong time to sell. Really, you should be selling minimum three to five years before you’re actually ready to be done. And so the number one mistake I see is them selling too late. What happens is they build this practice of their dreams and say their practice is, I’m throw a number out here, a $1.5, $2.5 million practice or more. They’ve built a practice of their team. They’ve used all of these services to

07:21
make it so it’s efficient, it’s well run, they have the best in class, many things in the practice, and they build a practice that’s super successful, and then they wanna sell it. And they realize that building a practice that’s super successful is actually hard to sell to a private practice dentist. Now, let me just be very clear. We have 60 plus buyers that are groups, private equity, mid-size, small groups, large groups, large DSOs. We also have private practice dentists that are buying.

07:51
The issue that I see is that they build a practice that is worth too much for a private practice dentist to actually buy.

08:00
And if a private practice dentist bought it, they could come and take over and they could leave, bye bye, see you later, right? Three to six months or no transition time. But they build a practice that’s so big and it’s efficient and it’s profitable. Now it’s worth a lot of money. And so you’re almost stuck with, now I need to sell to a group of some sort. And a group can be a group of five locations. It could be 2000 locations like Heartland.

08:28
but ultimately those droots want you to stay for three to five years. And so you find yourself in a situation where you can’t sell to this one and you can’t sell to that one because you weren’t to go. So timing is the number one mistake that I see. Yeah, that is brilliant. I have to say that, that, you know, uh, I’ve never heard that before that, you know, I’ve interviewed on, on other issues, but I really, I never thought of that. That’s, really awesome. And here’s why I think so you’re saying it’s too late.

08:58
Right. Essentially meaning, I think you have to think about your business plan. Uh, and here’s what I mean. Often we’ve heard this when you go into business, you want to immediately think about your exit strategy. That’s just good business. One-on-one. learned that in MBA courses, whatever. Like we, we always, haven’t, sometimes we have an enter strategy, often not, but we rarely have an exit strategy. And what you’re highlighting is that who am I going to optimize for? So.

09:27
And it may not be that you want to optimize for a DSO buyout. You might, you might say, you know what, if you’re an entrepreneurial guy like Elijah, right? You know, you can scale things and have multiple businesses and structures and coaching and everything looks great. Um, you’re, can optimize for that. Maybe even if you’re smart, you’re probably not in the business. have associates and it’s, you’re selling a machine to a DSO, which they don’t really want you at that point because you’re not useful as a producer.

09:56
Okay. That will be optimized properly. Now, if you’re thinking another thing you could do, and this is why this is a, you did a great job here and I didn’t have prepared the answer. I’m like, so I’m like, wow, this is awesome. Uh, the other part is, well, I don’t want to deal with the DSO. Why don’t I have a bread and butter practice and keep it a certain size? And if I want to spend more on marketing, open up another practice with a different demographic and area, different, not

10:24
and have two sales to private buyers. So it’s all a question of how you optimize. Wow, I like that, Elijah. Very, very bright. Yes, and the second mistake I see is dentists will get approached from a DSO and they will go with what they say. Let me give an example. Let’s just say DSO A comes in, they send you a mailer in your mail or an email.

10:54
says we want to offer you top dollar for your practice. What happens is is that practices themselves, they don’t go out and get a practice valuation. Some of them do, some of them don’t. What the buyer is doing is the buyer is getting a quality of earnings light or quality of earnings on the practice. They’re doing like forensic accounting essentially to actually know what your practice is truly valued at. Well, the seller could have got a quality of earnings. They still know where to go.

11:23
who to talk to to get it. We don’t do that personally as a firm. We refer that out. But the point is the quality of earnings light really determines your EBITDA and your adjusted EBITDA. And it looks at it in the past three years. It looks at the trailing 12 months. It also tells the active patients and new patients that you have. It’s a true diagnosis of your practice. But more than anything, you’re going to know your actual adjusted EBITDA and everything that surrounds it. And you will know

11:53
That that that all you have to negotiate that is the multiple of EBITDA So to not have a quality of earnings and go into sell your practice is crazy Because you really need to know all of these numbers because that’s what they’re looking at So you don’t want to have them give them the upper hand and then say oh well, hey, hey your EBITDA is this well, guess what? Your EBITDA may have been two hundred thousand But your adjusted EBITDA may have been three hundred and fifty thousand

12:21
Huge difference because you’re getting paid a multiple of evil EBITDA meaning say four times five times seven times eight times That that adjusted EBITDA. So that’s the second biggest mistake is is them simply does not getting equality of earnings done and And they’re going into the fight without the appropriate ammo essentially Yeah, it’s almost like if you have a they say like if you have to use your insurance on something like your house or whatever

12:51
Don’t go to the insurance company right away, like get a, you know, cause they’re just gonna give you what they give you. Make sure you, you’re saying it makes you know your rights, know what you’re worth before you just take and, you know, whatever the best offer is. Cause you just want to get it done. Right. And that’s human nature. We don’t want to take one more step, but that step can cost you hundreds of thousands of dollars, if not millions, depending on the size. Okay. Give me one more mistake. And then I want to.

13:18
Gotta go into some how do we solve these issues some of these issues? Yeah, absolutely So next mistake, I would say a mistake is going into a sale by yourself and without a Not saying your mistake is not working with me and not saying that but use a broker Use you need to use the expert people have no clue What a LOI is supposed to look like they have no clue the terms of an LOI and

13:45
You’ve been practicing as a dentist specifically this entire time, but you really have no idea how to negotiate and how to bid up your deal. And the deal, there’s two parts of the deal. There’s the finance part, how much you’re gonna get for your practice. Then there’s the terms of the deal. I’ve watched doctors go into agreements unrepresented, meaning they weren’t working with the broker. They were using their own eyes to sign agreements and signing agreements that say something along the lines of, if you don’t sell to us,

14:16
You will be charged up to $50,000 and you’re locked in to only working with us through this due diligence process for call it 120 days. And if you get out of it, they can charge you $50,000. Like no broker in their right mind would ever allow that to happen. Um, you don’t get all of your money up front almost all the time. You’re going to get paid say 65 % to 85 % and then the rest is going to be

14:46
Terms is it an earn out? Did you go into a JV partnership where you keep that say 25 %? Do you invest in the mothership company? The hold Co. There’s so many different terms into go, go into that and not have any idea what a LOI and what a sale looks like and go by yourself as a dentist doesn’t make sense. So not using a broker is a big mistake. Is there a cost in using the broker? Yes, absolutely. So, so

15:15
All almost all brokers charge a percent of the sale. So it’s, and I can be very clear, typically six to 12 % in our industry is the seller. Good question. so like if I’m going to sell the seller, so if I’m selling my practice to a buyer, paying for someone like you or others through that percent.

15:39
Yes, absolutely. So it’s 6 to 12 % is the range. The average in the space, especially for group sales, is 8 to 10 % of the sale. Now, some brokers also charge a upfront fee that can be from $10,000 to $50,000. Regardless if they sell your practice or not, that’s the fee that they charge. That’s pretty normal in our industry. We don’t charge that, but it is a norm. Something that’s important to know is that we are a sell-side broker.

16:09
There are also buy-side brokers. So what’s that mean? That means there’s a broker that’s out there that’s looking for sellers that’s going to charge the buyer, not the seller. That does exist. So they’re negotiating the best terms possible for their buyer. Okay. Okay. Now there’s also sell-side brokers. So it’s almost like real estate to some degree. I mean, you have representation and, um, usually the

16:37
buyer in real estate doesn’t cough up the money, but in this case they can. But look, it’s really comes down to for the listener, you’re arming up. This is a major decision. you know, you, and it’s not just the money, the money’s important, of course. And, and you know, you guys wouldn’t be in business if you weren’t worth it. But the second point is the terms. You don’t want to be getting stuck with these unreasonable terms like

17:05
Because that’s the thing about DSOs. Wow, this is a lot of money throwing at you, but did you see all the terms? Did you see what you got to give up in time? Did you see the commissions and the clawbacks and all that that’s involved in it? Because it’s a business and they’re not doing you, it’s not charity. They’re going to win in this case. Yes, absolutely. And I think it’s important to understand that a lot of them win from something called arbitrage.

17:32
I mean, that’s very important under seeing how they’re winning. That’s oftentimes they wouldn’t do arbitrage. I’ll make it simple. Your practice is worth a million dollars to a private practice dentist to a DSO because you have one location. Say you sell to a group that has 50 locations, that million dollar practice had zero changes. And because it’s a in the portfolio with 50 others, that practice is now worth two million dollars at double.

18:02
Arbitrage is a million dollars. So like you say the DSO is going to win no matter what or the group. Yep. You’re right. They’re going to win because your practice doubled just from them giving you a above market fair rate. It doubled for them. So they’ve already won. Just keep maintain your collection. They can combine these into a package. then, we’re the wrong business. Let’s get DSO buying business. All right. There we go. No, no.

18:32
It’s fun. That’s fun stuff. Okay. So, so here now I have dentists that are listening all timeframes from startup to towards the end. When should a dentist start preparing or start thinking about selling? start, you start preparing now, even if you’re 10 years out, you have five years to build prior to actually retiring. And so start right now, no matter where you’re at, you know, um, start now, get efficient. Um,

19:02
Make sure that you’re reducing your overhead. You want to always run lean. I call it be sell ready. But start now to answer your question. Start now. If you do want to sell in the next, let’s call it 12 months, it’s not too late. You can, you can start now though. I would never say push, the can down the road. Cause there’s a lot of times things come up and you’re like, Oh my gosh, I started tremors. Now who

19:27
You started having tremors. Now what are you going to do? You get in a car accident, your back’s messed up. Were you sell ready? And that’s something I had to learn with my own personal businesses as well. Cause I was, you know, just running my business as lackadaisical, you know, spend money on this, spend money on that, do that. And then all of a sudden opportunity comes to sell. Well, how profitable are you? It’s very important because you could have been way more profitable had you tightened the reins. So prepare the time to start is now. I like that.

19:57
And I think I was mentioned earlier about when you get into a business, you don’t want to have your exit strategy. And I, like what you’re saying is, you know, it is that you want to be profitable throughout. want to run a good business. And that’s where, I mean, that’s what, what we do at All-Star, right? The, training, the coaching events, mastermind, whatever that might be, but making those investments in your team and team training, uh, making sure you’re profitable.

20:26
making sure it’s like a machine, it’s, it’s operating, uh, and make an effort. Cause I like what you’re saying. You don’t know what’s going to come up and you, you, uh, you want to be prepared. think another thing as well, not all practices can, can or will do that, but if you have an associate or two, then if something were to happen to you, the practice is still operational and can maintain or hold some value while the selling process occurs.

20:55
Not some people don’t like that. They, they don’t want to deal with other people. I get it. A practice should be the way that makes you happy. were talking about in the green room about how we build businesses, right? I’m, I’m a little bit more conservative than you. Right. And that, benefits me, but it’s something hurts me. Right. But it’s okay. People have got to figure out their temperament and how they do it, but you must have a plan. Like we talked about of how you’re going to do it. So if you’re a one person show, do you have enough insurance to cover that?

21:24
Do you have a plan or situation like another dentist that’s willing to buy? You could even probably have a deal ready to go that, you know, a contingency deal, something would happen. Somebody can jump in, take control cell. So I like what you’re saying. These are conversations because, um, you don’t know when something’s going to happen and you want to have your biggest, this is your biggest asset in many cases. Yep. And I do want to make a point that you’d mentioned about.

21:52
Preparing practices to sell and getting them ready and how much are they spending on what? I want to be clear that there is EBITDA They’re just EBITDA sure the best thing that you can do for your practice is hire a company like like yourself at all-star is Hire a company to help them to grow their EBITDA, but I’m gonna tell you the big reason First off you can’t do it by yourself is good number one. Okay. Number two is this

22:22
That I’m just no number out there and I don’t even Alex I don’t even know how much you charge I’m not gonna put you in the spot and say hey, do you charge? But let’s just say it’s a $20,000 a year just don’t number up not too much Okay. No, we have our prices on the website. It’s we are We’re we’re very affordable what I have one consultant says you cheat. No, we’re affordable Because the key about anything is it’s got to be something I tell all of our clients you got to be able to

22:51
uh, tolerate that investment for the longterm because you want to get to adjust a good adjusted EBITDA and you want to stay there. So, so you would agree because I know you’re, were in the coaching space and you work with a lot of coaches and advise them is that coaching is phenomenal and having professional support and sticking with it. So you’re always lean, mean, productive and ready to go. Yeah. So I’m gonna throw a number out there. It’s called 10,000. Okay. There you go. So

23:21
So a practice invests in coaching in any capacity at $10,000. Yep. And then a group buys that practice. Very important to understand that if your EBITDA was, I’m going to call it, your EBITDA was 200,000. Your adjusted EBITDA would be $210,000. Oh. OK. So you’re going to actually get all of that money back. So let’s just say that the cost was 10,000 and you sold for a six times multiple.

23:51
When you sell the practice, you’re actually going to get that money back. So you’re gonna get 210,000 times, say, six. So 10,000 times $60,000 is what you would get for that $10,000 investment. This super important to understand for the people that are watching, like, hmm, should I invest in my practice and should I invest in any kind of coaching of sorts? Answer is yes, because…

24:16
If you’re preparing to sell, want to ultimately get your EBITDA the highest, but you’re going to remember you’re going to get that ad back at the end. for all of my coaches listening and all of our members and those associated with All-Star, Elijah just grew All-Star 20 % with that one idea. Now, so the, love that. That’s, that’s, that’s beautiful. mean, gosh, um, it makes sense. I mean, why would you keep that on there? And I think for those listening, it again supports the idea that

24:46
having professional support. there’s two areas to this. I think they’re important. And one is that, our philosophy of coaching, which no one else talks about this because I have to give credit to Scott Hallman when I worked at Tony Robbins, which is an idea of self-funding coaching at all star. Our coaching is self-funding, which means it pays for itself within 90 days and we’re month to month. There’s no agreements and our people stay with us forever. I’m looking for new coaches if you know any, because our coaches are sold out.

25:16
because it’s affordable, people stay with it, it’s great. So that’s number one, you want coaching to pay. The second, what you’re saying is that I don’t have to worry that this is gonna be an expense from evaluation. This has nothing to do with the valuation. You get the benefit of the valuation because your company grows, but that is not something that is, that’s adjusted EBITDA, that’s out of there because the new company, they’re not using it. They don’t want it.

25:44
Right. Same thing goes for a CT scanner. Um, any kind of I tarot, those are one time expenses. You’re like, I’m about to sell my practice. Oh, it’s okay. Get efficient, get efficient and grow your EBITDA. And then that expense gets added back, uh, for the adjusted EBITDA, which you wouldn’t even know if you don’t do a quality of earnings, by the way. And they’re probably not going to come out and tell you, Hey, this is a one time expense. Nope. They’re going to take it off of your EBITDA. You don’t sell on EBITDA. You sell on adjusted EBITDA. Okay. This is.

26:14
Amazing. Uh, all these great nuggets. love it. Elijah. Wow. My foot, L’Ordel Miami, South Florida, buddy. Okay. So let’s wrap this up here because there’s so many good things here and here. Here’s what I like. Um, tell me, me one thing that Dennis should do tomorrow. Okay. In terms of this issue and then tell me where people can go to learn more about you or get a resource or what. So that’s what I want to know. Tell me.

26:43
I would say one thing is I would go and download off of my website, a book on practice growth and practice sales specifically. Um, and that, that book is the EBITDA handbook and it’s a free resource. Uh, it’s a hundred dollars on Amazon, but it’s free on the website. It’s dental, uh, dental pitch brokerage.com. Uh, that’s where to get that resource at and read it. Um, if you read that, that’s just like the Bible.

27:11
Bro, you know of your getting your practice ready for a sale essentially and it’s all about EBITDA That’s that’s essentially the one thing that I’d recommend Yeah, I’m thinking about like naming the podcast adjusted EBITDA, but I don’t know if that’s gonna like be a good for clicking I don’t know but it sounded like but you know, they Elijah I mean really it’s fun. That’s what’s fun about podcasts and you meet great people and you learn some some things and

27:38
I like the way you package it. like the way you make it easy to understand. And I mean, I, I always liked learning something new. And I mean, it’s intuitive. A lot of things you’re saying, but it’s, I like the way you package it. Only the only a DJ can package it so beautifully, right? can, we can make that that transition to the next song. yeah, man, Elijah. Wow. My South Florida buddy over here, CEO again of dental pitch brokerage. And we gave you the,

28:08
The website dental pitch brokerage.com. We’ll put that in the show notes. Thank you for joining us and remember to follow us everybody on apple podcast, Spotify, YouTube, get the episodes as they released. And when you follow us, it helps our ranking, right? Click that button and go to your, your friend. And I’m gonna keep saying this. Can your friend find their phone subscribe follow because we love this podcast. And we want to help the ranking of this podcast. Uh, we’re one of the top ranked podcasts. want to stay that way.

28:37
I keep bringing these great guests and resources. So thank you everyone for listening and until next time go out there and be an all star.

28:48
We hope you enjoyed this episode of Dental All-Stars. Visit us online at AllStarDentalAcademy.com.