Tooth and Coin Podcast

Join the discussion on Facebook! - and connect with Dr. Buchman!TranscriptJonathan VanHorn:Welcome to the Tooth and Coin Podcast where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones, some of them are very specific. But we hope that these episodes help you along with your journey.Jonathan VanHorn:Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan VanHorn:Another thing that you need to know is that if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today to continue the discussion. Agree with us? Don't agree with us? Have a story to tell? Have something to share? Join us in the Facebook group. If you go to Facebook and you search for Tooth and Coin Podcast, click on it to join it and be able to join us there.Jonathan VanHorn:Finally, if you need some more help, we're developing a list of resources that are going to be centering in around our topics of discussion to be able to help you a little bit more than what the content is doing. So if you'd like access to that whenever it becomes ready, all you have to do is text the word toothandcoin, T-O-O-T-H-A-N-D-C-O-I-N to 33444. Again, that's toothandcoin, all one word, no spaces, to 33444. Reply with your email address and we'll email you instructions on how to get into the Facebook group as well as add you to the list to be able to send you those resources when they're available, and if they're available, we'll go ahead and send them to you as well.Jonathan VanHorn:So onto today's episode. I hope you enjoy.Jonathan VanHorn:Hello, ambitious dentists. Today, I have with us a very, very special guest in addition to my partner in crime, Mr. Joseph Rugger. So today, we are doing something a little bit different, a little bit more fun, that I think you guys are going to enjoy. We are talking with someone who we've been lucky enough to be able to see their entire dental practice journey so far. This person is Dr. Wes Buchman. So Dr. Wes, thank you for coming on today.Wes Buchman:Thanks, guys. Thanks for having me.Jonathan VanHorn:Yeah. So for people that are listening that aren't familiar with dentists in Arkansas, Dr. Wes Buchman has acquired an office. We were lucky enough to be part of that process. We've been able to see all of the success that he's had with that process. So Joseph and I were talking about some really fun ideas for episodes and Joseph thought this would be a good episode for us. So Joseph, why don't you take it away and just talk about what it is you're thinking that people will be able to get out of this conversation?Joseph Rugger:All right. Thanks, Jonathan. Really, really excited to bring you a new episode on the Tooth and Coin Podcast. We're really excited to talk to one of our good friends of Tooth and Coin. This is Dr. Wes Buchman, who is a practicing dentist, solo office in Central Arkansas. So I'm really, really excited to get a chance to come pick Dr. Wes's brain, learn a little bit more about his decision-making process, and all of the things that went into the first couple of years of practice ownership. So we're really, really looking forward to the conversation. Wes, thanks so much for joining us. We're happy to have you on the podcast.Wes Buchman:Yeah. I'm happy to be here.Joseph Rugger:Wes, why don't you walk us through maybe the decision? So you worked as an associate at another practice and there's quite a bit that goes into the decision to start your own business and to go out on your own and hang your own shingle on all those things. As you look back on the last couple of years and on the decision to make the leap into practice ownership, maybe walk us through some of the bigger things that you were thinking, some things that were big turning points for you and walk us through how you made that decision.Wes Buchman:Yeah. First, I was fortunate enough to get out of dental school and have a very good associateship with a successful practice. It couldn't have, at least financially, been a better scenario. It wasn't like I was scraping by or anything like that. So then it really turned into what do I want to be doing for the long-term? My personality is more of I want to do things my way, for better or worse I guess you could say. So I just knew that I wanted to be able to make decisions on my future and not really have somebody be able a) to fire me if they just felt like it or I knew there was a reason people are buying practices and owning practices, and there had to be financial reward there as well. But ultimately, I wanted to be in power of my own destiny instead of at the whim of an owner that wasn't as involved or as concerned with my future as I was.Joseph Rugger:Well, Dr. Wes, I wanted to also ask about the decision to acquire a practice. So as we have folks that are probably listening to this podcast, there are going to be some that are interested in doing a de novo or a scratch start, right? Or they may be interested in doing an acquisition. So I'd be curious on your thoughts on what led you to go down the road of acquisition versus scratch start. Maybe walk us through that decision-making process.Wes Buchman:First of all, doing a scratch start still scares the bejesus out of me. I don't know. People that do that are just on another level, man. Most respect to them for just having so much confidence that they can just bring people in out of thin air. I mean, that scared me so much that I'd rather have a bigger loan and patient flow. So that really wasn't ever a desire for me to do a scratch start. But honestly, when you get out, you don't really know what you want as far as what a practice looks like unless you just have a person... you are a person that has really great vision.Wes Buchman:So for me, it was learning. Listened to plenty of Jonathan's podcasts. I listened to Shared Practices's podcasts. I read as many articles and books and stuff as I could get my hands on to really form an educated opinion on what a good practice was and was not. Then started asking around. I knew that Central Arkansas and really Little Rock was where I was going to practice, so that narrowed it down. Some people will move or look out in the country. That really just wasn't something that I was looking for. So then it was sitting there waiting and going and looking at practices. I probably looked at five or six before I landed on the one I'm in now.Wes Buchman:Just, with all the stuff that you learn before of how many patients do they have, does it seem like it's struggling, is it... looking at their practice numbers, seeing do they have the latest and greatest equipment or is it old, all of these different factors that you guys helped me on and then the knowledge that I had gained from literally just learning and reading everything that I could. You start to figure out what kind of practice you really want, and that's going to be different for everybody. For me, it was important to have a bigger of a practice because I always wanted to have two doctors, me and one other one, or more, but me and one other one in the practice. So I was really looking for bigger practices from the get-go if I could do it. So yeah. Those are probably what made me start going in that direction to come to this practice.Joseph Rugger:All right. That's great. Thanks for that. I want to ask about something that we get a question on on the CPA side regularly. So the question is, hey, there's this piece of equipment that's coming up. My rep is in town, said that I can expense all of it for tax purposes. Should I buy it with cash? Should I use debt to finance it? Can you maybe walk us through, as you're looking... I'm not talking about changing the style of gloves that you wear. Just when you look at some of the bigger purchases and the bigger decisions that you make as a practice owner, certainly on the CPA side, we can always guide you on the tax ramifications and all of those different pieces, but maybe walk us through as a new business owner maybe how you approached some of those bigger decisions and how you made those decisions. If you could maybe walk us through that decision-making process?Wes Buchman:Man, in my opinion, owning a practice is just so many little decisions. It's not one big massive decision, after deciding to buy the practice, of course. So owning the practice is all these little decisions. So for me, it was more of an abstract thing of realizing that I had to question each decision that was made and to seek out as many answers as possible. So just that general statement there has gotten me through a lot of when something would come up or looking at how something was done in the practice, of saying, "Is this the right way to do it? How do we get to the right way to do it?"Wes Buchman:If I don't know, I start asking people. Luckily, our dental community overall is really nice and helpful and understanding. I mean, especially the younger guys that were closer to your age. I have three or four or five fellow dentists that I especially called a lot in the beginning to ask them, "How do you do this? How is this done?" And just try to seek out as many answers as possible. Because at the end of the day, you guys are there to help and then your guys that you know are willing to help. It just makes everything a lot easier if you're willing to seek out some answers.Wes Buchman:The other thing I was glad I really knew was, another kind of abstract thing, of just knowing I was willing to put the work in. I wasn't scared to do it. That's a really big thing I think all practice owners have to realize is there are just people that are not willing or built to take on that type of responsibility and that's fine. If you don't want to do it, then don't do it. But everybody talks about owning a practice, but at the end of the day, if that's not your style, you're going to be miserable doing this thing. We are up here a lot more and taking care of a lot of different stuff. So as far as things that I'm really glad I knew, it's more general knowledge of personality and being willing to go the extra mile to make it right. Because clinically, it splinters in a lot of different stuff of how you want to run your practice, which would be different for everybody.Jonathan VanHorn:Can you give us an example of something specific that you have... maybe you even dealt with it today or in the last month, that you're like, "I didn't really think about me having to do this back when I was thinking of buying a business"?Wes Buchman:Oh, man. The silliest thing would be when I bought the practice... The practice I had before, the staff did basically everything. I was an associate. I was an employee. I walked in, when to work, and left. As the owner, everything falls on you. The silliest thing would be that I have to deal with after I get off with you guys is there is a trap that catches all the stone and stuff, and after it gets full, it gets pretty stinky. I got to go dump that thing out. It's going to be heavy and smelly and miserable for about 30 minutes while I do that. So that's probably the silliest thing.Jonathan VanHorn:Hey, we are pulling the curtain all the way back on this podcast.Joseph Rugger:That's funny.Wes Buchman:Yeah, unless you just got a staff that does everything for you. My staff does so much, don't get me wrong. But that's one of them that the doc before me did himself and so I have acquired that fun task every little bit of time.Joseph Rugger:I want to switch gears a little bit and talk to you about some knowledge pieces. So as you look back over the last couple years of practice ownership, I'd be interested to know what are some things that you knew and you were prepared for, some things that you were really glad that you had spent the time and learned about and you knew about? What are some things that you thought you knew on the front end that you're really, really glad you spent some time learning about?Wes Buchman:Oh, man. Where do you begin? I mean, if you could just generalize it, it'd just be people. If you hadn't been around long enough, you haven't met enough people. So dealing with staff, especially in the beginning, it's going to stress you out because you don't know them that well and you're trying to and there's a lot of personality. Luckily, I didn't have really any turnover at the beginning. Some people retired because they were at retiring age, but I didn't really lose anybody for that nature, so that was awesome. But just figuring people out and dealing with the most random staff requests that put you on the spot. You don't really know what the right answer is in the moment. You got to think about it.Wes Buchman:Or dealing with patients. There are a lot of interesting people out there that you don't really know how to handle at the first. You get your groove with them and hopefully you just don't make them mad at the offset or make them think you're weird. But after you get to know them, you know how to handle them. But man, people by far because you're just... you got to learn how to handle people or they're not going to like coming to your office.Jonathan VanHorn:Talking about people, one of the things that I find really interesting, or at least, I think is interesting, I don't know if everybody else does, I'm assuming other people do, but one of the things that is almost never talked about is whenever a doctor buys a dental practice from another doctor and then they have to go and meet their team for the first time. What was that like, meeting your new team?Jonathan VanHorn:So we've had clients who are like, "You literally cannot even send..." Make sure we're doing this. We don't send anything in the mail because it's going to be the day that I buy it is going to be the day that I walk in. They're going to meet me the day I become the owner, not a day before that, not a day... At no other time are they allowed to hear my name because the doctor wants us to be ultra top CIA secret. Then we have people that are just like, "Yeah, I've been talking about this to this guy for the last two years. I know everybody that's there and they're all my best friends and they know I'm going to be taking over eventually." So what was that dynamic like for you? Then what was it like going and meeting the staff afterwards? Because again, sometimes that's a part of the decision-making process for people. Do I actually like the people? Do I like the employees that are going to be here? Do I really want to buy that? So what was your experience with that piece of it?Wes Buchman:Well, my situation was unique in the fact that I had been a patient at this dental office before, so not many people have that opportunity. So I have known... It was a two doctor practice. They ran them separately. I was the patient of one of them and so I bought both and merged together. Right? So I didn't really know the other staff at all. I really only knew the doctor and kind of one of the assistants because I hadn't been back here since I'd been away at school for a decade. So I knew him already and had a great relationship and they had been at a retiring age for quite some time. So not as much as your second part of your example, but still, they had flirted with the idea of retiring for a long time and so the staff knew something was going to happen at some point. So mentally, it wasn't a surprise to them in that way.Wes Buchman:But we did it kind of down the middle as far as your two examples go because we did send out a letter. The two doctors each wrote a letter to their patients and I wrote a letter that had my picture, all professional photo with my wife and Henry on it, and sent that out with that letter. So that was beneficial overall because it got to give people a chance to see me before they saw me. Some people, I've heard advise against that because you're going to lose patients. You can make an argument for anything.Wes Buchman:So after they announced it to the staff and then right after, it was either the day after or the Monday after, I had lunch with the staff and with those doctors there. So I catered the lunch and just basically gave them my resume beforehand and said, "Let's hang out and we'll run through questions," and did it that way. So I actually had two or three meetings before I really ever started to make sure all questions were answered and everybody was comfortable and I got a feel for if they had any issues or special things going on with them or stuff like that.Joseph Rugger:Talk to us about maybe some of the things that you wish you would have known going into practice ownership that you just had to find out the hard way. Maybe walk us through some of those things that you figured out.Wes Buchman:Oh, man. It's been a couple years. I wish I would have written them down because they did really throw me for a loop because it was just the most random stuff. I just bought the practice. I don't have my office manual in place yet, everything locked down. So it was just...Wes Buchman:One was a lady that was nearing retirement age and she had family stuff that would take her out of the office. So she just asked a very blunt... She's a super sweet lady, but she asked me just a very blunt question of am I going to allow her to take off whenever she wants. It was like, I guess? I don't know. I mean, there's vacation days. I don't really know what you're asking.Wes Buchman:Or there was a lot of questions about what are you going to change? What are you going to keep the same? That's a little bit easier to answer, of stuff that I offer that the other docs didn't and go through that. Most of the stuff, I tried to keep the same as much as possible in the beginning just to make the transition easier. But really, a lot of the questions were specific about certain patients. Because we have a really fun patient base, but there are a lot of quirky people here, which makes it fun honestly. But our patients have been in this practice for a long time. A lot of these patients have been here for 30 years, which is amazing. Because my doc has practiced in this location since '84.Wes Buchman:So a lot of them, the questions were so random, of, well, we got a guy, let's call him Jerry, we got a guy, Jerry. He doesn't like when you do this, that, or the other. So what are you going to do about it? And you're like, "I don't know, man. We'll figure it out." But it's just the most random, specific questions that you... There was no answer for it in my opinion. But we got through it.Wes Buchman:The hardest parts were the meetings after and going through when I did start to change stuff and making sure the staff was onboard with that and comfortable with the changes and answering their concerns and things like that.Jonathan VanHorn:Give us some examples of that. Like what were some of the changes that you felt like you needed to make after you took over the practice?Wes Buchman:This practice, you could just say it was older in general. New equipment hadn't really been bought in quite some time. Still paper charts. The pano machine was still film. That pretty much sums it up to a lot of younger docs. So I knew the way that I practice, and Joseph can attest to our many conversations, I like technology and I like things to be efficient and run smoothly and look good as well. Right? So I knew I-Jonathan VanHorn:The reason you chose that was CPAs, right? Because we love [crosstalk 00:22:49]-Wes Buchman:Exactly, exactly. I look for the best looking dental CPAs.Jonathan VanHorn:Third best in the state of Arkansas right here. yeah.Wes Buchman:So I had learned through all the stuff that I read and my prep on owning a practice was try to start with stuff that will have the highest ROI with the least patient impact or disturbance you could say. I kind of took that to heart, so we changed the phone systems, because we were still sending out postcards in the mail to remind you of your appointments or your need to schedule, and that costs surprisingly a lot of money if you have a lot of patients and we're a two doctor practice. So I was like, "Why don't we just change the phones, do text messages, and save a bunch of money on postage?" Which we did and it was awesome.Wes Buchman:So we moved to Weave. That improved the internet and the phones as well. Because I remember calling right before I started and it sounded like it was raining on the phone. I was like, "What is that sound on this phone?" They were like, "Oh, yeah. It does that every little while and we can't hear the patient, so we just ask them to call back." I was like, "That is unacceptable. This is the silliest thing." So we changed the phones, got Weave.Wes Buchman:We got a new pano machine and I knew I wanted to do endo and end up placing implants, so we got a CPCT machine. Before I bought it, we started looking and these guys with the film pano hadn't really been taking any panos. So buying a CPCT machine that does panos and getting back on a regular schedule doing those with the patients, I mean, it was a no-brainer at that point that the machine would pay for itself in a short amount of time. So those were the first two big ones.Wes Buchman:Then we moved to change the practice management software. We were using SoftDent before and I feel like I was using Windows '94. So we moved to Denticon because, honestly, it was between a few of them and I had used Denticon at my previous job and the office manager that I was stealing from another office, she uses Denticon as well. So it was just a natural fit and so we kind of ran with that. So getting rid of the paper charts, just modernizing the office in general were big ones. So the practice management software was the biggest hurdle because these people have been using paper charts for 30 years, 30-plus years. So that was very difficult to get everybody comfortable and efficient at using modern practice management software.Jonathan VanHorn:Yeah. I find that that usually is a very disruptive change internally for dental practices, but looking back on it, most people are like, "Yeah, that was a necessity. We had to do that at some point-"Wes Buchman:For sure.Jonathan VanHorn:... and think it's a good thing at the end of the day. So that's fantastic. So frame this too, we didn't do this at the beginning, probably to start the conversation off, about how long ago was it that you bought this practice?Wes Buchman:Yeah. We bought it... I started November 4th, my birthday, in 2019. So it was a great birthday to begin. We had worked on it for, I think about, what, five or six months before?Jonathan VanHorn:It was-Wes Buchman:Maybe shorter?Jonathan VanHorn:It was a pretty decent timeframe. I mean, we've had people that will call me and they'll be like, "Yeah, I need someone to help me buy a dental practice," and I'll be like, "Well, when are you trying to close by?" They're like, "Well, today is the 12th. By the 16th?" I'm like, "Well, expectations are not going to be met if you're trying to get [crosstalk 00:27:07]-"Wes Buchman:Yeah. No, but you are... It was longer because I had to wait six months at my previous job. So it was longer than six months.Jonathan VanHorn:Yeah, we had a lot of time to think about it. So in terms of, just framing it of the listeners too, all these changes that have happened, again, this is a two doctor dental practice you bought and now you're the sole owner of a two doctor dental practice. Giving some vagueness to it, just to tell people the success that you've had in this dental practice, I would say you're seeing right now, from when you took over, again, using a wide range here, somewhere between a 30% and 70% growth over that two year period? Because we're not even at two years yet, but about a two year period?Wes Buchman:Right. Yeah, we're definitely tracking to be in that range of increasing in revenue with keeping the staff, adding just one staff since I came on. So we've been able to really get going. That's honestly, these older guys are great dentists. They just haven't had to work as hard as a younger guy does. So we're a little bit hungrier. We want to move a little bit more and work a little bit harder. But we've just made some changes like that and just how we schedule, which has helped with the Denticon being out software, and bringing in our office manager that's just a rockstar. That has helped fuel that growth for sure. So we're on track to be quite a bit bigger than when we started, so we've been really happy with it.Jonathan VanHorn:Well, and I'll just say this, and we mentioned this before the podcast started, I wanted to use wide numbers because we don't want everyone knowing all of what's going on with you. But there are some influencers that are out there that will say they'll have, oh, these giant numbers of growth and giant... like 100% growth year over year and all these other things. We have this unique perspective where we're accountants, we're CPAs, we know a lot of... We just, we can see behind the curtains for some people sometimes. Those numbers aren't always what they seem.Jonathan VanHorn:I hear this from a lot of people actually that are people that are in the industry, that are on the consulting side, and things like that, and I hear people that are listeners that are talking about influencers that are saying, "Oh..." They said they did this, but it was really only this. To the listeners out there, this was not a small practice that was just all of a sudden that grew this amount. This was a significant amount of growth.Jonathan VanHorn:So for you, Dr. Wes, if you were to start this all over again, what would it be that you would look for in a practice? Assuming you didn't buy this one, knowing what you know now, what would it be that you'd be searching for in a practice to buy? It's kind of an odd question because you already... you own this one. But just pretend like you don't own it anymore and you're not allowed to buy this practice again. Given that you've had such success with the practice you've gotten, what would you look for in the new practice?Wes Buchman:Yeah. Man, so every practice for every dentist is going to look different. I know a guy down in Louisiana that bought a smaller practice, but he was almost fee-for-service and so he's kept it really small and has been very successful in that way, so might look different. But for me, if I had to do it again and not this one, looking for bigger of a practice, the better. Because the margins are better. Your room for error is better. You know what I mean? So if you buy a practice that's only grossing 400K, well, the margin's a little bit thinner for error of you being successful and not successful if you buy a 800,000 or a $1,000,000 practice.Wes Buchman:Honestly, one of my thoughts was, "Well, this is a two doctor practice." In ways, one guy ran it pretty tight, so it was kind of a 1.5 doctor practice, you could say. I was like, "At the end of the day, if 20% of the patients leave," because that's what some articles will say, "maybe it'll just shrink and I'll have a great one doctor practice." I had some room to run there. But for me, the bigger, the bigger. The bigger you can muster and get that loan for a bigger practice, it's just going to be better.Wes Buchman:Then not going for a practice with all the newest stuff because they're going to make you pay for it. This practice being older, I got to pick and choose on my own time of what I wanted. So if somebody is the CEREC guru that does all this late and great stuff, I mean, can you match that when you're one to five years out? Probably not. So bigger practice, older equipment that's functional, the better because then you can pick and choose what you want.Wes Buchman:Then probably the last one is see how long their staff has been there. If you have a smaller practice and all the staff is constantly turned over, you're probably not buying a very healthy practice in a lot of ways. This practice was fortunate that people have been here for... The oldest hygienist has been here since like '87 I think and she's still here working for me. I have added one or two people, but most of these people have been here over a decade or more. That just goes to show that people are happy here. Patients have been here for a long time. So just things like that you look for. Because at the end of the day, if a piece of equipment's terrible, you can replace it. It doesn't have to be the newest thing. It can be used. But the more patients, the better. You got to understand your people and what you're doing. You're not going to know everything about them, but you can gather enough information to know if this seems like a happy place or an unhappy place.Jonathan VanHorn:Yeah. So in terms of finding that practice, and this is a bit of a chicken and egg question, so sometimes it can be a bit complicated to answer, but what would you rather have? I mean, because you mentioned the bigger, the better. What would you rather have be bigger, revenue or patient count? So when I'm saying that, let's say that you've got a practice you're buying that's $1,000,000 to buy the practice and it's got 2,500 patients and then you've got another practice that's for sale that's $1,000,000 and it's got, say, 1,100 patients. Of those two, which one would you rather have? Would you probably be, knowing nothing else, be more interested in?Wes Buchman:If both had 1,000,000 in revenue, but one had 2,500 and one had 1,100?Jonathan VanHorn:Mm-hmm (affirmative). Active patients.Wes Buchman:First, I wouldn't believe them because I would double check their hygiene numbers. You taught me that. But, man, what a good question. Because you can make arguments for either one. I probably-Jonathan VanHorn:Because those are the two practices we see come in all the time.Wes Buchman:My gut would say the one with 2,500 because the one that has 1,100, he has probably squeezed every penny he can out of those patients and when you buy it, there's not going to be anything left.Jonathan VanHorn:Yeah. So when I'm talking to people about the practices that I see have the most amount of success, it is that... It's more patient count than it is revenue really.Wes Buchman:Right.Jonathan VanHorn:So whenever someone's looking for a large practice, I always say, "If they've got a lot of patients, there is a lot of opportunity usually just inside of that because of the fact that..." And I'm not saying there's anything wrong with someone who's asking $1,000,000 for a practice that has 2,500 patients, but there is a lot of... With 2,500 patients, a lot of people can do a lot more in revenue than that. Especially a lot of the younger doctors.Jonathan VanHorn:Now, really, when I say that we see this come in a lot of the time, that practice actually doesn't come in... Those two practices don't come in that often. Really what comes in more often is more like $700,000 for each practice and one of those has like 2,000 patients and one of them has like 800. But that's a bit more common of what usually comes into the office. Those $700,000 ones that have the 2,000 patients or whatever it is, those are the ones that, not every time, but historically seem to be they see the growth that you've had in similar amounts because it's just you add new services, you do a newer style of treatment planning than a lot of what the older docs seem to do, and it just seems to grow so much faster.Wes Buchman:Yeah. You bring up a very good point that you have to say to anybody wanting to buy a practice, one of the things I did miss was look for a practice that you can add skills, add services. I mean, that's the quickest and arguably least expensive way to grow your practice immediately, right? If you have a crown and bridge guy, he may have done all the crowns, but he's not doing any of the endo or any of the harder oral surgery or implants, Invisalign. If you can get your training in those things as early as possible, you're going to be so much better off in the long run. You're going to get tired of doing quadrants of composite fill-ins for an hour when you could place an implant for less than an hour and make a significantly more amount of money.Jonathan VanHorn:Oh, yeah. Another question for this is let's assume you go out and you did find another practice that's got, let's say it's that $1,000,000 practice, 2,500 patients and it looks fairly similar to the day that you start... A lot of things go the same way that we just talked about in terms of what you went through buying the practice, meeting, the staff, getting the patients turned over, adding services, things like that. Day one of being the new owner of this new hypothetical pretend practice, what would you do that you've already done today, but do faster? Does that make sense? What learning curves have you overcame by being an owner for a couple of years that you would have implemented faster if you knew how to do it?Wes Buchman:Are we saying clinically or just managing the practice or what do you mean?Jonathan VanHorn:Anything, anything, anything. Whatever you think would have the most impact on getting that practice up and running, and either it be for your quality of life or it be for revenue or it be for income, whatever, patient care. Whatever.Wes Buchman:Yeah. When I first started day one, I tried to meet everybody and I would not have done that again. That's the first little thing. Literally day one, I was trying to meet everybody, every patient in the office, and that was just unsustainable. So we quickly went away from that. I struggle with when to make changes in the offices, like the practice management software or buying stuff or how we did things in treatment plans. You can make arguments either way and if you read enough on this dental space about that, you'll figure that out. But for me, I would have changed more earlier and just... Because the first year of owning a practice is pretty terrible in a lot of ways. You're up here all the time, you're stressed out about everything. I'm more of a just get it over with kind of guy, so I probably would have just changed more in general and hopefully coasted earlier after that. Does that answer your question?Jonathan VanHorn:It does.Wes Buchman:Okay.Jonathan VanHorn:So now I'm going to throw a wrinkle on it though.Wes Buchman:Okay.Jonathan VanHorn:So even though you didn't know what you didn't know and assuming other people that buy a practice for the first time aren't going to have experienced these things, do you think that would have been good advice for you to tell yourself whenever you started? Do you know what I mean? Like would you have screwed it up if you hadn't experienced the change in a slower process? Would you tell the guy next door that's going to be buying a practice, "Hey, start changing the stuff earlier"? Because the common thread if you ask anybody, they're all like, "Give it six months. Give it six months. Don't change anything. Then after six months, then start changing things." I think that's pry the safest advice for most people, especially if they're a first time practice owner. But I would think even if you're a second time practice owner, that probably should be fine to go ahead and start changing the stuff, right?Wes Buchman:I would think so. I think part of that six month buffer is just get your bearings, right? You got a lot going on. But now that I'm on the other side of it, I don't remember that anymore. It's kind of like having your kids. You kind of don't remember all the sleepless nights as vividly as when they first happened. I guess I would still tell them to do it quickly just because in a way, what are you waiting on? I mean, if your staff's onboard... If you're already having staff struggles or you're dealing with some bigger issues, of course, use some judgement and wait. But if things are going well, and this isn't going to turn the practice upside down, like if you're going to just fire half your staff or something, I mean, if you're just making changes, just do it. You're not going to really regret it because you're going to deal with it now or you're going to deal with it later.Wes Buchman:At the end of the day, you want to run your practice the way that you want to run it. You don't want to feel like you're cooking in somebody else's kitchen the whole time. That was a thing for me, was get this thing how I want it so I feel like it's mine and not like I'm borrowing it from the last guy.Jonathan VanHorn:Yeah. I love that answer. I think that's really good advice for everybody that's listening. Is there any other advice that you can think of that you wish you would have known before this whole process started?Wes Buchman:Oh, man. We should have a much longer podcast because we can keep going on this stuff, man.Jonathan VanHorn:I know, right?Wes Buchman:Advice? If you think that you are ready to buy a practice and you find what you think is a good one, and Tooth and Coin will help you do that, that's not an official plug, but it is a plug, do it. You're going to be stressed, fine. But it is, in my opinion, totally worth it to own the practice if that's your desire. Just do it. Make it your own. You'll be happier if you do. Seek out as much help as you possibly can. At the end of the day, I can ask you guys as many questions as I can, I did it a lot at the beginning, and you guys helped. I asked a lot of friends that were dentists that owned practices what they do.Wes Buchman:I went on the message boards and filtered out all the crazy stuff, but tried to find answers there. Because at the end of the day, you don't know that much about business, especially as dentists because we take, what, one hour or so of business classes in dental school. So just don't be afraid to ask questions. Anybody listening, I will be happy to talk to them and run them through more specifics of what we're doing or what we had and answer questions because there's a lot of decisions that are all small that have to be made. Like when do I buy this big thing? When do I buy these small things? What kind of vendors deals are there? How do I compete with the buying power of corporate dentistry? There is a lot of BS that you have to filter through, but the more questions, the better, man, because most of the time, people want you to be successful. So just ask as many questions as you can.Jonathan VanHorn:I love it. So you mentioned a few earlier, but what are some resources for people that are trying to figure this out? You mentioned my old podcast, Start Your Dental Practice, you mentioned Shared Practices, which we're really big fans of those guys. What are some other resources you found helpful? Like any books or any specific forums or anything like that?Wes Buchman:Well, I think the Shared podcasts were going to be the second biggest one. Because they were just so comprehensive. I mean, that podcast was going on forever. So reading all of that, or excuse me, listening to all of that, they hit on so many different topics that you feel like you have a decent idea of what's going on. They're not trying to sell you anything in the podcast at least, so, I mean, it's really beneficial. I'd say if you want to own a practice, that's one of the ones that you should be doing.Wes Buchman:As far as books go, I wish I had a better memory, but I don't have any books on hand. It's been two years. I try to read a lot of books, but I tend to read half of it-Jonathan VanHorn:I see.Wes Buchman:... and put it on the nightstand and then forget about it.Jonathan VanHorn:Me too. Once I started having kids, I stopped being able to actually read books. I don't read books. It's been-Wes Buchman:Oh, yeah. I mean, two pages in and you're asleep.Jonathan VanHorn:I know, right?Wes Buchman:Then internet stuff, Dentaltown is a crazy world if you get into it, but if you read enough, you can start to filter out a lot of the craziness. Then Dental Economics is a really, a great magazine and internet space. Those would probably be the big ones. Then you can find anything on YouTube.Jonathan VanHorn:Do you remember any posters on Dentaltown? Specifically that you saw they had a post, you were like, "I'm going to read this one."Wes Buchman:Oh, man. I need to get back on there and see.Jonathan VanHorn:I haven't been on there in a while either. I should pry be on there more.Wes Buchman:I probably just... I don't want to say any names because I'm probably remembering the crazy ones. I don't want to throw them under the bus.Jonathan VanHorn:Yeah, that's what I would do too, is I'd probably be like, "Which is the one that you like?" And I'd name one off and it'd be the person who like, well, we just found out they went to the looney bin for some reason.Wes Buchman:Yeah, yeah. Right?Jonathan VanHorn:Like mix the name up. Okay, cool.Wes Buchman:Yeah, let's not throw anyone under the bus by accident.Jonathan VanHorn:Sounds good. So Shared Practices is a must. There's Start Your Own Dental Practice, which was the podcast that I had. It's got like 125 hours of content out there. I think that Shared Practices is a little bit more focused on the acquisition process and things like that. So there's definitely episodes of Start Your Dental Practice and I'm sure that people [inaudible 00:47:47] be good. This podcast, the Tooth and Coin Podcast-Wes Buchman:When I-Jonathan VanHorn:... has a lot of business information on it as well. So Dentaltown forums, reaching out to Dr. Wes and your fellow dentists, and yeah. So it seems like a pretty good recap of information places to go whenever you're getting ready for this process, right?Wes Buchman:Yeah. When I get home, I'll see if I have any of those books and I can put it in the podcast notes too, okay? I just can't remember their names.Jonathan VanHorn:Absolutely. Yeah, we'll do that. Cool. Dr. Wes, thanks so much for joining us today. For anyone out there that's listening, if you want to... We'll leave a way for you to be contacted in the show notes of the podcast so that you don't have to put out your information all the way there. Again, thank you so much for being so generous with your time and your knowledge and your experience on this. It's been a pleasure getting to talk to you. We may have you back for another episode to dive a little bit deeper into some of the questions. If anyone has questions that they would have liked to had been talked about on this podcast for Dr. Wes, feel free to let us know and maybe on episode number two, we'll be able to do that. So again, thanks Tooth and Coin listeners, thanks Dr. Wes, and we will see you guys next time. Bye.Wes Buchman:Thank you.Jonathan VanHorn:That's it for today, guys. I hope you enjoyed this episode of the Tooth and Coin Podcast. If you are going to be a practice owner or a new practice owner and you're interested in CPA services, head on over to toothandcoin.com where you can check out more about our CPA services. We help out around 250 offices around the country and would love to be able to have the discussion about how we can help your new practice. We do specialize in new practice owners, so people that are about to be the owner of a practice they're acquiring, about to be a owner of a practice they are starting up, or have become an owner in the past five years. That is our specialty. We'd love to be able to talk to you about how we could help you and your services with your tax and accounting services.Jonathan VanHorn:If you enjoyed today's episode, again, go to the Facebook group. Talk to us about what we've talked about. Join in on the discussion. Let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the long-term.Jonathan VanHorn:Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444. That's toothandcoin, no spaces, T-O-O-T-H-A-N-D-C-O-I-N, to 33444. Reply with your email address. We'll send you instructions to the Facebook group. We'll send you the resources when they're available. We will see you next week.

Join the discussion on Facebook!TranscriptJonathan VanHorn:Welcome to the tooth and coin podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones. Some of them are very specific, but we hope that these episodes help you along with your journey. Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan VanHorn:Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us. Don't agree with us, have a story to tell, have something to share. Join us in the Facebook group. If you go to Facebook and you search for tooth in coin podcast, click on it to join it and be able to join us there. Finally, if you need some more help, we're developing a list of resources that are going to be centering it around our topics of discussion, to be able to help you a little bit more than what the content is doing. So if you'd like access to that, whenever it becomes ready, all you have to do is text the word tooth and coin T O O T H a N D C O I N 2 3 3 4 4 4. Again, that's tooth and coin all one word, no spaces, 2 3, 3, 4, 4, 4, reply with your email address. And we'll email you instructions on how to get into the Facebook group, as well as agita list, to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you as well. So onto today's episode, hope you enjoy it.Joseph Rugger:Hello, ambitious dentists and welcome to another episode of the tooth and coin podcast. I am Joseph Rugger. One of your hosts joined by my good friend and colleague and confidant, Mr. Jonathan van horn. How to guys, we are excited to bring you another episode of the tooth and coin podcast. One of the things we try to do is we try to kind of reach through our own mailbag and think about what are some of the things that are top of mind for our clients. And we get a chance to kind of share some of that wisdom and knowledge and expertise with you guys. So I want to want to delve in today to a topic that is not something that I am a subject matter expert. And I, I don't know if Jonathan would call himself a subject matter expert. So Jonathan, as, as I look at the way you've marketed our business, we're going to talk about marketing and advertising today and get a chance to kind of scratch the surface of that big, huge, huge topic that's out in dentistry. But when you had a chance to talk a little bit about that, and as I look at the way, you've kind of marketed our business here at tooth and coin and just learning, learning every time I get a chance to get on the call with you about the things that our clients are doing, that are successful in the advertising and marketing world, just wanted to have you pick your brain on some of that stuff that day. So as that sound for, for an episode,Jonathan VanHorn:I'm looking forward to the conversation, I will say, just, you know, and this is important that we have this out there. This is not a dental specific marketing discussion. I will talk a lot about my experiences anecdotally working with, you know, two, 300 dentists and, you know, talking to thousands of dentists over the past, you know, five to 10 years about different topics, including marketing. So I am not like you said, I am not a subject matter expert when it comes to marketing to dental practices or for dental practices and trying to stir up patients. But I have had a lot of conversations and this, this is more kind of reaching into the, so the, to the, to the textbook versions of marketing from my book, business education and experience and ma, and combining that with that anecdotal, those anecdotal conversations, I've had over many different conversations with dentists over the last, you know, five to 10 years in people building their practices and things like that. So I want to make sure that we get that out there, that we're not pretending that we're, you know, marketing URIs or anything like that. We are not. And if you think that a couple of CPAs, our, our marketing areas, then we got some Oceanside land to celly Irene, Arizona. So, so anyway, so yeah, so I love talking about this kind of stuff. Cause it's, you know, there's a lot, a lot, a lot of people have new questions about advertising in general and things like that. And it's a, it's a really interesting discussion.Joseph Rugger:Sure. Well, one of the things that we've got on our monthly deliverable that we get to our clients, we have a four questions report that we have. And one of the things that we put on every single four questions report is what percentage of your business are you spending on what we call growth expenses? And that really comes in kind of three main, big categories. One is advertising slash marketing. One is consulting and one's continuing education, you know, in our message to our clients is, you know, as we get a chance to look at that, the more that you're spending on these growth expenses, the faster the practice should be growing. So I'll be interested to kind of dig into that a little bit and kind of get some of your thoughts, I guess, kind of first and foremost, Jonathan, I guess we probably needed to tackle the why, or like, what's the, what's the purpose? Like why do we care about marketing? You know, and maybe, maybe getting a chance to kind of drill in and, you know, just some questions that our audience can kind of ask themselves when it comes to advertising and marketing, like, like what's the purpose of what it is that we're doing. So maybe just kind of speak to maybe some, some different, different places that we can go when we talk about the purpose of the marketing.Jonathan VanHorn:Yeah. Like on a high level marketing is effectively just trying to, to create awareness around your, whatever it is you're doing. So whether it be about your dental practice or, you know, some type of new service that you're offering or, or something of the, of the source, you know, marketing is, is, is creating awareness. And it's doing that in a way that can be received by the masses. And then, you know, I guess you could also make an argument that marketing is also attempting to get a certain group of people to do a certain thing that you're trying to spur or something you're trying to have someone receive your message. And so in marketing, there's the three M's or I'm sure there may be more, this is just how we've, you know, a couple of CPAs have dumbed it down and that's a, there there's the message, the market and the medium, we're sure the three, again, it's the PRI you know, dozens of other things that are included in this, but this is just a, like a textbook example of some of the ways to dumb down marketing, but you know, the purpose of all of the, of the message of when you're doing marketing is to try and have someone act and do something that usually means in create, which is usually spurred to create an interaction between that person and whatever it is you're doing.Jonathan VanHorn:So in this example, to be a dental practice, to try and call the dental practice or interact with the dental practice in some way is typically what a mark w typically the purpose of marketing and the dental practice.Joseph Rugger:So as we look at the, kind of the different things, like why would a dental practice want to do marketing and advertising? Like, you know, as we, as we maybe kind of, kind of siphoned through the stuff that you've seen, that's worked and not worked, you know, I think there's kind of the old adage that says, if you don't know what you're looking for, you don't have a target to shoot at you'll, you'll hit it every time you don't hit nothing every single time. So maybe talk about some of the, the different pieces that might make sense for our audience to kind of think through when they're thinking about, well, why are we advertise?Jonathan VanHorn:Yeah, that's a really important question for every, every person to consider whenever they're considering doing marketing in the first place, the simple answer is that they want new patients, the, or to grow their dental practice, I guess, is an even simpler answer. They want to grow the dental practice, which usually means they're trying to grow revenue, which usually means that they're trying to make more money. That's usually the reason they're trying to do it, whether it be making more money in the short term, through income or in the long-term and through building equity into a better, bigger, better practice, that can be more valuable to people down the road for some type of an exit inside of the business marketing is kind of the, the, the energy that the spend on marketing sometimes can be considered to be the energy that's fueling that growth, which surprisingly it's not always the case, but you know, that is that's in general, the reason why people try to do marketing, you know, the, the really important thing for the people for everyone to consider is, you know, you know, you're going to be doing marketing.Jonathan VanHorn:Why is that? If you've already made the decision, you're going to start marketing for whatever reason and why, why is it now to me, you know, and this is anecdotal, but the reason people typically market or start marketing, or one of the big errors people make in marketing is by just casting that really wide net, like, I just want to grow my practice. And like, so I'm just gonna start marketing because I've been told that's what I'm supposed to do. And that, that does typically see, or that does seem to be inefficient. It seems to have a lot of cost involved and not create a lot of return on the spend of that advertising spend. So, you know, whenever there people are considering advertising, they have to meet, try and be as specific as possible of what you're trying to accomplish with that marketing campaign.Jonathan VanHorn:Now, if you think about it, if you're a startup dental practice, or if you are a, say a, you know, an established multi-doctor office, you know, you should be thinking of marketing in very different ways. And people always seem surprised by this, but some of the fastest growing dental practices that are more established spent almost nothing on marketing. It's one of these things that, you know, just because you're spending the money, it doesn't mean that you're being efficient and actually growing in ways it can be done in other ways. So, so, yeah, so consider very carefully why you're doing the marketing some big categories, and then just examples of, of different, you know, campaigns of what people are trying to do in marketing is, you know, we're trying to gain new patients. Okay. Well, what type of new patients are you trying to gain? Are you trying to get any patients or are you trying to just, you know, grow your patient count because you've got all this excess capacity and your business of like, you know, I've got, well, I've got nine operatories and I've got two doctors working and I've got, you know, three hygienists that are going, but, you know, we've got, so we've got room for another, you know, I dunno, 800 more patients.Jonathan VanHorn:So I need 800 more patients so that this practice can be operating at the capacity. It should be in order for, to be able to make the percentages that I need, if that's the case. Okay. Well, what type of patients, you know, what type of new patients who, when I say type, I'm not saying like, you know, well, it's, you know, it's this, this or this, I'm saying, what's the demographic of the type of patients you're trying to attract your business, that fits your culture, that fits your niche area, that fits the things that you're trying to do. Another specific examples, you know, trying to market for specific cases, let's say that you're already an established office and you've got, you know, you're a one doctor office and you're pretty, you know, pretty booked most of the time, but you're starting to add something like implants to your practice as a new service line, and you want to attract to implant patients.Jonathan VanHorn:Well, that could be something you could create an actual campaign around after maybe you've exhausted your current patient pool to make sure that your patients are educated, that this new service exists and things like that. So, yeah. So that's a bit longer of an answer, which, you know, obviously I tend to do, but, but that, that those are the things that you need to consider whenever you're going to be taking on marketing. Some people today may actually not know, not actually know this, but marketing actually used to in a lot of states, I used to be illegal for Dennis to do it just because it wasn't considered to be perhaps professional, but eventually, you know, you know, logical minds prevail that, Hey, if, you know, if you're, if you're doing this, you need to be able to tell patients that are out there, that you're doing this. So the best way to do that is through marketing.Joseph Rugger:Got it. So we've got this really simple, this really simple concept of the three M's the market, the message and the medium. So can you maybe just go through a couple of examples of just kinda walk us through just at a very simple high level, maybe a couple of examples. So you mentioned implants, right? So maybe talk through, you know, if somebody came to us and said, Hey, I'm thinking about doing some marketing for implants. So maybe like walk us through the market, the message and the medium, just to kind of simplify things down and just get our audience thinking about, you know, what may make the most sense for them.Jonathan VanHorn:Yeah. So, you know, the first thing I would say is talk to a marketing person. I'm not a marketing person, but what I, the in terms of the, in M and M for the market might be something just as an example, maybe you're in Northeast Arkansas and, you know, you're, you're trying to start implants and something like that. And your you're looking at your market, you know, you have to think about what, what type of people, you know, usually we want to get implants in terms of, you know, I know there's wide Ray of wide varying reasons of people are getting an implant, but, you know, maybe it's, you know, it's for cosmetic reasons, maybe they don't want to have just the, you know, the tooth be pulled or something like that. And so sort of thinking about who it is you want to attract to your practice and you always have to kind of weigh like, who is it that I want to attract versus, you know, do I just want to try it to literally everybody too, that might want an implant.Jonathan VanHorn:And there's probably some mathematical like numbers out there that could help quantify that in a way. But I would think that probably the most marketing people would say, you just want to really get the message out there to the people that might need it and then try and pull them back in. So that would be, that would be the market. The message would be, you know, how you would craft whatever story you're trying to tell and that marketing message to get that person to create that interaction, that, that reaction. So they're were, they're either aware, number one, they're aware of your practice offering the service. And number two has that creates that interaction has a call to action for you to actually do something inside to where, or when I say you, I mean, the, the, the receiver of the message to actually do something, to call into the office, and then hopefully, you know, create that interaction that turns into an appointment, which hopefully turns into a case.Jonathan VanHorn:And then the medium is how you're casting. You know, that message now today's day and age. There's a lot of different ways to do it. You know, you can do it from a, he knew a postcard you can do through a mailer, you'd have a magazine ad. You could be doing presentations, you could be on social media, you could be doing Facebook ads. You could be in Facebook groups, you could be a thousand different places. And mediums nowadays advertising is like the is very, very, very ingrained into our life. Nowadays, 20 years ago, we would receive something like seven or eight marketing messages a day. And like now it's like a thousand or something insane like that. Like we just, and so it's really hard to actually see some of these things come in and sometimes it looks like it really caused ya. It's, I'm sure there's a lot less than a thousand, but it's, it's a lot. So, so going to say those, those are the three ends and again, have a marketing person talk to you about these things. Don't talk to me about these things, because I'm not, I'm not going to know everything about what you guys are going through, but that's, that's that in general, and like on a, on a educational level is, is, is something that conceptualize,Joseph Rugger:Well, you were talking about the message. And, and back in the back in the days that actually used to run a big, big healthcare business, they talked about that in marketing and advertising in, in crafting your message in healthcare, you don't sell the drill, you don't sell the drill bit. You sell the hole. In other words, we're not selling the big, fancy new machine that we just bought, or the big attachment that goes on the new fancy machine we're selling the result. Right? So if we, if we think about the dentistry world and how that applies, you know, we're not selling, you know, the newest, latest, and greatest technology we're selling, how you feel about yourself and what your smile looks like. We're, we're selling results and, you know, smile open mouth again for the first time in years, because you're proud of your smile.Joseph Rugger:Like those are the why's behind the message. So however it is that you're going to craft your message. I would just encourage you to think in terms of, we don't want to sell the drill. We don't sell the drill bit. We want to sell the whole, we want to sell the result. What is it that, what is it that we're able to do? You know? So what are, what are some things that have kind of stood out to you, Jonathan, as you've probably seen tons and tons of different dental marketing stuff. So like you, and I both know, like we go out to Google and we search for a dentist in prosper, Texas, and all of a sudden we're going to have all kinds of stuff, start popping up all over our stuff. I go do a search for Henry Schein. And now all of a sudden, my Google is now inundated with all kinds of dental equipment and dental supplies and that kind of thing. What are some things that maybe have stood out to you? Just kind of from a marketing and advertising standpoint?Jonathan VanHorn:Yeah, I mean, so the, the thing that has stood out to me that I think is the most surprising to people. Is that just because it works in prosper, Texas doesn't mean it works in little rock Arkansas or in, you know, Olympia, Washington. It just because, just because, you know, it works from one place doesn't mean it's going to work somewhere else. And the story I tell people about this one is I had a long time ago, there was a guy who did a startup and escapes me where he was from, but he was sitting in a startup and he was talking about how he was going to make a hundred dollars, 120 new patients a month. I was like, man, this guy's killing it. Like, he's just crushing it with the new patient numbers. And because like an average for a startup is somewhere between 30 and 50, that's pretty average for a startup of new patient flow.Jonathan VanHorn:And this guy was just destroying it. And he said an awesome, so happy for him. I asked him in a very plainly, what is your dream for marketing? It's like, the only thing I'm doing for marketing is this postcard only thing I send it out to all these people. And like, I mean, tons of new patients and like that. And I was like, man, that's amazing those I do you mind that? And again, since we're virtual, we've, we've, you know, we had a lot of crazy ideas over the years and our firm to try and provide extra value to our people. Like if you, do you mind, if I share this postcard, I'll find just, you know, like hide your, your contact information and your pictures and stuff like that that are on here. And just like share this for some other people that are doing startups that are not in geographic areas that you're in so that they can have some similar success to you.Jonathan VanHorn:And like, yeah, sure know, great. I was like super excited. I was like, Hey man, I'm going to share these people. This postcard that gets like a hundred, 150 new patients a month or whatever, it's gonna be like super high value. We had all these thoughts of like, maybe we should, you know, create this big marketing vault and our company or our bike and have marketing staff. And we could create all these formulas and like have this, this extra value, like to add as an additional service for our CPA firm. And I share that, that postcard with a few people, and I had followed up with a few of them seeing how, how it had done like three different geographic locations and like, pretty much all of them were like, yeah, I didn't get a single patient out of it. Oh my goodness. I was a slide or, you know, well, if I shared it with four people and you know, two of them did it, one of them got like nothing out of it.Jonathan VanHorn:The other one was like, yeah, maybe, you know, five patients and it basically paid for itself, which is okay. And so, you know what, that was that what the big, you know, moment of that was like, okay, so this can be a, a huge success in some areas and be completely, you know, inefficient in other areas. So a big lesson, one thought is that, you know, it, it really depends on where, who you're marketing to and how you're marketing. And everybody is different. Like one of the, probably one of the most complicated things to do in this world is to try and have someone else try and subliminally, subliminally, have someone else do something, or it makes someone else do something like that. That's a very hard thing to do. I mean, there are multi-billion dollar brands out there that spend billions of dollars doing that, trying to do this now, trying to get you to drink.Jonathan VanHorn:Whenever you sit down at a restaurant to order a Coke, instead of a Pepsi or to order, you know, to drink a monster energy drink, instead of a Gatorade, there are so many different things that by, you know, an affliction shirt instead of a button up or a polo or an Underarmour. I mean, there are so many things, things out there that try and do that, and it's really hard to do well. And the reason is, is because everyone's unique. Like we're all different. What ha what, what pulls us together? You know, what ma pulls us to do? Something is very personal in nature. And so like, I, that you're not going to get me to do something the same way. You're going to get someone else to do something in different areas of the country. That just, it just varies. The medium matters. If I had to guess why it didn't work for those other people.Jonathan VanHorn:And it wasn't because of the, the, the, the message was any different or because it just didn't resonate with that area that, that the town that they were in, it was probably just that the people that they were being marketed to in that area were wasn't really successful. That medium is one that is more likely to work. Whereas in the other areas, the country that was tried out were just areas where mailers just didn't work very well. That, that that's to me is the, and that that's very frustrating for a lot of people to think of because us as rational individuals, usually one like say, okay, everything fits into a box. We can create this statistical model to where, you know, we can find the most efficient way of doing something every time, the end of the day. It's not like that. You've got to test and test and test and test and test to what you said about, you know, selling the whole yeah.Jonathan VanHorn:You know, whenever you're trying to get someone in and you're not trying to sell them because of the fact that you're usually, you're not trying to sell them like, oh, you know, I'm, I, I, I am very good at doing crowns. So I'm going to try and sell you a crown. Now, you're usually trying to say, you know, Hey, we're gonna be able to help you not have pain, or we're going to try to help you sleep better at night, or you're going to feel better about your smile afterwards. You're selling a result, not a, you know, not, not the way that you do it. So that's the kind of my, my story about, you know, some, a surprising thing about, you know, the, the, the three M's of every situation is different. And the only real way that you're going to be able to know what to do next is by trying something, and then having fail, assuming that you are trying to grow your business and practice.Joseph Rugger:Yeah. Yeah. So interesting about the medium. So I remember the first time that I learned about Yelp. I don't remember when it was 10 years ago. Let's just say it was that I first learned about Yelp is probably longer than that. And a buddy of mine, we were, I was hanging out with him and he was in the bay area in California. And he's like, yeah, there's this review system it's called Yelp. It'll help us find the best place to eat with the best food. It's like, you can even set up separated by this. And, and I get out to California and the bay area, and we're hanging out and I'm like looking at these Yelp reviews. And these restaurants would have like 200 Yelp reviews. And I'm like, man, what a great tool that must be awesome. I bet that's driving new business. And then I returned home to Northeast Arkansas to check out the Yelp reviews.Joseph Rugger:And there was like no Yelp reviews on anything. So if those restaurants would have spent all of this time and energy on something that wasn't helpful, the medium's not right. Maybe Northeast Arkansas would have responded well to a postcard in the mail versus a Yelp review. If you're in the bay area, very tech savvy place, right. Silicon Valley's right next door. That's probably going to be a lot, lot more, you know, I think that, I think that I've heard a lot of practices having some success with making sure that they've got good Google reviews. I don't know about you Jonathan, but whenever I go out and look at something and buy something, one of the things I'm trying to just take a quick peek at is, is any kind of online review that can kind of give me, give me an indication of what I'm, what I'm working with and what I'm looking at, you know?Joseph Rugger:And, and like, even if it's like, I'm going to buy something on Amazon, like a product on Amazon, first thing I'm going to do is I'm going to know that they've probably had a couple of buddies that went out and wrote them five star reviews. So I'm also going to know that there's going to be some crazy people that are out there that are never happy that have written some one-star reviews. I don't know why maybe it's like that train wreck thing, but I'm like, like geared towards going and reading the one-star reviews first to see if I can actually find any legitimate, any legitimate, real complaints about the product or the business or the location versus, you know, being able to tell these are crazy folks that are out there. So what are some of the, what would you say are some of the more successful mediums? I mean, do you find that a lot of practices are successful, you know, trying to encourage their patients to do Google reviews? I don't know if even Yelp is still a thing, is Yelp even still a thing, does that even even apply to the dental world, you just have it in the bay area. What are some things that you've seen in that, in that whole, that whole area be successful?Jonathan VanHorn:Yeah. So I mean, it, again, it really depends, like if you're in an area that is, has a lot of, you know, people in there, you know, from their young families, like from Tony, from the age of Tony to the age of probably 50 ish then, or if you're an area that has people that are mostly up from 40 to 75 or something like that, like what's successful in one area is going to be very different than another. And just because of their age, that doesn't mean that it's, you know, a slam dunk. It just means that there's a higher probability that something might be, you know, be better in that medium than the other one. So, you know, the amount that, how tech savvy it is, cause you gave an example at Northeast Arkansas with Yelp and like, nobody really cared about Yelp in Northeast Arkansas because it didn't have any saturation.Jonathan VanHorn:No one really used that technology, but that was, you know, probably 15 years ago at this part. Right. I would assume like somewhere in that, and nowadays, you know, there probably is some type of a reviews. I do that with restaurants. Like I will look at reviews on restaurants and usually it's like Google reviews or, you know, like TripAdvisor, if we're traveling out of town, I go to TripAdvisor and look at reviews for things like that. So for me, like if you're marketing in that way, that is a good way of getting me. Now, if you have like a Google ad, I'm actually a person that's a little bit more turned away by Google ads than I am someone who like actually likes to look like that that gives priority to Google ads. Because I think, well, it's someone who's spending a lot of money on this.Jonathan VanHorn:Maybe it's, you know, maybe the reason they're having to spend the money is because, you know, because the product doesn't speak for themselves. Right. So that's why I usually go and look at the reviews and things like that. So in terms of what's successful, everything's successful. Everything is how it works. The only thing that I would probably say it doesn't really work or seem to work anymore is yellow pages, which I think, again, I don't know if those are a thing, but they used to come in and drop one off by our office door. I guess they finally stopped doing that and probably went straight to the recycle bin. Didn't it? Yeah. So, but that, that's a good question because it leads us into another thing is, you know, is, you know, we have, when I came on and started doing this, you know, even seven, eight years ago, we would see, you know, a thousand, 2000, $3,000 a month for yellow page ads.Jonathan VanHorn:And we'd go in and say, Hey, how many people are finding us through yellow pages and black nun? I was like, well, how many, what was the last time you looked to the yellow pages? I don't know what years at 2021, I guess 1996, maybe 97. You know, so sorry. If anybody out there is like, there's some, I know there's one person out there is like, oh, I love the elevators. Where are you guys giving him so much crap? Well, in and out of the elevators are on your phone. I mean, I think Yelp is Yelp. Yelp is the elevators, right? Like I'm about the same company. Yelp stands for is yellow pages like that. I was assuming that, but anyway, so you know, it, it just depends on things. And whenever, whenever you're doing this, you gotta have a way you need to have some type of, of a tracking mechanism to see if what you're doing is working to, because those people that were to spend that money on the L pages, you know, I, I challenged a few of them to just say, Hey, just cut it off for a year or six months.Jonathan VanHorn:And like, if you start seeing new patients drop, then dude pick it back up. Maybe like if it's worth it. And if you know, then, you know, Hey, it is what it is. I would say universally though, in terms of marketing, I think every dental practice will find success in an internal internal referral system, having your PA doing a really good job for your patients and then having them go out and, you know, talk about your practice is a really good way of growing a business. I don't think, I think that works in every market. I don't think the only market that won't work in is the markets where you're not actually giving doing it that good of a job out. I would probably make an argument that is where that wouldn't work, because you, you would have people that are going out and spreading negative messages about you.Jonathan VanHorn:Now, I'm not saying that every, every person who patient that comes in has the correct perception of what type of service they received. Not saying that. I'm just saying that you got to hit, you know, the majority of them to do a good job and hopefully promote that, that, you know, that, that, that snowball effect in our practice now, obviously for like a startup practice, that's very hard to do because you know, maybe one in 50 patients is going to actually refer you to somebody. Your job is just to hope that hopefully I've provided enough value to that patient to have them become a referral for you.Joseph Rugger:Good stuff, good stuff. Well, Jonathan, I always get a chance. I always love to get a chance to pick your brain and talk a little bit about all the different business stuff that you've gotten a chance to see out in the dental space. And hopefully you guys have found this helpful, don't forget your three M's of marketing. Since we're going to have a quiz, a pop quiz, you got to make sure you've got your market. Right. You've got to have your message, right. You've gotta have your medium, right. So those are our textbook three M's anything else to add as we kind of wrap this thing up?Jonathan VanHorn:Yeah. The only other real point that probably is important for people to under, to, to, for me to circle back on is make sure that you understand why you're going to be doing the marketing. We've seen so many practices succeed and do so well. And when you go and look at those growth expenses, it's like 0.2% of the revenues going to marketing nothing almost. And then we'll have other practices that are spending 10 to 15% of the revenue trying to drive growth. And it just doesn't seem to be, you know, didn't seem to be doing the job. Like if you just cut away at that 10 to 15%, you would just be, you you'd just be making more money and then could hopefully go and spend that in, in, in more efficient and more efficient manner inside of your business or grow it better, whether it be through, you know, training your staff or training yourself, or, you know, just providing a better patient experience.Jonathan VanHorn:There's a lot of things that, that money could have been used for now. I do believe advertising works. I believe that, you know, a strong marketing campaign is, is incredibly valuable. And, but I just believe that you need to have ways to track that internally. So where you can, you know, be, give a fair analysis to your advertising, spend every six months to see if w what you're spending the money on is working for you. And again, don't just rest on your laurels that, you know, Hey, I'm using this company that someone else used and it worked for them just because it worked for them. Doesn't mean it will work for you. You still have to go in and do the, do the work, or have somebody in your team that does the work to be able to analyze if that was correctly. And it gets a really quick disclaimer there, you know, your CPA doesn't typically do that. We don't, we don't do that for our clients. That'd be something that if you wanna have a conversation with us about that, we could give you some ideas of, Hey, here's, here's the way the math behind this and how you'd contract this too. But that's not like a service that a, a CPA firm typically does for, for dental practices. So, yeah. So that's, that's the, that's the last point I have on that.Joseph Rugger:All right. Well, thank you guys again for joining us. It's always a pleasure to have you, and we'll talk againJonathan VanHorn:Soon, I guessJonathan VanHorn:That's it for today, guys. I hope you enjoyed this episode of the tooth and coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CTA services head on over to tooth end coin.com, you can check out more about our CPA services. We help out around 250 offices around the country would love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners. So people that have are, are about to be an owner of a practice they're requiring about to be an owner of a practice. They are starting up or has become an owner in the past five years. That is our specialty. We'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan VanHorn:And if you enjoy today's episode again, go to the Facebook group. Talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other, get through these things together so that this adventure of business ownership is more fun, more productive, and better in the longterm. Lastly, if you want access to those resources that we're going to, that we are currently building, just text the word tooth in coin 2, 3, 3, 4, 4, 4 that's tooth and coin, no spaces. T O O T H a N D C O I N 2 3 3 4 4 4. Apply with your email address. We'll send you sending instructions in the Facebook group. We'll send you the resources when they're available, and we will see you next week. 

Join the discussion on Facebook!TranscriptJonathan VanHorn:Welcome to the tooth and coin podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones. Some of them are very specific, but we hope that these episodes help you along with your journey. Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan VanHorn:Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us. Don't agree with us, have a story to tell, have something to share. Join us in the Facebook group. If you go to Facebook and you search for tooth in coin podcast, click on it to join it and be able to join us there. Finally, if you need some more help, we're developing a list of resources that are going to be centering it around our topics of discussion, to be able to help you a little bit more than what the content is doing. So if you'd like access to that, whenever it becomes ready, all you have to do is text the word tooth and coin T O O T H a N D C O I N 2 3 3 4 4 4. Again, that's tooth and coin all one word, no spaces, 2 3, 3, 4, 4, 4, reply with your email address. And we'll email you instructions on how to get into the Facebook group, as well as agita list, to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you as well. So onto today's episode, hope you enjoy it. Hello,Joseph Rugger:Ambitious Dennis. And welcome to another exciting episode of the tooth and coin podcast. I'm Joseph rugger joined always by my awesome co-host Jonathan van horn. Jonathan say hello to the folks at home.Jonathan VanHorn:Howdi Doodie, everybody,Joseph Rugger:Or in your car or wherever it is that you might be joining us. We appreciate you tuning in and listening to our show today, today, we thought we'd take a different route and talk a little bit about entrepreneurship and kind of the spirit of entrepreneurship. So if you're listening to this podcast, you likely are a dentist that is out and you've owned your practice. You may have owned it for six months or six years or 25 years. You may be thinking about starting a practice, but that tends to be one of those things. It's just such a daunting thought and a daunting task to, to, to kind of strike out here on your own and, and launch into this world entrepreneurship. So what we're going to do today, I'm going to talk to Jonathan who's, who's done this and get kind of some, some thoughts on his journey as an entrepreneur and everything that's in between. So Jonathan man, always a pleasure. I'm looking forward to hearing more of your story every time I feel like I know your story, something comes up and I'm like, I had no idea that was part of Jonathan's story.Jonathan VanHorn:Yeah. So, I mean, it's, it's interesting. It, it's fun to, to be in, to be an entrepreneur. It's going to be sometimes a little scary at times too. And yeah, I'm excited. This is a little bit of a turn of a different, different type of a conversation for me to have, because usually everything I talk about is just like dentistry, dentistry, dentistry, taxes, accounting taxes, accounting, business, business business. So, yeah, we're excited to talk about the,Joseph Rugger:Yeah, so Jonathan and I, Jonathan, you and I met each other randomly sit next to each other at a continuing education in little rock Arkansas, about 15 years ago. And you know, at that time I was working for a company as the CFO and you were in public accounting and we ended up knowing a whole bunch of the same people from Northeast Arkansas. You had gone to school in, in the, in Jonesborough where I lived at the time and we just hit it off and knew a whole bunch of the same people. And you were, you were in public accounting, you were working for another firm and, you know, we kinda hit it off and had fun and, you know, exchanged contact information and kind of kept up with each other for a while. I remember, I remember specifically sitting and having lunch with you a couple of different times in little rock. Cause we were talking about all of these entrepreneurial ideas that you had, and we were kind of talking through different books that you had read. And I think, I think one of them was, was it the toilet paper entrepreneur that you told me about? Or was it the a hundred? I was a a hundred dollars startup who, which one was the mattress company guy,Jonathan VanHorn:Which one was that there there's a a hundred dollars startup and then there's also the pumpkin plain or the two big ones I really enjoy.Joseph Rugger:Yeah. So, so anyway, so, you know, as, as somebody that, that for me, most of my career, most of my earnings, most of what I've done for a living has been working for somebody else. And there's not anything wrong with that. There's certainly as good and bad in every kind of relationship that you have that's out there. So I thought I'd, I thought I'd just kind of pick your brain and talk a little bit today about, you know, kind of your journey as an entrepreneur and kind of, you know, it's not something that you walked out of college and said, I'm going to go start my own CPA firm. You said, you know, let's go explore, let's do this. So maybe talk us early kind of early career when you were working for somebody else and kind of a W2 employee and kind of in the grind and learning stuff.Joseph Rugger:And, you know, maybe just kind of talk us through a little bit about that part of your journey and, and maybe kind of when you started getting excited, like, have you always been an entrepreneur, like, were you the five-year-old kid that had the lemonade stand, you know, that measures your costs and try to figure that out. Like, when we talk about the entrepreneurial spirit, you know, learning about you and your family, you guys kind have a bunch of entrepreneurs. So like, is this something that you're kind of born with? Is it like ingrained in you talk to us maybe about some of those early stage?Jonathan VanHorn:Yeah. So in terms of just me as a person and growing up, I was always, I was always really competitive. So I really enjoyed challenging myself and I always enjoyed trying to optimize things and, you know, I also enjoyed games. So like the, I was when I was a lot, you know, I'm not like that physically gifted in terms of athleticism or anything like that. But at the same time I have a competitiveness. So when I was younger, that tended to me being more like I enjoyed playing video games a lot. So I was big. I was big on video games that a lot, I, I couldn't wait to get home to play play games. Like in the, usually my, the reason I would optimize my day would be when I was in school, you know, early, early Jonathan was so that I could have more time to play video games.Jonathan VanHorn:And then when I was playing the video games, I was always trying to optimize everything inside of those games so that I could do things in the most, in the best manner. And that's, that's just how my brain always worked. And I really enjoyed doing it as I got older, I started, you know, started playing more sports. And again, I'm not that gifted from athletics department. I'm six foot two, so I'm moderately tall and that's about it. Wasn't very good stops. Wasn't I wasn't very fast, but I had a hall, a lot of heart and I tried really hard and the want to be better, always allowed, allowed me to, to move, move up in those ranks. So, so that, that wasn't me in general. Then I got into college. I was always really, you know, I also enjoyed math, was a big interest of mine.Jonathan VanHorn:I thought that I was going to become a math professor before I came into the CPA world. It was something that I always did really well in and, you know, enjoy doing. So I, I almost went down that path eventually changed to be a CPA because I I'll be honest with you. I heard you can make more money being a CPA. Then you could be a math professor. So I became a CPA and I got out into the rural world and then I'm out in the real world. And, you know, I'll be honest when I started working for a CPA firm for the first time. And I went out, went on my first audit. I was a little confused as to what w what we were doing, you know, you know, so an audit was a, and that's, you know, a lot of people start in the audit field in the CPA world.Jonathan VanHorn:And that's where I started to, I didn't make it very long at the place I started out at changed around a few different firms, but while I was working, I still kinda kept that mindset of being the best that I could be. So it didn't really matter where I was or what I was doing. I was always trying to be the best at it. I was always to, you know, prepare the best tax return, be the person who could best understand what was going on from a tax standpoint, be the person who could do all these other things. But, you know, growing up, I always had a job. Like I always had. I always, you know, since I was 15 years old at a job before that, I found ways to make money, you know, doing things around the neighborhood or whatever it was, but I was always working.Jonathan VanHorn:And so, and most of that was in, I worked in a video store throughout high school, something that's not even a thing anymore. I, I sold, sold flowers on, on the phone, through a telephone service for three years in college, you know, does it a whole budget out on the moon? I started a moving company when I was in college. So I started a moving company in college. Yeah. So were you the ones that did not college hunks hauling junk and I, that was probably a similar story of how that got started. I was a guy, I had a trailer and I had an SUV and I had a fraternity that I was in that always had people that needed money of, of, you know, big guys that could move furniture. And so I'd have these furniture stores are selling furniture to their customers and they didn't have a way to move it.Jonathan VanHorn:So they'd call me and I'd, I'd knew it for them. And I'd get a couple of people that would be able to go with me and I'd say, Hey, you know, you'll get this much. And for, you know, 30 minutes of where we'll go drive across town and get a mattress and take it to the other side of town and come back and you'll make 20 bucks. And in college, 20 bucks for an hour's worth of work is pretty good back in the early two thousands. So we did that and I always had a, like a customer service, you know, mind to it. Cause I always, I just very early on learned that that was a really important thing to, to have whenever you were, you know, providing services. And then I got into the public accounting realm and found out very quickly that, you know, a lot of the, the customer service, wasn't really an important piece of it.Jonathan VanHorn:Like it was more just like, what can you do for me and get it done so we can give this to the board and then the board can discuss it. And then, you know, we have crossed all of our T's and dotted all our I's. And then I went into smaller public accounting for, you know, for, for small business, rather than kind of like small to medium-sized businesses. And I really liked that a lot more because it was, you know, more customer service centric. You actually have to know your, your clients and you actually got to be able to help them. And so, yeah, so that's that, that was the part of me getting into it. And then very, you know, as I was traveling between these different firms, I was getting really frustrated with nothing against the firms I was working for. They were doing what they needed to do to do their business and to help their clients. But I could always just tell there was a little bit of a difference in what I wanted to do and what the typical industry norm was. I wanted to have just closer relationship I wanted, you know, to be able to ride more value effectively. And I knew that the value was there because I was working really hard on it. And I was trying to find the value where I could. So I kind of brought me up until the end of, you know, where I was working for somebody else.Joseph Rugger:Yeah. Well, there's that competitive streak again, right. Like we're doing it this way, but I think we can do it better, you know, and, and, and I'm sure that there probably are people that listen to our podcasts that are in situations that are, that run into roadblocks. Like, Hey, we're doing this a certain way, and this is the way we've always done it. This is Sally. Right. Same as last year is how we did it. Hurry up, get it done as fast as you can have as much realization as much profit, Hey, I've got this way to improve it. I mean, did you find yourself running against roadblocks that just really kind of killed that competitive spirit that you were talking about?Jonathan VanHorn:Yeah, there definitely was. And then it was there, it was in a bunch of different places. One was this time component, you know, whenever you work for a public accounting firm, you know, you're, you're, you're working a lot of hours. You're one firm I was working at, you know, I'd probably get there around seven in the morning and I'd leave around seven at night and work the weekends. And, you know, and that was in the busy season and the non-busy season, you know, you typically, you know, work up eight to five 30 sometimes, you know, seven 30 to five 30, something like that, just depending on the time of the year. Sometimes you'll work weekends too in the off season just to kind of keep up with everything. And the reason is because you're trying to get what are called billable hours, that you can bill your clients.Jonathan VanHorn:And so the, the, the practice can make money. That's just, that's just the model. That's how it works. And there was only so many hours in the day to be able to help people. And sometimes the value that you could provide to one client wouldn't be worth the billable hour, but it would still have value. So, and sometimes it was worth, the billable hour was worth it, but the client didn't see it. They didn't, they didn't get it. So to speak of why that was valuable. And so there was a, some, there were just some roadblocks in terms of how you could help people. So another example of that would be that, you know, there'd be maybe, maybe I could do something that could save somebody $2,000. Apparently my watch thought I was talking to it, but there, there were some points where I made, I could, I had saved somebody $2,000 a year in taxes with this strategy that could come up for them, but it would take me, you know, between research and implementation and, you know, talking to the client, you 10 hours to get that done.Jonathan VanHorn:Well, if I'm charging $200 an hour for my time, well, I just cost them in tack and fees to us what they're going to make back. But they, and they wouldn't see that, you know, well, you're gonna get to do this $2,000 every year, you know, going forward. And so it's worth a lot more money than that. And then at the same time, there'd be clients, you'd start to do the research for, and you get halfway through it and you realize this doesn't work for them because of ABCD rules when it comes to their industry or their situation, whatever it may be. And then another set, you do the research and it makes sense, but then you talk to the client and they didn't want to go forward with the steps to be able to make sure that that would happen. And so there was just a lot of roadblocks, but based on the nature of a service industry, that wouldn't allow us to do that in a typical CPA for a format. So whenever you're thinking about that terms of management, if you have employees that are trying to do all these extra things and spend all this extra time doing these other things that you can't bill for, are you going to encourage that typically? Are you typically going to discourage that? Okay,Joseph Rugger:No discourage at time is money, right? Cause we've already tried. We tried that once that's not worth it, quit spinning your wheels, stick to the script, here's the script, here's what you need to do.Jonathan VanHorn:Right. So, and that was, that was the, you know, that was the internal struggle, struggle that I was facing. I was like, you know, I can, I, I know I can do more for people. I know that as a business, we can do more for people and I want to do that. And so I've been to the, did it,Joseph Rugger:Yeah. Well talk, talk us through like, was there like always kind of this burning desire to do your own thing? Or did you just kind of get to the point where you were like, just kind of fed up about, you know, all the roadblocks you're running into and kind of this whole model of the billable hour had always been an itch for you or did you just kind of get to the breaking point?Jonathan VanHorn:So that's a really good question. My dad, whenever I was growing up had told me, you know, at one point, cause he shared the story before he was an entrepreneur. He owned his own furniture company. That's how I knew to do the furniture moving. Cause I've moved some furniture for my family and he told me, you know, very early on, you know, it's, it's really nice to own your own business, but it can be really hard because you can't really rely on anyone else, but yourself and you know, you've got it all, it all ends with you. Like you're ultimately responsible for all of it. And I can remember that, you know, hearing that, you know, 30 years ago and not really fully understanding it. And then when I got out into the, you know, the real world I was working for other people, I'll be honest with you.Jonathan VanHorn:I didn't know. I didn't know if I was going to do my own thing or not. Yeah. I kind of I'm, I'm very, I feel like I'm a pretty flexible guy. And so I can usually, you know, figure out the best situation. And I was just going to come with what, whatever came to me and the last position that I was in, I knew that wasn't going to be the position I'd ultimately be in just because of a bunch of different factors that were involved, but I didn't know where I was going to go from there. And so it wasn't like I was always, you know, from the beginning of finishing my master's will, okay, well it's time for me to do my 10 year plan to be able to start a business. Now it was, I'm going to figure this out as I go.Jonathan VanHorn:And if that opportunity arises, we'll go that way. And I'll be honest with you. It felt like it didn't really, no opportunities really came around that other than the ones that I, that I had. And it was very much a case similar to the dentist. I talked to you every day now, have they kind of just like, Hey, I can do this on my own. I don't, I want to have the ability to do my own type of, for Dennis his treatment plans for us, it's maybe it's tax plans or the way we handle our service engagements. And I, you know, I, I want to just do it on my own. I want to build my own thing. And I eventually had that opportunity and I took it.Joseph Rugger:That's cool. That's cool. Well, I mean, do you get a chance to talk to Dennis about taking the plunge? Like by the time somebody picks up the phone and calls us, have they made their mind up or do you find yourself like answering questions about kind of the, what ifs and helping them role play out and kind of being part of their, I guess homework or due diligence is like the official term. Right. But do you find yourself like coaching them through like as they're coming up with that or by the time they call us, they've already made up their mind.Jonathan VanHorn:You didn't know at the time the, the cognitive, the CPA they've made up their mind. There's not a whole lot. I can do to convince someone that it's the right choice, wrong choice for them individually. Jamie Amos, a friend of mine said something really, really smart. One time he says a lot of smart things. One thing that he said that was exceptionally smart or very pointed was the there's no, there's never a, like a best time to start your own business and all it comes down to, I'm sure I'm going to butcher this, but it all comes down to the cost of not owning your, a business as greater than having your own business. Like, you know, it costs you more to keep working for somebody else. And it does, you know, you could go do your own thing. Like the, the, your it's not worth it enough to you to keep doing what you're doing. And it may not be dollars and cents. It could be something else that's pushing you towards doing it, you know, going and doing your own thing too.Joseph Rugger:Yeah, that's awesome. Yeah.Jonathan VanHorn:That's when, you know, that's, when you know, you're ready is whenever, you know, you'd rather go out on your own and fail than to stay where you are and, you know, just kind of get by. Yeah,Joseph Rugger:For sure. I like that. I like that idea of the opportunity cost, right? Because you know, we've only got so many hours in a day. We've only got so many weeks on planet earth. So many years on planet earth, you know, is, are you costing yourself opportunity by, you know, sitting in grudge and through another day, you know, and you know, I would imagine that many of our clients will, we'll definitely be able to relate to your thoughts on, I wanted to do it better and I could see it doing it better. I was talking to a potential client the other day and I said, well, what made you start you to start your own practice? And they said, we see so much work that's out there. That's just not good work. And we know that we can do it better period. And I, I mean, I got here that come out in your kind of story about CPA land, you know, and, and we're not unique as a, as CPAs. You know, every, every industry has that. Every industry has the folks that are doing same as last year. And you know, we're doing our best to get by and maximize the profitability. I'm not mad at the CPA profession for any of that stuff, but we think we can do it better.Jonathan VanHorn:Yeah. I mean, it comes down to solving a problem. If you're willing to start any business, whether it be dentistry or a CPA firm, you've got to try and solve a problem. And the problem that I felt that was out there was that the traditional CPA business model, not what the CPA industry does, but the typicals typical average CPA model was not, was not the highest value that can be brought to a CPA client relationship. And the, the, the other problem was to me was that the, you know, in the dental space, that there was a lot of, of, of business owners that didn't, that needed more help than what the traditional model allowed CPM model allows. And so I said, why don't we, you know, why don't I start a business to do that? And that's what we did.Joseph Rugger:I was, I got a chance to visit with, with a business owner, not too terribly long ago. And I was trying to pick his brain on a bunch of stuff. And we were talking about, you know, the different ways that, that we compete or the way that we operate. I shared this with you guys the other day at our meeting, you know, number one is price, right? So like, we go out, we compete on price, Hey, here's how much, how much it's going to cost to do this. This is how much I charge for a crown here's how much, you know, x-rays and cleanings and exam costs. We compete on price. And if you compete on price, you're going to constantly be in just a no win scenario as a race to the bottom, right? Like everything's going to become more commoditized. Everything's, you know, w in any industry, it'll be more and more commoditized to, to, to compete on prices, kind of a losing scenario.Joseph Rugger:Number two is performance, right? I have a job that needs to be done, and that is that I need my teeth cleaned. I need, you know, I need to get this to pain, taken care of. I need a root canal. You know, I performed the job. Well, lots of folks that can perform that, right. If you were to say our performance as a CPA firm is completing tax returns to in tax game plans, like there are a lot of people that can do that and can perform the minute you don't perform. If that's all you're competing on, you're gonna lose that client. Oh, well, we got something wrong. Like number three is we have a tendency to work on work with people that we like. So number three is that they like us, right? We're nice people. We're easy to get along with. We returned the call.Joseph Rugger:And so kind of the three big things that we're competing on, right. It's price performance with. And they like us. We hope anyways. And the guy asked me, he looked me in the eye and he said, what's your number four. You said, number four is what it is that separates you from everybody else that was kinda taken aback. And I said, I don't know. I'll have to get back to you on that. I need to figure that out. I'd like to say was that I'm going to work harder than anybody else. It's. I'd like to say that it's, I'm smarter than everybody else. Those are probably things it's. A lot of other people would say, I'm going to give better service than anybody else. It's probably something else there, but it would say, so for those of you that are thinking about owning your own practice, starting your own practice, or if you're in the middle of practice ownership, if you're not competing on price, you're not competing on performance. You're not competing on because people like you, like, what's your number four. So I, I turned that over to you, Jonathan. I don't put you on the spot here, you know? W what would you say, you know, as a firm, like, what is, what is our number four, just to get people thinking about what their number four might be?Jonathan VanHorn:Yeah. So, I mean, when it comes down to price, quality and service, you know, for us, we always try to, we don't, we didn't want to be the lowest cost. So we don't the way I always explain it to people is that the lowest cost is always going to be like, oh, I can app like a software that just automatically just get renewed every month. And it's very low cost. And it just does one thing for you. And it just does that over and over and over again, the, the CPA we have, we do so many things as a CPA firm. We can't do that, but we can create systems and processes to make sure that that has done well, if that goes over to service. So, or to, to, to go to quality. So if you go to quality, there's like a pretty high threshold for any CPA firm in order to be able to deliver in quality.Jonathan VanHorn:Like you have to, you can't be at the bottom echelon or the bottom quintile of, of service offerings, or quality of service in a CPA firm. If you do that, then you're going to have so many headaches and issues as a firm that you're going to very quickly be out of business. So that, that service should almost always be very high. Our quality should always be very high. I mean, using quality of service interchangeably, but the quality always has to be very high. And that should be the standard for all CPA firms. I mean, that's the, that's what the CPA stands for effectively as quality and professionalism and standards and things like that. So then it comes to service. You know, it comes down to what we were talking about beforehand in terms of being able to, you know, the relationship and being able to do the things extra, that then over and above what typical firms can typically do.Jonathan VanHorn:So in terms of fourth, you know, for us individually, it comes down to, we are we're, you know, we're, we are remote from. So we're able to do things very quickly. We're digital, we're very efficiency, minded. We're able to turn things around many times. She'll email us a question that, that are an issue and it's taken care of, you know, almost immediately, whereas in like a typical CPA firm environment, you know, they've got to start the billable hour, which usually means it's, there's a line of projects in front of you because they've got us set up their billable hours. And so we have a lot of efficiency and as well as industry specific knowledge that we can deliver to our clients in a way. So circle this back to the original. First of all, the conversation about me individually is something that we're we're obsessive and our firm is the, is just being able to respond to clients very quickly, having very fast response times and being able to respond to situations very quickly, as well as being able to get big issues resolved quickly.Jonathan VanHorn:So a good example of that as like the, the, the HHS provide a really fun, we sent out an email this morning, or this earlier this week to all of our clients with a very in-depth email. Like here's what you need to know. Here's what you need to do. Here's what you need to understand. Here are the due dates. Here are the different ramifications of this. And by the way, that whole thing that is not tax or accounting related, but that's just that, that that's completely separate from what our field deals with, but it's something that we knew about that our clients needed to know. And so we were able to deliver that and, you know, I would, I would argue that's probably a part of the service. I don't really think you can have a fourth thing in addition to quality or service or price.Jonathan VanHorn:I think that I could probably make an argument. Everything goes into one of those categories, but in terms of like what the standard, you know, the standard look, as of whenever they try and make, do the pricing triangle or the triangle a lot, where do you want more? Do you want a better price? Or do you want better quality or you want better? Service are four thing almost if you will, is that we're kind of able to encapsulate all those things because of the fact that we are so efficiency minded, we have a very high quality of service. We're a very reasonable price point compared to the market. And at the same time, we deliver a really good customer service. At least, at least I believe so.Joseph Rugger:I do too. That's why I enjoy working with Morgan with our team. We got an awesome team. So you've been at this kind of on your own five, six years, any regrets, best decision ever, worst decision ever, you sleep better, you sleep worse. It's been a good decision for you. It kind of, you know, again, in that entrepreneurial spirit that we talked about earlier, what are, what are your thoughts looking back on this?Jonathan VanHorn:Thanks so far. So we started in 2013, so it's been about eight years now, but the, the worst case scenario was always the, I'm still a CPA and give it a year. It doesn't work. I'll go work for somebody else. Like no big deal. I know how to work hard and know how to work smart. I use a Le it's not like I'm going to go to the, to the college, to, to, and I'm going to use it, lose a year of eligibility. Like it's going to be fine. I'll still have experience. And some employers might actually like that experience. So it wasn't, it wasn't the worst case scenario and same thing with the dentist. Like if you go out there and you give your best shot and doesn't work out, yeah, you're going to have some debt, but at the end of the day, you're still going to be a dentist.Jonathan VanHorn:She'll still be a high income potential person. And that's one of the reasons banks love the Lindia is even if it doesn't work out, they're still going to have income potential in the future for me. Yeah. It's been, it's been really great. I love how many people were able to help. You know, we get, we created this really cool business that I feel like serves multiple sets of value to different people. So it breads a lot of value to our clients that at price points that are reasonable, we get a lot of really cool stories from our clients about how we've helped them in a bunch of different ways. They're really nice from an employee standpoint, if we have these really great employees that we've been able to give these, you know, positional career opportunities that they wouldn't have been able to have, if this business type didn't S it didn't didn't exist.Jonathan VanHorn:You know, I started a digital firm in 2013, and it's getting a little bit more popular now, but back then it was, I would get a lot of really weird looks that people be like, oh, so you're a digital firm. So you work off of your phone. Like, no, that's not really what it means. You know? And we've been able to get a lot of people this really big, this really large amount of work, flexibility that isn't allowed in other places. And so I felt we were able to turn a what the culture of a, of an industry that is typically very rigid and very billable hour dependent, and allow that our us to turn our business into a very flexible work-life culture that provides a lot of value to our employees, which then gets permeated and gets to the, goes back to the clients as well, because we have really smart people that work for us. We have really, really hard workers that work for us that are, that, you know, just enjoy it, enjoy that flexibility as well. So, yeah, best decision ever, other than marrying my wife and having my kids probably solvingJoseph Rugger:No that's fair enough. Well, it's something that you're proud of. You know, the, in those of you that are listening to this that have built a dental practice from a scratch start or from an acquisition, or, or if you're going to go out and build one and build something that you're going to be proud of, you know, I really appreciate you kind of open it up and giving us an idea of what, what life life is like inside of Jonathan van. Horn's head, as you kind of have created this thing. And I, I really like this competitive spirit that you talked about, which is like, I always want to do it better. I want to come up with a way of doing it better. So, man, it's been a pleasure getting a chance to chat with you a little bit. I hope this has been valuable to our listeners. Any other concluding thoughts, Jonathan?Jonathan VanHorn:Yeah. Just make sure that you're, if this is, if you feel like you're able to do it, you probably are. Try not to listen to too many voices out there saying that you can't. I know it's very cliche to be like, you know, oh, you know, big cheerleader. Yeah. If you, if you just believe really hard, you can do it. But the reality is is that if other people can do it, so can you, like, there's nothing, there's nothing that special about that other person, other than they had a risk profile. And there had that, allowed them to make the decision that they were willing to take that jump. And once you're willing to take that jump and no one can tell you when that is other than yourself, like don't, don't call me and say, Hey, I want to talk about maybe like, am I ready to be a practice owner?Jonathan VanHorn:Don't do that. Like, you're, I will never be able to tell you if you are not literally just listen to these words. You're the one who has to say when you're ready. No, you talked to your family and talk to your friends, things like that. Maybe they can convince you, you're talking to some random guy on the internet or some random CPA is not going to do that for you. So, so just be aware that you can do it. Other people have, you can too. And entrepreneurship is great. It's like one of the, I, you know, not to be, you know, political or, you know, you know, to, to, you know, American or ish or patriotic, but it's one of the most American things that you can do to like, that's like the that's one of the benefits of being in the us is the ability to go out there and do it yourself. So it's a really cool thing to be able to do. And we're, we're, we're lucky to be in a place where we can do it.Joseph Rugger:Absolutely. Well guys, thanks again for listening to us. We'll catch you next time. Bye guys. Bye.Jonathan VanHorn:That's it for today, guys. I hope you enjoyed this episode of the tooth and coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CTA services, head on over to tooth and coin.com, you can check out more about our CPA services. We help out around 250 offices around the country. I'd love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners. So people that have are about to be an owner of a practice they're requiring about to be an owner of a practice. They are starting up or has become an owner in the past five years. That is our specialty. And we'd love to be able to talk to you about how we can help you in your services with your tax and accounting services.Jonathan VanHorn:And if you enjoy today's episode again, go to the Facebook group. Talk to us about what we've talked about, joining in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other, get through these things together so that this adventure of business ownership is more fun, more productive, and better in the longterm. Lastly, if you want access to those resources that we're going to, that we are currently building, just text the word tooth in coin 2, 3, 3, 4, 4, 4 that's tooth and coin, no spaces. T O O T H a N D C O I N 2 3 3 4 4 4. Apply with your email address. We'll send you instructions on the Facebook group. We'll send you the resources when they're available and we will see you next week.

Join the discussion on Facebook!TranscriptJonathan VanHorn:Hey everybody, Jonathan checking in here and just so you know, this is a two part episode. This is the second part of the episode. So if you've not listened to the first part yet, you want to go back and listen to it in the prior weeks. We should have it labeled on the episode title what part one is and part two is, so you should be able to see that in the title of the episode, what episode of episode it is. So thanks.Jonathan VanHorn:Welcome to the Tooth and Coin Podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones. Some of them are very specific, but we hope that these episodes help you along with your journey. Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand. Another thing that you need to know is if you enjoy today's content, join us on the Facebook group.Jonathan VanHorn:So we've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share, join us in the Facebook group. If you go to Facebook and you search for Tooth and Coin Podcast, click on it to join it and be able to join us there. Finally, if you need some more help, we're developing a list of resources that are going to be centering around our topics of discussion, to be able to help you a little bit more than what the content is doing. So if you'd like access to that whenever it becomes ready, all you have to do is text the word toothandcoin, T-O-O-T-H-A-N-D-C-O-I-N to 33444.Jonathan VanHorn:Again, that's toothandcoin, all one word, no spaces, to 33444. Reply with your email address and we'll email you instructions on how to get into Facebook group, as well as add you to the list to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you as well. So onto today's episode, I hope you enjoy it.Jonathan VanHorn:So let's say that you did all these things, and you can come in, and you can influence these numbers, you've done an amazing job. If you've been able to influence all the expenses and lower them by five to 10%, not five to 10% overall, but five to 10% of the 55%, which would mean that you've moved from 55 cents of every dollar down to maybe two and a half to five pennies extra that you're going to get out of every dollar. And I know of practice owners that spend tens of hours a month trying to do this and trying to reduce these expenses because they want to spend less, so they get to keep more of every dollar that comes in. But to me, that's missing the picture. That's missing the bigger picture because instead of trying to save that five to 10 cents, why not just over on the other side of that table, pour out 100 more pennies in which you could then move 55 cents of those over and keep the 45 cents.Jonathan VanHorn:You could find so many more dollars to dump on that table, if you just worked on increasing capacity, and doing a better job of having patients in, and generating more revenue. That is, in the dental industry, the way the math works, that's so much more of a higher value for the use of your time than going through and making sure every month that I know exactly how much I spent on every glove that came in this office, I know where every one of those nickels went to. The amount of time that, that will take you, and energy, and focus, and effort could be so much better spent on your office to do so much more. And so that's overall why I say budgeting sucks. It's a waste of time because you really only should have to manage your expenses once a year maybe.Jonathan VanHorn:I think that's a better term for it and I think those two terms get conflated inside of a lot of industries. Small business, you don't need to worry about budgeting. The way I explain this to some people is that, I've had clients that have had budgets in the past, and they're like, "Jonathan, we budgeted 10% of our revenue to go to labs and our labs got all the way up to 10% so fast that I told people that I didn't want to take any more big cases because I don't want to do more labs." And I said, "Look, that's completely defeating the purpose."Joseph Rugger:[crosstalk 00:04:52] What's the point?Jonathan VanHorn:That's not... I felt like the woman from that commercial that's like, "This isn't how this works. This is how none of this works." She's trying to explain to her friend how Facebook works and she's putting pictures up on the wall. The way I explain it is, if someone said, "Hey," let's say that an ortho case is worth $5,000 to your office, if someone said, "Hey, I will give you 1,000 ortho cases. That's like $5 million in ortho cases, but I'm going to charge you $3,000.00 per case," and assume there was no other expenses. That's 60% going to labs, that's way over your budget. Would you take that deal? Assuming everything else is the same.Joseph Rugger:Of course you would.Jonathan VanHorn:The obvious answer is probably going to be, "Yeah, I want $2 million," $2 million is fine, but it completely destroys your budget, so that's the reason that the math just doesn't work out in a lot of these smaller practices. Now, the argument is definitely made that when you get larger, when you get to maybe three, four, five, six, seven, eight, nine, $10 million a year in revenue that if you can save five to 10%, if you can say that five pennies per dollar coming in, in a $10 million office, that's $50,000.00 a year. That's pretty nice, right? Sorry, it's $500,000.00. Is that? Yeah, $500,000.00 a year. That's $500,000.00 a year. That's a lot of money. That's called economy of scales. The larger you get, the more value it brings. And so that's my big argument against budgeting. The last thing that I'll say that is a really important number to keep up with in terms of doing expense management is your credit card processing fees and your insurance reimbursements.Jonathan VanHorn:So credit card processing fees are, I was telling you, Joseph, before we got on the call, we had a client that they were spending something like $30,000.00 a year in credit card fees and they were paying about 3% as an effective rate. The effective rate most people can get to is about 2% and we've hooked them up with a great credit card vendor and they literally are saving $10,000.00 a year by just changing the phone number that, that credit card machine dialed to. And so that was an easy one, so that's why I'm saying you got to make sure that you're keeping up with your expenses and you do need to look at them, but the frequency doesn't have to be every month, every day, every hour, every minute. It can be in bigger pictures and just make sure that you're getting decent deals along the way. Yeah, that's kind of my philosophy and my thoughts on budgeting. What were some of the things that you're thinking about?Joseph Rugger:Well, I always go back to the cost benefit ratio, and as a business owner, is it worth your time, energy, and effort because you don't have an army of financial analysts and accountants inside of your practice to do this. Is it really the best use of your time to do that? And I think the things that you're talking about outside of budgeting, so budgeting, if we use the diminishing returns and then we flip that and say, "What are we going to get exponential returns?" So if we say the lifetime value of one patient is, pick a general number, right? $10,000.00, if we spend time to get an additional one patient, 10 patients, 20 patients, whatever it is, we're talking about exponential returns versus diminishing returns on those kinds of things.Joseph Rugger:And that's something, as we work with new practice owners, they're really, really concerned about get the P&L, and I'm like, "Doc, your top line is zero, I can hand you your expenses, but really where we need to do all of our energy and efforts is on this top line revenue, and get patients in the door, and that kind of thing." I mean, because that's where you're going to have the exponential returns.Jonathan VanHorn:Yeah. And like you said, a lot of it also depends on the goals of the practice. If you're okay with where you are in the world and you're like, "Yeah, we got enough revenue. My service mix is perfect. I never want to increase capacity. I never want to change the amount of crowns I'm doing for a patient. I never want to change, add services," or whatever it may be and you've never done this before, you should do it. Do it once and then if you want to do it every month, do it, but I would challenge you to say that you're probably going to be wasting your time majority of the time you're doing it, other than that first time. I mean, I've literally given a checklist of things that people could do today to optimize expenses and like 99% of you guys that are out there, I guarantee you that's going to be enough.Jonathan VanHorn:So anyway, that's my thoughts on budgeting and things like that. Now, I will say, budgeting is not the same thing as optimizing your cash. It's not the overall thing. It's not a substitute for understanding your cashflow because we've personally seen clients that have had positive results from having intention around and an understanding and monitoring of where their money is going to. And this is on bigger picture things, right? It's not specifically on, well, I got to make sure that I'm only spending 7% of my revenue on supplies this month or else I've done a bad thing. It's more about making sure that the cash flow is staying where it's supposed to be. Right? You work with a lot of clients on this and you do this in your CFO role, so explain a little bit more about that.Joseph Rugger:Well, I think going back to something that we talked about on that personal budgeting is about having intentionality. So the bulk of our clients are small businesses that are what they call flow-through entities, right? So basically all of the income from the practice flows through to their personal tax return and they're required to make estimated tax payments. So one of the things that I think makes a whole, whole lot of sense is to make sure that we're preparing for what we're going to have to pay out in income taxes. So one of the things that I've recommended time and time again to practice owners is, "Hey, let's just open a separate bank account and let's just start saving money for taxes. You're going to have quarterly taxes. They're going to be due at this point in time. We don't know exactly how much those are going to be. We're going to throw some estimates and some projections together and see what it's going to be, but would you rather have that money come out of your practice checking account or would you rather have already saved and been intentional about setting aside some money?"Joseph Rugger:And it may be something where you set aside $5,000.00 a month, or $10,000.00 a month, or check with your tax professional on how much the estimated tax payments are going to be, but setting money aside for income taxes that you're going to have to make at either the state level and the federal level, or just at the federal level, if you don't have state income tax, but saving for taxes, having some money that you set aside and you're intentional about putting that aside. I've got another client that really wants to do some capital expenditures he doesn't want to have any more debt to the practice. He doesn't want to take out notes. He'd rather just save up and pay cash.Joseph Rugger:I'm like, "Okay, well maybe we should open up a bank account and send a percentage of your revenue over to this and it'd be a capital expenditure account," and we start saving a few thousand dollars a month here and there, and all of a sudden we've got enough money set aside that he can pay cash for those things rather than having to finance. And then there's certainly your pros and cons to financing capital equipment and that kind of thing, but this specific client his kind of capacity on whether or not he wanted to use debt to do it, he just said, "I don't want to take out any more debt." So let's save for it, let's be intentional about it.Joseph Rugger:There's lots of different people that are out there that have written quite a bit on all the different ways to handle money inside of a business. Kind of one of the things that I continue to hear and will be a good concept to all of our listeners here is the idea of paying yourself first. So whether that's David Bach telling you to sign up for your company 401k and have money withheld, to the Mike Michalowicz's of the world that say take your profit first, or kind of the Dave Ramsey's that say have an envelope system and save specific amounts for specific things. Everybody in that whole world is like, so let's be intentional about it. So really what we're talking about is rather than it be like a budget, it's just about being intentional with your cashflow. Are you looking at how much cash, extra cash that your practice has produced this month?Joseph Rugger:Okay, we had an additional... Our cash went up in the bank, $10,000.00. Well, what are you going to do with it? You going to take a shareholder distribution? You going to pay off loans? You going to invest that money? Are you going to save up for something else? What are you going to do? So one of the things that we've done with some of our clients is having these cashflow budgeting conversations and I hate to use the word budget in it because that's really not what it is, it's really just a cash management system. It's a way to be intentional about as money comes into the practice, where does it go?Jonathan VanHorn:Yeah, and that's one of the things that is really, even myself, someone who's a CPA and works with financials, and dollars, and cents every day, being a business owner the numbers we just explained to people, the 45 cents of every dollar that comes in, some months that's 30 cents out of every dollar, some months that's 60 cents out of every dollar, some months... It's very, very, very, very rarely that it's every month is exactly 45 cents gets put into your coffers and then you get to do with whatever it is, do whatever you want with it. Sometimes these one time expenses do come up. So of the 45 cents that you set aside to the profit, you might need to allocate five cents of that to go into these rainy day funds, or maybe you've got some big goals in the future and you know that you're going to have to staff up soon or hire an associate soon and you need to get more cash available.Jonathan VanHorn:So maybe we just set aside another five cents for an additional capacity expanding fund, or maybe it's, "Hey, I know I'm going to have a bunch of taxes at the end of the year because I remember Tooth & Coin and them telling me that I'm going to owe. It's August and I think I'm going to owe $50,000.00 come tax time, maybe I should be setting aside some of this money to be able to get $50,000.00 saved up." Intentionality and having a plan for cashflow is very different than budgeting to me, and that's pretty much every CPA firm, if you go to a CPA firm or to a CPA and say, "Hey, can you help me budget?" They're going to do what we talked about in the first part of this conversation. They're going to be like, "Yeah, okay, let's do a forecast. Let's talk about how much revenue you did last year. Let's talk about your expenses last year and we're going to add 5% to this, and 3% to that, and 2% to this, and what are your growths are going to be?" And all these other things.Jonathan VanHorn:They're going to come up with this math formula to be able to keep up with things, but it's very different than what we're talking about now and being intentional with your cashflow. So like you said, profit first system, the pay yourself first, the automatic millionaire idea, the richest man in Babylon, there's tons of different budgeting things that you can do, or not budgeting things, but cashflow optimization and intentional ideas that came about in the past, but to me, it all starts with you have to understand that there's variability in what your income is going to be as a business owner and you have to do your best to understand that variability in terms of the cash that's leftover, which is again, this is a unique problem for a lot of businesses in dentistry, there's typically a good amount of cashflow left over, in a lot of businesses, there's almost no cashflow.Jonathan VanHorn:And in the dental world, when that fluctuates, sometimes it can fluctuate to big numbers. Like last year, we had people that got hundreds of thousands of dollars in government funds.Joseph Rugger:Sitting in the checking account. [crosstalk 00:16:25].Jonathan VanHorn:Exactly, just coming in and they're like, "Well, hey, it's here. I don't really know what to do with it now. Do I take it out? Do I use it? Do I save it? Do I invest it? Do I pay it to my employees? What do I do with it?" It's being intentional with the money, having a plan for it, and just so everyone knows, Joseph is the person who does this in our firm. He helps our clients do this, and come up with plans for this, and find ways to save the money better. And what are some of the lessons that you've learned when it comes to the dental field specifically about coming up with a plan and then following through with it?Joseph Rugger:I think a couple of things kind of resonate with me. One of the things that, I don't know that we talked extensively about it in our personal budgeting, but is lifestyle creep where as more money comes in, magically it just all of a sudden disappears because all of a sudden we've bought new stuff at the office or we've hired new people. So where we may have had free cashflow that was at a certain level before, all of a sudden it's starting to dwindle as far as how much free cashflow it is. And it's not lifestyle creep, I guess you could call it practice scope creep as you have bought nicer stuff and all of those kinds of things, and you are used to taking out that $10,000.00 distribution, or $20,000.00, or $5,000.00, or whatever it is, so you just kind of automatically take that out.Joseph Rugger:All of a sudden the practice has a couple of bad months in a row, and all of a sudden you're looking and you don't have enough cash to pay the bills, and you've got to scramble a little bit. So if you're not taking those variables... As you mentioned, there's just so much variability in this business, as you were making those different decisions, what's it based on? Gut feeling? Like, "Oh, well, if I've got 75k in the practice checking account, that's enough. I'm going to take anything out on top of that." Well, what if your credit card bill with American Express this month is $30,000.00 because you had some big cases, added some new equipment? All that stuff like that $75,000.00, if you have a $30,000.00 outstanding credit card bill, that's not the same as if you don't have an outstanding credit card bill that's coming due in a couple of days and you've got $75,000.00.Joseph Rugger:That's one thing that I've noticed is that kind of we get into some habits and the habits are based on something other than the actual cashflow of the business, whether that's the lifestyle creep, or whether that's the practice scope creep, or if that's just getting used to, oh, I just take out the same amount of money, because that's what I need to pull out of the practice each month. What if you have a month where you totally blow it out of the water and your collections are typically 80k and all of a sudden it's 150k? Do you still take the same amount out? Well, I would say, no. We need to figure out what's going on and have a plan for that. And again, intentionality continues to be kind of a theme that we talk about on our podcast here. We want you to be intentional about pulling money out. "Where did you get that number?" "Oh, I just made it up. I just had a gut feeling." Well, that's not a plan. That's not going to get you from where you're at to where you want to be. We want you to be intentional.Jonathan VanHorn:Yeah, and the other thing that comes up with that variability and the intentionality is that if you figure out three months later that you didn't have enough cash at the time, it's already too late most of the time. I mean, you're in trouble at that point. And so if we're thinking about those percentages we talked about and if you're out there, feel free to use that as your own set up. I'm going to dedicate 15 cents of every dollar to occupancy and other stuff, 25 cents out of every dollar to staff, 15 cents out of every dollar to the supplies and labs, and the other 45 cents of every dollar I'm going to have, let's say, five cents. Again, this is completely dependent on your situation, your goals, and what it is you're trying to do in your business.Jonathan VanHorn:But let's just say for discussion purposes, I'm putting 10 cents of the 45 cents of profit into some type of an investment fund that I'm going to use for the business and investing in the business. And then the other 35 cents, I'm going to pull out whether it be through salaries, wages, payroll taxes, my retirement plan, or distributions, or discretionary expenses that I have inside of the business that is being paid for on my behalf, whether it be travel, or continuing ed, or renting our home, for other reasons like that, that's what that money will be used for. What happens or I've seen happen is that, well, this month we had a pipe bust and we've got a $10,000.00 expense now, all of a sudden, that's going to go into this 10 to 15 cent thing, but there's not 10 or... That one thing costs more than that 10 or 15 cents that's leftover.Jonathan VanHorn:Well, most the time with the variability inside dentistry, a lot of people don't really think about that $10,000.00. Say it's $10,000.00, they pay the expense begrudgingly, little things like that come up throughout the month, every month, but a big thing like that comes up every once in a while and it kind of throws everything out of whack because well, all of a sudden that's a big percentage of this, and a big percentage of that, and it just doesn't work. So what is a way, Joseph, you help people with keeping up with this in an automatic fashion or in a more standardized process to where this type of information can be relayed faster?Joseph Rugger:Well, I think that you can always set percentages. So you mentioned percentages and there's lots of people out there that... I've seen a number of our clients that have opened up multiple bank accounts and that kind of thing. We've done that for a bunch of clients and that's been really successful like, "Okay, so out of every dollar that comes in the practice, we're going to set 10% aside and that's going to be your profit, and we're going to pull that money out of the business. It's going to be a distribution and you're going to live on the remaining 90%. You're going to operate your practice in that way." It's one of those things, it's difficult to make something like that automatic because it's going to be based on a percentage. So up months, down months, we're still using that same, let's just say for example, 10%, or maybe it's 15%, or maybe it's 5%.Joseph Rugger:If we say, "Let's have supplies and labs be its own account." Okay. Well, 15 cents out of every dollar or 15% is going to go to that supplies and labs account. And what that does is that allows you to do bank balance accounting, as simple as that is. So oftentimes what we figured out over the years is that people have a hard time just looking at a profit and loss, or looking at a balance sheet, or looking at a cashflow statement and marrying all that together and understanding. They may say, "Well, I show a profit on my P&L, but I'm out of cash." "Well, that's because you made $30,000.00 principle payment on your loan." "Oh, I didn't think about that. Oh yeah, now I remember that."Joseph Rugger:Or, "Hey, I've got all this extra cash in my account." "Well, that's because you took out an EIDL loan from SBA, so you got $50,000.00." It's all of these different things that come through, so being intentional, and setting percentages, and going along those lines, we found that to be really, really successful. We have some clients that kind of do that themselves and make those kind of things. We've got some that we help out with that process, and see what it looks like, and kind of help them manage that, and make cashflow decisions. And basically, as money comes in... What money comes in is what we need to be spending money on, not just some arbitrary number, not something that's not intentional. So I think it's been successful for the ones that we've helped. Just kind of really just add transparency, I think that's a word that I've heard several clients, "This really helps me understand kind of in a transparent way how my business is doing."Jonathan VanHorn:Yeah, helps you understand where those dollars are going. I mean, what better incentive do you have to look at your spending habits than to realize, hey, there's not enough money in here to pay for this thing? And in dentistry, I find that usually it's pretty easy and... Well, it's not easy to pay for things. The money is technically there in the bank account, but you don't know if that money is available for specifically that thing, or if you're robbing Peter to pay Paul to pay for that thing. And if you're intentional about your dollars, that should come out as a big red flag. So you mentioned like the envelope system as a method, is a lot of what it is, so envelope system, profit first system, they're all kind of the same, but what about frequency? How often do you recommend people be looking at this type of a thing?Joseph Rugger:Yeah, so I think that you've got to be looking at your monthly financials for sure. The folks that we're helping out with kind of this cashflow system, we're looking at it twice a month typically. I've got a couple of clients that want to make sure that we're allocating money appropriately for payroll costs, so we may look at that if they pay every other Friday, we may look at that every two weeks versus just twice a month. So it's basically like it's twice a month, except for the two months in the year that have three payroll Fridays, so we're looking at that. And then I think it's important to on a quarterly basis sit back and say, "Okay, how much cash has the business generated?"Joseph Rugger:Okay, well, we've got an excess balance of X. Okay, well, what are we going to do with that? Are we going to do one of the four things that we can do with money? Are we going to spend it? Are we going to give it? Are we going to save it? Or are we going to pay down debt with it? And having those conversations, I think, quarterly make a whole lot of sense and then kind of reviewing this stuff on a quarterly basis, I think makes a whole lot of sense. And on an annual basis, obviously everybody's going to be concerned about the annual basis because they've got taxes to pay and you kind of get stuck in this catch 22, where you want your business to look really good, but you don't want to pay very much in taxes, so looking at stuff on an annual basis.Joseph Rugger:I had a client that we'd helped out with this cashflow system and he said, "How am I doing?" And I said, "Well, how do you think you're doing?" He said, "Well, I think I'm doing well. I've been pulling X amount of salary in, and we're doing this system where we're taking the profits out of the business, and I'm distributing X amount of dollars." He said, "But I got my tax return the other day and it showed that we had a net operating loss." And I'm like, "Well, how's your cash balance been?" He's like, "Really good." I'm like, "Okay, well, there's a whole lot of complexities that go along with your tax situation that may not necessarily reflect how the cash flows throughout the business." And it may be one of things where we took some accelerated depreciation or something along those lines for some stuff that he had borrowed the money on to do some equipment, that kind of thing, but definitely monthly.Joseph Rugger:And then I think looking at stuff twice a month makes the most sense as well, quarterly for sure, and then annually, just to see how you're doing, look at your goals. What are your goals? Was your goal to do $1.2 million in collections this year? Was your goal to make $400,000.00 take home this year? What was your goal? And then how do we look? If we're looking at it quarterly, and your goal is to make $400,000.00 and you've made $20,000.00 in Q1, maybe we should reevaluate the goal. Maybe we should see what kept us from getting there.Jonathan VanHorn:Yeah, that makes a lot of sense, and this is what I do personally in our business, in Tooth and Coin, is every... I do it every week just because for me it's simple to do. I go in and I know we don't have as many different expense categories as a dental practice does, we have what I call operating expenses, and then we have staff, and then we have profit basically after that. And our operating expenses, I don't go far down talk about the rent for the office space, or for our computers that we buy for people, or all the software that we use, and all the money that we use. It's all a part of the same thing, I just lump it into one big percentage.Jonathan VanHorn:And then I take the staff percentage, which is another percentage. And then I take a percentage for profit and take a percentage for taxes. And every week I just put those in those bank accounts and then I move it from our operating accounts into an interest bearing accounts for the ones that I'm not going to touch for a while. And then if I need those numbers back, I just pull them back. And the power in that is, is if you are facing a payroll run and you don't have enough payroll in there, well, something's happened in terms of your goals. Something's happened in terms of what happened with the cashflow and that means you're forced to physically move that money, which means you're forced at that point to look at it. Did something go wrong? Did we miscalculate something? Are my hours for my employees off? Is my revenue too low? Is the reason the revenue is too low because we're not doing a good job of... Why is that?Jonathan VanHorn:Oh, we have a revenue problem. Oh, we need to be doing a better job of scheduling. And all of a sudden, you're starting to work on these things in your business that are going to start optimizing themselves because you're forced to look at them. And so I love that process and I love the way that it works inside of every business, not just dental practices and things like that. So budgeting sucks, cashflow optimizing is awesome, having a plan for intentionality, for where things go. There's a lot more things we could talk about in terms of this, such as who are the best candidates for this? When should you be doing this in terms of your practice's age? How do you factor in growth? How do you do all these other things? And those things are going to start getting very, very personal in nature and I'm afraid that we're going to miss too many of those people and create generalities where it's actually very specific.Jonathan VanHorn:There's a lot of specifics on who should and shouldn't be doing these different times of their lives, and things like that, and nuances, and things like that. So for those things, I would say that you probably need to reach out to someone like ourselves or someone else who helps with these types of things in order to be able to have this type of help, because we're getting into really big specifics of being specific to your situation. So outside of that, Joseph, is there anything else that you wanted to talk about in terms of these things or anything that we didn't mention about the pitfalls of budgeting, diminishing returns, and then the benefits and boons of doing cashflow optimization, and being intentional with your money?Joseph Rugger:Yeah, no, I think we hit most of them. I think we want you to be intentional with your money. I think that one of the things that I'm always constantly looking at is, am I trying to get a mosquito with a sledgehammer? And if you're going to go out and spend 30 hours a year on budgeting and your top line's $300,000.00, that's hitting a mosquito with a sledgehammer. So keep the cost benefit ratio in mind and certainly it's good to be intentional. It's good to pay attention, but make sure that you're focusing your time on things that are going to give you the most return.Jonathan VanHorn:So yeah, so if you have any other questions or anything like that, feel free to look us up in the Facebook group or make a comment. Talk to us about it. We're happy to talk about this. I think this is the most fun thing about helping small businesses is this kind of stuff. I wish that there was more time in the day to be able to do these types of things. This is not what you're typically going to get in a relationship with a CPA firm. This is not technically in the standard terms of engagement with the CPA firm, which you're normally going to be getting. So these are things that you're going to have to ask additional help for from 99.9% of CPA firms or even just consultants when it comes to this kind of stuff. So just want to put that out there because sometimes we have clients come in, they have an expectation that this is just a part of accounting. This is not an accounting function. It's so far removed from accounting. This is definitely more consulting in nature and it's very specialized.Jonathan VanHorn:So anyway, so thanks again for listening guys and girls, we will see you next time on the Tooth and Coin Podcast. Thanks for joining in. Make sure to subscribe, iTunes, do all those things, like it whenever you see it, and we will see you guys next time. Thanks, Joseph.Joseph Rugger:Bye guys.Jonathan VanHorn:Bye.Jonathan VanHorn:That's it for today, guys. I hope you enjoyed this episode of the Tooth and Coin Podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com where you can check out more about our CPA services. We help out around 250 offices around the country. I would love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners, so people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up, or has become an owner in the past five years. That is our specialty and we'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan VanHorn:And if you enjoyed today's episode again, go to the Facebook group. Talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the longterm. Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444, that's toothandcoin, no spaces, T-O-O-T-H-A-N-D-C-O-I-N to 33444, apply with your email address. We'll send you the instructions on the Facebook group. We'll send you the resources when they're available, and we will see you next week.

Join the discussion on Facebook!TranscriptJonathan VanHorn:Welcome to the Tooth and Coin Podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones, some of them are very specific, but we hope that these episodes help you along with your journey. Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan VanHorn:Another thing that you need to know is, if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group that is active with dentists, that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share? Join us in the Facebook group. If you go to Facebook and you search for Tooth and Coin Podcast, click on it to join it and be able to join us there. Finally, if you need some more help, we're developing a list of resources that are going to be centering around our topics of discussion, to be able to help you a little bit more than what the content is doing. So if you'd like access to that, whenever it becomes ready, all you have to do is text the word toothandcoin, T-O-O-T-H-A-N-D-C-O-I-N to 33444. Again, that's toothandcoin, all one word, no spaces, to 33444.Jonathan VanHorn:Reply with your email address, and we'll email you instructions on how to get into the Facebook group, as well as add you to the list, to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you as well. So onto today's episode, hope you enjoy it. Hello ambitious dentist. Welcome to the episode that I'm probably going to call, Why Budgeting is a Waste of Time. It's a topic that I think is going to be confusing to some, why a CPA or an accounting person would talk about that, especially considering our last episode, we talked about how important it is to do on a personal level. But this episode, we're going to talk about the budgeting of a business. And specifically in general, single-office owned dental practices, usually doing what an average dental practice would do, which is somewhere around a million dollars a year in revenue, maybe enough where it's two or $3 million a year in revenue. And we're talking about that.Jonathan VanHorn:So I've got Joseph with me obviously. Joseph has a lot of history of doing this as a CFO in the prosthetics company that he worked for before he joined us at Tooth and Coin. And we're going to just talk about it, and what our thoughts are about budgeting, some of the pitfalls of it, some of the benefits of it, and then maybe some alternatives that people should be thinking about as well. So, yeah. So welcome to the episode.Joseph Rugger:Yeah. Thanks for a good intro there, Jonathan. I think probably what would be worth it to just talk about first at a high level is, what is budgeting and who typically does it. So you guys may or may not be familiar with all the different stuff that's out there, but typically budgeting really has to do with trying to make a plan for where your money's going to go. And one of the things that budgeting is, is going to work off of a forecast. And that's something that can be really difficult to tie down and pin down in different organizations, different industries. So, your typical business that is, let's say $10 million or more in revenue, typically has a team of accountants. They've got people that are maybe a CFO, maybe they've got a controller, maybe they've got an AP clerk, maybe they've got somebody that's in charge of AR. They may have somebody specifically in charge of budgeting, somebody that actually has a season of their life that they call budget season.Joseph Rugger:So if we ran a calendar year budget, this person may start sitting down and making the budget out in September, and then spending time in October and then reprioritizing in November and then in December. So as I described this big, robust accounting and finance department, that typically doesn't happen until you get pretty far along in revenue. And you may hit that at $2 million and you need those people, or $5 million or $10 million. But typically it's until you get to that really big growth stage where you've got to have multiple people that are running your accounting and finance. And as you mentioned, Jonathan, if we say that the typical dental office has a million dollars in gross receipts or in revenue, they're probably not going to have a team of five accountants that they've got full-time employed.Joseph Rugger:They're not going to pay 60, 70, 80, $100,000 for a controller or a CFO, and then an AP clerk or all that kind of stuff. So from a corporate level perspective, if you've got enough resources and you've got enough people and you got a big team, it can make some sense to do some budgeting. But one of the things that I wanted to get your thoughts on is, when you're looking at a typical dental practice that does 500, a million, 1.5, $2 million, what are your thoughts, Jonathan, in general on, as we talk about... One of the things they taught us in Accounting 101 was the cost benefit ratio. How much is whatever it is that we're going to do, going to cost versus what's going to be the implied benefit? So maybe talk to us a little bit about your experience in talking to practice owners across the country, and what people's maybe conceptions or misconceptions are of budgeting and how useful it is in this industry.Jonathan VanHorn:Yeah, absolutely. And I think a good way to do that is to... And I know it's hard to do on an audio thing, but to talk through the math of it a little bit. The companies that you're mentioning that do the budgeting, they're much larger, they're typically operating under a very slim profit margin. So when I'm talking about profit margin, I'm saying that for every dollar that comes into those bigger businesses that are not dental practice in the medical industry, they're hoping to be able to capture as profit of every dollar, of every 100 pennies that come through, a lot of them are hoping to catch maybe five to 15 cents per dollar that comes in. And it fluctuates a lot. There's a lot of variables that come into play, and there's a lot of meticulous effort that goes into finding that five to 15 cents per dollar that comes through.Jonathan VanHorn:Now in dentistry, the math of that is just very different. So if you're a big company and you've got, let's say 90 cents out of every dollar going to some type of expenses associated with generating that revenue, then you've got to be really careful. And you've got to know exactly where every dollar is going and minimizing that number as much as possible. Because if you're at 90 cents on a dollar and you're going to reduce your total spend by 5%, or let's call it 10% since the math's easier to illustrate, you were at 90 cents a dollar, now you're at 81 cents a dollar. Your profit margin went from 10 cents a dollar to 19 cents a dollar. That's almost double in profitability. That's a big, big, big difference. And when we talk about all those variabilities that come into play in those bigger businesses, there's a lot of little things that you can sometimes influence that will help get you across the board, for example, if you have a different supplier.Jonathan VanHorn:If you're manufacturing things, and you can find someone who is giving you your supplies at a much lower rate, your supplies could be 40% of that total dollar that went out, the 90 cents that got reduced to 81, that could be 40 cents of every dollar going towards the supplies. And if you can reduce that and find better people, it makes a lot of sense on why you'd have somebody ahead of budgeting. And it's a decent management tool too, for having multiple layers of management, having a bunch of different people that have a bunch of different responsibilities inside of your business.Jonathan VanHorn:You pointed out, Joseph, in dentistry, in single-office dentist practices. You don't definitely have very many middle layers of management so to speak. In a dental practice, it's a pretty reasonable estimate that people can get from every dollar of revenue that comes in, it's pretty reasonable for an average-sized owned practice to beginning to keep somewhere between 40 and 50 cents of every dollar that comes in, and having that be coming back to the owner as earnings or cashflow, so to speak. So when you think about that, you're comparing big business, five to 10, 15% margins versus dentistry, single-office owner, 40 to 50% margins. If you can reduce 5% of your expenses or 10% of your expenses, you're only going to add another 5%, which is only another 10% increase your profitability. Sounds great, but the question is how much effort is being put forth and what could you be doing instead of spending the time trying to find the 10%, how much effort does it take to lower your cost by 10% compared to just increasing your revenue by a very small amount?Jonathan VanHorn:So in terms of how I view it with dental practices, there's this concept called diminishing returns, which means that after you've done something once, the next time that you do it, it doesn't generate as much of a benefit. And what we used to do as a CPA firm is, we'd have clients that say, "Hey, we want you to give us a budget. We want you to help us keep up with it. We want you to talk to us about it every month and to see how we did with that budget and things like that. So that we can be better steward of our money and making sure that we're spending the least amount of money as we can." Purely from an accounting standpoint. So, we kept up with how much they paid in supplies, we kept up how much they pay in labs and staffing costs and occupancy and things like that.Jonathan VanHorn:And if those numbers were too high, then the result's called a variance. And then we had to try and figure out how to affect that variance. In dentistry, what we found was that no matter what the variance was, there was always a reason why the variance was there. It was very rare that it was like, "Oh, it's because we double paid this vendor and we got to get a refund," without even the vendor saying, "Oh, by the way, you double play at us." So, the way that I tell dentists is this, is that you need to have an understanding of how you're spending your money. You need to make sure you're not getting basically screwed in terms of having really high costs for certain things. And you need to make sure that you're keeping up with who you're paying your money to.Jonathan VanHorn:But my argument is that I think that you really only have to do this maybe once a year. And I think the first year that you do this is going to be the highest value year that you ever do it. And then every year after that is the diminishing returns. I don't think that this exercise should take you... It definitely shouldn't take you more than probably a half of a day, probably after the first time you do it, it probably shouldn't take you more than an hour a year to do this. And the problem with budgeting is, that's not how budgeting works. If you're actually budgeting, and you're setting up these parameters, you're trying... Like you said, you have to forecast what your revenue could potentially be. So you have to have an understanding of your new-patient metrics, you have to have an understanding of your dollar per rep, dollar per patient coming in per visit.Jonathan VanHorn:You have to have an understanding of your cancellation rates, your occupancy rates in terms of your utilization of your chair time. There's so many things that you have to understand to be able to appropriately forecast revenue, and then go in and say, "Okay. Well, we're going to do this many of this procedure. And this procedure takes up this much cost per lab. And so we have to forecast that expense out, and everything with that." And at the end of the day, for a dental practice is doing these things, what value is that? Why would you want to do that? I would make the argument, if you're actually budgeting and you're doing what a actual budget in a small business needs to have, you're likely paying a professional quite a bit of money.Jonathan VanHorn:I would say at least $1,000 a year, maybe upwards to two or $3,000 a year, just to do the tracking of everything. That's not even to do the forecast for you, that's just the tracking. And you're probably going to be spending anywhere from 10 to 30 hours a year on this. And what are you going to be getting out of that compared to what you could have been putting that time into instead? So to me, that's where the real question lies. I mean, is that a good explanation of what we see in this industry, Joseph?Joseph Rugger:Yeah, I think so. And I want to go back to the margins that you mentioned. So, a typical business may be anywhere in the five to 15% margin. And I'm sure that everybody in our audience has heard about the different varying governmental budgets, right? So whenever we look at what the tax base is for my hometown of wherever I live, they've got a really good idea of how much they're going to have in tax revenue. They have really sophisticated pieces. So, that's why they're able to really focus on the expense side because they don't really have a whole lot of control over the revenue side.Joseph Rugger:So if you don't mind, Jonathan, maybe walk us through... You mentioned that the profit margin of dentistry is somewhere in the 40 to 50% range of every dollar that comes in, that that's going to be profit. Maybe walk us through maybe the bigger chunks of that and how that looks. And then maybe, let's just run a couple of quick numbers on, if we spent our time getting one new patient, what that looks like, versus how much we maybe even save, and to shave off a percentage point. So maybe walk us through how we get from 100% to 40 to 50%, and then what the returns would be like if we're able to really shimmy some costs off.Jonathan VanHorn:Yeah, absolutely. So if you take the big picture of... And again, the way that people should be perceiving this, or creating an image in your head if you're a visual learner, literally think you're sitting down at the kitchen table with your grandmother, she's teaching you about money and she's got 100 pennies sitting in front of you, and it's talking to you about, "This is what 100% looks like. Each penny is percent." Those represent every dollar that are coming into your dental practice. If we're saying that you get to keep 40 to 50 cents of every dollar that comes in, that means you're spending between 50 and 60 cents per dollar that comes in to generate said revenue. Now, obviously the caveat to this is, this is based off of a single-office owner practice doing about a million dollars a year in revenue, doesn't have an associate, usually it's just one doctor. The numbers change a bit depending on where you are in the country and all these other things, but that's a pretty general good generalization.Jonathan VanHorn:It also does... If you're in a startup, obviously of those 100 pennies, almost all 100 pennies are going to be coming out every month because you're spending that on different things. It's dependent on your age and a bunch of different things. So a standard practice, 50 to 60 cents of every dollar is coming out and going to expenses. Usually for a good average number to come up with is, of that, let's cut it in the middle of that 55%. So I said 50 to 60, let's say 55 cents of every dollar is going out, the owner is going to keep 45 cents of every dollar.Jonathan VanHorn:You've separated 45 cents on one side of the table, you've got 55 cents on the other side of the table. Now of that 55 cents that are expenses, about 15% is a pretty good number for a lot of dental practice to have that will be allocated towards supplies and labs. So you've got your supply costs for all of the things that you use up throughout the day. If your lab fees, whenever you have a case, and you've got to send something out to the lab for that case and have it sent back, that's a lab fee. Obviously some practices have more, some practice have less than that, because some people do things like implants, some people do things like Invisalign, some people don't. And so some people just only do fillings all day long, I guess.Jonathan VanHorn:So it's depending on the practice, but a good standard number is to save 15%. So of the 55 cents in expenses, you'd separate 15 of those out, and now you got 40 cents left for your other expenses. Of those of that 40 cents, typically 25 cents of that goes to your staff. So now you had 40, you separate that out, now you've got 15, because 25 cents of that is going to your staff. Now you've got 15 cents leftover. And that usually is going to be to pay for things like your rent, things like maybe some type of loan payments. The assumption of the 55% is usually that loans are not included in that. We'd have clients that like to have that included in terms of their numbers, but in general, that does not include that. But it goes to things like utilities. It goes into things like advertising.Jonathan VanHorn:It goes into things like just a general occupancy expenses, office supplies, things like that. It's little things like that. We have some clients, they'll spend 10% of their revenue in rent just because of the area of the country that they're in. So that takes up a big percentage of it. [crosstalk 00:17:44].Joseph Rugger:Or like in California and New York, yeah.Jonathan VanHorn:Exactly. So that last 15 cents is really where it's highly dependent on your situation. We find that that 15 cents over there, the last 15 cents, not the 15 cents for supplies and labs, that last 15 cents is usually very practice specific and usually cannot be that influenced very much. Usually that's just what a lot of people have to call their fixed cost, so to speak, on a monthly basis. So that's a very static number. So the other two numbers that we might be able to influence are our staff and then our supplies and lab. That's all that's really left. I can make an argument that in the fixed ones, the advertising expense, that number goes up and down a bunch, depending on what the goals of the practice are. But in general, that's usually a pretty standard amount. And there's things we can talk about in terms of what you should do for that as efficient business owner, but not really in terms of a budgeting piece.Jonathan VanHorn:So everything in that context, we've got really 40 cents of every dollar we might be able to influence in some ways. And really at that point, it's not really budgeting, because your employees are going to... I think most business owners want to pay their employees more, because if they're paying the more, that means that they're doing more for them and probably generating a better return on their dollars. But that doesn't mean you can just have people wasting hours there. So you have to have make sure your schedule is efficient. But it's another one of those things that, if you think about the context of this, I'm talking about the 25 pennies that are sent off to the side in the staffing column, and think about that for a second, if that number goes up, what should be occurring if that number goes up? Joseph, what would you think should be occurring if that number is going up?Joseph Rugger:I would hope that if our staff costs go up, so to are our revenues, right? Hopefully we've-Jonathan VanHorn:Precisely.Joseph Rugger:... hired people, added hours, increased salaries, added bonuses because as a factor of, or because of an increase in top line revenue.Jonathan VanHorn:Yeah, exactly. So absent and efficient scheduling of people's work time, them working more is actually a good thing because it should be influencing an extra 75 cents return on that 25 cents of expenses. Now, again, I've got 75 cents, some of that's going to those other categories, but it's generating more dollars, so you're willing to accept that. So again, that's absent, inefficient scheduling for your staff and their hours. Now we've had clients that have had really bad overtime, that had a lot of employees that just, they just always have overtime. In those types of situation, yes, that that could be fixed, but I wouldn't really call that budgeting so to speak. I wouldn't say that's what... In the context of what we're talking about, what actually budgeting is. The last part of the other 15%, staffing or supplies and labs. I can think on very few examples of where I've ever had a client say, "Hey, we were able to really reduce our costs in supplies this month." Now, you have to make sure, again, like I said earlier, that you're not paying out the nose for staff costs, or for supply cost.Jonathan VanHorn:You have to make sure that you're not paying out the nose for labs, but there's some people that want to pay out the nose for labs. There's a lot of people I'll talk to that are like, "Yeah, my guy costs 200 bucks a crown. And I love him because he's amazing at it. He does the highest quality possible." And some people that are like, "Yeah, I want to pay $70 for a crown, for my lab." And that's very much a personal preference, but you should be hopefully, in an efficient market, the $200 you're spending on that crown should be hopefully being able to allow you to charge a little bit more for the work for that crown. Anyway, so that's how the buckets work out in terms of everything. So to recap that, of the 55 cents in this hypothetical practice, in an average practice, 15 cents is going to supplies and labs, 25 cents is going to staff, and 15 cents is going to occupancy, advertising, consulting, professional services, the things that people typically pay for. And then the other 45 cents is profit.Joseph Rugger:Yeah. So when we talk about diminishing returns, really what we're talking about is that spending four to five hours in year one, you might get some benefit out of doing some budgeting and doing some forecasts. Year two, year three, year four, after we've dug in and looked at some stuff, we're probably looking at less than an hour a year, if we want to do that. So if what we're saying, Jonathan, is that budgeting and forecasting is a diminishing-return game for the dentist, if someone came to you and asked, "Okay, what should I be doing instead? Budgeting is not a good use of my time. Where would be a better use of my time if I'm going to work 'on the business' instead of in the business?" And you're telling me that budgeting and this forecasting probably doesn't have the cost-benefit ratio, where do you think the biggest returns would be?Jonathan VanHorn:Yeah. So just to clarify that, yeah, in terms of budgeting and forecasting, I think if you're actually doing budgeting and forecasting, you're probably looking at an investment of at least 30 hours a year from you and your management team, and thousands of dollars to probably accountants and consultants and people like that. The better use of your time is the thing that we were talking about now, is taking a look at those different segments of your business, just analyzing to see if you're being effective in the way that you're spending that money. So to run down that list, starting with supplies and labs first, make sure that you're not having a whole lot of waste when it comes to your supplies. Make sure that your practice has a good policy of making sure we don't throw away $30 worth of supplies every day. We need to make sure that we have a staff that doesn't take home a whole bunch of supplies every day.Jonathan VanHorn:If you can do that, and then you're making sure that you're maybe once a year looking up the prices of the things that you pay the most for out of your practice. The number of supplies that you actually have, how many of those go to waste, how much gets thrown away, how much just expires, because it's a medical industry, so you have things to expire. And just be effective in the use of supplies, make sure that they don't walk out the door. And finally, make sure that you're paying competitive amounts for those things. You can do this very quickly. Larger offices has an assistant that's ahead of buying supplies for the practice. And one of the things that they tell them to do is just, "Hey, once every few months make sure that we're not paying out the nose for something that... For the prices."Jonathan VanHorn:I mean, typically the person will, if they've bought these burs every month for two years, and then all of a sudden they notice the bur price is up 50%, they're now more, "Hey, maybe I can go buy those somewhere else and get a little bit better deal for it." So that's really the best way to do it. From the labs, it's the same thing, make sure that we're not having a whole bunch of redos. So we're having to pay the fee over again, because we didn't send the right stuff to the lab. Make sure we have a well-trained staff to make sure that those labs are being done... That we're needing the labs. Make sure that we're billing the patient for the services that we do. And also, make sure that the fees are competitive. I mean, like I mentioned, some people, their lab is their lab. They ain't going anywhere else.Jonathan VanHorn:And if that's the case, that's fine, but it doesn't hurt to ask that lab like, "Hey, by the way, you're charging me $200 a crown. The competitor down the street's charging $85 a crown. Can you maybe help me out a little bit with this? Or is there anything that you can do to affect these prices, or that we can do better as a company when we send them to you to lower your costs so we can get a little bit closer on the fees?" Because I guarantee you, in today's day and age, those lab people are probably aware that guy down the street is charging that. And if they say no, "If you want the service that you're getting now, you got to pay me that fee," that is there right. And if you like that lab, you should continue paying it. But that's completely up to you, and you're going to understand that your costs are going to be a little bit higher. So we just talked about the 15% that are supplies and labs.Jonathan VanHorn:I just want to point out, if you can save 20% on your supplies and labs on a yearly basis, which is a big number, saving 20% is a lot, you're really only affecting those pennies. You're finding three pennies, that's what you're finding. But if you're finding 20%, I guarantee you, you're not going to find 20% every month. That's the diminishing returns part that we're talking about. If you did this exercise every month, you're not going to find 20% every time, which is three pennies. If there's waste or inefficiencies going on, you will likely almost immediately find those three pennies. And then every month after that, it's just going to stay the same. You're not going to find more pennies after that. So to the staffing part, I already talked about it a little bit, just make sure you're scheduling your people effectively.Jonathan VanHorn:Make sure that people aren't just standing around doing nothing for no reason. Make sure that we have patients that are being scheduled efficiently to be able to come in, and utilize that capacity so that we're generating revenue whenever we're incurring that expense. I'm not a scheduling guru, I don't know anything about the, "This is how you get to the minute of everything or whatever it may be." But watch out for areas of waste, which is things, like I said, having people just be up there whenever they don't have to be up there, make sure people are clocking out for their lunch, make sure that people are not putting in overtime if it's not needed. You do those things, you'll typically be okay. The last piece is the everything-else bucket, which is a bit more complex, but I can tell you the highlights. In today's day and age, you're probably not going to be like, "Hey, by the way, Mr. Landlord, I'm only going to pay you $500 less than what I was paying you a month ago." That's probably not going to work.Jonathan VanHorn:They're probably not going to be okay with that. So you can't really do a whole bunch about rent, which is the biggest chunk of that 15 pennies that are left over for most of our clients. Now if you own your own practice on your own location, you should still be allocating a fair rent rate to yourself, just for tax purposes and for arm's length rules and things like that. But you still can't do a whole lot about that number, even if that's the case, even if you own the real estate free and clear. So what's left after that is typically things like utilities, which I mean again, when talking about diminishing returns, most places don't have a whole lot of places you can go to find electricity. Most places don't have a whole lot of places you're going to find water. Just make sure you're not wasting it. If you got those things, those switches that turn off when you walk out... The sensors that turn the lights off when you walk out of the room, that's about as good as you can do.Jonathan VanHorn:You're not going to find 20% of those leftover. So of that 15 cents that was leftover, let's say that there's maybe six cents left after doing all of these things that are just normal things. What you have left is usually something like advertising, office expenses and things like that. And we have some practices, they don't spend anything in advertising. And so what I'll tell people to do is, think of advertising as an investment in your business. And just like any other investment, you want to make sure that that investment is reaping its rewards, having a return. So you should be aware of what your advertising is generating in new patients. And you should also be aware of how much those new patients are generating in revenue so that you can understand if, "Hey, if I'm spending $5,000 a month in advertising, am I getting $5,000 of value every month?"Jonathan VanHorn:If you are, then that may or may not be what your goals are for that advertising, and what your goals are for your business as a whole. But I can tell you, there are people out there that would spend $5,000 in advertising every month if that meant that they got one patient in a month, because it's worth it to them. They're growing a practice, and that patient could be worth 10 to $20,000 depending on that practice. So that's a good return to them and they're fine with it. It may not be for you in what your goals are for your practice and what your utilization is in your office. Because if you're a practice it's cram packed and you have no more room for more patients, and it's three months before somebody can get in, why are you paying for advertising? You don't really need a whole lot... I mean, you're set, unless you have an internal goal of growing, which means you have to expand your capacity, so that you can then generate more patients in to service that capacity.Jonathan VanHorn:So that last 10 to 15 cents that's leftover, again, you could spend a Herculean amount of effort on that 10 to 15 cents that's leftover to try and reduce it by maybe 10%, and you're going to find one and a half pennies basically. And again, you're going to do this one time a year, and that's typically all you're going to need. Now, the advertising, well, I can make an agreement, you can do that more frequently. The employee piece, that's just good management and understanding your management, it's not budgeting. It's just making sure that you're not wasting your money in that regard. And so let's say that you did all these things and you can come in, you can influence these numbers, you've done an amazing job if you've been able to influence all these expenses and lower them by five to 10%. Not five to 10% overall, but five to 10% of the 55%, which would mean that you've moved from 55 cents of every dollar down to maybe two and a half to five pennies extra that you're going to get out of every dollar.Jonathan VanHorn:And I know of practice owners that spend tens of hours a month trying to do this, and trying to reduce these expenses, because they want to spend less so they can keep more of every dollar that comes in. But to me, that's missing the picture. That's missing the bigger picture, because instead of trying to save that five to 10 cents, why not just, around the other side of that table, pour out 100 more pennies in which you could then move 55 cents of those over and keep the 45 cents. Hey, everybody, Jonathan checking in really quick here. This episode got a little long, so we cut it into multiple pieces. This is episode one. You can find episode two next week or in the following weeks. So make sure that if you listen to this episode, you listen to the other episode as well so you have the full context around everything that's going on. Thanks for tuning in. And we will see you next time.Jonathan VanHorn:That's it for today guys. I hope you enjoyed this episode of the Tooth and Coin Podcast. If you are going to be a practice owner, or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com, you can check out more about our CPA services. We help out around 250 offices around the country. I would love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners, so people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they're starting up. Or has become an owner in the past five years. That is our specialty. We'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan VanHorn:And if you enjoy today's episode, again, go to the Facebook group. Talk to us about what we've talked about, join in on the discussion. And let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the longterm. Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444. That's toothandcoin, no spaces, T-O-O-T-H-A-N-D-C-O-I-N to 33444. Reply with your email address, we'll send you instructions on the Facebook group, we'll send you the resources when they're available. And we will see you next week.

Join the discussion on Facebook!TranscriptJonathan VanHorn:Hey everybody, Jonathan checking in here. And just so you know, this is a two-part episode. This is the second part of the episode. So if you've not listened to the first part yet, you want to go back and listen to it in the prior ways. We should have it labeled on the episode title, what part one is and part two is. So you should be able to listen to that in the ... See that in the title of the episode, what episode of episode it is. So thanks.Jonathan VanHorn:Welcome to the Tooth and Coin Podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones. Some of them are very specific, but we hope that these episodes help you along with your journey. Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan VanHorn:Another thing that you need to know is if you enjoyed today's content, join us on the Facebook group. We've got a Facebook group that is active with Dennis that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us. Don't agree with us. Have a story to tell. Have something to share. Join us in the Facebook group. If you go to Facebook and you search for Tooth and Coin Podcast, click on it to join it and be able to join us there. Finally, if you need some more help, we're developing a list of resources that are going to be centering it around our topics of discussion, to be able to help you a little bit more than what the content is doing. So if you'd like access to that, whenever it becomes ready, all you have to do is text the word ToothandCoin, T-O-O-T-H-A-N-D-C-O-I-N to 33444. Again, that's ToothandCoin, all one word, no spaces, to 33444, reply with your email address. And we'll email you instructions on how to get into the Facebook group, as well as add you list to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you as well.Jonathan VanHorn:On to today's episode. Hope you enjoy it. How does someone define their intention? Because at the end of the day, we're doing budgeting for a reason. How does someone define their own intention? You have to have an intention, but what is intention for someone like us? What's the purpose of all this?Joseph Rugger:Sure. Well, I'll give you a couple of quotes from a couple of authors. One of the ones that I like to quote is Stephen Covey, who wrote The 7 Habits of Highly Effective People. And he said that we need to begin with the end in mind. That's one thing that I'll throw out. And then cautiously, I'll say the next quote is from a guy named Dave Ramsey, who has a tendency to get people all up in arms one way or the other. He has like this cult-like following. And then a lot of people don't like him. Anyways, he said that a budget is about you telling your money what to do, rather than it telling you what to do. So I think that's probably part of my thoughts on intention is, like beginning with the end in mind.Joseph Rugger:So, what is it that is the goal? That's probably a big, lofty thing to think about, well, where do you want to be in 40 years? I don't know. I just need to make sure that the kids get fed, put to bed, make it to school, they make A's and B's and everybody stays happy. So I think that you've got to think kind of long-term. So like maybe part of your long-term plan is that you want to have a vacation home. All right. Well, let's be intentional about that. We don't just wake up one day with a vacation home and an extra mortgage or pay cash for it. We got to put things in motion to help out with that. I think when I talk about intention, I talk about begin with the end in mind, like, what are some shorter range goals?Joseph Rugger:There are going to be some of our clients and some of the people listen to this that may have the short range goal of getting out of credit card debt. They ran up really large amounts of credit card debt. They're getting the practice started or getting through dental school or any of those things. That may be a big thing for them. There are some people that at 22 years old, they find out about an IRA and they want to save every penny they can for retirement so that they don't have to work until they're at whatever age. I think that beginning with the end in mind and just kind of thinking about what are some of your shorter term goals and some longer term goals.Joseph Rugger:Let's say that this idea of having an emergency fund is something that you've never thought of or you've thought about it, heard it was a good idea, but you've never set one up. So then the question to me is, okay, well, what do you want to define as an emergency fund? One month, three months, six months, 12 months? Whatever that emergency fund may be. Okay. Well, let's just say, just to use easy numbers, let's say that I've decided and determined through my own individual thoughts that $10,000 is what I need for an emergency fund. Okay. May sound like a lot. May not sound like a lot to others. Just to use it as an example. And I say, "You know what, within the next year, I really would like to have a $10,000 emergency fund." Okay. So let's back that up. All right.Joseph Rugger:So if we've got a year from now, how much do we need to save every single month? Well, 12 months, $10,000, whatever that is 8, $900 a month. So how do we be intentional about making sure that our budget and our money that's coming in, money that's going out, that we've got an extra eight or $900 a month that we can save to that emergency fund to get there? So I like short term goals. I like long-term goals. I like looking at the big picture and beginning with the end in mind and telling your money what to do. Because if you don't, if it just kind of flies in and flies out, one of the things that you mentioned, John, and I'd be interested kind of in your thoughts on this, when you brought it up, you brought up a life creep or lifestyle creep. So for people that may or may not understand what that term is, maybe kind of expand upon that for the people that are listening.Jonathan VanHorn:Yeah. So lifestyle creep is just whenever you're spending whatever you have. You live your life according to what you can afford. And then when you start making more money, you can afford more so you start doing more living than you are saving. So it's something that is very common inside of the dental industry. It's common in all industries where you have an increased amount of income very quickly, compared to what you had beforehand. It's just something that you have to be very aware of and you have to be prepared for and you have to actively fight against.Jonathan VanHorn:To touch on your point, the way that I did it, the reason I started doing the budgeting was because I'm a person that is very hard to define goals with because it kind of goes all over the place. So what I did is I said, I said, "Okay, here's what I want my life to look like in 10 years." And I actually pulled it up on my phone. It was in 2016 when I wrote it down the first time. And I separated the what in my life to look like from a monetary standpoint, from a work standpoint, and then from a relationship standpoint. And I found it was much easier for me to start budgeting if I did more than just the dollars amount parts of it, because to me, the numbers were important, but it was the other things that ended up making the exercise of budgeting more important, because I knew that if I didn't have the monetary element of it, that those other goals would be at much higher risk because of my lifestyle at the time.Jonathan VanHorn:I want my lifestyle to be a certain way. In order for my lifestyle to be a certain way, I know I need to have at least some type of these funds. And then that allowed me to then pull it back and be like, "Well, okay, if that's my goal in 10 years, what do I need to accomplish in five years? What do I need to accomplish in a year? And how do I get started on that now?" So that helped me with my intentionality, is writing down those goals, again, those monetary, relationships and work, how do I want that all three ... What are my goals for all of those things. What do I want to achieve also was in there. So that helped me with my intentionality as well. So I wanted to touch on that really quick.Jonathan VanHorn:But in terms of lifestyle creep, if budgeting is a way to hold yourself accountable, then that doesn't happen in my mind, because you can tell very quickly is my spending higher just because I have things that I want or is it because of things that I need. And this is something that is, I hope my wife never listens to this, but I've talked to her a bunch of times about what is want versus need. And we've had many arguments on what we need versus what we want. And it's something that, budgeting will allow you to do that. Whenever I'll look over that list of expenses every month, I kind of think of them as like subscriptions. How much am I spending on subscriptions to everything? Because when I think about it in those terms, it helps me decide like, here's what I'm going to stop the subscription of, or here's where I can lower the cost of the subscription in this way to be able to optimize this spend in a better pattern in some way.Jonathan VanHorn:So in terms of that budgeting, I guess if I'm putting a better, bigger bow on it, to me, budgeting is a component of goal setting in your personal life for the longer term aspect of it. So when you're being intentional with these things, and this is one of those things that someone could construe this as financial planning, talk to your financial planner about these types of things, I would say. These would be things that we would be able to have a conversation with you about, I would assume. And if you're having problems quantifying like a dollar amount and things like that, I think financial planner could probably help you with getting that number idea started. Your CPA might be a financial planner, but if your CPA is not a financial planner, this is not what CPAs typically do.Jonathan VanHorn:I want to just make sure that that's said just so that expectation is ... Your CPA may have some things to say about this, but this is 100% a financial planning thing that gets done here. So Joseph, if we came back to you, whenever you're being intentional with us, you're trying to find a home for all the money that's coming in and you're trying to put your money to work in the way that you want to be put to work. What are the components of that? We've talked about spending money, we've talked about income. How do you do something like that? I mean, is it ... Because debt is basically negative money. There's all different types of debt. Someone's decided, okay, I'm going to set goals. I'm going to be intentional. I'm going to budget. What do I do next? We talked about categorizing expenses and monthly expenses and variable and things like that. What about things like that? How does that go into this whole spectrum of budgeting?Joseph Rugger:Yeah. Good question. I think that you probably have heard the terms like good debt and bad debt. And this is going to be an oversimplification, but any kind of consumer debt, like money that you didn't really save up for it. And like all of a sudden I owe a whole bunch of money, that's consumer debt. Something like a credit card, like, oh, I ran up a $25,000 worth of credit cards and I can't pay it off. That's a consumer debt. I think that most people would classify that as bad debt. If you look at things that are typically classified as good debt, it would be in things that are going to have a higher return for you. So whenever you look at hopefully when you buy a home, you purchase the home for X amount of money. And between now and 30 years from now, the value of that home has increased. That would be a good debt. We have an increasing asset that's going to increase in value.Joseph Rugger:When we talk about the idea of you getting a chance to go to a school and have a higher education, you're investing money that you're going to get some future return, we hope so, from that education. So if you went to dental school, you know that that was very, very expensive. But as a result of taking on that debt, you have the ability to go out and earn a good living for you and your family or your future family. We're looking at business debt. We talk about our practice owners that are out there that they have a wing and a prayer and they start a practice from scratch, or they buy an existing practice. They oftentimes have to use debt to leverage themselves.Joseph Rugger:But hopefully what that's going to do is that's going to be an increasing value asset that's out there. So kind of where does debt fit in to this whole kind of budgeting piece? So you've got, again, your fixed expenses and your variable expenses. If you've got a payment on a piece of debt, that's going to be fixed. And then what you've got to decide is, do I want to get more aggressive in paying off this debt or do I want to do something different with this money each month? There's lots of different people that would tell you something different, but one of the things about debt is that it has a very emotional ring to it. And a lot of us have some kind of deep seated emotion around debt.Joseph Rugger:Maybe our parents constantly were living paycheck to paycheck or maybe our parents declared bankruptcy because they were had too much debt. If that happened to you in your formative years, then you're going to have a very different outlook in debt and if your parents were in the flipping a real estate. They're in flipping a real estate and they're constantly kind of back and forth and signing up for loans, you're going to have a very different emotional piece to debt. So I'd say that it certainly is different for each individual person. What I want you to do is be intentional with the money that's coming in so that if early debt pay down is your goal, then you've got money to do that. If instead of paying down debt early, you want to invest that money, or you want to save it to an emergency fund, or you want to save it for a car, or you want to do anything else, or you want to spend it, have a big blowout for your kids' summer birthday party, I just want you to be intentional about it.Joseph Rugger:So I think that debt has just a lot of very, very emotional ties to it for everybody. That's just a little bit different. So if early debt pay down is something that's part of your goal that you've determined with your financial planner, then I think that that's a good path to go down. If you want to kind of make the difference between good debt and bad debt. I mean, I don't think there's anybody that would tell you that it's a good idea to carry credit card debt at 24.5% interest. If you've got this big, huge, credit card balance, I think that most people would classify that as bad debt. So be intentional about living within your means.Joseph Rugger:There's only one way that you're going to get to the place where you're going to have freedom from having to work every day, if that's part of your goals. Maybe some people want to work until they can't work anymore. That may be part of it. I think most of our listeners probably at some point want to retire and put the handpiece down. Only way you're going to do that is if you spend less than you make. Pretty simple.Jonathan VanHorn:So what about the people that make money and there's no money leftover? They pay the minimum payments. They pay for all the necessities. And it's just barely getting, maybe they can save 1,000 bucks a month more than what they're spending. What are the solutions for them? What can they do?Joseph Rugger:Increase income, decrease expenses. I mean, as simplified as that is, that's really your two options. Go out and make more money or spend less. Where do we go for that? Where can you make extra money if that's what you want to do? If you're already working 85 hours a week and you're emotionally drained and you don't have anything left over for your family when you get home, working more hours is probably not the best solution. I think that to get a chance to go through expenses and see what's going on there, you may or may not be in too big of a house and too nice a house. You may or may not need to have a $60,000 car. You may could do just fine with a $15,000 car. So increase income decrease expenses, and where can that come from?Joseph Rugger:For most of the people that are going to listen to our podcast, if they want to change their equation that you just mentioned, it's going to be through a practice ownership that they own, that they're going to become more profitable as a business, which is one of the things that we hope you start out at a certain level and you hope that you invest your blood, sweat, and tears into this practice and it grows over time and it makes more money. There certainly are always expenses to cut. There's always additional side gigs to try and to do, but at the end of the day, if you can increase the value of the business and the cashflow of the business that you're pouring everything that you got into, I think that's probably going to be a big chunk of the things that the people that listen to this podcast will be able to do.Jonathan VanHorn:Yeah. It's hard sometimes to think about it in those terms of we'd love to be able to ... Well, we can do without Netflix and we'll save that $12 a month, all of our problems are solved. Wouldn't that be nice if that was all it took for all those problems to be solved? In terms of the dentists that I speak to almost every day, I see more and more are searching for that mix of lifestyle and financial independence. There's a term that I've heard called FIRE, Financial Independence Retire Early. And I think that's what that stands for. And I speak to more and more young dentists that are trying to reach that type of a lifestyle eventually. And I don't know.Jonathan VanHorn:And again, I'm not a financial planner at all by any shape, form or fashion, but I don't know the best way to reach FIPE for a dentist. I don't know if it is to keep seeking it out as an associate and just have the steady income or if it is to take on a lot more debt early on and to increase your earnings potential. It sure seems like based off of the clients that we have, that it's the latter. It's get your own business, increase your income capacity and a lot of those expenses and the Y that I was talking about before, not the W-H-Y, but like Y as in the variable and the spend, those numbers shrink down so much compared to your X. There's a lot of Z left over.Jonathan VanHorn:And this is anecdotal because I speak to people from all over the country. And I would say like an average associate pay for a GP is somewhere between 130 and $170,000 a year. And depending on the location of the practice that you're in, I would say that for a dental practice ... For that same associate owning a business is not easy, but many, many, many dentists can get to a double that average in take home income with what is perceived to be a small amount of effort compared to the associate gig. It sure is a lot more simple to, if you've got $10,000 of expenses a month, to pay for those expenses with $20,000 a month of income, compared to $11,000 a month in income. It's just a lot simpler to do that.Jonathan VanHorn:And then there's also the people that do even better than that, and you get to 3, 4, 5, 6, $700,000 of income and they all seem to be able to pay off their debts pretty quickly and then get to that financial independence pretty quickly as well. So I think that kind of depends on the person, of what they want to do. So we talked mostly in this episode or almost exclusively in this episode about the personal side and with the assumption that you're going to have a good understanding of how much money is coming in from a dollars and cents perspective, just on the personal side. So with that note, what do you tell people that have a variable amount of income coming in?Joseph Rugger:Well, I think that with a variable amount of income that's coming in, I think you've got to make adjustments to what you would call your cash cushion. If your monthly spend and your personal checking account is, I don't know, $8,000, just to use an easy number, we'd probably need ... If I were to say you need to have X amount of dollars in cash cushion in your account, somebody that's got variable income probably need to have a little bit more kind of in cushion so that we can ride those ups and ride those downs. I mean, you're always going to have your fixed expenses. We mentioned kind of your mortgage payment, your debt payment, lights, water, utility, X amount of dollars kind of as a baseline for food and clothing, that kind of thing. So those are things that as money comes in, those things all get taken care of first.Joseph Rugger:And then it's all of the extras or we were talking about the needs versus the wants. The wants come after the needs are met, kind of in that specific order. So I think that's probably the biggest thing that I would talk about, is just understanding like how much cash cushion do we need to have in the personal checking account to ride the highs and the lows. And then how do we make sure that we take care of the fixed things first, the kind of normal, regular routine, monthly pieces that you have. And then we make sure that the wants or the wants happen in the months in which we have more income than the months that are pretty skimpy on income.Jonathan VanHorn:Makes a lot of sense. The income being variable usually also comes from the business side of things. If you own a business, you can have a wage and you can have like a guaranteed payment or guaranteed draw or just like an automatic transfer of funds. It's a certain amount every month for your business or your personal account. But some months there may not be enough cash in the business to do that. So that's when the real variability can come into play and hopefully if you have a lot of success, that number, that variable is because it's a lot more every month that's coming in and then hopefully we'll have an intention of where that money can go to. Can you recap for us budgeting as a whole, the steps someone should take, if they've not done budgeting before, that is most likely to lead them to getting to the point of actually doing this exercise?Joseph Rugger:Budgeting is about understanding how much money comes in every month and how much money goes out every month and trying to be intentional about that so that you can begin with the end in mind, have short-term, long-term goals and make sure that you're meeting those goals at a high level. Some of the specific tools that we talked about, the simplest and easiest one is to figure out and pull out a bank statement and look and see how much cash came in, how much cash came out, pull three or four months worth of them and you'll get a pretty good idea of what's going on with your cashflow. There are lots of different tools that are out there to help you figure that out. You mentioned Mint. I've used Mint in the past. Probably a lot of people have heard of or are familiar with Mint and certainly has some positives and negatives along with that. Microsoft Excel is kind of my tried and true piece about that.Joseph Rugger:But I think just beginning to understand your financial picture as it comes in to make sure that life creep is not something that takes over and up-ends your stuff. I think those are kind of some of the top of mind things that I would have to chat about. Where's your money going? How intentional are you? Do you have a plan? Do you have a financial planner that's helping you get from where you're at to where you want to go? What's that look like? Are you tracking progress over time? Are there technology tools that are out there that can help you do that? I think those are all kind of different places to start. Pull out your credit card statement. You want to know where your money's going every month? Pull out your credit card statement and see. You mentioned subscriptions. We're kind of in this section of our economy right now where almost everything has moved to some sort of a subscription base, whether that's getting your news every month or getting your entertainment or-Jonathan VanHorn:Paying for your CPA.Joseph Rugger:Paying for your CPA. Right. All of these different pieces are all based on a subscription. You want to know where your money's going? Pull out your stuff and see. And as you mentioned, Jonathan, maybe you use it, maybe you don't. Do you use Amazon, Netflix, Hulu, Disney Plus, whatever the new discovery channel was? I forget, I saw that the other day that came out. Do you use all of those things? If you use them? Great. Is it worth it? Yeah. If you don't use it, is it worth it? Well, no, of course not. I think those are some pretty simple, basic places to start. And just start having conversations internally about it. If you're married, have it with your spouse and get on the same page and talk about intentionality and all these different pieces. That's kind of where I would start. What are your thoughts there?Jonathan VanHorn:I agree with everything you said. The one thing I would add is I would add preset when you're going to do this. If you're thinking about doing this right now, put on your calendar when the first time you're going to dedicate to doing this. It's incredibly hard for me as a person, I own a business, have three small kids. And like I said, we used to do it every Sunday night at like 8:30. Well, one of our kids, they don't sleep very well. So sometimes it's 10 o'clock before we even get away from kids at night. Those Sunday nights, sometimes that's we get behind on doing it. But if we're available at that time, that's the time that we're going to do it. So preset some time. Preset some regularity to it so that you can have some discipline and just knowing that, hey, this is what I'm going to do at this time. I promise you, you can DVR that episode of ... I don't even watch. Lost. I don't know. I don't know how long it's been since Lost has been out there-Joseph Rugger:That was like 10 years ago, dude.Jonathan VanHorn:Exactly.Joseph Rugger:How about Yellowstone? Yellowstone's going to come out soon.Jonathan VanHorn:Yellowstone. Everything else is on the streaming. So it's not like you have to be watching ABC, watching America's funniest home videos at night with Alfonso Ribeiro. I mean, you can find that time to do that. The other thing I would say is be reminded of the big picture consistently, whenever you do this. You don't have to do it every time. I find that when I pull out that list of, like I said, it's still on my phone from 2016. It's just in my notes, on my iPhone of everything that I wanted. Because it helps you remember why you're doing it. And then also have some way of visualizing if you're hitting those goals or not.Jonathan VanHorn:So whether it be if your goal is to get out of debt, make sure that you have something that says, "This is how much debt we have right now." If you do this once a month, if you do it every week, whenever you pull it up, make sure that's all in the thing that you're tracking. This is how much debt that we currently have. Are we making strides towards getting it gone getting it over? I think those are the things that will help with that intentionality that you're talking about. Or is it a more defined way of looking at that intentionality and a little bit of a hack on how to be disciplined to do it because that's the hardest thing for me, is to have the discipline to continually do it over and over again. Because there'll be stretches where I just won't do it for two months, three months, four months, five months. But I know for me personally, the longer I don't do it, the more stress it builds up for me. And then I go and do it. I'm like, oh, okay, yes. We're still doing. We haven't changed much.Jonathan VanHorn:My wife and I are not very extravagant people that go and do a whole lot of extra stuff. So it's not super hard for us to stay within those bounds of what it is. And over the last couple of years I've taught, I'll go in there, I'll be in the lab, so to speak, catching up and things like. April, whenever we talk about it and I'll say, "Well, yeah, we're fine. There's no issues. It's just, I want to make sure that nothing crazy is going on or something like that." But anyway, so that'd be my only thing to add, is create discipline around it by creating regularity, which is by prescheduling what it's going to be. And then be reminded of the big picture very consistently so you can know if you're on track or not, if something changes. Those are things you said, but just more specific ways of going about it. And the tool that I was talking about earlier was Clarity Money as well. I think it's a really good one that some people could use as well, too. So yeah, so I think that was a pretty, without being hyper specific to any case other than our own, is a pretty good overarching class on personal budgeting. Is there any other points or pieces that we need to discuss in that?Joseph Rugger:I think we got it, man. I think it's great.Jonathan VanHorn:Guys, if you are interested in talking more about budgeting, this is something that we do pretty regularly. If you want to share, if you've got a budgeting hack or something that you use to budget regularly, or if you just have a really cool way of doing it, make sure to go into the Facebook group, make a post about it. Tell us about it. We'd love to add that to our repertoire too. Appreciate everyone tuning in. This has been a fun episode. We're going to have another episode about business budgeting, which is a complete ... Well, a lot of people can play the tune to the same thing. They are completely different and there's different reasons of doing it, there's different methods of doing it and there's different purposes of doing it. So that's going to be a different episode. This is probably the second episode of this personal budgeting content. And we will see you guys in the next one. See you, Joseph.Joseph Rugger:Bye guys.Jonathan VanHorn:That's it for today, guys. I hope you enjoyed this episode of the Tooth and Coin Podcast. If you are going to be a practice owner or a new practice owner and you're interested in CPA services, head on over to ToothandCoin.com, where you can check out more about our CPA services. We have around 250 offices around the country and we'd love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners. So people that are about to be an owner of a practice they're requiring, about to be an owner of a practice they are starting up or has become an owner in the past five years. That is our specialty. We'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan VanHorn:And if you enjoyed today's episode, again, go to the Facebook group. Talk to us about what we've talked about, join in on the discussion and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive and better in the long term. Lastly, if you want access to those resources that we are currently building, just text the word ToothandCoin to 33444. That's ToothandCoin, no spaces. T-O-O-T-H-A-N-D-C-O-I-N to 33444. Apply with your email address. We're sending instructions in the Facebook group. We'll send you the resources when they're available and we will see you next week.

Join the discussion on Facebook!TranscriptJonathan VanHorn:Welcome to the Tooth and Coin Podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones, some of them are very specific, but we hope that these episodes help you along with your journey. Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan VanHorn:Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group, that is active with Dennis, that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share, join us in the Facebook group. If you go to Facebook and you search for Tooth and Coin Podcast, click on it to join it and be able to join us there. Finally, if you need some more help, we're developing a list of resources that we're going to be centering it around our topics of discussion, to be able to help you a little bit more than what the content is doing.Jonathan VanHorn:So if you'd like access to that, whenever it becomes ready, all you have to do is text the word toothandcoin T-O-O-T-H-A-N-D-C-O-I-N to 33444. Again, that's toothandcoin, all one word, no spaces, to 33444. Reply with your email address, and we'll email you instructions on how to get into the Facebook group, as well as add you to the list, to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you as well. So on to today's episode, hope you enjoy it.Jonathan VanHorn:Hello, ambitious dentist. Today, we're going to be talking about a topic that is, you know, some people that could even maybe think is a little bit controversial. It's one that is not everyone's most favorite thing to do. For Joseph and I, being CPAs and in the financial world, it's pretty fun. It's a fun game to play. And we're talking about today, budgeting. So the big problem surrounding budgeting is that you typically do budgeting as a response to something else. And the problem that is being responded to, for budgeting, is that as a dentist, you typically have a pretty good amount of income, potential earning capacity, in your lifetime, in your professional career. And with that additional income can sometimes come life scope creep.Jonathan VanHorn:You've got a lot of responsibilities. You may have some extra debt coming in and you don't really know what to do with that income. And so today's episode, we're going to be talking about the personal side of budgeting for your personal income, and then we're going to have a follow-up up, so that's going to be talking about business budgeting, which is our two completely separate topics. Just as a reminder, since this is, I think of all the episodes that we've done so far, this one could be the most easily confused to be financial advice. This is not financial advice. This is two CPAs talking about personal financial budgeting, and just talking about some of the things that we do in our personal lives, and things we've seen other clients do as well.Jonathan VanHorn:So Joseph is a master of budgeting. I budget myself, but it's not nearly as robust and as sophisticated as how Joseph does his. Ever since I've met Joseph, the first time, I think he talked to me like, "Hey, have you ever tried to do budgeting?" And so he's been really, really deep in this world for a long time. So Joseph talk to us about budgeting and for definition purposes, let's assume no one has ever heard of the term budgeting before. What is budgeting and how does it help address the problem that we outlined?Joseph Rugger:Yeah. Great question. So we're talking about the B word. We're going to have people that are going to go search for our podcast, and they're going to say that we're doing an episode on budgeting, and they're immediately going to not listen to it. They're going to skip this one and go to the other ones because budget has a tendency to be a bad word. So some initial feeling. So one of the things that I always like to talk about when we talk about money is, money is amoral. Money is not good. It's not evil. It's not any of that stuff. Money is just a tool, just like anything else that you can use for anything that you want. So at a high level, whenever we hear budgeting, we think that means control. Somebody, somewhere is going to control my money and we get very emotional about it.Joseph Rugger:And one of the things that we try to do as CPAs is we try to remove the emotion out of it as much as we can. So knowing that this is your livelihood, knowing that this is everything that's going on, this is your hopes and your dreams, your blood, sweat, and tears, everything that you've poured into this business, into your career, into your life, we want to try to remove as much emotion as we can. So I think that probably one of the first things that I would say about budgeting, in general, is that budgeting is about being intentional. And what we want you to do is we want you to be intentional with your money, whether we're talking about on the personal side, or on the business side, which we'll get to in a later episode, we want you to be intentional with your money.Joseph Rugger:So at a high level, budgeting is about how much money is coming in, and how much of that money is going to go out, and who gets that money, and where does it go. So very simply, if I have income of 100 bucks in a month and $95 of it goes out the door, my checking account balance increases by $5, right? So where did that $95 go? Maybe a part of it was a tithe or some sort of charitable giving. Maybe it was some sort of a savings that you're putting money into a savings account or an investment account. Maybe that's going towards paying your house payment, paying your car payment, paying your utilities, paying for your kids' school, paying for groceries. They're all of these different categories that we have in the budgeting world. So at a high level, a budget is about how much money is coming in, and then how much is going out, and then sticking to that, or not sticking to that, and making choices along the way.Joseph Rugger:So whenever we say budgeting, Jonathan, what are your thoughts? Do you get that squirmy, "Man, that sounds like somebody is going to control me. I hate that word. It's a bad word." What are some of your thoughts? You're a CPA, but we're still emotional. We're still emotional as CPAs about our own money.Jonathan VanHorn:Yeah. So the budgeting side of things to me is always, I guess, I just initially will sometimes get frustration when I think about budgeting. And the reason is because I like to plan, and I like to have a path, and budgeting, a lot of the time, ends up not going the way you planned. Little things come up and things like that. And it requires a lot of discipline. So sometimes that can be frustration, especially whenever you have more than one person that's in your family home, that you can sit down with them, and come up with a plan, and it only takes one person to make that plan go one way or the other. So I do get a little frustration when I think about budgeting.Jonathan VanHorn:And I think the other frustration comes from the fact that you got to do it. It's one of those things that you if you know enough about it you know it's important, but it's very easy to neglect it. It's very easy to just not really try and worry about it too much because of the amount of effort that has to go into it compared to what you can perceivably get out of it. So yeah. So frustration is probably what I think of when I think of budgeting in and of itself. But again, it's a necessary thing to do, especially on the personal side. We'll get into the business side of it in another episode, but from the personal side, yeah. It's just one of those things that if you're not managing where the money's going to, it just gets so easy for it to just go this way, that way, and everywhere in between. So I'm happy to share how I do my budgeting, but I would love to hear how you like to approach budgeting or how you have to approach budgeting for people that have never done it before.Joseph Rugger:Yeah, sure. So couple of things. So there's lots of different resources that are out there. There's lots of different authors that have written on this topic. I think it'd be worthwhile for me to share a couple of people that have been influential, just helping me shape the way that I look at money, and how it flows, and that kind of thing. Some of these names are probably dirty names in your household. Some of them you may hear and be like, "Oh man, that person's an idiot. I don't like them." But these are just people that I've read. One of the great things about growing up and becoming an adult, when you're a young child and you go to school, you learn this is the way it is, like the world is round. It's not flat. It's very zero and one, very right or wrong.Jonathan VanHorn:There are people that disagree with you, even today, unfortunately, about that being round.Joseph Rugger:Fair enough. Fair enough. Fair enough. But that's just the way our education system works. And then, when you get out, and on your own, and start learning things, you realize that everybody has a different perspective and a different way of looking at things. So there is no right or wrong answer with a ton of stuff. So I'm going to mention a couple of authors that have been influential in my life as I've read the stuff that they've put out, but it's their perspective. It's the way that they look at things. And it has helped shape my perspective on a bunch of different things inside of my life. So some of the names you'll recognize, I'm sure you probably will, and one of them was Dave Ramsey. He was one of the first ones that I started to learn about money and how it works.Joseph Rugger:I really like Ramit Sethi. He wrote a book called I Will Teach You To Be Rich. I really like David Bach who wrote The Automatic Millionaire. Dave Ramsey book is the Financial Peace. Financial Peace University has a class out there. Robert Kiyosaki wrote Rich Dad Poor Dad, which is also a really good resource and a good thing. So I've read, and learned a lot, and put a bunch of these things, in general, in place in my life to figure that out. So whenever I look at "budgeting," it's more of an art than a science. I mean, there is some science to it, but there's a lot of different things that happen. Life happens, right? Things happen in the course of a given month, and to me, budgeting is about having a plan where you can be prepared for different things.Joseph Rugger:So something as simple as having an emergency fund is something that I'm sure is familiar to all of our guests now. How much and where should it be and all this stuff. We're not going to get into all of that because that's not really what we're talking about, but being intentional with your money and making sure that you've got different perspectives on stuff. So I'm old school. I'm probably older than a good chunk of the people that listen to us. So I didn't grow up with all of the fancy tools that are out there now. To me, Excel was one of the first big pieces of software that I learned how to use, right? I didn't grow up with mint.com, and an apple iPhone, and all of these things. I remember getting my first flip phone when I was 16-years-old, we had allotted time of 15 minutes a month.Joseph Rugger:That was the max, emergencies only. So I predate myself a little bit. So Excel is where I live as an accountant. I love Excel. So I have an Excel spreadsheet, and I sit down, before the month begins, and I'm not like our current level of clients to where income is variable. So I've got a pretty good idea, not down to the penny, but I've got a pretty good idea of, let's just say within five to 10% either way, of how much money's coming in. And a practice owner, their income can be so variable within the practice, and within their W-2 wage, and their production, and all this stuff. So one of the things that I'm going to start with is I'm going to start with top line income and I've got a pretty good idea of where that is.Joseph Rugger:Now, if you don't have an idea, you can certainly look at six months worth of history and figure out. And then, there are things that are inside my personal household that are fixed expenses. Things that I know are going to come out every single month, something as simple as a mortgage payment, right? I know the mortgage is going to come out. I know what day of the month it's going to come out. It's the same exact amount every month. So that's a fixed expense, right? There are other expenses that are variable expenses. How many times are we going to go out to eat this month? That's variable. How much is the grocery bill going to be? That's variable. Are we going to take a vacation? Are we going to buy plane tickets? Are we going to buy a hotel room? Those are all variable expenses.Joseph Rugger:So understanding the difference between fixed expenses and variable expenses, I think is important. And the other thing that I would also say that is inside my Excel spreadsheet, Jonathan, I'm tracking every single dollar that goes on our credit card, every single dollar that goes on our debit card, every single money that comes out for this. I'm monitoring our balances on all of our different things, and I'm updating it daily, and I've got a scheduled net worth out, and we've got all of this different stuff. And I would imagine, as I describe these things, probably gives you some heartburn, and even though you're a CPA, I know you're just such a tech guy. So this is like the basics. I feel like I've got a stone and chisel out and I've got my little Excel spreadsheet that's tracking my money as it comes in and out. What are some things that resonate with you there that you guys do, personally, when you look at something like this?Jonathan VanHorn:Yeah. So for me, there's the way I used to do it and then there's the way I do it now. The way I used to do it was pretty similar to what you do. I used mint.com to aggregate the data coming through, in terms of what our spend was and things like that. At one point I used accounting software, which was like QuickBooks Online and Xero. I actually had a complete P and L and balance sheet set up for myself or my family. So that can tell what our net worth was, the balance sheet, and see our income spend. I'll have a budget add-on built into it and things like that. And those things for me, the way that I work, and the way I'm wired, they really only lasted probably six to nine months at a time.Jonathan VanHorn:And I would probably just... something would happen and I'd be like, "I don't have the ability or time to do this right now. So I'm going to put it off." And then what happens is we put it off for too long, then it just gets to be where it's such a big mole hill to get over. I was just like, "I don't want to do this." What happened, happened. I can't change what happened at this point. So I'm not even going to worry about logging the transactions and doing all these other types of things. So I've used Clarity Money, which is an app through I believe Wells Fargo. That is a really good one, too. I really enjoyed that one. That one was probably the most automated and the best aggregator of everything that I've used and was all done in your phone.Jonathan VanHorn:And even that, even as simple as that, I stopped using it just because I've eventually got to a point where I was like, "Oh, there's so many things going on with this." That it ended up not being what I... It didn't do exactly what I wanted it to do every time, so I got tired of messing with the nuances of it. And so now, what I do is I use a spreadsheet, and I have different categories of what I do, and what it is. And like you said, you have your, I labeled it as monthly expenses. I have a monthly amount of money I'm going to spend, whether it be through mortgage, or my kids' school, or health insurance, or utilities, or car payment, or whatever it may be. They're the knowns.Jonathan VanHorn:I know we're going to spend this much money on these things, and that's our monthly dollar amount. And let's say, "Okay, well, this is our monthly dollar amount on this." And then, I have our variables, like you said, our meals, how much are we going to spend on gas? How much are we going to do on these other things? And I just lump those into a big category of all the variables, if we could spend less than this amount. I honestly don't even at this point track if we hit those things or not. It's just an internal thing in my head I can try to keep up with. There's also just the one-time things that just come up, like something happened with the roof, or something happened with this, or something happened with that.Jonathan VanHorn:And then we'll use our other personal funds to take care of it. So whenever we were doing the other things, the purpose of that, to me, was for us to build up our cash reserve, so we could withstand some little things here and there. Luckily, we'd done it for long enough that we'd saved enough where we have a six to 12-month saving account. So we over-fund that already. The one-time expenses don't... I don't think we've ever had a $10,000 one-time expense. Hopefully, that never changes. But funded that up pretty quickly after that. That is how we currently do our budgeting, so I don't go in and look at every single line item detail.Jonathan VanHorn:I almost never look at every line item detail. I usually just look at the total amount we spent in a month, compare that to the here's our monthly definite amount. Whatever's the difference of those two things must be the variables. Is that number super high? If so, then why? Do we need to change something about what we're doing? If there's nothing we could do, then I'm just content with it to be honest with you. So that's how I currently do it. And I probably do that once every couple of months. I don't do it enough. I would say the most effective time we have when we were budgeting was whenever my wife and I would carve off 45 minutes every Sunday night, before the week began, to talk about what was going to happen over the course of the week. But three kids sometimes... At some point we didn't even have Sunday nights to do that with, so.Jonathan VanHorn:So how do you do budgeting? What do you recommend people do in terms of that? Because I'm sure my history with it is similar to a bunch of different people's paths with budgeting, but what do you do? What do you recommend? Things like that.Joseph Rugger:Sure. Sure. So I think that in general, I want to use the word intentional a lot in this podcast episode, because I think it's important, especially when we're talking about money. I want you to be intentional with your money. I think the other thing that you need to do is you need to be consistent with it. So Jonathan just described like, "Oh, well, we used to do this and we kind of do this. And on our own, we look at it every couple of months." The more complex that you make anything in life, the less the chances are that you're going to be able to stick with it. So if I say, "An Excel spreadsheet," I've already lost half of you. You're like, "I don't even know how to use Excel. That's for accountants." I've already lost half of you. The other half of you are like, "Oh, I think I've heard of Mint before. I've used that before. I know how that works. It's a data aggregator, right?"Joseph Rugger:So I think, in general, we want you to be intentional with the different stuff that you have. I want you to figure something out that you can stick with. And it may be the end thing that Jonathan ended with there, which is we just have this number that we need to spend and go through every single month. And if it's more than that, we know that we've got an issue. If it's less than that, then we know that we're in good shape. So just having just, in general, how much money went out of your bank account. That's a simple, simple thing. If you have one bank account that all your money comes in and out of, it's very, very simple.Joseph Rugger:What was the beginning balance on that checking statement? And what was the ending balance? And what was the Delta there? What was the change there? So I think that that's probably a good first place to start is understanding are you increasing your cash each month? Are you decreasing your cash each month? What's something simple that you can stick with? What's some things that you can be intentional about? So one of the things, I mentioned, David Bach, The Automatic Millionaire, one of the things he talks about is that how in the history of the United States, the most successful saving program we've ever had has been the 401k, right? So that's an automatic deduction from your paycheck. So that may or may not apply to all of our listeners here, but if it's on you to remember at the end of the month to write a check, to send it to a retirement account, that may or may not be something that you can stay consistent with, and stay intentional with.Joseph Rugger:But if it's an automatic paycheck deduction, then it's out of sight, out of mind. So I'm not here sitting here saying that you need to save for a year and a half or none of that stuff, what I'm saying is what are the systems that you can set up? What are some things that you can put in place that you can be intentional about your money, something that you can stick with? I have good friends that are interested in making sure that they do a certain amount in charitable deductions each month. And I say, "Okay, well, when do you get paid?" "Well, I get paid every other Friday." "Okay. Well, why don't you set up an automatic donation to that charity every other Friday? They draft money out of your account the same day that your payroll comes through."Joseph Rugger:So again, if charitable donations is your thing and that's one of the things you want to do, be intentional about it. So this is how much I want to do every two weeks, or every 15th and 30th, or on the first of every month, or the 10th of every month, or any of that stuff. It's like on your mortgage payment, do you have the... And this is probably going to sound silly to a lot of our listeners at this point, but 10 years ago, there were tons of people that would sit down, and they would write a check, and they would mail a check to the mortgage company, right? So how do you remember? "Oh, well, I got my paper statement in the mail." Well, now it probably comes via email. A lot of you probably have it set up on auto-draft.Joseph Rugger:So what are the different systems that you can set up to set yourself up for success? Whether it be with how much you're spending on meals, entertainment, or travel, or if it's something like how much is my house payment? And what day of the month does that come out? Or how much is going to... We've mentioned a couple of times in emergency funds, how much do I need to have in an emergency fund? Well, I'm not here to tell you how much needs to be in there. What I'm telling you is you need to have an emergency fund. How much, that's really up to you and your comfort level. So how are you going to set up systems in place to have an emergency fund, right? The other thing that I would say is there are things that qualify as an emergency. Back to school shopping for the kids is not an emergency. Christmas presents are not an emergency.Joseph Rugger:Those are things that you need to be intentional about throughout the course of the year, throughout the course of November, December, or July and August, when it's time to go back to school shopping. If we're going to spend $1,000 on back to school clothes for the kids, we can't also spend X amount of dollars on vacations or eating out. All of these things, money comes in, money goes out. It's a zero-sum game. If you're looking at it from a budgeting perspective, I just want you to be intentional about it. I think that's probably my thing there. So Jonathan, I would say, what systems can you set up? What are some things that you can stick to? And what are some things that you can be super intentional about? What are your thoughts there?Jonathan VanHorn:Do you recommend people do the automatic payments to things like with the mortgage and even credit cards can set up automatic payments now? For me, personally, it's all set up whenever I get a medical bill in that can't be paid online, I get frustrated because I'm like, "Oh, I got to find a checkbook somewhere in my house to write one of these archaic notes to someone." So everything I do is done... And also, if it's not done automatically, then I have a chance of not paying it. So do you recommend people do that or are you asking for the intentionality of the payment to be missed if you do it that way? I don't know if intentionality is the word.Joseph Rugger:Yeah, good question. So I think I got to be careful about this because everybody's going to come at this thing from a different perspective. There are going to be some people that are going to listen to this that have $500 in their personal checking account and they're going to live paycheck to paycheck. There are going to be some people that are listening to this that keep $100,000 cushion in their personal checking account. So I think that you got to approach each situation a little differently. So I think, that in general, I think that what is the "cushion" that you have inside of your personal checking account? So some people may be comfortable with a thousand bucks, 5,000 bucks, $25,000, 50,000. Everybody's going to have a different comfort level of what they've got.Joseph Rugger:What I don't want you to do is I don't want you to say, "Oh, these guys told me I needed to automate everything, so I set my credit card on auto-pay." And then, all of a sudden, you ran up a $35,000 credit card bill, and you didn't have $35,000 in your checking account when the auto-pay came through. So I think that that's one of the things that we got to be careful in just saying, "Oh, set everything up on auto-pay." I love auto-pay. I have auto-pay for a lot of things, but I don't have it on everything. I think that you need to figure out what makes the most sense for you to have on auto-pay and you need to just make sure that you've got that squared away. So some people might say, "Oh, I have my credit card on auto-pay."Joseph Rugger:And they send me an email that says, "Hey, by the way, your bill is due. It's due on this day, you're going to get an auto-draft on this day." And they're just like, "Oh, okay, great." And they'd go say, okay, well, however much the bill is, 10,000, 20,000, whatever. And like, "I'm going to make sure that that money is in my checking account." And that kind of thing. So I'd proceed with caution on what all you set up on auto-pay. So there's simple stuff like your utility bill, your gas bill, and your water bill, and your electric bill. I would imagine that most of the people that are listening to this podcast are not living on $50 in their checking account, right? If I talked to my 21-year-old college brother, he probably needs to make sure he actually writes the check for his utility bill and make sure that the money is actually in the account.Joseph Rugger:But some of the smaller stuff like that... I like being intentional about charitable giving, the mortgage payment's a really, really important payment that you don't want to miss, and have fees, and associated with that. The credit card payments are something that gets a little dicey because that changes every single month, right? I've never had two months in a row where all of the expenses go on the credit card and it's the same exact amount. It's going to vary widely based on what all's going on. It's like, we're in the middle of the summer right now, so there's going to be stuff about going to the lake, and stuff about going to the beach, and hotels, and airfare, and like all that different stuff. And we're not doing a whole lot of traveling in February, right?Joseph Rugger:We're hunkered down because the ice was coming and the snow's coming. It's like, every single month is different. May, tons of people get married in May or graduate in May. It's like, we're going to have graduation gifts, and we're going to have wedding gifts, and we're going to have all that different stuff, right? It's like, what month is your child's birthday? Are you going to have a big, huge blowout and have the big jump jump out at the house? You going to have the DJ come and DJ the kid's birthday party? So I'd proceed with caution on setting up some of the bigger stuff, I guess, for automatic payments, and just be intentional about that. Does that make sense? This is me dancing around the question, but for the most part I think it really depends [crosstalk 00:27:12].Jonathan VanHorn:Yeah, I completely understand what you're saying. So in terms of the... We touched on credit card debt, but what about just debt in general? So you said the first step is to have intention. I guess, before we talk about that, how does someone define their intention? Because at the end of the day, we're doing budgeting for a reason. And how does someone define their own intention? You have to have an intention, but what is intention for someone like this? What's the purpose of all this? Hey, everybody, Jonathan checking in really quick here, this episode got a little long, so we cut it into multiple pieces. This is episode one. You can find episode two next week, or in the following weeks. So make sure that if you listen to this episode, you listen to the other episode as well, so you have the full context around everything that's going on. Thanks for tuning in and we will see you next time.Jonathan VanHorn:That's it for today, guys. I hope you enjoyed this episode of The Tooth and Coin Podcast. If you are going to be a practice owner, or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com where you can check out more about our CPA services. We have around 250 offices around the country. We would love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners. So people that are about to be an owner of a practice that are inquiring, that are about to be an owner of a practice they are starting up, or has become an owner in the past five years, that is our specialty. I would love to be able to talk to you about how we could help you in your services with your tax and accounting services. And if you enjoyed today's episode, again, go to the Facebook group.Jonathan VanHorn:Talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things, so that we can all help each other get through these things together, so that this adventure of business ownership is more fun, more productive, and better in the longterm. Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444. That's toothandcoin, no spaces, T-O-O-T-H-A-N-D-C-O-I-N to 33444, reply with your email address. We'll send you instructions in the Facebook group. We'll send you the resources when they're available and we will see you next week.

Connect with David Harris and his team: https://www.prosperident.com/Join the discussion on Facebook!TranscriptJonathan VanHorn:Welcome to the Tooth and Coin podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones. Some of them are very specific, but we hope that these episodes help you along with your journey. Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPA's. This is two CPA's talking about informational and educational content to help you along with your journey. A very important piece for you to understand.Jonathan VanHorn:Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share? Join us in the Facebook group. If you go to Facebook and you search for Tooth and Coin podcast, click on it to join it and be able to join us there. Finally, if you need some more help, we're developing a list of resources that are going to be centering it around our topics of discussion, to be able to help you a little bit more than what the content is doing. So if you'd like access to that whenever it becomes ready, all you have to do is text the word tooth and coin, T-O-O-T-H-A-N-D-C-O-I-N to 33444.Jonathan VanHorn:Again, that's toothandcoin, all one word, no spaces to 33444. Reply with your email address and we'll email you instructions on how to get into the Facebook group, as well as our digital list, to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you as well. So onto today's episode, hope you enjoy it.Jonathan VanHorn:Hello, ambitious dentists today on the Tooth and Coin podcast we have with us, an old friend of mine. It's one of the few people in dentistry I've actually physically met. And that is Mr. David Harris. He is with Prosperident. Basically, if you want to talk about dental fraud, he is the world's leading expert. If someone came up to me randomly on the street and said, "Hey, we're going to have a fight over dental fraud. You've got to pick your horse." David would be my horse. There wouldn't be any doubt about it.Jonathan VanHorn:And David, being a friend of the podcast, listen to our episode, I think it was episode number four. And he was like, "Hey, if you guys ever want to talk to someone who actually does fraud every day, multiple times a day and lives in this world, I'd be happy to have a conversation with you." Joseph and I said, "Of course." You're the best at it. We're going to talk to you about it. We're going to ask you questions. We're happy to have you on. So again, David Harris with Prosperident, dentalembezzlement.com. They are dentistry's embezzlement experts and we're really lucky to have him on the episode. So David, thanks so much for coming on.David Harris:Oh, great to be with you, Jonathan and great to see you again. I will make one clarification. You said I do fraud every day, that's not true. I investigate fraud everyday.Jonathan VanHorn:Okay.David Harris:Other people do it. I just keep score.Jonathan VanHorn:Well you're more involved in that world than we are. I'll say that much. So a big problem we're talking about today on the grand scale is fraud. We hope that we're going to be able to talk a little bit about the how, the why, and the what is being done in the fraud world right now, so that David can really give us in the trenches information about how to combat this and like why people steal money. For a lot of us out there, you don't really think about that being... I'm personally a very trusting person. I want to trust people as much as I can. And so that concept of someone else is willing to just take stuff from me is completely foreign, it's something that I almost just block out in my head because I want to trust people. So David, why don't we start with that? Like, why do people steal from dentist?David Harris:Well, you said a Jonathan, everybody wants to trust people. And just for this conversation, I'd like to be a little more precise in our terminology. You mentioned fraud a couple of times. What I really want to talk about is embezzlement. And embezzlement means somebody who's in a position of trust, like an office manager, or maybe a bookkeeper, possibly another dentist in the practice, stealing from the practice owner. So embezzlement is really the conversation. Your question was, why do people steal? And they steal for two reasons, which I'm going to call need and greed. So needy people have their backs against the wall financially. There's something going on in their life that has meant that there's more money going out of their household each month than coming in. And unless you're a government somewhere, you can't sustain that for very long.David Harris:And at some point they've borrowed all the money they can from friends and they're two months behind in their mortgage payment and the bank is about to kick them out and they steal. And they feel bad about it, but they just don't think they have any choice. And there could be a lot of causes. It might be somebody who's going through a divorce. It might be a situation where you have one spouse working in the dental practice and the other spouse has lost their job. Maybe there's an addiction, but there's something happening that's kind of upset the family finances and they're stealing to keep themselves afloat. And then you have the greedy people and they're a little bit different. They're really stealing to address an ego deficit more than a financial one. So they think basically that they're worth far more than what society thinks they're worth and they're stealing to make up what they perceive as that difference.David Harris:So this is the person who looks at their dentist as basically a high functioning moron with good hands and in their mind the only reason the dentist is successful is because this person keeps their chair full and then when their patients leave, collects the money. And some of them, Jonathan will even construct a partnership in their own heads between themselves and the dentist that doesn't exist anywhere else, but in their mind. And then they're not in their mind stealing, they're just taking what they think they should have in the first place.Jonathan VanHorn:You wouldn't have this money if I wasn't collecting it so I should obviously get 5% of it. Right.David Harris:Yeah. And when you talk about the fraud triangle, which I know you guys have covered previously, I mean the third leg of the triangle is rationalization. And rationalization is when you say to yourself, "I know that in general stealing is wrong. However, it's okay in this case, because..." And then whatever comes after that, because is the rationalization. And one of the rationalizations that we see is called the metaphor of the ledger. And what that says is my value to the practice is much higher than what the doctor's paying me so I'm entitled to the balance. And early in our careers, no, we've learned at age three that stealing is wrong. And rationalization is where you suspend reality for a minute when you say, but it's okay here, because.Jonathan VanHorn:So in terms of like you dealing with the people that have the need or the greed, I mean, is there a defining factor in these people that you guys catch?David Harris:Well, yes. It is the most trusted person in the office because people who you don't trust have a far more difficult time embezzling from you than somebody who you do trust. So Jonathan, if I'm working for you and my plan is to embezzle, I worm my way in your family. I'll be the staff member who will babysit your kids for you, or we'll run your personal errands on my lunch hour because what I want you to think is, "Gosh, I would be so screwed if Sally ever left." And you mentioned trust early on, let's circle back to trust for a minute because the way that humans handle trust is interesting. When you first meet somebody, you do this assessment process of can I trust them? And if the answer is yes, then you lock this away in a closet. You never revisit it.Jonathan VanHorn:It's true.David Harris:And in the world, in which I live trust needs to be a little more fluid concept. And we need to kind of pull that out of the closet periodically and say, okay, I know that I could trust this person two years ago, but are they still deserving of my trust? And it just isn't human nature to do that. And that's when people get into trouble. Dentists' are people of science and healers and altruists, and they really like you want to trust everybody. And unfortunately, I see the consequences of extending trust and never re-examining it.Jonathan VanHorn:How many people do you trust David? That's what I really want to know is how many that you trust.David Harris:Well, I used to trust my mother and my father, but my mother passed away so I'm down to one.Jonathan VanHorn:Hmm. That's funny. And I noticed you didn't mention marriage or anything like that [inaudible 00:09:03].David Harris:Well, I had this argument with somebody once and what I said to him was "Your mother will always be your mother, your spouse may not always be your spouse."Jonathan VanHorn:Do you ever find spouses stealing from dentists?David Harris:We do actually a lot more than you would expect. And usually of course, it's an antecedent to divorce. So I'm married to a dentist and I'm about to divorce them. And I go see one of those horrible creatures called a divorce attorney and the divorce attorney says, "Okay, David, where does your money come from?" And I say, "Well, I worked for my wife, the dentist, and she pays me a salary." And the attorney says to me, "Okay, so when you tell your wife that you're trading her in on a newer model, what do you think her response is going to be?"David Harris:And I say, "Well, I'll be careful to do it somewhere where there are no sharp objects around, but I guess after that she's probably going to take me off the payroll." And the attorney says, "Okay, David, so I'm not going to tell you how to do this, but I'm going to tell you what you have to do. You're going to need to find a new place to live. You're going to have to buy groceries and not least importantly, you're going to have to pay me your blood-sucking divorce attorney. So you need some money under the mattress." And you know how this story is going to end Jonathon.Jonathan VanHorn:Yeah. Well, here's a business bank account that's got $200,000 maybe I should move half of the money into account that's in my name or something like that because I know where the buttons are on the bank website.David Harris:We have broken the news to a number of dentists that your marriage is probably in trouble and here's how I know that. We've caught somebody with their hand in your cookie jar and you're married to them.Jonathan VanHorn:Yeah. Yeah. So we've talked a little bit about why people steal. Let's talk a bit more about real world we're coming in and you're a dentist and your a new practice ownerish, or you've been practicing for a little bit, or you're about to become a practice owner or whatever it may be. What are the risks associated with this? What happens in the real world whenever practices are embezzled from?David Harris:It's a little tough to give you precise numbers and here's why. There's a lot of under-reporting that happens. So there's some embezzlement that never gets detected and we can't quantify that. There's also some embezzlement that gets found by the doctor and it gets for whatever reason swept under the nearest carpet, it doesn't make its way into the statistics either. And again, we can't quantify that. When we look at what we do know the best numbers I can give you came from a study The American Dental Association did in 2018, and the results were published in 2019.David Harris:So what the ADA did was they asked 17,000 dentists, have you been embezzled? And of course this isn't a question that lends itself to absolutes. The good news is 53% of the respondents said, "I don't think so." So 47% had been embezzled. And then the next thing the ADA did was they went back and asked the 47%, "Okay. How many times?" And 27% of all the respondents, in other words about half the people who said yes, said "As far as I know, once." And the remainder were somewhere between two and more than four times. And if you did a interesting little exercise, I took 27% the number of who said yes, once that I know off times one and 11% had said two times that I know of so I multiplied 11 by two, and I think it was around 2% that said three times and so on. So I multiplied the percentage times the frequency and what you got was if you sat a hundred dentists in a room that group had already had 93 embezzlements.David Harris:The other unknown here is how many of the 53% who said, "No. As far as I know, I've never been embezzled", will get hit in the rest of their careers and you there's a pretty good chance that they will. Here's what your clients should take away from this. There's probably realistically an 80% chance that your client will at some point in their 30 odd year career gets stolen from them. The other question is how much money gets stolen? And the answers there come from our case files and the average amount in our case files is about $109,000.Jonathan VanHorn:So is that 109 or a 190?David Harris:One zero nine. One more thing before we leave that question. So I mentioned this study had its results released in 2019. In 2007, so 12 years earlier, the ADA did a very similar study. And in that survey, 35% of dentists reported being embezzled. So from 2007 to 2019, the number of dentists reporting embezzlement went up from 35% to 47%. In other words, it increased by about a third in a 12 year period.Jonathan VanHorn:What do you think led to the increase? Do you think it was-David Harris:More people stealing.Jonathan VanHorn:Okay, well that... People don't all of a sudden wake up and there's like a third more thieves than there was before. I do think it was like the financial crisis of 2008, the economic downturn. Do you see that more often in years where like... We're in boom economies right now, technically. Do you see fraud more prevalent in downturns versus... I mean you've been doing it long enough. Do you see a rhyme or reason to that? Or you just see it all the time, one way or the other?David Harris:There are probably a lot of reasons. First of all, I think that we've done a fair job of shouting from the rooftops and increasing awareness. So I think a higher percentage of the thieves are being caught now. And probably that unquantifiable group who I mentioned who steal and don't caught is getting a little bit smaller. And then yeah, you can point to a lot of events that prompt people to steal. And the other thing Jonathan, I think is that the financial operations of a dental practice are getting more complicated than they once were. Dentists if we're going to be really blunt about it, the control systems in most practices haven't changed fundamentally since the 1960's, which was before computerization, before practices took credit cards, before there was such a thing as an electronic funds transfer, and when probably most dental practices were managed by the doctor's spouse, as opposed to an arm's length employee. Okay. So all those changes that have happened since, I don't know, 1965 and yet the control systems fundamentally haven't changed.Jonathan VanHorn:Do you feel like the technology getting more... I don't know if automated is the right word, but being more efficient has helped or hurt dentists chances of being embezzled against?David Harris:Every technological change creates opportunities for thieves. One of the most successful thieves of the 20th century was a guy named Frank Abigail. And if you've seen or heard about the movie, Catch Me If You Can. That's his story. And Frank was predominantly a guy who passed worthless checks and monetized them. And he said a couple of years ago, if I were doing this today instead of in the sixties and seventies, the amount of money I could have stolen would have been much, much, much higher.Jonathan VanHorn:Yeah.David Harris:And I don't think he's commenting on the effect of inflation on dollars over time. He's simply saying I could do a lot more of this today. And the same comment applies to dentistry. Every innovation and one innovation I'll point to that opened some doors for thieves is a thing called a Square. And a Square is a little white plastic gizmo that plugs into the bottom of a smartphone and allows somebody to pay by credit card. I'm not going to map out the opportunities it creates, but I'll just point to that device and say if I were a thief, I would have a Square.Jonathan VanHorn:So I just gave an example that was too specific for David that happened in a real world situation. So we're not going to share that in case anyone who's listening and looking for opportunities. So we talked about the financial impact and the risk associated with doing this right or that dentists just implicitly take on by being a business owner today's environment in the dental world. A question that I've gotten in the past and whenever I get questions like this I always say in my experience... But I don't have much experience in this world so I'm just going to tell you as friendly information, just as anecdotal information, does fraud or embezzlement typically happen in smaller offices like three to seven employees, or does it typically happen in larger offices of like 20 to 30 plus employees? Again, another question of, do you have any data on this or just thoughts?David Harris:All kinds. What drives the probability of fraud or in this case embezzlement is really the probability of you hiring a dishonest person. And that has no relationship whatsoever to office size or whether you're a periodontist versus a prosthodontist or anything like that at all. The real probability we're dealing with is it somebody you hire maybe 20 years ago woke up this morning and said, "Yeah, today's the day I'm going to steal from my doctor." Statistically, Jonathan, this is a complete random walk. It doesn't depend on any factors relating to the doctor. I mean, another one that I will hear a lot from doctors is "Well, I pay my staff really well and therefore I'm purchasing their honesty and lessening the chance that they will steal from me." Okay. Well, let's go back to those ego-driven thieves.David Harris:The greedy ones that I talked about. These people are like bottomless pits. They overestimate their value by a multiple. In other words, they think you should be paying them three or five times what you are. That extra $2 that you pay your staff above kind of the local going rate, doesn't come close to scratching that edge. So no, there are no offices that are more or less vulnerable. People say my staff have been with me forever and therefore I'm not vulnerable, or I pay people really well or I live in a small town where all of the people I hire used to be my patients. And we see embezzlement that fits all of those profiles.Joseph Rugger:Let me ask you this, David. So when we talk about money in and money out, this is something that you referred to as the revenue side on the expense side. So whenever you're looking at all of the different embezzlements, what typically do you see? Is it majority revenue side stuff or is it majority expense side? And if you could maybe just kind of expand upon that, just for folks that aren't super savvy with accounting terms like revenue [crosstalk 00:20:17]-David Harris:Absolutely. And for the benefit of the non-accountants in the audience, what Joseph's asking about really is there are two ways that people could conceivably steal and he's wondering which of them is dominant. So by revenue side stealing, we mean somebody taking payments that come into the practice from either patients or insurance companies. And expense side stealing would be things like tampering with payroll or if the practice has a bonus plan trying to do things that will maximize the bonus. Or something we've been seeing a lot of lately is staff members making personal purchases because the practice has an Amazon account. So that's expense side stealing. Revenue side means patient or insurance payments. What we see Joseph is probably 80% revenue side theft and 20% expense side theft. So revenue is by far and away the dominant thing.David Harris:And if I'm the office manager and I want to steal on the expense side, it takes work. I have to do things to make that happen. And while I'm doing those things, people are putting $20 bills on my desk. So the temptation is much stronger on the revenue side. The other issue is this, let's say that I steal by inflating how much I get paid. There's a real limit to what I can do there, because at some point there's salary expense relative to revenue is going to climb to something that's extreme. And people like my CPA firm will say to the doctor, "Well, why is your expense ratio so high? Did you give all your staff a huge raise or something?" So it becomes conspicuous. Statistically, on the other hand, I can steal the same amount of money on the revenue side and it won't move any of the major key performance indicators enough to be conspicuous.David Harris:So if I'm a little bit analytical about it, I'm going to say I could easily take 5% of practice revenue without waving any particular red flags. On the other hand, if I took 5% of revenue in the form of salary it's certainly going to be noticed.Joseph Rugger:Had a practice owner the other day, brand new practice owner, he said, "Well, I feel like I'm doing a good thing here from a controls perspective. And we've gone cashless at our office, so we don't receive cash so that kind of inundates me from this revenue side." What would be maybe some of your thoughts on that? Certainly brand new practice owner, super great dentist, successful, does well but that was kind of one of his I'm preventing embezzlement because I'm not accepting cash at the window.David Harris:Yeah. First of all, I agree with his decision not to accept cash. It's a nuisance to handle it. It poses a lot of accounting challenges for practices. When they do things like take cash that came in and use it to pay off as expenses. I mean, you guys have both probably tried to work through the little accounting tornado that that can create. So I love the idea of being cashless. If I were an embezzler, would that stop me in my tracks, not a chance. It is much easier than most dentists realize to cash a check payable to them. And it is also not that hard to monetize a credit card payment, or even what's an ACH deposit. And for the benefit of the audience, ACH means automated clearinghouse. So that's when somebody like an insurance company, for example, deposits money directly into your bank account. As long as the thief is a little bit motivated and they normally are they will always find a way to monetize incoming money.David Harris:Again, I don't think we should take this out of context, Joseph. I think what your friend did was a good idea. However, it won't stop an embezzler. It will simply challenge channel them into some other way of stealing.Joseph Rugger:Whenever you look at the stuff that you've done and investigated, I'm sure that you guys come back and have a number of recommendations that you have. So to the extent that you feel comfortable sharing, what are maybe just some common steps that a practice owner might take to... I mean, I feel like you're not ever going to eliminate completely the embezzlement risk, right. You're going to do everything that you can to mitigate it. What are maybe some practical takeaways that they might be able to do to just help start to minimize that risk or minimize that opportunity?David Harris:Absolutely. Well, let's go right back to the very beginning to when dinosaurs roamed the earth. And the first thing I'll say about dentists is that they categorically hate the hiring process. And like any job you hate, mine is cleaning the garage, when a shortcut appears you tend to grab it. And a lot of dentists will take shortcuts in hiring. Shortcuts will include things like not calling former employers, not doing a criminal records check. It astounds me the low percentage of dentists who drug test applicants. I mean, I can't get a job at FedEx delivering the crap people buy on Amazon without a drug test. And yet I can work in a dental practice that can prescribe narcotics. That makes absolutely no sense. So the first thing is that dentists hire people knowing far less about them than they should and that's really easily correctable. So let's start there. We've got to do a better job of screening people before we hire them. I'll give you a sobering statistic. 70 million Americans so that is one in four adults has a criminal record.David Harris:And yet the majority of practices don't check criminal records before they hire. It's easy to do and they just don't. I wouldn't hire somebody today without looking a little bit at their social media activity, because you can learn a lot about people by the way they conduct themselves on Facebook or Instagram or whatever.Jonathan VanHorn:As a person who has a team of 16 people, I have gone through the hiring process many times I can tell you, yes, you can find out a lot with just a little bit of social media digging.David Harris:Yeah. It's even more basic than that, Jonathan. When I'm interviewing somebody face to face, one of the things I should say is I just need to check your eye identification so can you please show me your government issued photo ID and a couple of secondary pieces of identification. And the secondary stuff could be anything. I mean, a gym membership, a library card, a credit card, whatever, but I want to see one with a photo and two others with your name. Because if I have baggage and I'm applying for a job with you, one of the easiest ways to hide that baggage is to pretend to be somebody else like my brother.Jonathan VanHorn:That's a really good point. Yeah. That would be pretty simple to do. Just go by a different name everyday.David Harris:It's so simple. So Joseph, to answer your question, the first piece is hiring. The second piece is this and it's really simple. Your practice management software, every single day, will produce a report at the end of the day that says here's how much money you collected. And that should be the amount that gets deposited into your bank. There are two kinds of dentists. There are those who know how much money should go in the bank today and check their online banking to see if it happened and there are those who don't. The majority are in the second category. Again, I think this is probably 20% of doctors know how much the deposit should be and check it and 80% just kind of blindly hope that the amount of money that goes in is right. If you're in that 80%, you make it really easy for me to steal from you because I can simply partition the deposit into the part that I'm going to put it in your bank and the part I'm going to put it in mine.David Harris:If you check this, I can still steal from you, but now it gets a little tougher because what I have to do is I have to teach your practice management software how to lie to you about how much money came in. It's far from impossible. In fact, it's relatively easy in most software, but if you check one against the other immediately, you have ruled out the bottom core tile of thieves, right. The laziest, the least imaginative can't steal from you anymore. Okay. So if you don't check deposit against what goes in the bank, then the laziest, dumbest thief on the planet can successfully steal from you. Okay. So let's start there. It's easy in theory, the practice is a little more complicated because some of the money that comes into a practice arrives at a different time than when it's recognized by the practice management software.David Harris:So for example, if I go to your practice and I pay by credit card your practice management software records it today, but there's a processing lag of typically a couple of days before that same money hits your practice bank account. So it's a little bit challenging for a doctor. And it's one of the things often that I suggest they outsource to somebody, but if you're not doing that, as I say, you're vulnerable to very unimaginative stealing.Jonathan VanHorn:This is one of those areas that as CPA's, we run into a lot because we get a lot of on this. And one big misconception that we want to make sure is very clear in this episode is your CPA's job is not to help you with fraud. Your CPA's job is to create a reconciliation of your accounting if they're doing your bookkeeping and create financial statements. If you read any reports that come with financial statements being issued and any engagement letters, it's going to stay in there that we cannot catch fraud by doing those steps. That's not what we're doing. We're technically by compiling that information we're just technically putting on a piece of paper what your practice has told us has happened.Jonathan VanHorn:And so very often get people that speak to me and said, "Okay, so you're my CPA, and you're going to protect me against fraud." And you have to very quickly say, "No, that's not what the CPA does." I mean, the highest level engagement that a CPA typically in a public accounting firm does for small businesses is usually an audit. And in an audit you typically say an audit is not designed to catch fraud. It's supposed to help you determine how your internal controls are working. It's not there to catch fraud. And if there's fraud occurring, we may not even catch it if we do an audit, which is the highest level engagement that an attest service can be done for a public CPA firm. That is not engaging in something like forensic accounting or something along those lines. Right. And so-David Harris:Even there the majority of dental practices don't get an audit. They get a lower level of engagement with the accountants.Jonathan VanHorn:Exactly.David Harris:The chance of finding embezzlement goes down even more. Let's lay out the problem though, maybe in a little different way. Jonathan, let's say, I go to you as my CPA. And I say, "Jonathan, I'm so excited. I'm going to start a business." And you say, "That's great, David, how are you going to keep the books for your business?" And I say to you, "Jonathan, I've got this great idea. I'm going to have one piece of software track my revenue, and I'm going to have a totally different piece of software look after expenses. And Jonathan, here's the best part. These two aren't even going to talk to each other." You would say to me, "David, that's the stupidest idea I ever heard. I mean, there's no way that would work."Jonathan VanHorn:Yeah.David Harris:And yet that is every dental practice.Jonathan VanHorn:It drives me crazy that the practice management softwares do that. Open Dental talks to QuickBooks online, but it's such a shoddy like API grab thing. It doesn't really do anything.David Harris:Yeah.Jonathan VanHorn:So, yeah. It's frustrating.David Harris:But most businesses use a one piece of software that tracks both the revenue and the expenses and dentistry is different. It's a goofy, complicated system. And when accountants do their work... To do what they're mandated to do, which is as you say, produce financial statements and ultimately information for the IRS, they really don't even need to look at the practice management software to do that at all. I mean the other side, the expense side, is really all you need plus the bank statements. So most accountants don't even look at practice management software. And as you point out, they're not really paid to. And even if they were, then we get into the question of whether they have the expertise to make much sense of what's happening in that software. So the accounting processes is kind of an uncommon one for dentists.David Harris:And it really means that the chance of the CPA's finding the embezzlement is very low. And I'll give you some statistics on this. When we look at how embezzlement is found across all industries. So dentistry plus everything else, accountants find about 40%. When we narrow the focus to just dentistry, that number goes down to about 8%. And it's not because the accountants who deal with dentists are dumber than all the other accountants. I mean, that very clearly is not the case. In fact, I think you could argue the opposite. You guys aren't in a position to contest this point of mine, but it's that the accounting system in this divided fashion just really does not lend itself to somebody following the accounting process, identifying embezzlement.Jonathan VanHorn:Absolutely. Well, I tell doctors all the time, "Look we're not in your office every day. When you do that into the day close, we're not there with you. We can not tell you if that day sheet is correct or not. We will never know if that day she has deletions or adjustments or what they were for or why they were done." All that we can do is if you put a deposit into the accounting system or your office manager does, or whomever does, we can then tell you if it hit the bank account, that's all we can do. But we can't tell you if that piece of paper was right or not.David Harris:That's right. And to go back to Joseph's question about what a doctor can do, that's my next point. That day end report that your software produces needs to be something that you scrutinize. If you simply stick that in a drawer somewhere and don't look at it, then you're vulnerable to the other type of manipulation that somebody does. And as I say, if we're stealing on the revenue side, if you don't look at the deposit, I just partition the deposit. If you do look at the deposit, now I have to make practice management software misrepresent how much money you make. And the way I do that is I make deceptive entries in your software. So you need to look at that day end report and you also need to compare all of the day end reports that you have to a month end report printed on the same basis. In other words, if I have 20 reports from my business days in the practice, and they don't add up to the month end report, then something happened on a Saturday.Jonathan VanHorn:That's a great point. Yeah. And just to hammer this point in, this is from another consultant that was in the practice management world. They said one thing that happens that's really common on day sheets is that stuff doesn't get billed that was done during the day. And it's not because someone is stealing from you it's because they just forgot to put it on there. And so you should be doing this just from a revenue standpoint, one way or the other. Like there's no reason to not be doing this in other words. There's multiple reasons other than just than this to have that be a part of your business practice.David Harris:Early in my career, Jonathan, I was hired by a dentist who was convinced that his staff are stealing from him. And the basis really was that he just didn't see the amount of revenue that his level of activity would suggest. And I started digging in a little bit and what I saw was that the hygienists in the practice were not actually billing any x-rays. And I asked the doctor, "Well, is all the radiography done by your assistant and your own operatory?" And he said, "No, my hygienists do the films." What came out of this was a really stupid thing. Now this was back in the days of when x-rays were taken on film, not digital, the hygienists would take the x-rays and she would put them in the chart. She would give the chart to the front desk.David Harris:And her expectation was that the front desk would see the x-rays there bill a code. And the front desk people are saying, "I see an x-ray in there, but I don't know if it was taken today or last millennium. If you did something hygienist write it on the chart and then I'll bill it." So it was just a little communication thing, but it was costing the doctor about $80,000 a year.Jonathan VanHorn:Yeah.David Harris:And when I told him what the problem was, I said, "Okay, that's the kind of symptom. The real problem is you're not looking at the day end reports because if you did, you would notice that there's no possible way that a hygienist could see 12 patients today with no radiography." So your point is spot on, that this is your chance to miss or to spot where somebody made a clerical error and it could cost you $300 as well as looking for the stuff that is, as I say, deceptive kind of entries. So we need to look at day ends. Doctors think that month end is something the staff do that they don't really understand. And the final point Joseph is that if I'm a dentist and I own a practice, the reports that I review should be ones that I printed myself. As soon as I allow a staff member to print a report and hand it to me, I have no control over the assumptions used to generate that report. And if a staff member wants to hide stuff from me, that's a huge enabler.Jonathan VanHorn:So we get this question all the time. And it's one that I struggle with is I'm a new doctor, I don't even know what practice management software we use. How do I figure out how to print the reports out? It dumbfounds me that people don't get training... There's no training in this like dental school or something like that.David Harris:Well let's be honest. Nobody became a dentist because they had this burning desire to be a business owner. It's the nasty trick, Jonathan, that they spring on them in fourth year dental school when they say to them, "Oh, and by the way, you also have to run the place." And at that point, they owe $380,000 in student loans and it's just way too late to turn around and paint houses for a living. For every dentist I've ever met, the running of the practice is kind of the unwanted stepchild in the marriage. But let's call a spade, a spade here. Practice management software is not going to go away. It's going to be with you if you're a dentist for the rest of your career. And it is more important to your financial wellbeing than your hand pieces.David Harris:And yet they all know the hand piece, like it's their child, but when they get to practice management software it's like, "I don't want to touch it because I might break it." You started your sentence to me by saying, "When a dentist..." The one thing we know about dentists is that they can all learn to get into and then out of dental school, they had to do a lot of that. So the question is, where do you get the information? Every software company has trainers whether it's Eaglesoft or Dentrix or Orthotrac. They all have this whole army of trainers who would love to sit with a doctor for a couple of hours and say, "Okay, doctor, here are the reports that are going to be most valuable to you. And here's how you actually print them in your software."Jonathan VanHorn:And they're usually paying for that already, too with their monthly fee or whatever their fee is right?David Harris:Whether they are or they aren't, if you had to buy a couple of hours of a software trainer's time and it costs you $300, like the return on that investment is phenomenal.Jonathan VanHorn:True. So we've covered some really cool stuff today. David, is there anything else that you feel like needs to be covered in the realm of this conversation? There's probably dozens of hours worth of information we could probably be discussing right now, but in terms of what we talked about so far, is there anything that we missed or that we glossed over that you think needs to be reemphasized?David Harris:Dentists in general, aren't natural skeptics. As I said before, there are people who deal in a physical scientific world and they're used to linear problems with linear solutions. And it just doesn't come naturally to them when they're talking to somebody to ask themselves, what if this person has a hidden agenda. And when you think about how dentists relate to each other in a clinical sense, I mean, a general dentist sends a patient to an orthodontist for assessment and the orthodontist writes the general dentist back and says, "Yeah, I think this patient would benefit from treatment." There's an altruism involved. I mean, the general dentist is a hundred percent entitled to believe that the orthodontist is doing that because it's in the patient's best interest, not because the orthodontist is trying to buy a boat. That's the code that they have. And it serves them really well inside the clinical bubble and horribly outside of it. And when you're hiring somebody, which again, most dentists find a stressful and challenging process to step back a little bit when you're interviewing somebody and saying, "Well, what if, what they're telling me isn't completely true", is challenging.David Harris:But I've given this statistics, I've given the sad news that most of your clients sooner or later will be victims. And the biggest thing that you can do to prevent that is to be a little bit skeptical.Jonathan VanHorn:That's right. So if we have some people that are listening right now that are currently skeptical, how can they find you? What can they do to hear more about this topic or read more of your stuff or even connect with you or your company?David Harris:Absolutely. And I should start by saying, we provide really two distinct services. One thing that we do is when a dentist is suspicious or they've caught somebody, or the thought of somebody stealing their money just keeps them up at night we can do stealthy investigations. So staff don't even know that we're on the job. We can see if stealing is happening. And if it is help the doctor deal with the fallout that comes from that. The other thing that we do Jonathan, is that we work with dentists to help lower their risk. So we will teach them how to generate the reports they need and what to look for on those reports. And we even will look at things like hiring and security settings in their practice management software. So we will help somebody set up their control system so they're as protective as they can be. Those are the two things we do.David Harris:If somebody wants to reach us, they can call our toll free number, which is 888-398-2327 or they can reach us on our website. And once they hear it, they'll never forget it, www.dentalembezzlement.com.Jonathan VanHorn:Fantastic. Well, as always, it's a pleasure getting to reconnect to my friend. I urge anyone that is more interested in this topic it's absolutely fascinating... If you follow David on Facebook, he's put up posts about all these people that have been caught. It's really interesting to be a part of and to see a little bit of a glimpse into David's world. And I urge you to reach out to David. He's a fantastic resource to the dental community at large, and he helps put people that want to take advantage of the people that we care a lot about, which is are you guys the dentist behind bars and hold them accountable and take care of those things inside of this industry. So, David, thank you for what you do for the industry and everyone listening. I hope you have a great time, a great day, and we will see you on the next episode.Jonathan VanHorn:That's it for today, guys. I hope you enjoyed this episode of the Tooth and Coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA services head on over to toothandcoin.com. You can check out more about our CPA services. We help out around 250 offices around the country. I'd love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners so people that have are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up, or has become an owner in the past five years. That is our specialty. And we'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan VanHorn:And if you enjoy today's episode again, go to the Facebook group. Talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the longterm. Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444. That's toothandcoin, no spaces, T-O-O-T-H-A-N-D-C-O-I-N to 33444. Reply with your email address. We'll send you instructions on the Facebook group. We'll send you the resources when they're available and we will see you next week.

Resource: How to Buy a Dental Practice  Resource: Selling Your Dental PracticeFor More on Brian Hanks, visit: https://www.dentalbuyeradvocates.com/ and/or https://dentaltransitioncoaching.com/ Join the discussion on Facebook!TranscriptJonathan VanHorn:Welcome to the Tooth and Coin Podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones, some of them are very specific, but we hope that these episodes help you along with your journey.Jonathan VanHorn:Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors, we are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. A very important piece for you to understand. Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. We've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share? Join us in the Facebook group. If you go to Facebook and you search for Tooth and Coin Podcast, click on it to join it, and be able to join us there.Jonathan VanHorn:Finally, if you need some more help, we're developing a list of resources that are going to be centering around our topics of discussion, to be able to help you a little bit more than what the content is doing. If you'd like access to that, whenever it becomes ready, all you have to do is text the word toothandcoin, T-O-O-T-H-A-N-D-C-O-I-N to 33444. Again, that's toothandcoin, all one word, no spaces, to 33444. Reply with your email address and we'll email you instructions on how to get into the Facebook group, as well add you to the list to be able to send you those resources when they're available. If they're available, we'll go ahead and send them to you as well. On to today's episode, hope you enjoy it.Jonathan VanHorn:Hello, ambitious dentists, today we're going to be talking about something that not a lot of you probably have considered in terms of a way to optimize your life and your business. I'm your host, Jonathan VanHorn, I've got Joseph Rugger with me as always and today we actually have a guest. We have Brian Hanks with us. Brian is a fantastic person inside the dental industry. I speak this whole heartedly. There's not a lot of the times that I connect with people inside of the industry, and you just know that they're doing things for the right reason, they're there to help. And Brian is one of those guys. He helps a lot of practice owners, or about to be practice owners, as well as people transitioning out of practices, make the right decisions in making that big life choice. Brian's really good at it. Brian, thank you so much for coming on the podcast.Brian Hanks:Thrilled to be here, thank you.Jonathan VanHorn:Awesome. Brian, like I said, I mentioned he is the person that helps people buy and sell practices and helps make those transitions be successful. The problem we're going to talk about today is how to maximize that value of the dental practice that you're going to be running and owning. People sometimes just come up one day and say like, "Hey, it's time to sell," and they don't do a whole lot of planning that goes around it. You plan around everything else. A lot of people will plan their meals for the week. They'll plan on where they're going to send their kids to school, they'll plan on so many things. When it comes to something that's a pretty big deal, selling your business, they don't really seem to plan a whole lot about it. Talk to us about this problem, and why it's a problem, Brian.Brian Hanks:There's a psychological block there and I can understand it. You've worked really hard to be a CPA and a financial advisor, and Joseph, all of these skills that you have. Think about a dentist, eight years at least of graduate school, probably a specialty, all the CE you've taken. The thought of selling a practice is a major mental hurdle. Hanging up the hand piece, how you introduce yourself at parties is, "Hi, I'm a dentist," that's your identity. To think about selling the business, which by the way, probably cost you at least hundreds of thousands of dollars, maybe millions of dollars to buy, that's a big mental hurdle for a lot of people. People don't plan for it and there are a lot of misconceptions around that.Brian Hanks:Even if say you're the dentists in their late 30s and selling your practice, even close to your horizon, the principles that we're going to talk about in this episode are applicable to those folks too, because ultimately how you sell your practice has a lot to do with how you run your practice. If you run your practice effectively, you're going to be able to sell your practice a lot easier, a lot better, a lot higher prices, all of those things we're going to get into. But yeah, this is useful information for every dentist in every stage of their career regardless if they're selling their business in the next 12 months.Jonathan VanHorn:In terms of this type of a problem, if you're talking about a 20% difference in the value of a practice, you're talking about a house worth of difference. You're talking about a lot of money. It makes a big difference. Is that a reasonable number to be able to affect the value of a business? Can you make a business 20% more valuable?Brian Hanks:Absolutely, but it's not easy. It's simple, but not easy. Let's talk about some of the misconceptions around how selling the business works and the value piece of things for a second. I've got three points that I want to cover, Jonathan and Joseph.Brian Hanks:The first is you really do need to understand how valuations work. We're not going to give a valuation clinic here, but I want to give the listeners something to really hang their hat on beyond some of the simple calculations that are out there that are frankly, just wrong. The second point we're going to talk about is how to sell at the right time. We'll spend a little bit of time on that, and then thinking through your options on how to sell your business is really helpful. Not just who you sell to, but who you have help sell your practice can make a huge difference.Brian Hanks:Yeah, all of those things put together, I would say in a lot of cases can make an even bigger than 20%, 30%, 40% difference in the ultimate sales price of the practice. Then just for background, Jonathan, what I do in my business, I've done transitions, experts, helped buyers and sellers. I've literally written the books on buying and selling a dental practice. In fact, I'm so boring, I came from the accounting world, I titled the books, How to Buy a Dental Practice and Selling Your Dental Practice. I have no creativity, all I do is this stuff all day long. I've helped hundreds of dentists all around the country do this. I'm happy and thrilled to be here and share some of this advice. Should we talk a little bit about valuations?Jonathan VanHorn:Yeah, absolutely. The one that we always seem to get is, Brian, I and Joseph were talking about this, about someone that we had a shared conversation with. It was like 90% of the revenue was what the value was. That's all it is. So are you telling me that that is not an appropriate valuation technique? That's not how you valuate?Brian Hanks:I am telling you that. Yes, absolutely. So every comment on Dentaltown every comment in the Facebook forums that people are on, where they do the mental math. Okay. So my practice collects a million dollars. I heard the average is insert number, right? And there's always this wild 65, 75, 90. I don't know, I do know where they hear the numbers, and then they just apply that basic math to their own practice. By the way, every dentist, of course, lives in Lake Wobegon where everybody's above average. They're always a better driver than everybody, and more attractive than everybody. So everybody's practice of course is above average. So they're not thinking, "Well, the average dental practice sells for 75% of collections and mine's a little below average so maybe I should sell it for 70%."Brian Hanks:Every single dentist I talk to says, "Well, if the average is 75, then I want to be 80. Then I want to be 85." Yeah, it is the shorthand. It's useful. Maybe you sit down with Joseph and you have a financial planning discussion in your thirties and you say, "All right, if you're collecting a million dollars, let's put in a value of your business at 65% of collections." Okay, that's useful at that point in your career. But when it's actually time to sell your business, that is not how you value. That is not how evaluation experts, that is not how I value business. That's not how brokers value business. That's not how accountants valuate business and a lot more goes into it. So it is more than just a formula. Let me give you a couple things that are really important to know.Brian Hanks:The first is that values of businesses are generally built on three years' worth of data. Okay. So they're going to look backwards in time over the last three years, as a way to say, a buyer's going to say, "I don't know what I'm going to be able to do as the business owner, but the best predictor of my future performance is the past performance of this practice. And the past performance of this practice that we're going to use as the window of time to look at as the last three years." And most reputable valuators, whoever they may be, are going to actually weight those values. They're going to say, "All right, last year is times three, two years ago is times two, and three years ago was times one. We're going to add all those numbers up and we're going to divide by six to get an average revenue number at an average profit number," whatever the method is that we're looking at.Brian Hanks:They're going to look backwards in time over the last three years weighting the last year as the most important of those. Jonathan, that's really important because I know a lot of dentists who say, "Man, all right, 2020 sucked because of COVID." Or, "2019, I got sick for three, four months." But, "Man in 2018, I collected 1.1 million. That's my mental high watermark. That's what I'm going to go off of my evaluation. My business is a $1.1 million business." And the buyer standing here in 2021 saying, "That's great, good job in 2018, but I'm looking at the business today." So I think the first thing to realize is, it's a backwards look in time over the last three years. Does that make sense?Jonathan VanHorn:Yeah, it does. So obviously 2020 is a unique year. I tell, I've been on calls with some people and this once in a hundred year things sometimes makes the rules a little bit shaky in terms of what you're doing. Because let's think about the reason why we weigh, the reason you weigh the last year is because it's the most recent year and the most likely to repeat itself rather than that one three years ago, if revenue's declining, revenue is just not going to just automatically go back up. The reason you wait is because it's the most likely to reoccur because the most recent in time. However, it's not likely we're going to have another once in a hundred year pandemic this year.Joseph Rugger:We hope not. We all hope not.Jonathan VanHorn:I mean, assumably right. So, yeah. So how have you found that? What do you, how do you find that pandemic? Do you think that changes things?Brian Hanks:It can, but it hasn't in most cases. There are ways to account for a pandemic in evaluation methodology. And in shorthand, we could go into the nitty-gritty details if you really want to, but in shorthand, what most people are doing is they're looking at the practice in Q4 of 2020, Q1 2021. And they're looking at the average production on a monthly or quarterly basis. And they're saying, "Hey, are we back? Is the practice back to where it was pre pandemic?" And if the answer is yes, then for all intents and purposes, we're not ignoring the pandemic, but we are discounting and kind of taking that into account in the numbers. So sellers, in most cases, aren't being penalized, but in some cases, the answer is to the question of, "Is the practice back?" Is no, the practice is not back. The pandemic killed the business, not necessarily outright, but absolutely knocked 20, 30, 40% of collections, production, active patient base, whatever it is. Anyway, there's a lot of things that could have happened. And so in some cases, yeah, the pandemic did hit.Jonathan VanHorn:And we could go into a really defined theory of what a defined risk profile is associated with the public perception of what COVID is and the dental practice and what percentage of patients will be less likely to come back in. And you can get super, super, super granular in this type of analysis. I do typically say, when people are talking about buying businesses, the price should be indicative of the risk that you're taking on when you're buying this business. Our risk profile today looks very different than it did eight months ago, or 10 months ago, 12 months ago. 12 months ago, risk profiles were through the roof because nobody really knew what was going to happen. Right? So, you start with this weighting and where do you go from there? Do you just take 90% of that? And that's all you do?Brian Hanks:Yeah. So one methodology is to do that. Is to look at the comparable practice sales in a specific geography and apply a multiplier. And that is a legitimate way to look at a practice value. Now it's more than looking at nationwide averages or looking at my specialty average and things like that. So you do have to apply some logic, but yeah, you're looking at averages. It's kind of like selling a house. You're looking at comps in your neighborhood and using that as one of two major methods to value the business. And by the way, sellers tend to favor that model because it's easy, right? Sellers tend not to be the type of clients that are working with good dental CPAs, like Tooth and Coin, then they don't know their overhead. And so the only number they do know is their collections, right?Brian Hanks:And so that's the easiest way they can get to a value in their head, but I'll tell you the second way that most people, that most reputable valuators value businesses is they actually look at the profit, right? How much take home pay is the owner of the business keeping after paying the normal and typical expenses of a dental practice? Staff, rents, supplies, labs, et cetera, and so forth. And by the way, that number profit is different than what goes on my 1120S or my tax return. Profit is not including things like depreciation and interest and the owner's compensation and those things, right? Profit is literally how much does the owner benefit from the business. Now, buyers. Buyers care a lot more about that number, right? We could have two practices collecting a million dollars, one with typical overhead of somewhere around 600,000 meaning the owners keeping 400. Or you could have one with high overhead where the overheads 800,000, the owners only keeping 200,000.Brian Hanks:Well, which one is the buyer going to like more? They're both billion dollar practices. And a lot of sellers are going to think in their head that those businesses could be valued very similarly. But from the buyer's perspective, they're looking at these two, they're going, one's going to put 400 in my pocket. The other's going to put 200 in my pocket. I'd like the 400 one please. Right? And so without going into the details, and it is similarly weighted, it's looked over the last three years, but the profit methodology is the second way that you value most businesses. And it's the way that buyers care a lot about. Can I add one just side note to this that comes up a lot when I'm talking to sellers? Equipment purchases, almost never, ever, I'm going to pause here for effect, never. Factor into evaluations. I say almost because there can be some asterisks type scenarios, but I just hear a lot of sellers say, all right, Brian, 75% the last year plus hey, three years ago I bought a 3D panel and it costs me a $100,000. And I really want to add that in to my-" I'm going, geez. Sorry, sorry, doc. Good for you. I'm glad you bought that equipment, way to keep up. That's just, outside of a few specialty situations, you buying equipment for your business to keep it up and keep it going and keep it current isn't going to affect the value of your business outside of a few special cases.Jonathan VanHorn:It's kind of helps be a selling point for someone looking at different practices like, oh, this one's got the nice equipment. So maybe I should, that one would be a better one for you to buy. I wouldn't have to do as much upkeep of yeah. We've seen that a lot or like yeah. It wants me to take over the loan payments or he still owes $80,000 for this. He wants to increase the value by 80,000.Brian Hanks:Yeah. I want to sell my house and I want to live rent free in the basement too. And I'd love for this, the buyers to make me breakfast every morning. It's just not realistic. Right?Brian Hanks:Yeah, exactly. So cool. So, you're going to get an understanding of how a practice is valued. If it was your choice of those two methods, which one would you be more likely to be utilizing in terms of what the actual value of a practice is?Brian Hanks:Profit, all the way. Although most valuations, final evaluations, will do a mix of the two. Okay. So it's not an either/or. You're going to look at both and you're going to weight 50/50 on the two methodologies. You might do 60, 40, something like that. But if I'm buying the business, I'm going to look more at the profit. And by the way, the banks who are lending the money for the buyer to be able to afford to buy your practice, they're looking at cashflow, which is just another way to say profit. So the banks are looking at the profit methodology too. So of the two that's the far better way to look at value in business. Which is, by the way, you're a professional podcaster, that's an excellent segue into the second point of settling at the right time. Can I talk a little bit about that?Jonathan VanHorn:That's where I was going with it. Yeah, I was moving into, what is it, if you have an understanding of the value now, then what is it that you. How do know when to sell? Cause I actually had a conversation at lunch with someone and they were another service-based business person. And I was like, if someone said to you today you can sell your business for two times what you make in a year. Like it'd be kind of hard to do it cause you'd just work for two more years. But so how do you time this? Like how do you figure out when it's going to be? Because it could be two years, four years, five years of earnings that you're basically signing this business for. Actually take taxes out and maybe it's back down to two or three, whatever it may be. So like how do you figure out this timing element of it?Brian Hanks:So the timing has to be a life decision that you make with advisors. Okay. If it is solely based on money, I'll give you the formula on how to maximize the value based on just numbers. But I got to say, that a precursor to discussion around anything numbers based has to be qualitative decisions. Like are you ready? Do you have something to retire to? Are you not? Are you just financially ready? But are you psychologically ready? You're logistically ready. All of those things. But let's assume those for a minute. By the way, that's a major assumption that someone is qualitatively ready. If that is a check mark in your ledger, the right time to sell your business is going to be, if you want to maximize the value of your business, it's going to be to think about a few things first.Brian Hanks:You can't take your foot off the gas in the practice in either the revenue or the expenses. So collections by the way, kiss of death. Okay. If you are a bank underwriter who looks at nothing but dental practice, PNLs, and tax returns all day long. For a living, you look at the financial results of dental practices, bank underwriters, and then to decide whether or not to give buyers money to buy your business. The very first thing that bank underwriter looks at is the collections trend. Are collections going up or collections going down? Now, if you're the typical seller, right? You've had that conversation with Jonathan, you're thinking, all right, Joseph tell me if I'm ready to retire? And Joseph says you're close, but you got to wait. And so mentally that dentist is thinking, man, I'm close, sweet.Brian Hanks:Instead of four weeks of vacation this year, it's going to be six. Then it's going to be eight and it's going to be 12 the year after. And you see a corresponding dip in the collections, very reasonable, right? A very understandable dip in collections. But when we talked about how you value a business, we're looking at the last three years and the last year is the one that's the most important. And so that practice with the declining collections now looks a lot riskier on paper and the seller is having that mental head space issue where they're saying, "yeah, but three years ago it collected 1.1. And then I know last year was only 800, but really it's a 1.1 business. Right?" And so it's just hard to get to that psychology piece. So if you can keep your foot on the gas and keep collections at least steady, if you can keep collections rising two, three, five percent, whatever that number is? You just maximize the value of your business. Almost guaranteed.Brian Hanks:We'll talk about profit here in just a second. The rising collections is a sign that a business owner is engaged. It's a sign that everything else in the practice is probably working correctly. So let's talk about profit a little bit. Same deal. And it's just the corollary to collections. If the overhead is rising, that's tough. Here's what happens with a lot of sellers. I get in a conversation. I'm like, hey tell me about [inaudible 00:22:08] your overhead is 67%. The average practice overhead is something like 60 to 61% what's going on? Oh, well, Brian it actually was 61%, two years ago, but my hygienists al ask for raises. We had to add the health insurance. There are all these things and I just, it wasn't worth it to me to say no.Brian Hanks:So I just said yes to everything. And I haven't been really fighting the equipment rep and the supply rep on bills like I should and pricing things out. And that overhead has crept up. Right? And so it's the same situation as collections. Their foot has to come off the gas on the business operation side. They haven't been watching the expenses. So having somebody good that's a great dental CPA, great dental financial advisor to kind of keep your feet to the fire in that area is going to be really valuable to help you maximize the value of business.Joseph Rugger:How often do you find that? How often you find that the sellers are really, really tracking that stuff, or are they taking the mental vacation as they're starting to check out?Brian Hanks:Less than 10% of the owners I see are tracking that in any kind of way, shape, or form. 90% don't have any idea.Jonathan VanHorn:Definitely. And the another piece of that is if you're not doing that, there are times when you need to sell your practice and you weren't thinking of those things. This kind of comes up. Like maybe you have a family illness or you have something happening to you personally from a health perspective. And if you haven't been doing this, then all of a sudden you've just cost yourself all this money. Let's use a broad assumption that we're talking about a practice that could sell for a million dollars if everything was highly finely tuned. Whereas if you were just kind of resting by your laurels, it could be, you might be costing yourself a couple hundred grand, right? The profitability of your business is more than just your lifestyle.Jonathan VanHorn:Sometimes it's also going to be your exit ticket. So why would you not be taking care of that? So let's assume that someone's made the decision that they're going to try and sell the business at some point in the near future. What is the near future for you in terms of making this decision and you mentioned keeping your foot on the gas pedal in terms of revenue and making sure your expenses don't get out of control. Because, like I said, you see it all the time where you talk to the dentist, they're like, yeah, revenue was 900,000, then it was 800,000, then it was 750 and then it was 700 and now 650. But he just says this because he only works three days a week now. There's a reason that he does that. Would that person have been better off just selling it back whenever it was 900? Or what is the best answer for those types of things, in terms of time?Brian Hanks:I don't think there is one. So mathematically, that seller that's now at 650 where they used to be a 900? Okay. Yeah. Could they have sold their practice back in 900 and gotten a higher multiple and sold for a higher sticker price? Yes. But they've made money those three, four years they kind of hung on and, and it maybe increased the quality of their life as a business owner. So I'm not going to say that there is a right time, because as you guys know, the real money in dentistry isn't made buying and selling dental practices. These aren't stocks and bonds, right? The real money in dentistry is the income from the ownership. That income stream, year in, year out. So if your goal is to go play golf someday with a bunch of other dentists and show that you got the biggest multiple on your dental practice? Well then yeah, make sure you sell at peak collections, peak profitability.Brian Hanks:But if your goal is to make as much money as possible, it might be a different time. Just realize that there is a cost to that. And the cost comes in both the multiple that you get for your business and the type of buyer that's actually going to be interested. and how easy it is to find that buyer and, and how easy it is to transfer that business. You might have to carry part of the note because the bank isn't looking at you as risk-free as they might have otherwise. So just realize that there are some potential costs that can be mitigated with how you sell your business.Brian Hanks:So let's talk a little bit about that. Cause there are some options, right? And a lot of dentists. So let's talk through kind of, there's a two-prong decision here. So they say a seller, an owner of a business, dental business is thinking, all right, I think I might want to sell my business. They have to make two decisions. The first these days is DSO or private buyer. Okay. And I'm just going to just, well, let's hit this quickly because there are a lot of misconceptions we could have. I'm sure several episodes on DSOs versus selling to a private buyer. But let me just say mathematically, it is not as simple as I can sell to a private buyer for 75% of collections. And I can sell to a DSO for a hundred percent of collections. It's not that simple. There are handcuffs that come with DSO offers. You're not going to have control over your career. You may not get the payout. You're going to have to hit massive production targets in your last two years of ownership when, by the way, you don't own the business anymore. So it's not as simple.Brian Hanks:And I have a bias towards the private buyers and owners cause I like private dentistry, but DSOs could be right for someone. So let's assume that decision is made. The next decision the dentist has to make is, okay, am I going to use someone to help me sell my business? Or am I going to try to do it myself? And that tends to be the decision point. And there's a mistake here. So dentists are making a common mistake thinking there are only two options. In their mind, there are two options: broker, who's going to take 10% or sell it myself. And I'm here to tell you that there is a growing third option, okay? And by the way, not every broker's still charging 10%. So keep that in mind. There's a growing third option. I call them in my book, Selling Your Dental Practice, I call them seller's coaches, but they go by different titles and they're nationwide firms that help with dental transitions on a nationwide basis instead of being a very geographic centered kind of broker for your area. I'm the broker for Georgia. I'm the broker for Washington state, right? So seller's coaches are doing dental transitions. They're doing as much, if not more value in a lot of cases, than brokers at a significant discount to the typical broker's fee. It comes at a little bit of cost, right? They don't know your individual streets and some of the geography as well as a local broker might. They can't physically walk buyers through the practice like a local broker might be able to do. But aside from those two things, in this day and age, here we are in 2021, a lot of life is on Zoom, right?Brian Hanks:A lot of life is pictures and all of those things. That sellers coach option at a lower price point is becoming a lot more attractive. And those seller coaches, they have to step up their game, right? They have to have amazing listing documents. They have to be really good at finding buyers. All things that they tend to be better at than brokers. And so anyway, so I just want to make people aware that selling it yourself, by the way, could be an option with an attorney, of course, like always pick an attorney. And a broker is a great option too, if that's the way you want to go, but there's a third option for folks. So don't assume it's just between buyer, like a DSO is going to get you more money. And then don't assume that your choice is a 10% fee or muddle through this myself. That's not necessarily true.Jonathan VanHorn:Great options. And I completely agree. There's a lot of middle ground cause you'll get the people that will call us and a lot of people, they never bought a business before and they're like, I need someone who's going to do complete due diligence, top to bottom, on this dental practice acquisition. And I don't think you know what those words mean whenever you're saying them to me, cause in our world and the CPA world, due diligence on immersion and acquisition means something way different than what you're talking about in terms of buying of this business. Like I'm not going to go look at the seller's bank accounts and look at their transactions coming in and out and then trace them back to the insurance plan or anything like that.Jonathan VanHorn:That's not what we do. So I completely understand. There's middle grounds. Like what is it that you actually need in this type of a transaction, right? Like what is it you actually need? So completely get that. So cool. So we have covered a general understanding of how valuations work in this world. We've talked about the timing of getting these things in line. We talked about the different options you have when you try to sell your business. So what, in addition to the things, we could probably talk about any one of those three subjects for at least an hour a piece, but we try and keep the episodes shorter in nature so that we can get the high impact things in. And we've talked about how to affect your selling price by a hundred, $200,000 and that if you can keep the revenue growing, keep the expenses going down, your profit will get larger, your collections will get larger.Jonathan VanHorn:And if you think about it in terms of if your profit level is, if you're looking for two times your profit in a year or three times your profit in the year, for every penny that you save, or every dollar that you save, it's going to be $2 or $3 more, you'll get your sell price. So there's a lot of really important numbers of things that we talked about in today's episode. So anything else that we didn't talk about that you think would be an important point for us to end on?Brian Hanks:If you're a buyer, a great resource and I'm going to plug my books, is just How to Buy a Dental Practice. You can buy it on Amazon, or if you go to dentalbuyeradvocates.com/book, I'll set you an author copy at just the cost of printing and shipping. Same deal if you're a seller. Selling Your Dental Practice is the title. It's available on Amazon in all the formats. And you can go to dentaltransitioncoaching.com/book. And I think we're going to put those in the show notes for folks.Jonathan VanHorn:Absolutely. So Brian, we appreciate your time. Appreciate you being a friend of Tooth and Coin, and the podcast, and we look forward to working with you in the future.Joseph Rugger:Thanks, Brian.Brian Hanks:Thanks.Jonathan VanHorn:That's it for today, guys. I hope you enjoyed this episode of the Tooth and Coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com. Where can check out more about our CPA services. We help out around 250 offices around the country. Would love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners. So people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up, or has become an owner in the past five years.Jonathan VanHorn:That is our specialty. And we'd love to be able to talk to you about how we could help you in your services with your tax and accounting services. Oh, and if you enjoyed today's episode again, go to the Facebook group. Talk to us about what we've talked about, join in on the discussion and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the longterm. Lastly, if you want access to those resources that we are currently building, just text them word tooth and coin 233444. That's tooth and coin, no spaces. T-O-O-T-H-A-N-D-C-O-I-N to 33444. Reply with your email address. We'll send you instructions in the Facebook group. We'll send you the resources when they're available and we will see you next week.

Join the discussion on Facebook!TranscriptJonathan:Hey guys. This is the third episode in the series. If you've not listened to the first two episodes, make sure you go back in time to check those out first. It should be in the title of the episode which part in the series it is, so make sure you go back and check those out so that you have a full understanding of what it is we're talking about today. I just want to jump in here real quick and let you know that. We'll see you next time.Jonathan:Welcome to the Tooth and Coin Podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones, some of them are very specific, but we hope that these episodes help you along with your journey. Now, a very important piece for you to understand is that this is not paid financial advice, this is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan:Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. We've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today. To continue the discussion, agree with us, don't agree with us, have a story to tell, have something to share, join us in the Facebook group. If you go to Facebook and you search for Tooth and Coin Podcast, click on it to join it and be able to join us there. Finally, if you need some more help, we're developing a list of resources that are going to be centering it around our topics of discussion to be able to help you a little bit more than what the content is doing.Jonathan:So if you'd like access to that, whenever it becomes ready, all you have to do is text the word tooth and coin, T-O-O-T-H-A-N-D-C-O-I-N, to 33444. Again, that's tooth and coin, all one word, no spaces, to 33444. Reply with your email address and we'll email you instructions on how to get into a Facebook group, as well as add you to lists to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you, as well. On to today's episode. I hope you enjoy it.Jonathan:So we give that number to our clients every month. Here's what your breakeven point is so that they can have the context of, Well, I want to make $30,000, my break even point is $45,000. I've got to be producing $75,000, right now my average is $55,000. I got a lot of work to do. They know they got to influence it. They're not going to be surprised when they don't have $30,000 at the end of the month. They're going to know what that is. So, what about you in terms of breakeven point, things like that, what are some of the things that you like to use a breakeven point in order to be able to use in terms of management and goal setting and things that.Joseph:So I think it's probably important that we talk about the things that go into that break even point. It is a few additions to the calculator and a subtraction. When we look at a break even point, what was all of the costs involved from your P and L for the month? What was your total cost to operate? Then we're going to add back those owner's discretionary expenses, like the owner's wages. We're going to add that back. We're going to add back depreciation and amortization because those are paper entries that go on. And then we're also going to subtract out and say how much were your principal payments on your debt to get to your break even point. Those breakeven points, I find that to be most useful in determining how much cash you need to keep in practice.Jonathan:Mm-hmm (affirmative).Joseph:If I'm looking at a client that has a breakeven point of a $100,000 and they have $700,000 in their business checking account, I'd say you've probably got a little bit too much cash in your practice, it's not working for you. What you do with that cash, there's a lot of things, call your financial advisor and talk to them about that. But, if we've got a client that has a $100,000 breakeven point and their cash in the bank is $50,000, it's Look, we probably should slow down this owner's withdrawals. We probably should slow down all these different things. We need to get the cash to a point where you can sleep well at night, that you've got the liquidity to be able to operate.Joseph:And when we look at that ratio, your breakeven point to the cash in the bank, again, it's very similar to what we were talking about with the balance sheet and looking at their current assets divided by current liabilities. It's not the same exact number, but it's the same concept, how many weeks worth of cash that you have to operate. So if the spicket of income gets turned off today, how long can you operate? Can you operate for a month?Jonathan:Mm-hmm (affirmative).Jonathan:Can you operate for a week? Can you operate for six months, eight months, 10 months, 12 months? So those are the things that I like to talk to practice owners about. And we get the question all the time, how much cash do we keep in the practice checking account? And a lot of that has to do with the comfort level of the practice owner.Jonathan:There are some practice owners that want to empty the checking account out every month and take all that money home. There's some practice owners that say, Hey, I really want to make sure that I keep a $100,000 or $150,000 or $50,000. That number is different, that level of cash and comfort is different for everybody. The thing that I like about the breakeven point is it takes the emotion out of it and it just says, Here's how much it costs to operate your practice, period.Jonathan:Mm-hmm (affirmative).Joseph:Now we can figure out what you want to keep cash wise on hand with that.Jonathan:Completely agree. Honestly, I think that's probably one of the biggest comfort levels you can get as a business owner is to reach that cash goal. Because once you've hit that point, at that point, you can just optimize because and really work towards those goals. I really like using the breakeven point as a goal standard, too. Let's say that I have a personal income goal of $40,000 a month. We'll our average breakeven point is $50,000 a month. Again, we give our break even point to our clients each month. We also give a rolling quarterly average as well as we give a year to date average so that people can understand really kind of how's that breakeven point trending, where's my average, like what is the number that it looks like, so you can have a bit of normalization to that number as well.Jonathan:You have a little bit of a, of a plus or minus on there. Let's say a $50,000 breakeven point's the number that you've been averaging, a fairly consistent number, because obviously things go come up and down. Things will happen that create one time expenses. But, knowing that breakeven point by heart, knowing it's $50,000, if I want to make $40,000, then I know I got to be at $90,000 a month in collections. I know that has to happen. And if I know that we're going to be open 18 days out of the month, the quick math is `that's $5,000 a day.Jonathan:Let's see, $9,000 divided 18, $5,000 a day, yes. My almost a minor in math still works. So, $5,000 a day is what you got to get to in order to be able to hit $9,000 in collections. And all of a sudden, a number quantitative number that we can use in terms of the inside of the practice to quantify what it is we need to be bringing in. And we were to be able to set some type of a standard. If I know right now we're averaging $4,200 a day, I know that number has to change. I have to get an extra a hundred dollars a day in there. If I have that $5,000 a day number in my head, what I would tell people to do is break it into two segments. Break that into hygiene and break the into doctor production collection.Jonathan:Hygiene is usually a little bit easier for people to calculate on because it seems to be pretty standard. Over time, there's a normalization of hygiene revenue it seems like because there's just not a whole lot of extra services that get added into hygiene. You have a prophy and you have x-rays and you have, fluoride, maybe you have some perio treatment or something like that, if your practice is doing that. And, but overall, that revenue is fairly consistent from a hygiene perspective. So, let's say that you got two people there everyday doing hygiene, and you know that your hygiene's going to be somewhere around $1,800 a day in collections coming from your hygiene department. Every practice is going to be a little bit different, but what they do or don't do it in this terms of those numbers.Jonathan:So that gives you $1,800 a day, $900 a hygienist, goal. And it gives you a $3,200 doctor production in a day. And so that allows you to then say, Okay, if my goal is $3,200 in a day, what does that look like in terms of what I am commonly doing in terms of production? Is that two crowns a day, plus some exams and plus other things? What is that number, to you, as a dentist, as a practice? And there's that one new ortho case a day? What is that number? And that gives you a lot of power to set some type of a goal. And once you have those goals set, you can then bring your team in. And again, this is the reason to circle back to the part about having good staff is you want to have a team to be able to help you reach those different production roles.Jonathan:And that's where you start the training, you can start working on those different things. And I think it's a good starting point for allowing you to be able to come up with what you need to do in terms of what the production does. And again, that's just one use of the breakeven point. If I was a business owner, I would always know my breakeven point. Well, I say that, I am a business owner, I do know my breakeven point.Jonathan:But, for all my clients, I urge you to understand your breakeven point because there's a lot of power in that number from in a bunch of different aspects. I wish the breakeven point was just a standard financial statement number. But even though it's really important, to me, it's probably the most powerful number that you get from your financial statements, just not on your financial statement. It's not there. You have to calculate, you have to know what you're looking for in order to be able to look for it. So, to me, the breakeven points of like a magic number almost that everyone should know. So, that's the breaking point. Is there anything else on the P and L that you want to talk about because that went pretty in-depth on the P and L.Joseph:I like to look for trends, I like to see if things look out of whack, I like to look at measures of our percentages over time. I think that those are going to help tell the story as your practice grows or as your practice shrinks. It may be one of those things that you grew too fast, you have too much stuff going on, too much expenses, you hired a couple of associates and you're Man, I need to go back to just being a single practice owner. Those percentages will help you understand kind of what the story is and evens things out over time. So, those are the big things that I'm looking at, for sure.Jonathan:Yeah, same here. So let's move on to the last one. And Joseph and I talked about this financial statement before the call, and I said, You'd probably be surprised by my answer or this one. The last one was the statement of cash flow. And in terms of the statement of cashflow, what is it that you're looking for when you're analyzing the statement of cashflow?Joseph:So, the beginning number of the statement of cash flows is what was your cash in the bank, minus your credit cards, at the beginning of the month. The bottom number on the cash flows is what is that number at the end of the month? The statement of cash flows tells you how you got from your beginning balance to your ending balance. So, there are a couple of different things that go into how we got from A to B. The simplest, easiest way, and I'm not going to use the accounting technical term is number one is what was the profit? What was the net profit of business? And then we're going to add back non-cash expenses, depreciation, amortization, add those things back. And then we're going to subtract out, did we buy any assets this month, cash assets?Joseph:And then we're going to also subtract out and we're going to say, How much did we pay in principal payments our debt? So,, how do we get in cash in the bank from X to Y? So when I'm looking at the statement of cash flows...Also, how much did we take out owner's distributions? That's another pretty key component. When I'm looking at the statement of cash flows, first thing I'm looking for is Did the cash go up or down over the period? And then the next question is Why? As I'm looking at that, and then I also look at that ending cash balance and I'm looking at that breakeven point and seeing whether or not we're in good shape or not. If the ending cash balance is still seven times your breakeven point, it doesn't matter that cash went down $10,000, $5,000, whatever it is.Joseph:That's not a statement of alarm. I also am looking at the cashflow statement because we have a lot of owners that are saying, Hey, look, I'm not paying myself a salary. I'm a schedule C filer. How much can I afford to pay myself? And that's one of the first places that I go and kind of direct them at is to say, Well, let's look at your cashflow statement. Let's see how much cash was produced in the practice last month versus how much came out, let's look at that. I like to look at whether the cash increased or decreased and why and then I try to figure out how much was taken out in owner's distributions and was it enough or too much or that kind of thing in order to figure out where the cash balance is compared to the breakeven point.Joseph:So, those are some of the things that I'm looking for. If cash went down by $10,000, but that's because we paid off our line of credit, that's not a bad thing. If cash went up a $100,000 and it's because we took out a 50% interest, hard lender that's a bad thing. So, how did we get from cash in the bank at the beginning to the end and what makes up all of those different pieces? Obviously, loans are a big part of practice ownership, but if you're taking out a loan in that kind of a way where you're just desperate for cash and you've got to take it out at a really, really high interest rate, that's not something to celebrate because your cash went up because you took out a cash advance on your credit card.Joseph:That's not a good thing. So, cash at the beginning, cash at the end. And then how do we get there? What are those kind of bigger key components? Hopefully you run a net profit for the month, hopefully you took out some sort of an owner's distribution. You probably had some sort of a payment on your line of credit and you may or may not have bought a new asset inside the practice. So, those are like the high level things that I'm looking at. And just to make sure that it makes sense over time. And then comparing that to back to your breakeven point and why it's so important, comparing that back to your breakeven point and seeing what the cash looks like. How about for you? What are you looking for in a statement of cash flows?Jonathan:The first thing that I look at statement of cash flows again, if it's internally prepared by our firm, then I'm actually looking at it. If it's externally prepared, I usually just throw it in the trash because I know it's probably not going to be prepared well. Statement of cash flows is one of the most complicated financial statements to create, for some reason. I think that the reason is because most bookkeepers and most CPAs do not have any need for a statement of cashflow whatsoever, ever, when they're preparing a tax return. You do not need one for a tax return, at all. And so I think that most people just ignore it, they basically just hit the print button on their financial statements and statement of cashflow pops out and they give it to the people and they get along with it.Jonathan:I think that's what the standard is for most statement of cash flows. If it's internally prepared, I know it will be done well, I know that with the software that we use, the way we have it set up, it's going to give us what we need. If I'm looking at a statement of cashflow, like you said, the way the statement of cashflow is set up is a three prong approach as grouped beginning balance, plus or minus operating expenses plus or minus investing activities, plus or minus financing activities and the end is what your cash balance is going to be and there's going to be a delta between the beginning and the end to see where that money went to. If you don't normalize that, that number is going to be worthless, it's not going to make any difference at all, because you may as well have just looked at your bank statement because your bank statement has at the beginning of the month, how much cash is in there, has the deposits, has the expense, and it has an ending balance. Bank statement says the same exact thing. But in the statement of cashflow, it groups things into logical ways to be able to tell what's going on. Yes, the times when I would look at the statement of cashflow, or whenever I'm looking at a year end analysis to say... If I have client saying What happened to my cash? Statement of cashflow is where you typically tell them where the cash went to. You do a rolling number of showing them, Okay, well, beginning of the year you had this much cash you got this much in loans, you pay this much loans back, you took it out this much in extra whatever, and distributions, here's what you paid yourself and here's where your cash went to and that's the rolling number.Jonathan:That's the standard for small CPA firms or when you have small business clients, you have to do that almost every year for most clients, whenever you're a small CPA firm. For us, we don't do that because we do that every month. We do it in a customized way to show people three things. Number one is cash profit. Number two is what your cash profit versus your tax profit is. So, your cash profit is not what ends up on your statement of cash flow but we use that number to help us calculate what the cash profit is. We have to do those add backs, just like we did with the normalization of the income statement. And by the way, this is probably episode 12 now for the time of the cashflow. You have to normalize that to be able to say what happened to your money.Jonathan:I skipped over the third one which is what is your tax profit versus your cash profit? Because those two numbers are very different. And people get those really confused. We talked about on the financial statements, what's at the bottom doesn't make a whole lot of difference because it could be that the owner paid themselves something or another. Cash profits, the same thing. Your cash profit is not going to be anywhere on your financial statements, you got to calculate it in order for it to be reality. And you've got to normalize that cash profit. You find out what your cash profit is so you know how your business is doing, your tax profits really just there so you can kind of understand how much you've made from the IRS's eyes. So you kind of have an idea of what we will be paying taxes on at the end of the year.Jonathan:That's really the only use for the tax profit number. So, we use the cash profit for that purpose, which is derived from a bunch of different metrics inside of the statement of cashflow. We do utilize it because we also have things like the financing activities is the paying of the debt down and things like that. And they always get, even I get them confused. I don't remember the rules because the software does it for us all the time now. I think technically when you take out debt, it's an investing activity, but to repay it back to financing activity or something like that. Or maybe it's the assets go into the investing and then... It gets real complicated, real fast.Jonathan:There's a real reason why we don't look at it again because we never use it. The only time I'll ever use it is when I'm helping someone to understand what happened to their cash. And then you go in and if it's a well done set of financials, those numbers will roll the right way. If there's a bunch of journal entries done to dodo accounting every month, which is what a lot of firms do, the cashflow statement will not work because the journal entries will not be reflected appropriately inside of the table cashflow almost ever. So to answer the question again, the three things I look at is what is the actual cash profit and then what is the delta of cash? And then what does that versus tax profit?Jonathan:Those are the things that I look at a statement. They're not technically on the statement of cashflow, but that's what I look for when I'm using a statement of cashflow, in the grand picture of things. I think I had a client asked me, actually asked me this one time of, What's the standard that should be going into my investing activities inside of the statement of cashflow? Because they were really studious and they heard about statement of cashflow and they'd read some type of book that had said that there was a really important number that nobody talks about or whatever it is. There is no standard for that. In a small service-based business, it's very much what you're doing, not versus what other people are doing.Jonathan:And the ways and means that you get to those things, that isn't something you can normalize. I've used the term normalized too many times. It's not something that you can aggregate and then make an average of and have it be a meaningful number for anyone, I don't believe. Because there's so many different variables that go into it in such as what type of practice it is, what type of patients you have, how old is your practice, what's your production capabilities as a dentist. There's just so many different things that go into that, that it's a fool's errand to try and figure out is my investing activities, I'm assuming cashflow, optimal comparatively to the other practices that are out there, does doesn't exist. And help us, please, if there is a study out there that says that there's some averages that you should be looking at in dental practices, because I can only imagine what type of data they have. That, to me, is the statement of cashflow. So is there anything else that you wanted to add for that topic?Joseph:Back to that question that I got when I sat down and interviewed for a finance job. The guys told me his favorite financial statement was the cashflow statement and he was a private equity investor, so basically he wanted to know how much cash he could skim out of the business... Not skim out of the business, but he could strip out of the business -Jonathan:Sure.Joseph:In owner's distributions every single month. So, the cashflow statement told him everything he needed to know. Did they make a profit or not, add back depreciation, amortization? What were the loan paybacks? And then that's the cash I can then take out because that was the net change in cash over the point in time. I always struggled with cashflow statement whenever I was coming up through the ranks in CPA land and in accounting land. Balance sheet income statement always made the most sense, but I always got confused. You're talking about this financing versus investing. At the end of the day, the cashflow statement is trying to tell you, where does your cash go?Jonathan:Mm-hmm (affirmative).Joseph:Did it go up or down and why.Jonathan:Yep.Joseph:That's what you need to glean off your financial statement of cash flows.Jonathan:Yep, absolutely. And it's there, you just got to know how to read it. And that's another reason why tell dentists to not spend them a lot of time on that because context is so important. And if you don't fully understand the full set of financials in your industry specifically, you really just can't read a book to tell you how to read a statement of cashflow. It's not going to bear fruit. So to me, hopefully you got good advice and people are painting a picture for you rather than you having to know all the ins and outs of the different elements of financial analysis to be able to divine how these numbers are doing. Those are the financial statements.Jonathan:WE've touched over things, believe it or not. Even though we've talked a lot about the financial statements, we've just touched over the things. There's a lot more nuance that goes into the creation of these things. And, it's almost an art, in a way, of the start to finish creation of them and setting them up in a way in which can be analyzed appropriately. And that was something that I struggled with really heavily on when we started our firm was I wanted to teach everyone how to read their financials. That was my goal in life because I was Man, I want to teach them how to be... they're going to, they're going to be putting people at Goldman Sachs to shame because they're going to be able to know how to read the financials.Jonathan:And I quickly realized that there's no reason to do that. Just tell them what they need, show them what they need. And so what we do in our firm is we definitely take those financials and we paint a tapestry of the important numbers. A good set of financials can be six to seven pages along of data per period. And if you do that over a course of a year, you got a hundred some odd pages of data. What we do for our clients every month is we set up all that information by a single page report that lets people understand really well The answer to four questions, which is how profitable are we? How well did we spend our money? How much cash should we make? And where did that cash go to?Jonathan:But that's our goals with our financial analysis to give to our clients every month. And then we help people, if they don't understand what the numbers say, we teach them, we tell them how to read it and show them what happens. And then if they have any questions about the results, they ask us and we can give them our input from viewing that over 250 times a month. That's the way that we've approached this challenge and approached the problem of that there's not a whole lot of education out there about what are on the financial statements. And I'll be honest. I don't really think that there's, I don't know... I'm torn on this one at this point because my thinking has evolved so much over the past 10 years. Would you spend time if you a dentist going and taking a course, a three hour college course about how to analyze financial statements?Joseph:I wouldn't. I don't think it'd be a good use of your time. I think that if you've got a good CPA or a good accountant that can help you understand your financial statements then you can see what's going on month to month and tell you everything you need to know. I think a three hour course... Because it's not going to be relevant. The same metrics that they're going to teach in that they're going to talk about some of these higher level concepts, like the debt to income ratio or the assets to liabilities, or the current ratio. They're going to talk about a couple of those things. They're not going to say, Here's what your supplies and labs need to be each month. They're going to say, Well, this is a typical in your industry how much your overhead should be. If we're a construction business, we've got more going on materials than you do in a dental, right?Jonathan:And then there's also the different the cost to completion method or, what's the other one? There's another construction one. I can't remember it off the top of my head.Joseph:I mean, if you really want to learn this at a high level, go figure out your favorite publicly traded corporation, go figure out when their earnings call is, look at their financial statements and listen to the executives talk about what's going on inside of those businesses. I think that would be a lot better use of your time. If you really love Apple computers, figure out when Apple's earnings call is and go sit on their earnings call or listen to a replay of it and have them walk you through their financial statements. You get a lot more out of that because it's a business that you know and understand. Or any of these publicly traded companies that are in the dental space. They'll talk to you about what's going on in the industry. Those would be a lot better use of your time than taking a college class.Jonathan:I agree. And the other thing that's really important, closing thoughts, is that the financial statements, they tell you what happened from a financial perspective, they don't tell you everything about your business. Like I told you at the beginning of the conversation that there's people out there that thinks that the financials have everything in there and they don't. Like I said, they don't show you a measure of capacity. They don't show you new patient inflows. They don't show you your production per day. They don't show you your open chair time. They don't show you how many patients are coming in, being rescheduled for your hygiene every month or every day. Those are important numbers to know if you're a practice owner, but they're not on your financials. And no amount of financial analysis is going to give you any of those numbers unless you bridge the gap between practice management and financial numbers.Jonathan:And what we tell people is that we are CPAs. And I know there's a lot of blurring of the lines of what CPAs do and don't do, but for us, we're CPAs. We handle financial analysis and we help you with financial analysis. Practice management analysis should be done by practice management consultants. We are not practice management consultants. I know that there's a lot of blurring of the lines in the dental industry for what is a practice management consultant or not. And, yeah, we know a lot about the numbers, but I don't know your hygienist, I don't know your office manager. I don't know your management style. I don't know what type of patients you have every day. I don't know how you like to turn patients over. I don't know how you like to have your tools set up and how efficient that makes your assistant.Jonathan:I'm not going to tell you how to do those things. I've never been a dentist before. I can tell you how to be a leader and things like that, but I'm not going to be able to give you that practice management information. And so to me, in terms of the best financial advice I can give someone is to pay a practice management consultant for that time that you're spending, because you were paying a CPA, you're paying $200, $300, $400, $500 an hour for this advice. And if you have a CPA doing this for you, more than likely, all they're going to find is problems. Probably not going to have any solutions, probably it's going to be problems are going to find. So rather than paying them somewhere between $200, $500 an hour for someone to find problems, pay a practice management consultant between $100 and $200 an hour to find the problems and give you the solutions. Much better use of your money, so to speak.Jonathan:So financial numbers can help you look for areas of focus, but they're not going to be giving you hard, cold facts that this is optimal performance. That's not how financials work, unfortunately. That's a big misconception, too. And I think there's a lot of people out there that they get into this game because business is a game in a way. And they think that If I optimize the financials, I'm going to win this game. And it's not the financials. It's really the people that you got to optimize. It's really the performance that you got to... Practice management. It's a different game, it's a different thing. I want to make sure that I'm putting that out there that financial analysis does one thing, practice analysis, practice management analysis does a whole nother thing. It's a whole other ball game. Any other closing thoughts you have, Joseph?Joseph:Well said, Jonathan. And ditto those things that you said. Financial statements can tell the story, but they don't tell the whole story. They can give you a glimpse of where you're at and where you've been. That's the other thing about financial statements is they're always going to be backwards looking. I had this conversation with one of our clients a couple of weeks ago. Inherently, they are talking about what happened in the past. It doesn't tell you what's going on in your practice today, what's on the schedule for next week. Those are not going to come out of your financials. They're always going to be backwards looking. So the challenge is to marry the two. Come up with what your goals are, figure out what you did in the past and figure out what your future needs to look like to get to the place you want to get to. And I think that's where the beauty is.Jonathan:Exactly. I agree. It's been a fun set of episodes. Hopefully you've gotten a lot of value out of this, listeners. If you have any questions about this, obviously, we talked about this too much already to our loved ones, and they don't want to hear about it. So if you want to come over to the Facebook group and chat about financial statement analysis, we'll be there and talking about it. Maybe if you had some type of a really interesting number you found in your practice or you've had a way that you've been able to affect your numbers we'd love to have you over in the group and be able to hear about it. Or if you have any questions about what your numbers mean, we can maybe give you some context around that in terms from a financial analysis perspective. We appreciate you listening in. Hope you've had fun and we will see you next time.Joseph:Bye, guys.Jonathan:That's it for today, guys. I hope you enjoyed this episode of the Tooth and Coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com where you can check out more about our CPA services. We help out around 250 offices around the country and would love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners, so people that are about to be an owner of a practice they're requiring, about to be an owner of a practice they are starting up or has become an owner in the past five years. That is our specialty. We'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan:And if you enjoy today's episode, again, go to the Facebook group. Talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the longterm. Lastly, if you want access to those resources that we are currently building, just text the word Tooth and Coin to 33444. That's tooth and coin, no spaces. T-O-O-T-H-A-N-D-C-O-I-N to 33444. Apply with your email address. We'll send you the instructions to the Facebook group. We'll send you the resources when they're available and we will see you next week.

Join the discussion on Facebook!TranscriptJonathan:Hey everybody, Jonathan checking in here. And just so you know, this is a second part of the episode. So if you've not listened to the first part yet, you want to go back and listen to it in the prior weeks. We should have it labeled on the episode title what part one is and part two is. So you should be able to see that in the title of the episode it is what episode of episode it is. So thanks.Jonathan:Welcome to the Tooth And Coin podcast, where we talk about your adventure of being a dental practice owner. In these episodes we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones, some of them are very specific, but we hope that these episodes help you along with your journey. Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan:Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share? Join us in the Facebook group. If you go to Facebook and you search for Tooth and Coin podcast, click on it to join it, and be able to join us there.Jonathan:Finally, if you need some more help, we're developing a list of resources that are going to be centering it around our topics of discussion to be able to help you a little bit more than what the content is doing. So if you'd like access to that whenever it becomes ready, all you have to do is text the word toothandcoin, T-O-O-T-H-A-N-D-C-O-I-N to 33444. Again, that's toothandcoin, all one word, no spaces, to 33444. Reply with your email address, and we'll email you instructions on how to get into the Facebook group. As well as add you to a list to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you as well.Jonathan:So onto today's episode, hope you enjoy it.Jonathan:We work with around 250 offices, and we see there are just differences in dental practices. So a P&L, to me, is a fantastic thing to look at to have an understanding what's happening. But to me, you have to be financially savvy enough to calculate out that seller's discretionary earnings in order to be able to calculate what the actual profitability of this practice is on a dollars and cents perspective. Once that is done, you would then look at those different key categories, which again is another area where I find a lot of dental practices financials don't have things properly segmented inside of their financials. So you can't do that. So the presentation of the P&L for dental practices is just as important as the understanding. Because you and I could look at a financial statement that would come to us, and if it's not a really, really well-defined P&L.Jonathan:I mean, we've seen P&Ls that came through that had 10 expenses on it, and that's all the expenses on the P&L. They have nothing else. And it's just like-Joseph:Wages.Jonathan:Yeah, wages. Like payroll taxes-Joseph:Supplies.Jonathan:[crosstalk 00:03:36] that. Insurance is on that. They have a consultant, probably, in wages. They probably did some recruitment, that was in wages. And it's just all in one big pile, one big line item. And you can't define anything out of that. So presentation is just as important as well. So what about you? What are some other things you like to look at on the P&L? Because I could probably talk about this for another two hours.Joseph:Yeah, no. I like to look at the owner's discretionary expenses and really make sure that you're able to do that. Anytime that you're ever going to buy or sell, it's in everyone's best interest to do what's called normalize the financial statements, which is what Jonathan just described there. Which is like all of this stuff that the owners run through that are ordinary necessary business expenses, if somebody else came and bought the practice out, a PE firm or a bigger company comes out, or DSO, whatever, comes in and buys, they're not going to spend $18,000 on the travel to take you to eight CEs across the country. Right? They're going to come up with probably a more cost-effective way to do that. So I like looking at the owner's discretionary expenses.Joseph:I like looking at labor, and seeing how much are we spending on labor? One of the calculations that we make for our clients each month is: what percentage of your money are you spending on clinical staff, hygiene staff, and clerical staff, divided by your top line revenue? And one of the things that we try to get inside the benchmark of the industry. And if they're significantly outside of that benchmark, like in a bad way, if we want that number to be, let's say, 25%, and that number's at 35%, then that tells us that that's something that we need to dig into.Joseph:Now, some people might just say immediately, "Oh, that just means we need to cut salaries and cut staff by 25%," but then if we just kind of look at the top line and we're like, "Well, the practice only collected like $20,000 this month," it sounds like it's probably more of a collections problem and a top line revenue problem than a production problem, and maybe an AR problem, versus spending too much in wages. So I like to look at that. I think that when you look at your people, and we've talked a lot about leadership inside this podcast, the people that are inside your practice that are helping you make this thing go certainly are a big, huge asset to you. They officially go on the P&L. But I want to make sure that we can it back and challenge the staff and say, "Hey, look, we need to grow the practice in order to justify the money that we're spending on all of the people that are here." That's something that I look at.Joseph:I like to look at supplies and labs and figure out if that's kind of something that's significantly out of whack. If you got $20,000 in collections but you're spending $25,000 a month in labs, anybody could tell you that's a problem. Right? So I look at supplies. Like to look at labs, like to look at wages. And then I'm just kind of looking for like any crazy stuff that sticks out, any kind of big pieces. Like going back to the comparative piece that we were talking about with the balance sheet, I like to look at a P&L and I like to look at this month versus the past three months or four months or five months, so I can see if I can note any trends. And then if all of a sudden I see an $8,000 expense that pops into an expense category, that may be something we need to look at. Like, "What's going on here?"Joseph:It's like, "Oh. Well, I had to replace the roof," or, "I had to replace the AC," or, "I had a piece of equipment that I bought," well, maybe that doesn't need to be on the P&L, maybe that needs to be on the balance sheet. Maybe we've got kind of a bigger problem here if we see huge, huge increases. And the technical term that we call it in the accounting world is that we're going to do an analytical review. We're going to analyze, we're going to look at what all has happened. So those are some of the things that I'm looking at when I'm looking at a P&L. I'm looking at wages as a percentage of revenue, like all the money that you're spending. So obviously that's going to include whatever your 401(k) matches, whatever your health insurance is you're paying on behalf, your payroll taxes. All of that goes into paying for your people.Joseph:I'm going to divide that by the top line revenue and see what that number looks like. And that's one of the reasons that it's important. You were mentioned in the 10 line income statements we've seen, that's why it's important that wages need to be separated out. It's like, "What do you mean you put your doctor's wages in with your doctor's family and with your hygiene staff, and that means that our wages are now 290 ... Well, of course they're out of whack. Right? Because we need to separate those things out to determine whether or not we're spending our money wisely on our staff."Jonathan:Yeah. Completely agree. I was having a conversation with someone on a podcast years ago, and they were like, "Well, taxes are your number one expense as a business owner." And that's a line that has been fed to so many people. I think probably even I heard that in tax class when I was taking a tax one and two in college, or whatever. But in dental practices, that's not the case. Taxes are not your ... Now, if you add up all the different types of taxes, they were talking about income taxes. That's the narrative we're usually give them around that. Your staff is your number one cost.Jonathan:It's your number one investment is a way I'd love to be able to rephrase that, and be able to ... the paradigm change of a practice, because if you're spending 25 cents out of every dollar that comes in the practice, up to 35 cents out of every dollar that comes into the practice, on your people, then your practice that nets, let's say, 40%. And if you're paying 40% in taxes on 40% of what's left over, you're only paying 16% in taxes, 16 cents per dollar, for your staff, for your income taxes. Whereas you're paying 25 to 35 cents per dollar for your staff. Big difference, right? So your people are your big difference. And that's a good thing. You want to pay people to do good work for you. I've definitely ran into CPAs or to clients that have had CPAs in the past that have said that, "Oh yeah, you're overpaying your people by this much money. And this is how you're going to get your payroll in line, is you're going to clean house and lower everyone's wages by this amount."Jonathan:And it just kind of makes me sick that ... that can wreck the practice if it's not done really, really well. I will say it is possible to have an overpaying problem, to pay people a whole lot more money. But to me, and we use this concept in our firm, I would rather overpay for good people and have my life be easier than have to worry about the $1,500 a year that I'd be saving if I was trying to not be competitive with my wages. This is a pretty bold statement, but I would think that, as a dental practice owner, you should be wanting to be the highest paying person in your area for doing a good job. Because you want the best people. You don't want the worst people. The best people can raise you up really, really high. And so staffing costs definitely look at. But from a percentage-base, from an analytical standpoint, yeah, we got to have some type of understanding of how to reign in these numbers on our staff, to be able to give some type of context on how we're doing, how well we are spending our money.Jonathan:And that's what we say we're answering the question of whenever we do an analysis of overhead every month for our clients is, it's literally the question that this information comes in. We have a four questions report, and one of the questions is, "How well did you spend your money?" And we have an overhead analysis that gives you percentages of these things. So definitely staff definitely supplies, definitely labs. But another thing that I really like to look at, after I've looked at profitability and I've looked at the balance sheet and everything like that, is I like to look at growth expenses. What are we reinvesting in? What is going to happen in this practice? And are we seeing growth off of those said expenses? We've got a lot of clients that have 0% of fees or their revenue goes to growth expenses.Jonathan:Nothing. They don't spend anything on advertising. They don't spend anything on consultants. They don't spend anything on big new courses or things that they were trying to learn, anything like that, but they're still growing. And then we have people that will spend 15 to 20% of every dollar that comes in on these things, and they're not growing at all. So effectiveness of growth expenses is a very important number that I like to look at just when I'm trying to say ... Because that's a very quick thing for me to be able to tell our clients, like, "Look, your growth expenses are really, really high, and we're not seeing any revenue growth. Is this an effective use of our spent? Of our money? Because I love that you're willing to invest in the growth of your practice, that's what you're supposed to do as a business owner, but is this the most effective use of that money?" And for-Joseph:[crosstalk 00:12:11].Jonathan:Exactly. So for dentists that can be a really big deal. That's a really, really, really big deal, is effective use of advertising spend, or growth spend, consulting or whatever it may be. And that's something that gets lost a lot whenever you analyze financial statements too much is, what is our ROI? I don't go into such fine detail of saying, "We need to know the cost per lead of everything that happens from every single campaign," or anything like that. I just hope that you've hired someone that's smart to do your advertising that does that for you. And then you can validate those things down the road. I don't think that you should be spending 30 man hours a week trying to figure out just how effective those lead funnels were or anything like that.Jonathan:So from the P&L, those are the big things. Obviously we back out interest, appreciation, amortization, and things like that when we do the normalization and seller's discretionary earnings. I don't put a whole lot of weight into looking at interest, depreciation, and amortization. I'm never going to look at an interest ratio or anything like that for a dental practice. I don't think it's really very fruitful of an endeavor. I might very briefly see like, "Oh, there's $30,000 on interest. This person has a lot of debt." But if I looked at the balance sheet I've already noticed that. So if I'm looking at, "Is this a well ... This is a good set of financials," if I see that $30,000 in interest and I see no debt on the balance sheet, then that makes me just roll my eyes and throw the things in the trash, because I know that it's probably not a good financial statement.Joseph:Not good financials. Yeah.Jonathan:Or interest is [inaudible 00:13:43]. What else have I seen? I've seen credit card fees be put to interest expense. I've seen ... there's just so many things you see get stuck in there. So anyway. Yeah, to me that's what the P&L's for, is show, number one, it has to be well put together just like the balance sheet, just like statement and cashflow, or else it's almost worthless. You're looking at revenue. And then also comparatives. Again, we look at ... Whereas the balance sheet is a snapshot of time, a P&L is a story over a period of time. So whenever you're looking at the stories you have to compare a period over a period to be able to tell that. So in terms of that, of how to use comparatives inside of P&Ls, how do you look at versus the past?Joseph:Yeah, so one of the things we were talking about with the balance sheet is getting a chance to look at some different ratios, right? So we talked about like the current ratio, current assets divided by current liabilities, and how we need to basically figure out a way to create a level playing field. So if your practice started out at $400,000 in collections, you add five more practices and now you're at $4 million in collections, right, that's not exactly the same to look at a top line revenue number. So one of the things that we do on income statements is we look at it as a percentage. So we look at what is the percentage of revenue that we're spending on all of these different things. So if we're just going to hop straight down to the bottom line, we take the net income divided by the top line. So if you made $100,000 in net profit, divide that by a million dollars in practice, your net income was 10%.Joseph:So as mentioned there, we're going to also make the adjustments that we need for the owner's discretionary expenses, probably going to back out depreciation, amortization, and interest. And we'll be able to get like a pretty clear picture as to how we're doing running a $4 million practice versus a $400,000 practice. Obviously the net income, the bottom line, is going to be different. But if you're making a 2% return on a $4 million practice, maybe you were ahead to not be a $4 million practice, and maybe you would be ahead to stay a $800,000 practice. Right? So we're constantly going to look at the percentages of those things. And as you're looking at those over time, you can compare what's the net income look like, what's the staffing look like as a percentage of income.Joseph:You mentioned the growth expenses, Jonathan. So as we grow and as we get established in this market, maybe it doesn't make as much sense to spend as much money on marketing once our, quote, name is out there. Or it may be one of those things we need to slow down the growth in the practice, so we're going to decrease that. So what do all those things look like as a percentage of revenue? So I think those are the things that I'm looking at in terms of kind of looking at things over time. What do those percentages look like, and how are we doing? And what's our net profit dollars look like? Our net percentage look like? And how do we advance it towards the goals that we have in mind, whatever those goals may be?Jonathan:Yep. And that's the reason we started the whole conversation with the financial statements is saying that they're a body of work, but they're not the end all be all that a lot of people think. There's probably some dentists that are listening now that think that we're almost being blasphemous by saying that financial statements don't answer every single question that has to do with the dental practice. And to the concepts that you're talking about, yeah, I mean the concept of diminishing returns versus scale is something that happens a lot in service-based businesses. Which diminishing returns, just a quick explanation of that, is as you grow larger, the effectiveness of things or the profitability of things does typically go down, unless you have really big economies of scale.Jonathan:There's a lot of people trying to craft a narrative about the DSO space, saying that, "Oh, we've got 20 offices and we get this economy of scale on our supplies. And we're going to make tons of money on that." And when you think about it, okay, let's say that you're going to actually save 10% on your supplies if you have economies of scale. Your supplies are going to be like 7% of your revenue. That means you're going to save 0.7% of your total revenue.Joseph:Seven tenths of 1%.Jonathan:Yeah. Are you trying to grow to 20 locations so you can save 0.7%? That's not the purpose of that, right? You want to get it so the whole number gets bigger. The other part about that is diminishing returns are a really easy concept for me to be able to ... or a really easy example of that is, when a business grows to a certain size ... The way I tell people to imagine it is, think of it as a capacity, think of it as like a circle. And your total capacity is that circle. And I've also taught people to think of it as like a glass, like that you fill with water. When you get to a certain size you may be overflowing with water, your circle is about to burst. And you've got to expand capacity in some way. And when you expand capacity, there's a very few ways you can do that. You can add time, which means that you open more hours. You can add people, or you can add space.Jonathan:And if you already have an effective use of people, but you have access to space, maybe space is the best way to do it. If your people are maxed out in what they're doing in a day, a lot of times what that usually looks like is you adding an associate. And the associate is a really good example of a diminishing return, because in order to have someone there that's a practicing dentist, you can see a dental practice's profitability go from 55% all the way down to like 30% almost overnight when they add an associate in because we're paying this associate so much money to be there comparatively to when they were there before. It's one of the reasons why it's super important to not be adding an associate before you're really ready for it. And there's a lot of different things around what being ready for it means. Like new patient flow, capacity, utilization. There's a lot of different things that go into when that's right for the different dentist.Jonathan:And cashflow too. And also, like you said, goals. What is it that you set out to do? And how does this help you address those goals? So the diminishing return concept in that is that there's a point in time where, if you're a full-time dentist that's very busy, say you have 2000 patients, if you've got like 100 new patients a month coming in, you've got 2000 patients already and you're maxed out and you've got two-and-a-half hygienists, and they're maxed out and booked out four weeks in advance, and you've got two assistants that you're already working out of two and a half chairs a day on, and you've got two front office people that are just stressed to the max, maybe the only thing you have left to do is add an associate. And once you do that, immediately after that you're not going to have 4,000 patients. A way that I tell people to conceptualize the capacity of a single dental practice owner, or single dentist, is somewhere between, it depends on the dentist, somewhere between 1500 and 2500 patients. Maybe up to 3000 patients.Jonathan:In order for you to have two dentists there, you have to have twice that number of patients. It's just simple, right? It has to be that way. And to get to that, once you've upgraded your glass, the bigger glass, you've got to have more water to fill it. In order to get more water to fill it, you've got to have a patient flow. And if you've got 100 new patients a month coming in, and you've got a new person coming in, it's going to take you, to get to 2000 more patients, at least 20 months to get that full capacity. Now you're also going to have attrition, so that's going to create a little bit more of a flow, a little bit longer time for you to be able to hit that point. But in that timeframe, between the time you add that associate to the end of that time, you're going to have a diminishing return. You're going to have an investment in that new person.Jonathan:You're going to be making less money usually. Because usually you have what's called the cannibalization of production, or that's a term that I call it. Because in order to feed that person that came in to work for you, you got to give them some of your production, and they usually don't produce as much as you used to produce. And then you're also paying them 30% of that. So there's a lot of [inaudible 00:21:21] that go into it. But in terms of the growth and scale, whenever we're looking at a P&L, if I look at a practice that has had an associate for only six months, and I looked at that practice a year before, it's going to look very different. So to the determination of the growth and things like that, it's really important you understand your path, what you're trying to accomplish with this practice.Jonathan:I talk to dentists every day, one person will be like, "I want to get to a point where I'm doing 1.5 million a year in revenue, no associates, nothing else going on. I work four days a week, and I'm killing it." And I have other people that said, "I want to own, be adding a new practice and a half every year for the next eight years." Everybody has their own path, and everyone's right at the same time. What's right for one person is not right for the other. But the P&Ls will say different things, because the P&L of that guy who's adding an office every year and a half, they're going to have a lot of growing pains. They're going to have a lot of cashflow issues, they're going to have a lot of profitability issues. They're going to have just a lot of issues because the missing component in that is time. And that time usually it leads back to the non quantitative numbers, or nonfinancial numbers, which are more practice management in nature.Jonathan:So those are really important pieces. Another thing that we talked about earlier that I wanted to talk about is the breakeven point. So when I'm looking at a P&L, a lot of the data that goes into your breakeven point comes from the P&L. There are things that come from the balance sheet as well, technically. Or the statement and cashflow technically. But the breakeven point is a really, really good number for you to be able to tell, as a business, like, "If I don't really have a whole lot going on, if I break my arm next month, how much is this business going to cost me to keep open?" Or, "What's the minimum amount of money I can produce in a month and actually start making money?" Or, "If I want to make, say, $30,000 a month, how much do I need to be bringing in collections?"Jonathan:Your breakeven point is a number that would be involved in each of those answers. I was always [inaudible 00:23:16] the people didn't calculate that internally. And then I have a math background, and so I was like, "I'll just calculate it out and be it." The thing is, it's an evolving number, right? Like it's a number that doesn't stay the same. It has variabilities inside of it. And as you grow it has even more volatility that goes along with that breakeven point. But in general, you can usually come up with a ... Over time it normalizes. Right? So we give that number to our clients every month. "Here's what your breakeven point is," so they can have the context of, "Well, I want to make $30,000. My breakeven point's $45,000. I've got to be producing 75 right now. My average is 55. I got a lot of work to do." They know they got to influence it.Jonathan:They're not going to be surprised when they don't have $30,000 at the end of the month. They're going to know what that is. So what about you in terms of breakeven point, things like that? What are some of the things that you like to use a breakeven point in order to be able to use in terms of management and goal setting and things like that?Jonathan:Hey everybody, Jonathan checking in here. Just so you know, this is a second part of the episode. So if you've not listened to the first part yet, you want to go back and listen to it in the prior weeks. We should have it labeled on the episode title what part one is and part two is. So you should be able to see that in the title of the episode [inaudible 00:24:33] what episode of episode it is. So thanks.Jonathan:That's it for today, guys. I hope you enjoyed this episode of the Tooth And Coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com, where you can check out more about our CPA services. We help out around 250 offices around the country and would love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners, so people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up, or has become an owner in the past five years. That is our specialty. We'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan:And if you enjoyed today's episode, again, go to the Facebook group, talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the long term.Jonathan:Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444. That's tooth and coin, no spaces, T-O-O-T-H-A-N-D-C-O-I-N to 33444. Apply with your email address. We'll send you the instructions in the Facebook group. We'll send you the resources when they're available, and we will see you next week.

Join the discussion on Facebook!TranscriptJonathan:Welcome to the Tooth and Coin podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones, some of them are very specific, but we hope that these episodes help you along with your journey. Now a very important piece for you to understand is that this is not paid financial advice, this is not paid tax or legal advice. We are not your financial advisors, we are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan:Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share, join us on the Facebook group. If you go to Facebook and you search for Tooth and Coin podcast, click on it to join it and be able to join us there. Finally, if you need some more help, we're developing a list of resources that are going to be centering around our topics of discussion to be able to help you a little bit more than what the content is doing. So if you'd like access to that whenever it becomes ready, all you have to do is text the word toothandcoin T-O-O-T-H-A-N-D-C-O-I-N to 33444.Jonathan:Again, that's toothandcoin, all one word, no spaces to 33444. Reply with your email address and we'll email you instructions on how to get into the Facebook group, as well as add you to a list to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you as well. So onto today's episode, hope you enjoy it.Joseph:Hello, ambitious dentist. And welcome to another exciting episode of the Tooth and Coin podcast. I'm your host Joseph Rugger joined by Jonathan VanHorn. We are at episode number 10 and today we're going to talk about financial statements. Everybody's most exciting, most exhilarating topic that you could ever imagine is financial statement analysis. Jonathan, welcome to the show.Jonathan:Yeah, exactly. I talk about financial statements at night after dinner with my wife with a big old glass of wine and she just loves it. It's a big topic of conversation in our house. It's amazing. Not really. She does not like it. She does not listen to those things.Joseph:Everybody's topic of conversation right before bedtime is financial statement and financial statement analysis. Well, so Jonathan, we were talking a couple of weeks ago and I was talking to you about a job interview that I was sitting in one time and I was getting interviewed by a guy to take over a financial position for a company. And he asked me a question. He said, "What is your favorite financial statement and why?" So I think that'd probably be a good place to start. What are the three financial statements that are out there? Or are there two financial statements? Or are there one? Whenever we say financial statements, I'd say most of our clients, most of our dentists probably only typically think about one financial statement and that would be the profit and loss. But when we say there's three main financial statements or three recognized financial statements, what are those specific financial statements and what are they called?Jonathan:Yeah. So the three most common are going to be your balance sheet, profit and loss statement, cashflow. All three of those have different names that you can call them. I've had people be confused and like, "What's our profit loss? I've only ever heard of the income statement." Or, "What's the statement of income?" Or all those other things. They're the same thing in general, it's the balance sheet, there's your profit and loss or income statement and then the statement of cashflow. Those are the three main ones. And in terms of your question, to me, the financial statements, while there are three separate ones, really to get a fuller grasp of what's going on from a financial picture, you kind of have to be able to look at all three of those at once and be able to read what each of those are saying intertwined with a bit of education.Jonathan:It's not something that you can just intuitively look at for most situations of I'm looking at the balance sheet, I'm looking at the statement of cashflow and looking at the P&L. And all of a sudden, "I know everything about this business," and that just doesn't exist. And one of the big problems in the dental industry is there's a lot of misconceptions around what's on those financial statements. And on one side of the coin you have people that think that they're completely worthless, and then on the other side there are people that think that the financial statements are supposed to have every answer that exists about your practice. And neither of those answers are correct. The financial statements are great and they tell you a lot about the business, but you have to understand what's going on and you have to understand what you're looking for in each of those financials, in order for you to be able to actually get any value out of those financial statements.Jonathan:And I think that's the reason a lot of people have misconceptions and some confusion around the value the bookkeeping brings and things like that. So to me, the answer "What is my financial statement?" It's all of them. And if I had a choice, I'd have all of them plus some practice management information to be able to look at in order to be able to tell what's really happening in a business in terms of the dental field. I think the most correct answer is it depends on the industry because there's a lot of nuances in this. Not only are there different sets of financial statements, there's different ways those financial statements can be reported. There can be an accrual basis, or it can a cash basis, the income tax basis of accounting. There's a bunch of different ways in which those same things can be reported to people. And if you don't really understand how it's being reported to you, you can make some mistakes and not have the full value of it. So what about you? Which one's your favorite one?Joseph:It's a good question that the guy asked me at the time and he had a right and wrong answer in his head. And his right answer was a statement of cash flows, which as many accountants knows it's difficult to kind of glean a picture from somebody that's not used to looking at cashflow statements. So anyways. Let's say all I had to say my favorite financial statement is the balance sheet. And I think that'd be a good thing for us to talk about. We could probably spend an hour on each financial statement and trying to analyze how it all comes together. But my favorite financial statement is the balance sheet. And to me, the thing that always sticks out to me about a balance sheet is it is a measure at a specific moment in time.Joseph:So what is your balance in your balance sheet accounts as of today, as of the end of last month, as of the end of last year, as of mid-year? It's as a point in time. Which is always kind of one of those things like let's take a snapshot of exactly where our assets sit, our liability sit, our owner's equity sits, at a point in time. And to me, in my small accountant brain, it gets me a chance to figure out what are the assets minus liabilities and what's the book value or the net worth of business. Which is something that I think that a lot of people can wrap their heads around once we kind of put it into some simple terms. So whenever we talk about assets, we talk about liabilities, we talk about owner's equity.Joseph:One of the things that I always talked about whenever I was teaching class and teaching students at the college level and teaching accounting 101, they don't really understand how all of it comes into play. So I use the simple example of a home, right? So it's not specific to the business, but it'll kind of help you understand what an asset is, what a liability is and what is the "equity," the owner's equity in that. So we'll just use easy numbers, Jonathan. If you have a house and that you own a house, and that house is valued at $200,000, that is the asset. $200,000 is the value of that house. If you have a mortgage on that house and the mortgage balance, the liability balance on that house is $150,000, right? So we have a $200,000 asset, we have $150,000 liability, then that means the equity... That's something that everybody's going to be familiar with. The equity in your property, in this one specific piece, in this one specific example is $50,000.Joseph:So if I wanted to look at a position of strength or weakness, I can look at a balance sheet. I can look at the balance sheet on the asset side, I can look at the liability side, and then I've got kind of the difference. What you own minus what you owe is your worth, your net worth, your net equity, your net owner's equity. That's made up a whole bunch of different complicated things. But it seemed to click with my students whenever I would say, "Think about owning a house and there's going to be a difference," hopefully there's a difference and hopefully it's a positive amount between what your property is worth, your house is worth minus what your mortgage balance is, and that's the equity that's in the property.Jonathan:Yeah, exactly. And that's a great way to simplify the assets minus liabilities equals your owner equity, which is what you learn in accounting 101 is A-L=O. There's three main categories that go on the balance sheet. And I agree, the balance sheet is a great way to be able to look at the financial health of a company. It may not be able to tell you trends or net profitability or anything like that, but it can definitely show you the liquidity and it can show you what type of debt ratios are coming into play. And it can also show you how much money is this business actually making from a accounting point of view, not necessarily a cash point of view. That's one of the limitations of these financial things as I said before is that if this balance sheet is set up on the income tax basis of accounting, that owner's equity has a lot of different things that affect it, that it can make those numbers look a little odd.Jonathan:And the reason is because that equity number, it rolls over every year and so it's like a running balance. And some people can get kind of confused on it because you can literally have a profitable well ran dental practice and have almost nothing on your balance sheet. Your assets could be, say, $100,000 and your owner's equity could be $100,000 and that practice could be a $2 million practice. So one thing that's an important concept to also introduce is that value does not technically equal the equity. So to take your home value another step further so that people can understand the balance sheet, if that home skyrockets in value... Let's say you bought it for 200,000 and you owe, let's just say, $100,000 and you have a $100,000 owner's equity.Jonathan:If the value of that home went up to $350,000, you still only bought that thing for 200,000, right? But you now have equity of 250,000 because you still only owe $100,000, but the value is higher. So your basis is $200,000 minus $100,000 in liabilities equals your basis is a $100,000. But your value is $150,000 above that. But in the accounting world for the income tax basis of accounting, you don't write up basis to what the value actually is. You just keep it at what your basis is, because that's what we're trying to track on an income tax basis of accounting. So if you're looking at your balance sheet and you're like, "Oh no. I only got $150,000 in assets and nothing else and then $150,000 in equity." You may have a business that's worth a whole lot more than that. And that's just what we call a book tax difference.Jonathan:If we were being very, very, very, very, very, very, very, very thorough, and spending a lot of time on your books and you're paying us a lot of money to make those write-ups and adjustments to actual value, having evaluation done every year and having everything be written up to the value of the practice, then the balance sheet would say those things, but that can be kind of like a hidden thing inside of a balance sheet.Jonathan:So I think that's an important point to get across too, is that the balance sheet shows you a lot of really cool things and also, there can be things that can be a little bit misleading. So when we're talking about the differences in equity, the equity section is the area that always gets kind of confusing to people. So be careful around that piece. But let's talk about what you look for on a balance sheet to see a healthy dental practice, so to speak. Yeah. Let's just focus on dental practices rather than talk about other industries and things like that.Joseph:Yeah, sure. So whenever you look at a balance sheet, as Jonathan mentioned, there's three sections. There's assets, liabilities, and owner's equity. And inside of the balance sheet, most balance sheets are going to sub-categorize all of those different sections. So in your asset section, you're going to have something that's called a current asset. So a current asset is something that can be converted to cash or is cash, can be converted to cash in a year or less. So this would be how much cash is in the practice checking account. Do you have a certificate of deposit? Do you have a savings account? So these things all can be turned into cash either immediately or certainly in less than one year. So those are current assets. And then you've got your longer term assets and you may have some property, you may have some equipment.Joseph:All of those things are going to fall into a separate section of the asset section of the balance sheet. So whenever I'm looking, kind of initially, and I'm taking a quick glance, I'm going to look at current assets. And I'm also going to look at the flip side of that, which is a current liability. So when we talk about a current liability, it's the same one year rule. So the current liabilities are things that are due in less than one year. So think real simple terms like your credit card, that's due within 30 days, right? If you're tracking your accounts payable through your balance sheet, that would be a current asset because that's going to be due in less than a year. Versus a long-term liability, maybe your ten year practice loan, that's going to be at a different section.Joseph:So one of the financial metrics that a lot of banks are going to look at when they're trying to evaluate your financial strength as a practice... And again, this is an imperfect system, there's a tons of different ways to value different pieces. But they're going to look at what's called a current ratio. And it's very simple, your current assets divided by your current liabilities. So just to give you an easy example, if I've got a $100,000 of cash in the practice checking account and I have an accounts payable balance, credit card balance, all of that, all my current liabilities added up to a hundred thousand, then I have a current ratio of one. And what that simply means is if all of those got called today, all of those liabilities, the bank called, the credit card called, the line of credit, all that stuff gets called today. You can pay all of your bills times one.Joseph:If you had, for example, $200,000 in the practice checking account and a $100,000 in liabilities or current liabilities then you could do that twice. So that would be a current ratio of two to one. I mean, when you look at financial statements, Jonathan, I think that a lot of people look at different pieces. I mean, it's easy for me to say that if you have less cash on hand than you do in credit card debt, that's a problem and we need to work through that. But what are some of the kind of healthier things that you're looking for? And we just talked about current assets divided by current liabilities. Or basically, if we're going to super simplify it down, cash divided by bills that are out there. What are you looking for?Jonathan:Yeah. On the balance sheet specifically, the first thing.... So another thing that is important for people to realize in terms of balance sheets, is that everything is listed in the form of liquidity. So the most liquid assets are listed first instead of the assets in your balance sheet. And the way the balance sheet is set up is there's the assets set, what are called just assets overall, and those are broken up into current long-term assets and other assets. And then there's a liability section, which liability section it's supposed to be listed in order of how soon that debt is due. So the first thing that I look at the very top, which is the most liquid thing, which is cash, cash is always going to be your most liquid thing all the time.Jonathan:Usually, the next thing is going to be something like AR inventory equipment, and then other assets like intangibles and things like that will be listed. But I always look at cash. I mean, that's the first thing. Because if I look at a practice and the cash equals $20,000, unless this is a startup, this practice could have some issues going further. There's a lot we can't answer yet. So in terms of a math concept, this is a not enough information type thing. But if I'm looking at a balance sheet that has very little amount of cash, there's some liquidity issues. What happens if a machine goes down and we're going to have to take on debt? If we do have to take on additional debt in order to do that and that can exacerbate the cash problem.Jonathan:So the first thing I look for is cash. I look at how liquid is this business because that can give you a lot of signs and that gives you a lot of context for what you're going to look at when you look at the other pieces of the practice. So the next thing that I'll look at is the current debt. The liabilities that are likely to have to come up soon. Like you said, if cash is less than credit card debt, then that's a big red flag, we've got some issues here, we've got a cash issue. Because that should not be the case in most dental practices, you should not have more credit card debt than cash. From a financial theory perspective, the interest on your credit card debt will eat away at your cash faster than your cash will sit there.Jonathan:So the value of that cash will go down, the interest on the credit cards would go up and you're going to have a problem that's just going to get worse before it gets better. So yes. That's a big issue for most dental practices. If I'm looking at a balance sheet just to kind of analyze how the business is doing. And another thing that I want to really, really quickly hone in on because we didn't preface this. We're just analyzing a practice in terms of looking at someone who has a practice and how well that practice is doing, we're not looking at this in terms of buying a practice because what the old owner did and how good they were at saving money does not affect the new owner.Jonathan:This is not a specific situation that we're talking about. We're looking to buy a [inaudible 00:19:00] that. Because to be honest with you, I don't think I even look at balance sheets whenever I'm analyzing practices to purchase, but when I'm looking at a clients'... If a client says, "Hey, how's my business doing?" I will look at a balance sheet in that regard because it can help me guide them better with what it is they're needing to do. Whereas if we're buying a business, I don't really care what the old owner was doing, I only care what the new owner's going to do. So there's a little bit different of a situation there. And you don't buy the credit card debt when you buy a business, so who cares if they had $100,000 in credit card debt?Jonathan:That could show us something in terms of a spending issue, but the spending on that liability would be affected in the P&L under expenses, so we'd also be already taking that into consideration when we look at the P&L, which we'll get to that in a bit. So anyway. So yes. Cash and then I'll look at short-term liabilities. And then I look at total debt. I mean, how much do we actually have in debt in this office? Because that's a big thing. It's a big deal. You need to know how much money in debt this practice has because if you don't then it's the same thing. Is this a problem that's just spiraling out of control? Is this just we're investing in the practice heavily and we're using other people's money to do that? If so, that's fine, but I don't like seeing a whole lot of debt and seeing cash and credit card debt being flip-flopped.Jonathan:It shouldn't be a negative balance there and we're taking on consistently more debt. The only way I could say that that would be worth it would be is if for whatever reason you're.... I don't know. If you knew that you bought X machine, X machine would be bringing you more money. That's really the only way that that'd probably be making sense. So that's what I look at on the balance sheet. I do look at equity a bit just because I'll have to see if it's an escort for how much in distributions we're taking. Equity has the net income on there, but unless it's something financially in our firm created, I don't really even look at the owner's equity because I just assume that it's going to be wrong.Jonathan:As you can say, Joseph and I have talked before, before he joined our firm. He was like, "I had no idea that so many firms didn't know how to do bookkeeping," right? And we demand a very high quality of bookkeeping service from our company and for our clients' benefit because we believe in what's on those financials. So basically, unless it's a trusted source for that financial statement, I don't even look at it on the equity side because most of the time it's wrong. And so my assumptions of being correct... Usually cash and liabilities are usually right. We've definitely seen people come in with debt and their debt is negative $800,000 and we're like, "This is great. We're going to have some work to do on this one." So that happens. But anyway. So that's really what I look for on the balance sheet as a whole. What about you? Is there anything else that you look for on balance sheet?Joseph:One of the things I love to do with balance sheets is I love to compare them and see. So most of your accounting softwares that are out there or if you have financial statements that are generated, this is basically a book value of your practice that you can look out over time. When I'm doing a financial statement analysis or a client asks me how I'm doing and I kind of really want to dig in, I'll do a balance sheet as of the 31st of last month, then I'll compare that to the prior three months. Or I may put it at 1231 and compare it to the prior three years, and let's see over time what's going on with cash, what's going on with debt, what's going on with owner's equity. And of course, that's also under the assumption, Jonathan, that I'm looking at a good set of books. As you and I have talked many times, we can take a look at a balance sheet a lot and say, "Something's not right there. There shouldn't be a negative upside down balance in an accounts payable account. That's not right."Joseph:So I like to look at things over time. So hopefully you've got a good set of books that you're looking at and you can look and see what's happened to cash over time. If cash goes up $50,000 a month and equity stays the same and we look down and it's because we've taken $50,000 out in shareholder distributions every single month. That's a good problem to have is cash is increasing, distributions are coming out and we're still increasing our overall position. So I like to look at the comparative and see kind of what's going on and what happens. If I see a big, huge decrease in cash of $25,000 in a given month, I may see, "Oh, look at that. I bought a $25,000 piece of equipment. Well, that makes sense," right? That's not money that went out the door because we spent too much money on overhead. That's a piece of equipment that hopefully is going to increase our bottom line.Joseph:So that's one of my favorite ways to look at a balance sheet is to just compare it to the prior couple of periods and see. And you can look at it, if you wanted to do a quarter by quarter and see what 12 31 looked like, versus 9 30, versus 6 30, versus 3 31, just see how things have progressed over time. Those are the ways that I'm looking at. And I'm also looking at the same stuff that you mentioned, which is looking at the cash position and looking at the liability position and seeing what that looks like. There's a ton of financial statement ratios that are out there. One reason that banks and financial institutions like to look at ratios is it puts everybody on the same level.Joseph:So $900,000 of debt for dental practice is not the same as $900,000 worth of debt for a publicly traded company that's huge like a Walmart or a Google, right? Those are not good indicators, right? If you looked at cash in the bank account, my $100,000 is not comparable to Walmart's $100,000 in their cash account. So that's why banks and a lot of financial institutions look at ratios because we can compare what's the debt to equity? What's the debt to assets? What is the current ratio? What's the quick ratio? All of these different things can basically put everybody account on the same playing field to figure out what kind of cash position they are. So my quick easy one to go on is looking at that current assets divided by current liabilities and making sure that that's more than one. And trying to figure out what's that looking like over time?Joseph:We have clients that start out and for one reason or another they have to take out a practice loan and that practice loan doesn't cover everything that they need. So they've got to look at other forms of debt, whether it's a high interest rate debt or it's a credit card they had to take out in advance on a credit card. We see some of these things that happen over the course of time. What you want to see is as you look back at 2018, 2019, 2020, 2021, 2022, you want to see progress in each one of these things. And if you continue to have an upside down assets versus current assets versus current liabilities, I know that we've got a problem and we've got a problem that we need to fix because we don't have any profitability because if we have profitability, we'd probably be able to pay down some of those debts.Joseph:And certainly a bunch of stuff goes into all of those different pieces. You may be taking too much out in owner's draws are spending too much on CE or any of these other things. And one of the things that you mentioned early, Jonathan, was the concept of all of these financial statements work in conjunction with each other. You can't just look at a balance sheet and know everything there is to know about practice. You can't just look at a P&L and figure out if that's a good office or not. You can't just look at a cashflow statement and say, "Well, that's everything you need to know."Joseph:We were talking before the call, what if they had five huge cases in the month of December that jacked up their P&L, but all five of those cases that came through they were super POd by the time that they left the office and they'll never come back again and we're not going to have those five cases. So there's a ton of different things that you've got to look at and evaluate in the overall health of the practice. I really like the balance sheet because it gives us a point in time. It lets us see what do we own minus what do we owe. And we want to see that number increasing over time.Jonathan:Yeah, I agree. I love the fact that since it is a picture of time, you can look at two different pictures. It's kind of like on Facebook, I look at the pictures of my kids and when I look at them now, I look at the difference that they've had and what changes and things like that, right? It's a fun thing to do to be able to see how they've changed. And the business, hopefully, when you look at the things that have changed they've happened in a good way and they're going to be fun to look at too. So yeah. Definitely look at the balance sheet. And when we do that, I do that for our firm and I do that for a lot of things of comparing it period over period, because like I said, the snapshot in time doesn't really tell you the whole picture. The balance sheet over time will tell you a lot more. So I agree.Jonathan:In terms of the other things, just a really quick thing in terms of when you're looking at cash, a way that I try and take this concept for cash is not only do I like to have more cash than I do short-term liabilities, I also like to have enough cash to equal, at least, one to two times what your breakeven costs are going to be on a monthly basis. And I'll use that. So this is going to be a two-part episode. This is episode 10 of the balance sheet. We'll do episode 11 will be the profit and loss. And so we'll move over to the profit and loss now, but you use the break even point to basically use as a metric to take versus your cash amount, to see how much cash you have to be able to sustain kind of a rainy day fund, so to speak.Jonathan:So I like, at least, a hundred to 200% of your breakeven point being in your business bank account with the caveat of you also need more cash than you have short term liabilities. And so probably honestly, the best thing to do is to have your cash, net cash, which would be your total cash minus your short-term liabilities. That amount should be two times your breakeven point. I think that's a very healthy amount of money to keep in there. Anything extra, then a lot of the times in a single owner dental practice that might get funneled out to the owner and then gets reinvested in other places in their personal lives to be able to help with their wealth building and things like that. So let's talk about the P&L, what do you like about the P&L? What is it that gets you going in the morning whenever you see a really nice P&L?Joseph:Yeah. Good Thought. So the P&L, the profit and loss, the income statement, if we're talking nonprofit, statement of activities, right? There's all these different fancy names for it. But it's basically, are we running a profitable business? Is this business making any money? So I think that there's a couple of different kind of old terms that I've heard kind of mentioned out there. So one of them is that revenue is vanity. Like, "Oh, look at me. I'm a $1.4 million practice. Congratulations. Look at how awesome. Let me pound my chest about my $1.4 million practice." Revenue is vanity and profit is sanity. If you have a $1.4 million top line, Jonathan, but you spend 1.8 a year, that's not a good practice. I'd much rather have a $800,000 practice that spends $400,000, right? So revenue, top line, sales, collections, whatever you want to call your top line, revenue is vanity and profit is sanity.Joseph:So I have a tendency to kind of quickly scan and look at what's top line revenue look like and quickly scan at the bottom and figure out what the bottom line income is. As I'm sure you'll probably be able to tell our listeners like, "If that's just quickly where I'm going, what are some different pieces to that that may not tell me the whole picture if all I do is hop straight to the bottom line in a dental practice?" I mean, the vast majority of our clients and the people we work with for the most part are single owner practices. What's the harm in just looking at top line? Top line's 1.6, bottom line is $10,000 or $50,000 or pick a number. What's missing in that piece of the picture that's not giving them a full picture.Jonathan:So again, I'm probably going to beat this like a dead horse, is that the first thing is that you got to make sure their financial statements are really accurate because if they're not, then you're going to be pounding sand to try and get any actual information off of those things. So to me, the net income or the net taxable income or whatever you want to call it, net profit, whatever it is, it has to be set up in a format that you can understand and quickly pull out information that is discretionary in nature. One of the things that happens super commonly in dental practices is that there's a lot of discretionary expenses. So for example, let's say... Obviously, every person's situation is different, but some people for example take, say, a $290,000 wage.Jonathan:And the reason being is that that's what they think their compensation should be. Maybe it's a percentage of their production, it's a percentage of revenue, maybe it's just a flat amount, but a lot of the times when they have wages of those amounts, when they're paying themselves, has something to do with a 401(k) that's in the practice, so that they can have a profit sharing plan. When the calculation is being done, they get a maximized amount being contributed from their employee and the employer deduction. And then whenever they do the profit sharing amount calculation, they usually get a pretty favorable amount going towards them if they set it up in that way. I've seen dental practices that have came through, they set that up and they are literally spending $150,000 more than they have in profit on the owner's compensation. So the net income says a negative $140,000 in net income because the owner payrolled themselves 290,000.Joseph:Doesn't sound like a net loss to me.Jonathan:Exactly. So that's the danger of doing that is you have to know what's discretionary and what's realistic. If you're really analyzing a business and seeing how profitable is this business, it's a complicated answer because the owner should be compensated, obviously. But if that person taking $290,000 in wages, top line revenue is, say, I don't know, 800,000 and they only produced... I'm not saying only as in it's a bad thing. I'm saying only in terms of the conversation. And they only produce, say 600,000 and they took out almost 50% of their production in wages, not to mention payroll taxes and everything that goes along with that benefits.Jonathan:So that number may not be what... If you had an associate and they were working for you and you had a practice that someone else was working at and they produced 600,000 out of the 800,000 being brought in. Would you pay them $290,000? Probably not. So it's discretionary, right? So what would be more realistic? And if you're paying them a third, you'd be paying them 200,000. And that would cut that $140,000 loss into 60,000. So it all depends on the practice. There's a lot of different things that go into it, but if you're analyzing a practice [inaudible 00:34:12], what I do is when I look at P&Ls I do a head count of seller's discretionary earnings.Jonathan:A lot of people use the term EBITDA in the dental field, which is not really EBITDA because most people never put back in the actual cost of someone to replace the owner. So the correct term of that is seller's discretionary earnings, which basically is you back out whatever was discretionary, which is typically the owner's wages. Is there a family member that's on payroll that is getting 40, $50,000 a year to be an office manager? Are they actually there every day? Are they actually fulfilling all the roles what the office manager would do? Payroll taxes associated with that have to be backed out. Are there any travel expenses for CE, there maybe be more expensive that they wouldn't normally give those same types of reimbursements to an associate to do those types of things with? Are there any types of business entertainment? Are there any types of health insurance that's just for the owner?Jonathan:There's tons of different things that can go into that P&L that will be on the P&L if it's properly being recorded, but needs to be pulled out to be able to compare it to other benchmarks of other practices. So that's another reason why I don't really trust a whole lot of the benchmarks that are out there in the dental field because if I don't have the full faith of every CPA that's out there's financial statements, then how am I supposed to have faith in a study that benchmarks using those financials as their basis point?Joseph:Yeah. And they're all self-reported too, right? [crosstalk 00:35:54] financial statements, they're self-reported.Jonathan:Yeah. So there are generalities and we work with around 250 offices and we see there are just differences in dental practices. So P&L to me is a fantastic thing to look at to have an understanding what's happening. But to me, you have to be financially savvy enough to calculate out that seller's discretionary earnings in order to be able to calculate what the actual profitability of this practice is from a dollars and cents perspective. Once that is done, you would then look at those different key categories, which again, is another area where I find a lot of dental practices financials don't have things properly segmented inside of their financials. So you can't do that. So the presentation of the P&L for dental practices is just as important as the understanding because you and I could look at a financial statement that would come to us and if it's not a really, really well-defined P&L, I mean, we've seen P&Ls that came through that have had 10 expenses on it. And that's all expenses on the P&L. They have nothing else. And this is-Joseph:Wages.Jonathan:Yeah. Wages, payroll taxes is added on that, insurance is on that. They had a consultant probably in wages, they probably did some recruitment that was in wage. It's just all in one big line item. You can't define anything out of that. So presentation is just as important as well. So what about you? What are other things you like to look at on the P&L? Because I could probably talk about this for another two hours.Jonathan:Hey, everybody. Jonathan checking in again here. Just so you know, this episode went really long. This episode is actually a three part episode because there's a lot for us to talk about in these episodes. So make sure you follow up and listen to the following conversations that we'll release over the next couple of weeks. Again, this is a three part episode. This is part one. And we will check in with you on the rest of it going forward. Thanks.Jonathan:That's it for today, guys. I hope you enjoyed this episode of the Tooth and Coin podcast. If you are going to be a practice owner or a new practice owner and you're interested in CPA services head on over to toothandcoin.com where you can check out more about our CPA services. We help out around 250 offices around the country. We'd love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners, so people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up, or has become an owner in the past five years. That is our specialty. And we'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan:And if you enjoyed today's episode, again, go to the Facebook group. Talk to us about what we've talked about. Join in on the discussion and let's create an environment where we can talk about some of these things, so that we can all help each other get through these things together, so that this adventure of business ownership is more fun, more productive, and better in the longterm. Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444. That's toothandcoin, no spaces, T-O-O-T-H-A-N-D-C-O-I-N to 33444. Reply with your email address, we'll send you the instructions in the Facebook group. We'll send you the resources when they're available and we will see you next week.

Join the discussion on Facebook!TranscriptJonathan:Hey everybody, Jonathan checking in here. And just so you know, this is a two-part episode. This is the second part of the episode. So if you've not listened to the first part yet, you want to go back and listen to it in the prior weeks. We should have it labeled on the episode title part one is and part two is, so you should be able to listen to that and see that in the title of the episode of this, what episode of episode it is. ThanksJoseph:We have this global pandemic that hits, dental offices are shut down across the globe for a good chunk of March. We would say, "Well, we didn't hit our quarterly goal for Q1 of 2020. Here are the reasons, it's because we were shut down for eight weeks." It was because we did emergency only, and all of a sudden we're able to kind of add some color around what's going on. One of the things that I've noticed is that the first quarter of 2021 has been really, really good for a lot of the practices that we help. Okay, well, what's going on there? Let's add some color to all of those different pieces. So I'd say at a minimum, you need to communicate that stuff quarterly. You, as the business owner, need to be looking at it at least monthly. And then if you've got folks that you can communicate on your team that can help you reach your goals, as frequently as you can looking at those, if that's even weekly or if that's monthly, but I would say at a minimum, you definitely want to look at it monthly. And you need to communicate with your team at least quarterly. At a bare minimum, I'd say twice a year.Jonathan:Yeah. And for our firm what we've done, we have that quarterly meeting. It's not only talking to the employee about the team's goals, it's also talking about the impact of that person on those goals, right? So it's also about accountability at that point. So how big is your capacity? How efficient are you being in getting these things done? How many clients have we had issues with that are underneath your care? For a dental practice, it could be like what you said, it could be, hey, our cancellation rates are still going up. Why are they canceling? Or whatever we implemented last quarter that we talked about in our last quarterly call or last quarterly discussion, apparently that change hasn't helped. It's actually hurt. And let's think about why that is, and think about something we can do to be able to make it work better going forward.Jonathan:And I know if you're a dentist listening to this, you probably have a team check-in. A lot of practices have a team check in every morning before the day gets going. I think that's fantastic to have that so you can be ready for the day. Systems are ready, hygiene's ready, office is ready, things like that. That's not the meeting we're talking about. We're talking about one-on-one, you're talking to that employee about where you're wanting that employee to progress to as a person, as a member of your team, as a member of the business and how they're accomplishing those goals and things like that.Jonathan:So yeah, I think that's a really logical way to do it. And the way that we did it was, we also did a weekly talk with the leaders and we said, "Hey, we're going to start at a weekly." And we have a tax team and we have an accounting team and we have an operations team. And we said, "Hey, everybody's going to do it weekly in the beginning." And if we find that, I think we started with, say it was going to be a 45 minute call every time, we said, "If we get in there and we've realized we don't need to be on a call for 45 minutes then we can change that to once every other week or we can change it to a 20 minute call." It's easy to decrease it once you start, but you've got to start and you've got to do it in order to be able to move forward.Jonathan:And another good tip I'm going to talk to you about, in terms of the finding the time to do these types of things, the best way to find time to do these types of things is to put it on your calendar and stick to it. I mean, that's it. I mean, I know it's hard to say, well, I didn't want to stay that extra 30 minutes that day, or I didn't want to take a 30 minute lunch or I didn't want to have to take a 15 minute lunch when I usually take a 30 minute one, or I didn't want to have to pay for the meal for the office, but I did, or for this person... That can be done. You can do those types of things. You can be creative with your time. If you search for the time, you will find it.Jonathan:Now the bigger your team you have, the harder this will be. If you're trying to find a 30 minute window or an hour long window for a hundred people, yeah, that's going to be tough to do. If it's five to seven, that's four days out of the year, four eight hour days if you have eight employees, if you're doing an hour at a time. Which, most of these things, they don't always take an hour. Sometimes if you have a lot of brainstorming going on with it, it might have that as well. But maybe that could be something that you do as a part of your team, and having the brainstorming piece of it and the way it goes too.Jonathan:So what else is there that people need to know in terms of how you approach these meetings, these quarterly meetings and do that accountability piece of it? Because like you mentioned at the beginning, we're in this world where we don't really like to be confrontational. We don't like to point out things that are wrong. Most of us like to build people up rather than tear them down. And we may be having blunt conversations, but the purpose is not to build down, its purpose is actually to build them up. It's just, you're building them up in a way that feels odd sometimes. So talk us through that.Joseph:Sure. Well, one of the things that, whenever I have brand new leaders that I'm talking to, or new managers or people that have kind of gotten thrust into this role of being in a supervisory position, which I'm sure many of our listeners will find themselves kind of all of a sudden thrust into this place, a really good book that's a quick read if you haven't read it is the One Minute Manager by Ken Blanchard and Spencer Johnson. So have you read that book, Jonathan, the One Minute Manager, did you ever read that?Jonathan:I have. It was about seven years ago? Yes, I read it.Joseph:Yeah. So one of the things that they talk about in the One Minute Manager is getting a chance to catch people doing things right, and then address things and issues as they can. They [inaudible 00:06:16] little one minute meetings or whatever. So I'd encourage you to go pick up that book. So whenever we're talking about quarterly performance reviews or annual performance reviews, one of the things that I want to make sure that we're clear about is, that's not the time for you to air all of your grievances out with your people. Like, I've saved up all of this bad stuff for you and now I'm going to sit down, you have no idea what to expect, and I'm just going to just lay into you about all of the times where you screwed up Ms. Johnson's stuff, and Mr. Jones was in and you were rude to him and all this stuff.Joseph:So one of the things that I tell leaders is that there should be no surprises in your annual performance review. It should be a review of all of the things that we've talked about throughout the course of the year. It should be a review of all the things that we addressed and the changes that we made and the things that we fixed. So I would encourage you to address things as you see them come up, do it in a respectful way. If you need just kind of a playbook, the One Minute Manager, again, is just a quick read to kind of help you do that and kind of get a little bit of a playbook in order to do that.Joseph:But don't let the only time that you ever give anybody any feedback whatsoever is the annual performance review where you just lay into them. You'll have people that are just not happy with you or they're upset, and then they'll want to go work somewhere else. So it should be a review of all the things that we've talked about all year long. It should be a review of whatever, if you have specific metrics that you want to hit for your hygiene staff or for your front office staff for their collection rates, or our zero to 30 needs to be what percent versus 90 to 120 on our AR or our denial rate needs to be X... Look at all of those different metrics throughout the course of the year and update them quarterly on those. And then you can just review all the stuff that goes on.Joseph:And it's also a really good opportunity for your employees to tell you something that you may not do or may not have thought about. One question I used to add to performance reviews that I did whenever I was leading a large staff, is what unique skill or talent do you have that we're not utilizing? What is it that you wish that I knew that you can do that can help the practice? And they may say, "You know what? I'm really good at calming down upset patients," or somebody may come and say, "You know what? I really like helping children feel more comfortable in the office. You know what I've really thought about, is I really thought we should do X, Y, and Z."Joseph:One of the things in my CFO position that came out of one of these conversations just like that was, we had some logoed teddy bears made. And anytime we would have a child that came in and that child was really upset because they're being fit for this orthotic device, we said, "You know what? Here's your teddy bear." And it's not about the marketing and that kind of thing, here was just this little simple, easy thing that we did. And that all came out of an annual performance review. When I said, "What do you guys think we should be doing?" Somebody said, "What about doing some logoed teddy bears?" And I was like, "I've never thought about that before." Pretty low barrier to entry, it's going to cost us however much it's going to cost us. If we try it and it flops, it flops. And they ended up being this great thing that just was born out of having open conversations with your team and talking about goals.Jonathan:Yeah. It gets really easy as a business owner to get lost in your own head about all the different things that you could or could not be doing whenever there's a... You have a whole team of people that are in the same business that you are, and they have ideas too. They understand a lot of the things that you may get lost in at some point in time. So having these conversations can be difficult, but they can provide a lot more value on your end as the owner than you probably think. If we were to pull up some statistics about training cost and turnover costs per employee, like average amount of time, it takes to get someone trained inside of any type of business, the cost would be really, really, really, really large, not to mention the effectiveness per employee that are likely going to be happening inside of your practice.Jonathan:So I'm not even talking about those things. I'm talking about just having other people that are bought into the success of your business than yourself, which these conversations can hopefully influence that. As a business owner, you are typically the person that is on the largest hook for success or failure, but you can have people that will buy in with you in some ways and carry that cross and that burden with you. So having these crucial conversations, approaching someone who always has excuses about something, or they're just not getting the insurance checks processed fast enough, or they're just not turning into patients over fast enough or whatever it is, having those types of conversations with people are not fun.Jonathan:When we're talking about uncomfortable conversations, that's the type of conversations that aren't fun, because you're talking to these people about the things that they're doing every day, and you're having to come to them and say, "Look, I heard you answering the phone the other day, and my gosh, if I were the one that were calling this office, I probably wouldn't have wanted to book an appointment either, because you were kind of mean to that person. I don't know if you carried something in bad with you that day or what," but that's the type of thing that you've got to, as a business owner, you've got to talk to people about. And this would be something that, like you said, that wouldn't be something that would be in the quarterly discussion, that'd be something that would be done if you heard it, you needed to probably address it fairly shortly after.Jonathan:And then these quarterly performance things, having those discussions can be difficult. The difficult part is if they are not reaching what you set out for them, I guess. And we probably need to stop it at there, because I think that we could probably dovetail this into a very big conversation about how to set a proper team goal, and how to set proper goals on the individual level. And then have that come back to this episode about how you actually address those things and help coach those people through those things as the year goes by. Because like you said, one of the problems is the time management of like, if I've told my hygienist she needs to be able to cut down the amount of time it takes her [inaudible 00:12:44] being from an hour long visit to a 15 minute visit, it can sometimes be difficult, or I'm sure it's difficult to try, and if they're only able to do an hour still going forward to be able to coach them and to be able to get that to have that turnaround time be a little bit faster in some ways. And you, as the dentist, may not have the answers to that, but you may be able to find consultants or people or some type of resources that can help with those types of things.Jonathan:And so yeah, so again, this is a very big discussion. I'm going to try and pull it back into the talking about in the quarterlies, you go in, it's no surprises there. This is not a gripe session. This is a, how do we constructively build you up and how you fit into the overall team goal? So let me ask you this. If you have an employee that is not reaching those milestones or is not doing the things that you would expect of someone who is actively engaged in this mission of the company, how would you address that? Like, what if you had this assistant that just, they probably didn't care that much. It didn't seem like they were really trying a whole lot to get those patients to learn the procedures that you're trying to do on your patients so that you can be more efficient and do it better for the patients. Like, what do you say to someone that is in that situation that just doesn't seem to get it, or just doesn't seem to want to be a part of it? How do you address that topic for conversation and is this the appropriate time to do it in a quarterly conversation?Joseph:Yeah. Good question. I think that there's a lot of different pieces that are into the answer of what you're asking. How do we make an uncomfortable conversation comfortable? How do we actually get to dialogue? At what point do we get to the tipping scale that this is a coaching issue versus not a coaching issue? That's one of the things that I'm constantly asking myself, as you get a chance to lead people, as you find issues that come up is, is this a coaching issue? At some point you have a scale tip that this is not a coaching issue, that this is just the wrong person in the wrong seat on the bus, right? Go back to some Jim Collins stuff about getting the right people on the bus, the wrong people off the bus, the right people in the right seat, and then determine where the bus is going.Joseph:So there's quite a bit to be said about a lot of different ways to approach kind of this confrontation. You want to create an environment... Like at the end of the day, what do we want? We want dialogue. We want to have a conversation. If people are scared, if they're intimidated, if it's not a good way that you've approached them, they're going to go to their fight or flight mentality. And there's a ton of stuff that's written about all of this stuff that's out there kind of in the business books world. Because if they're in the fight or flight mentality, and they think that they're about to get fired, or they're really, really ready to just pick a fight with you about this and argue with you until you're blue in the face, their brain is not working on a deep human level, right? It's called the lizard brain, is what they're doing. And what we really want to do is we want to get to dialogue. We want to understand if it's a coaching issue.Joseph:Maybe a tools issue. Like, you and I were talking the other day about the tools that we have for our team. And do we have the right tools in place to ask them to perform at a high level, yes or no? Okay, well maybe, but let's investigate it. Let's further look into that. So is it a tools issue? Is your hygienists going to come back to you and say, "Well, I can't get it from 60 minutes to 50 minutes because I've got this tool that fails on me about 10% of the time. And that's why this always happens this way." Okay. Well, that's a pretty simple fix. Like let's just get a better tool. Like what is the tool that we need? And then all of a sudden that fixes that, because if you don't get to a place of dialogue, that's when people get really, really upset and they either go to silence or violence, right? They either totally shut down, they're not listening, or they're going to go to violence and they're going to erupt and say, "Well, you're just such a cheap old dentist anyway. I don't even have the tools I need..." They're going to go to silence or violence. So the goal with all of this stuff is we want to get to dialogue.Joseph:And then at the end of the day, as a business owner, you've got to choose whether or not this is a coaching issue or not. If it's a coaching issue, we want to help people get to where they want to be. Nobody shows up to work to do a bad job. That's not why they show up. They don't show up to work to steal money from people. Like, I just can't wait to go be a crook and take people's money from them. Nobody does that.Jonathan:Hopefully no one in your office does that.Joseph:Yeah, that's right. Yeah. They show up to work because they want to help people. They want to do a good job. So how do we get from where we're at to where we want to go, and we want to be able to create some dialogue. I think that that's probably the biggest thing. And that's very, very challenging, especially if you don't like confrontation, especially if you've not ever led people. I had a good friend of mine that was a kind of consultant for me for a while. And he would talk about getting comfortable being uncomfortable, because it is uncomfortable whenever you've got to approach different stuff, or you've got to address different stuff. It's very uncomfortable. But as a leader, you've got to get comfortable being uncomfortable. You got to get to a place where you can have dialogue with your people. And you're not going to do that if they go straight to silence or violence, to use some verbiage from a program called crucial conversations, which is really, really good, by the way,Jonathan:I wonder if these quarterly meetings were called dialogue meetings, if that would help spur... This is when we talk about these issues. I mean, I think the traction book has, it talks about having just a list of issues. And we did that for a while as a company too, is we just say, "Hey, if you have any issues, put them on this tab of the spreadsheet." And every year, we're going to go through all these issues on the annual thing. And there were things that were issues that we need to address at some point, maybe they're not urgent to talk about right now, but they're issues. And let's talk through them and let's have this be a part of this meeting.Jonathan:And that's what we did for a few hours as a team, is we'd address all these issues that were coming up. And it was never that, Kathy's a meany head, it was that this software was really slow compared to the other softwares or computers were getting outdated or just things like that that would need to be addressed, but wouldn't need to be addressed right then and there. So I wonder if these were called dialogue meetings, if you could set those expectations. Because like I said, whenever you're talking to these people, or whenever you bring these issues up, it's really hard just to have it be a part of the year and it not just sound like a bitching and moaning. If you talk to somebody about these things during the day, and you're like, "Man, Nancy, you took way too long doing your insurance," all that is is you complaining at that point. But if you're having a dialogue of like, "Let's talk about how we can maybe have our insurance verification be faster in the day so you don't have to be working overtime," or something like that, you know?Jonathan:Having those be pre-set allows you, number one, to not have those issues bog up your day, every day. It also allows the employees to have a path to discuss those things with you as an employee. And sometimes people aren't perfect and they may have dialogues and issues that aren't really big issues, but at least you can hear them and consider them and you may be surprised. You may not think it's a big issue, and then after it's been communicated to you, you may start noticing that issue. Like, "Oh, that is an issue. I didn't think it was, but it is." And then you can start to address it and things like that. So really important to have that dialogue in those quarterly things. So is there anything else that you wanted to discuss in conclusion? I think this is going to be another two-part episode, episodes eight and nine of the Tooth & Coin podcast. Is there anything else that you feel like we need to address that we haven't, in terms of the communication in those quarterly meetings where you're talking to the team members about their progress, the team's progress and the team's goals, and then how that person's influencing it and how they're doing in reaching those things?Joseph:I think one thing that I would just kind of conclude with is something that one of our leadership coaches told us, and that's that it's worth it. It's worth it. This may sound overwhelming. This may sound uncomfortable. You may get to a spot where you're addressing things and it's uncomfortable, but at the end of the day, it's worth it. Is it worth it to make sure that everybody's rowing in the rowboat in the same direction? Yeah, of course it is. Is it worth it for our practice to meet our goals? Yeah, it's worth it. How do we get there? Part of it is having conversations with our team. So as you listen to this and as you get a chance to kind of reflect and see how it fits into your practice and your style of management ownership, just know that it's worth it. We get the privilege to lead a staff, to lead a team. We get the privilege to help people every day about what it is that we do. And getting that firing on all cylinders, it's worth it.Jonathan:Absolutely. All right, guys. So we're going to call that a double episode of leadership. And if you want to continue the conversation, go over to the Facebook group, by typing in Tooth & Coin podcast into the search bar and you'll be able to find the group, be able to join there. Come talk to us about times that you've had some of these conversations with people. Talk about what's worked for your office, what's not worked for your office. Any hacks that you have and ways to be able to make leadership inside of your practice better. Has this worked to engage our employees? Has it not worked to engage your employees? Why or why not? Different things you could talk about, it'll be really interesting to have you in the group. Until next time, bye.Joseph:Bye guys.Jonathan:That's it for today, guys. I hope you enjoyed this episode of the Tooth & Coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com, where you can check out more about our CPA services. We help out around 250 offices around the country, and would love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners, so people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up or has become an owner in the past five years. That is our specialty. And we'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan:And if you enjoy today's episode, again, go to the Facebook group. Talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the longterm. Lastly, if you want access to those resources that we are currently building, just text the word tooth and coin to 33444. That's tooth and coin, no spaces. T-O-O-T-H-A-N-D-C-O-I-N to 33444. Reply with your email address, we'll send you instructions on the Facebook group, we'll send you the resources when they're available and we will see you next week.

Join the discussion on Facebook!TranscriptJonathan:Welcome to the Tooth and Coin Podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones. Some of them are very specific, but we hope that these episodes help you along with your journey. Now a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan:Another thing that you need to know is, if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group that is active with dentists, that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share, join us in the Facebook group. If you go to Facebook, and you search for Tooth and Coin podcast, click on it to join it, and be able to join us there.Jonathan:Finally, if you need some more help, we're developing a list of resources that are going to be centering in around our topics of discussion, to be able to help you a little bit more than what the content is doing. So if you'd like access to that whenever it becomes ready, all you have to do is text the word toothandcoin T-O-O-T-H-A-N-D-C-O-I-N to 33444. Again, that's toothandcoin, all one word, no spaces, to 33444. Reply with your email address, and we'll email you instructions on how to get into the Facebook group, as well as add you to the list, to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you as well.Jonathan:So on to today's episode. I hope you enjoy it.Jonathan:Hello, ambitious dentist. Welcome back to the Tooth and Coin podcast. In today's episode, we're going to be talking about a leadership topic that is one that is just not really talked about very often. And that is how to keep your team engaged when trying to reach the goals that your practice has set. You want to make this seem like some really big, fun, exciting, giant topic, and it is fun and exciting, but at the end of the day, it comes down to engaging with your employees and communicating to your employees and having a feedback between yourself and your employees, so that you can tell them how they're progressing and keeping them engaged with the goals that you've set as a business, as a practice, so that you can actually move forward as a team, keep everybody rowing in the right direction, so to speak.Jonathan:So I'm going to be interviewing Joseph about this topic. Joseph is the leadership guru in our company. So I'm going to be asking him the questions, and he's going to be helping us out with this. So Joseph, let's start with that. Let's start with, number one, why is it important for us to be having these discussions with our employees, and how does that typically look in terms of how these communications are set up?Joseph:Yeah, great question. So I think that, in general, one of the things that is difficult in leadership is to give constant, sincere, appropriate feedback to your team. And one of the things is, as human beings, we just don't like to engage in anything that might be challenging. There's a very small fraction of the population that likes to fight, but that's far and few between. And by the time we're professionals, especially practicing at this level, especially getting a chance to engage and have a team of five or 10 or 20 or however big your practice is and the number of team members, we just like to avoid confrontation. And it feels like anytime that we've got to address anything with our team, it's going to be confrontational in nature.Joseph:And I would say that, while some things are confrontational and may not be the best thing, if you do it in the right way, it can help you achieve your goals as a practice. It can help you achieve your goals as a team member because one of the things that they've found, as they've studied employees and employee engagement, is that a lot of people, when they're disengaged at work, they're a fraction of the way productive as they would be if they were fully engaged. And if you poll your employees, one of the things that they would say is I get no feedback.Joseph:I think the cliche word that we use all the time in our society now is communication. Well, we just don't have good communication at our office. Well, if you look at why don't you like your boss? Well, we just don't communicate very well and that kind of thing. So I think that that's kind of the framework to start from is your team members want feedback. They need feedback. And if you avoid that because you're afraid that it's going to be uncomfortable, what that will eventually lead to is that will eventually lead to employees and team members that are disengaged, they're burnt out, and the big question, mark, Jonathan, is that they're left guessing, how am I doing? Am I doing okay? Am I not doing okay? How is the team doing? How are we progressing in our goals? And they're left to guess.Joseph:And there certainly are lots of people that, whenever they start playing the guessing game, they're very positive, optimistic, and they say, "Well, I haven't heard anything, so no news is good news." And then there's a percentage of people that say, "Oh my goodness, I haven't heard anything. That must mean that they don't like me and that I'm not doing a good job. Well, if I'm not doing a good job, that means that the practice isn't doing well, so that means we're probably going to go bankrupt. And I saw that thing the other day that made me think that the practice is getting ready to close, and we're all about to get fired." And then they start making up all these stories in their head because they just don't know.Joseph:So one of the things that we're going to talk through here is to just give you some tools and some things to think about in terms of how do we keep employees engaged, how do we keep them motivated, and how do we create consistent, constant feedback that is respectful? I would not ever encourage you to be disrespectful with your teammates and the team that you're leading, that you get the privilege to lead. I think that's one of the things we lose a lot is this concept of it's a privilege to lead people and to lead an organization. So I mean, what are some of your thoughts, kind of whenever we kind of bounce some of those things out?Jonathan:Yeah. So you did a really good job of outlining, and I mean, to me, there's a big problem that's as a part of all of this and, number one, I think the root of the problem is that employee engagement and any type of engagement in today's society is really hard to become active. It's hard to actively engage with other people and from a lot of different elements. And I could probably go down a rabbit trail of talking about social media and people's attention being numbed and all these other things that are out there.Jonathan:But at the end of the day, what we're talking about is employee engagement, and if you think about the fact that a lot of dental practices face a very real problem, which is turnover, I really wonder, if they had really effective leadership in all of these practices, if turnover would be helped a bit. And the way that you get about doing that seems to me to be have actively engaged employees that enjoy their job, enjoy what they're doing, and one of the ways to do that is keep them engaged and have them have some type of sense of accomplishment and have some sense of purpose inside of their position.Jonathan:I can already hear kind of the counterpoints to this in my head, which is, well, none of my employees want to be engaged. We just can't find those types of employees and things like that. And there's a real chicken and egg question that comes in there, as what comes first, the leadership or the engagement? And then it could also just be is it an issue in the hiring process and things like that. So for purposes of this discussion, we're going to assume that you have a strong hiring process to where you've weeded out the people that don't want to be actively engaged, and so if you feel like you're in an office that doesn't have those types of employees, just hear us out. You're still going to learn a lot about this process and ways to go about this.Jonathan:So this is something that I have struggled with, and we have great employees at our company, at Tooth & Coin. And that's because I am not, we're probably going to beat this word to death today, me not being a very engaging person on a lot of senses is we have to actively work at this. And this is something that we've been intentional about over the last 12 to 18 months at Tooth & Coin is trying to have more of these types of discussions amongst leadership, as well as with employees, about what it is we're planning on doing.Jonathan:So let's start with how do you set some type of a goal for the whole team to be a part of, and then how do you check in with it? And if you want to talk about how we did, or if you want to talk about the best ways to do it, go ahead.Joseph:Sure. Well, I think that a lot of things in leadership and a lot of things, when we talk about goal setting, they need to have some sort of a why behind it. So at the end of the day, the audience that's listening to this probably, probably work in a for-profit business. So we could say, at a high level, that we need to just set goals that make sure that we are ultra profitable, that we maximize our profitability, and we maximize the amount of cash that we take home. I can also make an argument that says that nonprofit organizations have to run at a operating surplus rather than deficit, no margin, no mission, something that I've heard before. So I think that that is certainly part of it.Joseph:So as I just gave you a kind of a buzz phrase that I learned a couple of years ago, no margin, no mission, if we're running a net operating loss, then we're not going to be able to pay our people, and we're not going to be able to pay them well. We're not going to be able to invest in IT upgrades, or we're not going to be able to invest in clinical upgrades or clinical staff or continuing education and those kinds of things. So if we're not profitable, at the end of the day, we're not going to be able to do the bigger thing that we all decided to get into this business for, and that's that we want to help people. You want to help people with your very specific skillset that you paid quite a bit of money to obtain that skill set. At the end of the day, we want to help people and help people feel better about themselves, about their smile, about their level of self confidence, even if it's a pain thing, help them get through these specific pains.Joseph:I mean, I have some root canals done several years ago. I think I told you that story. I was in pain, and I was so thankful that the dentist was able to perform these two root canals for me. It cost a fortune, right? Because dentistry is expensive. It cost a fortune at the time. But at that point in time, I was able to get help from these folks. So I think that a couple of things, whenever we're talking about goal setting, I think it needs to fit into those two different pieces. How do we continue to remain profitable so that we can do the things that we want to do inside the office clinically, so that me, as a business owner, I'm able to get a return on my investment, my time, energy, and effort, how do I support my family?Joseph:But it's also got to boil back down to the why behind what it is. So if we were to poll our audience, and we were to say, is the reason that you want people coming in for six-month hygiene checks, is the only reason for profit? No. There's a big, huge benefit that comes with having your teeth examined and clean and having a hygiene visit. We can identify problems earlier. We can help people sooner. We can eliminate a lot of this stuff on down the road. So I think that, when we look at the things that are most important, it does certainly have to do with profitability, but that can't be the only thing. That can't be the only reason that it is that we're doing what we're doing is for profit and for bottom line.Joseph:But that's important. I can't underestimate the importance of that. And again, no margin, no mission. We could go run a volunteer clinic and not pay anybody anything and do all of that stuff, and then how would you feed your family? How would your team members feed their family? So we've got to have some sort of a profit motive, but we've got to also focus it back to the why. So we're going to have these goals. They may be subjective in nature. They may be objective in nature.Joseph:So my dad works in retail and has run retail stores his whole professional career. One of the things that's a metric or a goal that they have is a customer service score. So let's boil down to a customer service score and net promoter score or your Google reviews or any of these other things that come out as part of running a dental practice. Why is it that we want to have good customer service scores? Well, there's a couple of reasons, right? If you have an unsatisfied customer, they're not going to come back. So that's the financial reason, right? But at the end of the day, do we really want to run a business that people are mad at us and think that we're just taking their money from them and not helping them? That doesn't factor into the why that we became dentists or CPAs or to run a retail store.Jonathan:You got to get that patient engagement, right? We got to move the engagement away from the employee, as well as have it be to the patient because it's hard. I mean, it's easy for the dentist to make an engagement with the patient. It's sometimes hard for the dentist or the owner to make sure that the employee engages with that person as well and has a reason to do that.Jonathan:And we've talked about social good being tied into being a business, in a prior episode, and I love that. And I can think of almost no better types of businesses to have social goods associated with their business, other than medical. Now, sometimes social goods can be a bit divisive in some ways, and some people may like one social good or another social good, but most people, in general, are going to be happy to be a part of something that is doing that.Jonathan:So, yeah, I completely completely agree with that. So let's assume that you've got your goal that you've decided to make, and we can probably do a whole episode on setting goals as well. And let's talk about now how we are going to engage with those employees, to make sure that that goal is not being forgotten about and that the engagement continues on because this is something that I had ... I think, Joseph, you may have ... I think it was you actually. You, at one point, said to me, "What is it that we're doing here every day? Because I know we're doing CPA services at Tooth & Coin, but why are we doing what we're doing?Jonathan:And it was one of those things that it was in my head, I'd talked about it in the past, and it had just been so long since I'd brought it out at a meeting or talked about it or whatever it was is that people had forgotten about it. And even though it was the same people, that we didn't have staff turnover, it was just one of those things. It was just it had to be re-communicated, over and over and over again. So, Joseph, how do you do that? How does someone do a better job of keeping that goal in the front of people's minds and helping people along the way of reaching that goal?Joseph:Sure. I remember when I was a kid, and I was learning different stuff about spelling and all the different facts and stuff, and my mom made flashcards so that she could help me study all this stuff. And one of the things that always stuck with me is that repetition strengthens and confirms. So I think, first and foremost, is we've got to remind people why we're here. So I don't know that that needs to be something that we plaster all over the wall and the website, which those things are fine, well, and good, and I would encourage you to think about all those different things. What's the mission of the business? What's the vision of what we're trying to do, the mission of the practice? Maybe it's to create healthy smiles.Joseph:I live in the Dallas/Fort Worth area, and there are a number of kind of the big, corporate people that are out there. And there's one corporate group that is out to make sexy teeth, and there's another one, I will make you have a sexy smile or whatever. That's a big part of their marketing push. Right, wrong, or indifferent, I'm not here to judge that. It stuck with me, so it's got some stickiness in there, effectiveness. There's another company in town that says, "We make healthy teeth." Healthy teeth first, before we make them sexy, is kind of the innuendo.Joseph:So I think when we go back to repetition strengthens and confirms, so back to your back to your illustration, if one of the things that we're trying to do as a firm is we want to be their CPA from the time that they get into practice ownership until the time that they retire, if we wrote that down one time and said that at one meeting, two years ago, that is out of sight, out of mind. So at whatever point it becomes relevant, whenever it's timely, whenever it is appropriate, we need to be reminding people of what it is that we're here to do.Joseph:Now, it's not every morning that we stand and do the pledge of allegiance, and we sit and make a pledge to the vision and mission statement, straight out of Office Space or something like that, right? It's not about that. It's about just getting a chance to remind people why we're here. So annual company meetings are a good time to do that. There are a lot of offices that have a holiday party, where there's a couple of speeches and that kind of thing, and then quarterly is another time that people can do it and kind of remind people of why it is that we're here.Joseph:Because it's really easy, whenever you're sitting in the weeds, and you're just work, work, work, and you're getting through, and you've got the patient call list, and you're collecting on the AR, and you're trying to get Ms. Jones scheduled, and we're trying to verify insurance, and we're trying to get a case acceptance rate, and we're trying to get call backs, there's all this stuff, and sometimes, we get so busy in the weeds that we forget to take a larger picture view. So I would say, first and foremost, repetition strengthens and confirms. It's important that we continue to do that in a way that is sincere and appropriate. I think that's kind of first and foremost. What are your thoughts on that? I pledge allegiance to Tooth & Coin, the CPA firm, who's going to be awesome for the time that we're all here.Jonathan:Yeah, so that's, if I had my way, we ... And honestly, it's funny because I joke about it, but I can see now why they do it. So when you're in college, in business, you learn about all of these different cultures of business, and I think Japan actually does that in a lot of their businesses. The lifestyle of person who works in a lot of Japanese businesses is that they do pledge of allegiance to their company. They thank their company, every day, for letting their lives be a part of that, and they work insane hours. In Japan, I think there's actual places where you can rent out a place to take a nap, just so you don't have to go home, and you can keep working.Jonathan:So that's the more dramatic version of it, but yeah. And this is something that I still struggle with because I'm not, I don't know, a fluffy kind of guy, in terms of how I talk to people. I'm not big on talking about feelings, or I don't even have ... I'll just do spirit hands. I don't know how else to say it. So communicating things that are big picture about how we want to help our dentist not have to worry about the tax world, even though it can be really scary, and we know that our dental clients don't know a whole lot about it. We want to be that strong arm that helps them through those pieces, to where they're comfortable knowing they're not going to be ever spending in their taxes. They know it's going to be well-prepared and taken care of. And I want them to be able to understand how their business is doing. And I can say those things on a podcast when I'm talking to the people that are performing those services.Jonathan:Sometimes, if you say that same thing, over and over and over again, me, personally, I get the fear that I'm going to be almost saying that what they're ... I'm trying to convince them that what they are doing is what they were doing, and if I say it too many times, I'm going to be shoving it down their throats too much. And even though we have such a great team here that I know that's not an issue, the communication of that is important because it's really easy to lose the trees from the forest whenever you're trying to figure out where you're going in this path and this way.Jonathan:So for the dental clients out there, the dentists that are out there that have set this goal, they've shared it with their team, I mean, what is the frequency? How often do you say this? I mean, I think that we've set up a system where we have an annual, we have a whole day annual meeting, and then we have quarterly check-ins. We have annual calibrations with our teammates. We have a weekly check-in with your leadership person. What type of frequency would you think is right? I mean, is there a universal one, or is it more dependent on style and communication and personalities and things like that? Or what are your thoughts on that, on a broad level?Joseph:Sure. Well, I'm sure some people are sitting and listening, thinking, man, that sounds all well and good, Jonathan, but I just don't have the time. Like you said this, and you say all this stuff. And that's great, if I had 36 hours in the day, but I've only got 24 hours in the day. I've only got X amount of days that I'm chairside, and how much time am I going to spend kind of having the CEO day or having the CEO half-day or even doing that after hours. I don't have time for all of this. So I guess, first and foremost, my encouragement would be that you've got to start somewhere. So if I come out and say that this needs to happen daily, weekly, quarterly, if you hear Jonathan say, "Well, you need to check in with your team weekly," and you have never done a check-in with your team before, that would probably sound very overwhelming and very onerous. And then you would just kind of get discouraged and decide, I don't have time for that.Joseph:So first and foremost, I would say we need to get started. You're going to have some place to start. So there certainly is, and I'm telling my team all this, all the time, is there are lots of different things that I would call best practice. And then there kind of ends up where reality is going to set and going to be. So I can give you lots of different things. I think that just at a bare minimum, you've got to sit down with your team and talk to them individually at least annually, at bare minimum, no matter what happens. If it's been years since you've done a performance review with any of your team, now's the time. We need to have an annual performance review.Joseph:And there's lots of different stuff. We could probably spend two or three episodes on how to structure a performance review. But there's a lot of different things that are in there, so going back to the company goals, if we've got practice goals, I would say, as far as frequency goes, I think that you run the risk of, in December or January, you sit down, and you make these company goals, these team goals, these practice goals, and then you don't tell anybody, all year long, how we're doing on those goals. And then all of the sudden, it comes December time, you get the email from your CPA that says, "Hey, if you have any year-end payrolls, now's the time." And you sit, and you scramble, and you say, "Oh man, I want to get that tax deduction this year, so I'm going to run a bonus." And then you just randomly give people a bonus, and it's $500, $1000, $100, and they have no idea, where did that number come from? How did you get to that number?Joseph:And be like, "Oh, yeah. Well, we had a great year this year, so here's your $1000 or $500 or whatever it is." And essentially, what we've done, and I grew up playing sports, and I know you did too, Jonathan, is we've asked people to go out and compete and play really, really hard, and we never showed them the scoreboard. Not one time did we say, "Here's how we're doing." We just said, blindly, at the end of the year, January, December, whenever it is that you pay your, quote, year-end bonus out, or you look at those company goals like, oh, we either hit them or we didn't. And we've asked them to play their hearts out and give them everything that they got with no scoreboard.Joseph:And I think that that's providing your employees a disservice, your team members a disservice. So my recommendation, my best practice is to definitely give your team an update on how you're doing on your goals quarterly, and at a minimum, they need to hear from you twice a year. Because at least twice a year, we can have an idea, and we can recalibrate, and we can say, "Okay, well, we've noticed that the cancellation rate is higher than what our goal was, that more people are canceling and not showing up, and we're having a bunch of empty chair time." If you're only waiting and looking at that once a year, then you don't have any time to pivot or to adjust or to come up with different ways to have your team help you problem solve those things.Joseph:So my recommendation is to at least give your team a quarterly update. I know that that's something that we, as a firm, have implemented this year is to kind of do a quarterly update on how we're doing on the different team goals that we've set and practice goals that we've set. So that would be what I would call best practice. You can certainly do it monthly. I think as the owner of the practice, if you have a practice manager, an office manager, or somebody that's helping you do that, look at those things monthly. If it makes sense, and you're looking at patient count stuff, that's certainly something you can look at weekly like, that we're talking about big team goals, things that people can really wrap their arms around and understand, you need to be communicating quarterly with your team how we're doing on the team goals, and what are we're seeing?Joseph:So if you were to come out and have practice goals that you set in January of 2020, we have this global pandemic that hits, dental offices are shut down across the globe for a good chunk of March, we would say, "Well, we didn't hit our quarterly goal for Q1 of 2020. Here are the reasons. It's because we were shut down for eight weeks. It was because we did emergency only." And all of the sudden, we're able to kind of add some color around what's going on. One of the things that I've noticed is that the first quarter of 2021 has been really, really good for a lot of the practices that we help. Okay, well, what's going on there? Let's add some color to all of those different pieces.Joseph:So I'd say, at a minimum, you need to communicate that stuff quarterly. You, as the business owner, need to be looking at it at least monthly. And then if you've got folks that you can communicate on your team, that can help you reach your goals, as frequently as you can, looking at those, if that's even weekly or if that's monthly. But I would say, at a minimum, you definitely want to look at it monthly, and you need to communicate with your team at least quarterly. At a bare minimum, I'd say twice a year.Jonathan:Hey, everybody. Jonathan, checking in really quick here. This episode got a little long, so we cut it into multiple pieces. This is episode one. You can find episode two next week or in the following weeks. So make sure that, if you listen to this episode, you listen to the other episode as well, so you have the full context around everything that's going on. Thanks for tuning in, and we will see you next time.Jonathan:That's it for today, guys. I hope you enjoyed this episode of the Tooth & Coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com, where you can check out more about our CPA services. We help out around 250 offices around the country and would love to be able to have the discussion about how we could help your new practice.Jonathan:We do specialize in new practice owners, so people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up, or has become an owner in the past five years. That is our specialty. We'd love to be able to talk to you about how we could help you in your services, with your tax and accounting services.Jonathan:And if you enjoyed today's episode, again, go to the Facebook group, talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together, so that this adventure of business ownership is more fun, more productive, and better in the longterm.Jonathan:Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444. That's toothandcoin, no spaces, T-O-O-T-H-A-N-D-C-O-I-N, to 33444. Reply with your email address, and we'll send you an instruction to the Facebook group. We'll send you the resources when they're available. And we will see you next week.

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Join the discussion on Facebook!Full Transcript:Jonathan:Welcome to the Tooth and Coin podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take, so that you can get past this problem in your practice. Some of these concepts are really big ones, some of them are very specific, but we hope that these episodes help you along with your journey.Jonathan:Now, a very important piece for you to understand is that, this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs, talking about informational and educational content, to help you along with your journey. A very important piece for you to understand.Jonathan:Another thing that you need to know is, if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group that is active with dentists, that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share? Join us in the Facebook group. If you go to Facebook and you search for Tooth and Coined podcast, click on it to join it, and be able to join us there.Jonathan:Finally, if you need some more help, we're developing a list of resources that are going to be centering it around our topics of discussion, to be able to help you a little bit more than what the content is doing. So if you'd like access to that, whenever it becomes ready, all you have to do is text the word Tooth and Coin, T-O-O-T-H, A-N-D, C-O-I-N to 333444. Again, that's toothandcoin, all one word, no spaces, to 33444. Reply with your email address, and we'll email you instructions on how to get into the Facebook group, as well as add you to the list, to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you as well.Jonathan:So, on to today's episode, I hope you enjoy it.Jonathan:Hello, ambitious dentists, welcome to Episode Six of the Tooth and Coin podcast. In this episode, we're going to be talking about a decision you're going to have to make, many times throughout your career. And it's one that almost no one talks about and almost no one thinks about, until that moment in time happens for you. This decision is, how are you going to treat someone who is working for you? Are you going to treat them as an employee or, are you going to treat them as an independent contractor? And the way that you pay them, matters. There are consequences to doing it the wrong way. And it's a little bit tricky.Jonathan:There's a lot of, I don't know, social norms or just industry standards that people seem to follow, but don't really know why. And in this episode, we're going to be talking about four different types of instances, of this. We're going to talk about this on a broad level. We're going to talk about it as, if you have an associate doctor in your office, we're going to be talking about it. If you have a specialist in your office, and finally, we're going to be talking about it if you have a hygienist in your office, and you're considering doing this in a certain way. And it's a big problem, because if you don't do it right, you could end up paying lots of penalties, interest, fines, and just a whole bunch of other mess that you don't want to go through, because it's not fun to deal with the government. We all love big brother, but we don't want him messing with our stuff, as much as we can handle it.Jonathan:Joseph and I are going to be starting, talking about this. So Joseph, talk to me about independent contractors and employees. This is one of the things that I didn't really know was an issue, in the dental world, until I started getting an email once every other week from a client saying, "Hey, I don't know how to do this. What am I supposed to do?" Talk to me about the relationship, what it means and all those things.Joseph:Sure. Well, I think at a high level, there's a couple of things that we've got to keep in mind. Why does the government care about 1099 versus W2, versus not issuing 1099s? So I think we can maybe get a chance to give our listeners a little bit of a heads up, on why that matters. I think we can also talk about, at a high level, what decisions do you make as a business owner? So, as all of the people that listen to this podcast know, every day in your life, in your business, in your career, you take risks. There is not ever a way to completely avoid risk, but what you want to do is, you want to be able to mitigate your risks. So we want to talk through a little bit of this, at a high level, and help dentists understand how to mitigate these different risks and how to make sure that they're staying in compliance.Joseph:And, one thing... Jonathan and Spencer pointed this out on our team, to me, I said to him, one day. I said, "Why is this 1099 thing a big deal? Why do we even care, and why are we having to do all this work?" And he said, "Well, you've seen the checkbox on the return, right?" And I said, "No, what are you talking about?"Joseph:He said, "Well, on every single business return, there is a check box that says, 'Is your business required to issue 1099s?' Yes or no. And then if you say, 'Yes, I'm required,' 'Did you actually issue them?' So every single return that's going out the door, we're clicking that box. And the client is signing, that they agree that yes, that they've issued all the 1099s that they're required to do."Joseph:So those are a couple of things, kind of at a high level, that immediately jump out to me. Number one is, you can't eliminate risk, but what you want to do is you want to do everything in your power to mitigate your risk, and to put your practice in the best situation. Number two is, there are reasons that the government cares about 1099s versus W2's, and we'll talk a little bit about that.Joseph:And number three is that, it's part of your tax return, whenever you follow the tax return as a business.Jonathan:Yeah, that's a great point. So let's start with the first, and the first is that, one of the big reasons why you had to be filing this right, is because you have to say... This isn't something that is not checked. This is something that is a core critical component of complying with some of the government's requirements. What Joseph was alluding to is, whenever you're filing any type of return that has a business component to it, one of the assertions you have to make, and you have to agree to as the signer of that tax return, is that if you had a payment that was going to a contractor that was appropriate, that you issued them a 1099.Jonathan:Now, so you're required to issue 1099s, and you're required to do those pieces. we're not going to really get into the nuts and bolts of how to fill out a 1099, or who gets, hen it happens and things like that. But that is something that we have to make sure that we're doing correctly, when that box gets checked. Make sure that we issue all the 1099s we were supposed to. Was there more that we wanted to expound upon, on that piece/.Joseph:Yeah, just in general, those are the things that matter, kind of at a high level. And the government, the government wants to... Like, if you wanted to be super spiteful, you'd say, "The government wants all of the government money that the government can possibly get." But at the end of the day, what the government's trying to do with our tax system and with tax returns is, they're trying to trace the money that's coming in and out of our economy and make sure that it's appropriately taxed, and that the appropriate taxes are paid on each one of those. And a 1099 is a critical component of that. And there certainly are some pieces that go with a W2 versus 1099 decision, that affect the government, that if the government had their druthers, they would rather people be W2 employees and subject to the FICA tax, and the one half of self-employment and all of those other pieces. So, what are your thoughts in general, at a high level, what the government's trying to accomplish with this topic?Jonathan:So I've always taken a little bit different of an approach. I've always taken an approach of, they're going to... The government is really more trying to protect the individual employee level. So, me as a business owner, they're going to get their pound of flesh from me, but they're trying to protect the pound of flesh that's on the employee's back. Is what I typically feel like, the reason that they're doing, that they get so strict about these requirements. We haven't gotten into the requirements yet, or how they view it.Jonathan:But to me, the way I've always seen it is, that they want to try and curb abuse from the employer side, to try and get the employer out of having to pay their portion of the employment taxes. Because the government's going to get those employment taxes, one way or the other, whether it's an independent contractor or if it's from the employer. They really, honestly, shouldn't care much about where that money is coming from as long as they're getting it. But to me that the reason that they're doing that... So, if that logic holds true, then why are they being specific about it? To me, it's because they want to make sure that the employee isn't getting taken advantage of.Jonathan:There's a lot of... Joseph, you have one that you're going to share, another one that's very, very common right now is, Uber drivers. A lot of them have been independent contractors, because they own their own equipment and they have their own vehicle. They drive around, they make their own hours. They just use the app as a way to coordinate, and things like that. And I believe on a federal level, they've ruled that those people are employees, now. Even though they fit a lot of criteria, to be independent contractors.Jonathan:And the reason is that, all of these people were filing their tax returns and nobody... And they're all like, "Oh my gosh, I've got so much that I owe in taxes. Why is that?" It's because they all owed self-employment taxes. And so, the government still got their money, but it was, the employees were left holding the bag, in terms of paying in money and things like that. So to me, it's always been more about, less about making sure that the employer pays in more taxes and more about making sure the employee is not being taken advantage of, in many different ways.Jonathan:Now there's one caveat to that, and that's on the state level. On the state level, I feel like it's definitely, that they want the employers to be on the hook. And the reason is, is because independent contractors don't typically pay self-employment, they're not eligible for unemployment. And the State is who dictates unemployment, generally. There's a federal unemployment tax that is paid into the system, which is very minor. It's like 70 bucks a year, per employee, where on the state level, it's much higher.Jonathan:And we've had lots of states come after business owners, and just basically, rename everyone as employees. We've had people that literally have had a yard service company, that does their yard in the summer once every week and a half, to make sure that the yard in front of the office is done. They've reclassified those people from contractors to employees. That is, I don't know, like $2,000 a year in services and they're a company. And the reason is, is because those state departments want to raise unemployment tax revenues. And if you're an employee, you're eligible for unemployment. If you're not, if you're an independent contractor, you are typically not able to get unemployment. There are some states that have some provisions and safety nets for independent contractors, as well. But in general, that's how it goes down.Jonathan:So that that's always been my perception of it. Whoever knows, really, what the government wants out of everything. All we know is that they do care about the classification. They have been very strict about it. There have been people that have gone to the highest courts in the nation, to try and defend what their decision was, in terms of making this. So what was the example that you're willing to share, in terms of the story about independent contractor versus employees?Joseph:Yeah, so there are a number of different tests that are out there. There are a number of different rules, but one of the ones that almost always gets individuals versus the company, and puts people on the hook to become a W2 employee versus 1099. The technical term is risk of loss. So in other words, if you're going to have a 1099 contractor, they need to be in business for themselves, and they need to have a risk of loss. So I'll give you a very, very simple example.Joseph:If you hire someone to come and paint your office, paint your dental office. You meet with the painter, he comes out, he tells you this is how much it's going to cost. There's two different roads, and I'll use two different extremes on this, to illustrate the point of risk of loss. And then I'm going to tell you about the famous court case that came out, several years ago.Joseph:If the painter shows up and as the painter shows up, you provide that painter with a uniform, the white painters get-up. You provide that painter with a ladder, and with paint rollers and with paint, and you provide them with the materials to make sure that they don't get paint on the floor, and you do all of those things. And all the painter does is just show up and paint with the paintbrush, paint with the paint roller. Let me ask you this, Jonathan. What is the risk of loss? Is there any risk of loss for this painter whatsoever, outside of their time?Jonathan:Other than maybe falling off a ladder, or something like that. No.Joseph:So there's really no risk of loss. And if you couple that, and look at another scenario, if that painter shows up with his own paint truck, his own paint uniforms, his own crew that he has, that are working for him. He's got his own equipment, he's got his own workers' compensation insurance. He's got all of these different pieces, that enter into his risk of loss, so that is much more likely to be a 1099 person. Where in my first example, when there's absolutely no risk of loss, there's virtually no financial risk of loss in that situation.Joseph:And FedEx and UPS kind of got in trouble for this a couple of years ago, whenever they had all their drivers. And they were doing just exactly what I described. They would provide the uniforms, they would pay for the gas, they would provide the truck, they would provide the maintenance on the truck. They would provide everything. And the driver just had to show up, drive the truck from A to B and deliver the packages. And what the courts determined was that, there was no risk of loss in that situation. So rather than all of those drivers stay as 1099 independent contractors, the government reclassified all those wages and said, "These are all W2 wages. Oh, and by the way, you owe 7.65% in FICA taxes, and the employer portion of Social Security and Medicare on all of these wages."Joseph:And since then, they've made big changes at those companies, and those are all considered W2 employees. But that's a very real case of this risk of loss piece, that basically factors into this decision. So I think I'd just kind of use that as a launch off point for you Jonathan, to talk about these specific situations that we see in dental offices. And as we were talking through some of the bigger questions that we get, this is one of the biggest questions that we get. It's a question that I get multiple times a year, specifically when we're out trying to figure out 1099s, when people are coming on board, when we're having new practice owners come on board. They're like, "Oh, can I just pay them as a contractor?" And I'm like, "Well, it depends." Just like every fact and circumstance is going to, is going to dictate the situation.Joseph:So what are some these specific... I mentioned the painter. I mentioned the drivers for UPS and FedEx. What are some specific situations in which dentists have to face this decision?Jonathan:So, and to be specific, it's every time you have someone that's going to provide a service for you. Whether it be your front office person, whether it be your telephone company, whether it's going to be an associate or anyone else. What we're talking about, we've described the problem to outline how this is going to affect you guys. Whenever you decide to hire anything, you have to decide, is this going to be... Is this a service that someone is providing me? If so, then are they going to be... There's technically another classification. Are they going to be an employee, an independent contractor, or are they just a company that's providing me services that I'm paying them money for?Jonathan:And if it's a company, then they are, if it's an LLC, or if it is incorporated in some way, it is typically... Well, sorry, if it's an LLC, that's been incorporated as a subchapter S, then it will be excluded from this conversation. They could still be, technically, a contractor that is an employee of that. And it gets really convoluted, and really confusing. But for purposes of this discussion, we're going to be assuming that it's not services being provided like AT&T. You're not going to send a 1099 to AT&T. They were specifically excluded, back in I believe 2008, they tried to make it where even those companies would get 1099s. Congress finally said, "This is going to be too big of a headache. There's no reason you should be issuing a 1099 to the Home Depot when you go and buy $800 worth of repair items in a year." And so, that's all not taken care of.Jonathan:Now, that is in terms of the protocol in which how you report what you paid, that doesn't affect how you choose to pay someone. So that's an important distinction, here. We're not saying that, just because you issued someone a 1099, that does not mean they were an independent contractor. What we're talking about is the basis point, the starting point of how you're paying them, whether it be as an employee relationship or as an independent contractor relationship, or again, that third example was a service relationship between yourself and another company. Some people try to conflate or mix the independent contractor with another company.Jonathan:So let's say they have an associate, that owns an S-corp and, "Well, it's an S-corp, and I'm paying the S-corp for those services. And they're trying to get away with," and those types of situations. Assume that the government is logical enough to be able to see through that. I could probably explain that to my second grader, and she'd probably have to be able to see through that. The IRS will be able to see through it, too. So don't try and be, we're not going to be trying to be clever, in this conversation. We're going to be trying to be real-world examples of what will actually happen, if you go down this path.Jonathan:So, specific examples, the most specific example that we get is, we get a new doctor getting out of school. And they're saying, "Hey, I'm talking to this company, and they're saying that I can choose to be either an independent contractor or be an employee." On the other side of that, we have a client that's a practice owner that comes to us and says, "Hey, I've got this associate. Do I need to classify them as an employee, or an independent contractor?" Same exact situation, for both sides of that. And the answer is the same for both of them. So, given that type of a situation. Joseph, what is your typical reaction and answer to that question?Joseph:Sure. Well, I think we go through a bunch of the different tests. The one that almost always gets everybody, is this risk or loss piece. So, do you have an associate that's coming in, and... Have they done anything to get new patients? No. Are they bringing in all of their own tools, and their own equipment in order to do dentistry? No, they're using ours. Do they have any control over their schedule? No. I tell them when to be here. How is it that they're compensated? Based on a production percentage. And I'm like, "That's pretty simple. Like we don't have any risk of loss. This is not an independent contractor." And this is somebody that's basically coming in... That's a pretty clear cut case for me, as someone that comes in as an employee, and is not a contractor.Joseph:What are some of the other tests that you see, that you use, whenever we're trying to give people guidance? And we would certainly encourage you to talk to your CPA about this and make a good decision together. It's not always a really easy, clear cut, black and white. I like to use extremes, so that we can illustrate our point, here. But what are some of the other things that you're looking for?Jonathan:There are a few. The simplest question to answer for a lot of people is, is that associate... And we're talking about, from the social perspective. Is the associate working somewhere else, and free to work somewhere else? And, not under some type of a non-compete, that's super vast. That's a really simple test, as well, because if they're literally not going to be able to work anywhere else, then you've got financial control over that person. The reason we're saying these words and financial control, and risk of loss and things like this, the reason that we're saying this is because you then, as the person who will be paying for these services, have the choice how to pay people. If you're correct or not is determined by a set of tests that is distinguished by the federal government, as well as your state governments. And sometimes, those two governments can disagree on these things.Jonathan:So you need to be aware that, that is a part of it. And what we're talking to you through is some tests that they will be testing you on, in terms of deciding if you were correct in your interpretation and application of these ways that you pay people, and then report it to the government later on. So the IRS, it's like a seven step test for the federal government side, which when I say IRS, I'm talking about the federal government. And as I said, risk of loss is a big one. That's just a bigger concept. It's an easier one to talk about.Jonathan:Financial control is another one. So if you're really in control of that person, like if you're able to fire them without them having a whole lot of say in it, you've got a lot of financial control. If you're the person making the schedule, if your practice is making the schedule for them, if your practice is providing all the ways for them to be able to do dentistry. If all they're doing is showing up and doing dentistry, and have a defined time they're supposed to be there. Then, that's a lot of financial control that you're covering over that person. And you're likely to be classified, that person is likely to be classified as an employee for you.Jonathan:Doesn't matter what you want. Doesn't matter what the person who is giving you the services wants, that is what the government will likely end up saying. So, that is an important distinction. So when I say financial control, the big pieces are that are one, can they work other places? Are they under non-competes? Two, do they make their own hours, or do you set the hours for them? Three, do they bring their own supplies? Do they have their own stuff, their equipment? Is it, they're paying on a machine that they were using? And really, four, are they responsible for their own labs, and things like that? Are you providing the ecosystem for them, or are they doing it?Jonathan:Again, Joseph mentioned earlier, are they going out and getting patients, are they building up a clientele, and things like that? That's really important stuff to interpret and decide on, if they're doing that in your office or not. So I will say, my typical answer to people is that, if ever questioned you will likely end up being classified as an employee- employer relationship, whenever there's an associate dentist that is there, full-time, effectively full-time, they will most likely end up... Regardless of how clever you try to be and say, "Oh well, they're making their own hours, but the hours they're choosing to do just happened to be when we're open every day."Jonathan:No matter how clever you get on it, they're probably going to be able to just be like, "Sorry, we're just going to reclassify you." And you're going to have to pay the back taxes, the penalties and interest that associated with it, and then, just deal with it. Because, I'm going to be honest with you, you fighting that is going... For that one employee, that one time that you're having to do it, is going to cost you a lot more to fight it than it is just to pay the interest and penalties and back taxes. And if it did go higher up in the courts, you're probably going to end up losing it anyways whenever they look at the situation, if you're following that fact pattern.Jonathan:There are some shades of gray in this. Like I said, what happens, what if you're one of those associates that's only working there two days a week, and you're working somewhere else, two days a week? That's a very common thing. A dentist has, not tons of capacity, but they've got a lot of demand and they don't have enough capacity for it, so they need to have someone there two days a week. You're kind of phasing in, and things like that. That's where it starts getting a little bit more gray. It starts getting a little bit more difficult. Does that associate have that financial control, and things like that? In those circumstances, to me, unfortunately again, you're more likely to get reclassified as an employer-employee, even if the government comes in and checks that, than you are to be remained as an independent contractor.Jonathan:More likely, I'm not saying that's a definite, I'm saying, you're more likely. You'd want to have as many of those check marked boxes checked as possible, that you have control of those things. Specifically your hours, some type of financial control, some type of way of dictating how your schedules is made, and things like that. All those things would be really important to have, to be able to try... If you're a really, really worried about that independent contractor level coming up. So those are my thoughts in terms of where that happens, specifically for the associate dentist situation.Jonathan:And Joseph, did you have anything to add, in terms of that?Joseph:I guess the other thing is that, this thing has a tendency to only go one way. We've not ever had somebody that's been classified as a W2 employee, that raises a stink about it, they challenge that, and then they get reclassified as a 1099.Jonathan:Yeah.Joseph:So back to the risk mitigation piece, like this is the duck test, guys and gals. Like, if it walks like a duck and looks like a duck, it's probably a duck. And in a lot of these scenarios and situations, when you really start digging into it, "Sure looks like an employee to me and not an independent contractor," when we start applying these tests and that kind of thing. So, I've not ever seen it go that way, you and I both know and have seen many, many times... There's lots of famous cases where somebody that was classified as an independent contractor gets reclassified as an employee. We don't, we've not... Not that it hadn't happened, but I've not ever seen it happen where somebody was classified as a W2 employee, and it went the other way and they became all of a sudden, an independent contractor.Joseph:So back to the risk question, right? Every day as a business owner, you're taking risks that are out there. What risks are you willing to take, and what risks do you want to take?Jonathan:Yeah, exactly. And, let's talk about what those risks are. Let's say that it does get reclassified from independent contractor to an employee status...Jonathan:Hey, everybody, Jonathan checking in, really quick here. This episode got a little long, so we cut it into multiple pieces. This is Episode One, you can find Episode Two next week, or in the following weeks. So make sure that if you listened to this episode, you listen to the other episode as well, so you have the full context around everything that's going on. Thanks for tuning in, and we will see you next time.Jonathan:That's it for today, guys. I hope you enjoyed this episode of the Tooth and Coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com, where you can check out more about our CPA services. We help out around 250 offices around the country, and would love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners, so people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they're starting up, or have become an owner in the past five years. That is our specialty, and we'd love to be able to talk to you about how we could help you in your services, with your tax and accounting services.Jonathan:And if you enjoyed today's episode, again, go to the Facebook group. Talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together, so that this adventure of business ownership is more fun, more productive, and better in the longterm.Jonathan:Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444, that's toothandcoin, no spaces. T-O-O-T-H, A-N-D, C-O-I-N to 33444, reply with your email address. We'll send you instructions in the Facebook group. We'll send you the resources when they're available, and we will see you next week. 

Join the discussion on Facebook!Full Transcript:Jonathan:Welcome to the Tooth and Coin podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones. Some of them are very specific. But we hope that these episodes help you along with your journey.Jonathan:Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey, a very important piece for you to understand.Jonathan:Another thing you need to know is if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today to continue the discussion. Agree with us. Don't agree with us. Have a story to tell. Have something to share. Join us in the Facebook group. If you go to Facebook and you search for Tooth and Coin podcast, click on it to join it and be able to join us there.Jonathan:Finally, if you need some more help, we're developing a list of resources that are going to be centering it around our topics of discussion to be able to help you a little bit more than what the content is doing. So if you'd like access to that whenever it becomes ready, all you have to do is text the word toothandcoin T-O-O-T-H-A-N-D-C-O-I-N to 33444. Again, that's toothandcoin, all one word, no spaces, to 33444. Reply with your email address, and we'll email you instructions on how to get into the Facebook group, as well as add you to the list to be able to send you those resources when they're available. If they're available, we'll go ahead and send them to you as well. So onto today's episode. Hope you enjoy it.Jonathan:Hello, ambitious dentists. Welcome to another episode of the Tooth and Coin podcast. This is episode number five, which is a really good one. We're really excited about it. One of the things that if you've listened into one of the 120 episodes of the Start Your Dental Practice podcast, one of the things that I said that people needed in order to be able to be a business owner is leadership skills. It's one of the things that I always say this is not something that is usually inherent in a lot of people, is having leadership skills. You may believe that you have some leadership skills, and you may not be afraid of leading, but leadership skills are definitely something that once you get to a certain size of a company, it adapts, it evolves, and it becomes even more important.Jonathan:I find that a lot of people think that they may be really good leaders, but they're going off of that gut feeling of how it feels to just kind of push people along and try to go in a certain direction, because they know where they want to go. But that doesn't necessarily mean that you're doing that great of a job of leading everyone. So that's the reason that I said leadership skills are one of the things that is the hardest to come by whenever you become a practice owner to actually have and have to be inherent to actually just understand and know about.Jonathan:So one of the things that I always tell the people, I get a question like, "I am in dental school. What do I need to focus on in order to be able to be ready for practice ownership whenever I get out?", that's one of the things, is leadership. It's not, "Oh, you have to understand exactly how assets equal liabilities and owner's equity." The balance sheet is not super important compared to understanding leadership. So today's episode is going to be about leadership. I'm going to be interviewing Joseph about this. Joseph has a lot of experience with leadership in different programs and lectures on this topic and is someone who's very knowledgeable about leadership in small business. So Joseph, walk us through ... I mean, did I do a good job of teeing up that leadership is important? Tell us your take on leadership.Joseph:Yeah. I think that whenever we talk about the things that we do as a firm, one of the things that we're always constantly hitting on is that dentists spend 10,000 hours or 15,000 hours learning to do dentistry and zero hours learning how to run a business. I think to kind of piggyback on that, leadership's just something that is inherent in owning a business. It's a very difficult thing to understand how to do it and how to do it correctly. I think that's one of the biggest things that dentists can continue to work on, especially earlier in their career, is being that good leader of the office.Joseph:To be fair to dentists, it's really most of the people that are out there that are running businesses. They've got kind of their own what they would call style, and they just think that everybody needs to learn their style and this is exactly how we're going to do it, and we're going to move on. So I think that it's imperative that any business owner knows leadership, studies leadership, understands leadership. I think that that's one of the things that we can hopefully shed some light on today.Jonathan:So in keeping with the theme and the patterns of our episodes, why would it be a problem for a small business owner to not understand or take leadership seriously?Joseph:I think a couple of different things. Number one is that if you don't lead people well, they'll leave. People don't want to just work for money. They want to work for a higher purpose. They want to do work that matters, if I want to kind of pull a key phrase that's out there, and they need to be continually reminded of that, that what we're doing is work that matters and this is why. If you have a whole bunch of turnover, you're going to have a lot higher cost to go along with things, and things aren't going to run very smoothly. If your front office isn't running smoothly, if your chairside stuff isn't running smoothly, then you're going to lose out on opportunities to do well and to help more people and to service more people in your community and to be able to realize the financial dreams that you had whenever you started a business. I mean, leadership is key to making sure that you're able to meet your own goals and to do all of those things that you want to do with inside the practice.Jonathan:One of the things that I've noticed as I've consciously tried to sharpen my leadership skills and do better at leadership is that when I do that, it's not just the leadership of my employees that gets better. It's also the leadership of our clients and potential clients and my family. There's a whole lot of other pieces that go along with it, that leadership is not just about the small business. It helps out in a lot of different ways. So cool. I would probably just highlight a big problem is that a lot of people, you don't get to be a leader until you're leading.Jonathan:I mean, it goes back to one of our first episodes, saying, "You're not an owner until you're an owner." You don't own the business until you own the business. You kind of learn by doing, right? So it's hard to be self-reflective if you've never done it before. So walk us through it. Talk us through a framework for leadership. Talk us through how someone who has started hearing the podcast and understands, "Okay, I understand why I need leadership. Listen to these really smart, good-looking guys, and go with what they said, believe what they said." So talk us through that.Joseph:So when I was in college, Jonathan, I went to a small school and was in a couple of different organizations. I felt like I was a good leader. I just said, "Get out of the way. I'll show you how it's done. Give me all the work, and I'll do all of it. I'm not going to let you do anything. Look at all these great results that I'm producing for my organization." When I was 19 years old, I got selected to take part in a really elite leadership program for college juniors and seniors, sophomores, juniors, and seniors. That really opened my eyes to there's a whole lot more to this than "working hard" or getting the job done. I think that's probably one of the traps that a lot of entrepreneurs fall into. It's just like, "If I just work hard enough, everything will be okay. If I just try hard enough, if I just do all of these different things, get out of the way, and I'm going to show you how to do it."Joseph:So what I was introduced to at an early age that just really was ... I guess they call it an aha moment, right? The light bulb went off. But there was a couple of guys named Kouzes and Posner that wrote the five principles of exemplary leadership or the five practices of exemplary leadership. As we went through this exercise, just light bulbs started going off about my own shortcomings inside of leadership. So if it's okay with you, I'd love to go through these and maybe just kind of bounce some ideas off of you and get some thoughts from you on this, Jonathan. Does that sound like a good idea?Jonathan:Yeah, yeah.Joseph:So the first thing that really hit me, whenever you go out and study or look at leaders, is they have a tendency to have just incredible vision. They can see where things are going. But it's not about just me telling you what the vision is. One of the things that leaders do is that they inspire what's called a shared vision. So not only am I going to inspire you, not only are we going to have vision, it's not going to be my vision or your vision. It's going to be our shared vision. So whenever I say that, inspire a shared vision, I mean, one of the things that immediately comes to mind is what we're trying to do at Tooth and Coin inside of our CPA practice. As a shared vision, we want to be the CPAs from the time that they enter practice ownership until the time they retire. That's something that we can all get behind. I mean, what are your thoughts whenever I talk about inspiring a shared vision, Jonathan? What are some things that kind of stand out to you?Jonathan:Yeah. I mean, originally, that's one of the things that I think is a big pitfall about having a shared vision, is that entrepreneurship, there's a saying that it's kind of lonely at the top whenever you don't really have ... I mean, it's kind of just in your head. I think for dentists, they can usually sometimes think that the vision is, "I've got to get more patients in. I've got to do dentistry. That's my vision, is what my dental practice is." It's more than that, like you stated. People want to be paid for their efforts, but that only lasts for so long, and that shared vision is how you start your team, basically. You're surrounding yourself with people that are trying to do the same thing that you're doing.Jonathan:One of the really big analogies that people use in terms of teamwork is they talk about sports teams. If you're on a football team, your shared vision usually isn't that you're going to create some more social good in the world or you're going to bring a lot of spirit to the school. It's that you're going to win a football game. You have a vision of, "We're going to win. We're going to go to our state championship this year. That's what our vision is, and we're going to work towards that as a team to get to that point." It's not anything other than that.Jonathan:Whenever you're in business, you sometimes think that state championship is just the business is successful. In reality, it has to be something much more nebulous. It has to be a bit more impactful to the people that are surrounded, because what does that mean to be successful, and how do we define what that success is so that we can boil it down into a better vision of, "Okay, the practice is successful. Yes. But the reason it's successful is because it's doing what we want in our community. It's helping the people that we want to reach into our community. It's providing security and happiness to the people that are involved in our community." Maybe there's a certain types of procedures that you prefer to do over other people or other services.Jonathan:One of the things that I've stated before that is a dental moment that's helped me is before I got Invisalign, I would get really bad headaches. I found that whenever I finally got my teeth straightened, I didn't have as bad of headaches anymore. It helped a lot. So that's something that that practice owner did for me that if someone is to surround themselves with, "Hey, we're going to help people. We are a health organization that's going to help" and is very specific in the way that it's going to go about doing that, then that makes it much easier for people to get onboard and be a part of that team so that they can start moving forward towards that state championship, so to speak.Joseph:Yeah, absolutely. So we've got to have a shared vision. We've got to be able to be on the same page with all of that. The second thing that we've got to do is we've got to be able to enable others to act, or you might call that process delegation. So if a dentist starts a practice, they're not going to be able to answer the phone, schedule appointments, file claims, verify insurance, collect payment, do fillings, do x-rays, do hygiene. They're not going to be able to do all of it. That was one of the things that I know you and I have talked about this internally, is we try to figure out and bring staff along and to delegate some responsibility and to pass work down and to basically enable others to act. We kind of have this own self-thought that, "It is only me. I'm the only one that's good enough to do this job." So the second thing inside of exemplary leadership is we've got to enable others to act. I think that goes kind of a long ways. I mean, any thoughts on that, whenever you're delegating, enabling others to act?Jonathan:Yeah. So, I mean, making sure that people can do the jobs that you've assigned them to do is really important. So whenever you're talking about enabling others to act, are you just saying that people have to be able to move towards that vision in their own way? Fill that out for me. Talk to me more about that.Joseph:Yeah. So, I mean, everybody needs some guidelines and some guideposts, or you could call them bumpers in the lane of bowling or whatever. But they need to be able to have a little bit of autonomy to come up with the best way that they have to do the job. Nobody wants to be a robot. It's really about giving them some guidelines and giving them some guideposts. But what you want is you want to make sure that people have ownership in their position and that we're hiring human beings with real brains that have the real desire to want to do a good job. So we've got to give them some space in order to do that. Now, certainly, there's certain ways that you want to have things done. You want to have some uniformity in a lot of things that you do. But in a big picture understanding, you can't do it all, and you need to be able to enable others to act and enable others to help.Jonathan:I think dentists are pretty good about that. I think that naturally, a lot of dentists are pretty good about that, because they're used to, "Here's your role. Here's your role. Here's your role." The dentist doesn't want to be doing the [inaudible 00:14:28]. They're going to let the hygienist do that. They're going to be able to do the pieces that go along with that. So yeah, I get that.Joseph:Yeah. So first thing we talked about inspire a shared vision. Second thing we talked about is enable others to act, and the third thing is that we've got to do what's called encourage the heart. We've got to give people some feedback in how they're doing, and a lot of times, this is something that's absent inside of our business and absent inside of our organizations, is just taking the time to say, "Thank you. Thank you for being here. Thank you for doing a good job. You did a really good job with this." We've got to encourage the heart, in a way, because, again, we're dealing with human beings that are on our team that we're leading. We've got to help them see all of the good that they're doing. "Hey, did you notice that Ms. Jones that was in, did you see the before and after pics on that? Man, look at what we did together. Nice job helping us out with that." So I think that's another big thing, is we've got to encourage people. We've got to encourage the heart.Jonathan:Yeah. One of the things that comes to mind with that is Tom Shoes. If you remember, the Tom Shoes is you buy a pair of shoes, and then they're going to give another pair of shoes to someone in an impoverished country as a way to do social good. So not only are you buying a pair of shoes, you're buying someone else a pair of shoes. You're doing good by buying these shoes. When Tom Shoes came out, it had this massive success, because they shared their vision with their customers, not just the people that were working with them.Jonathan:I've seen dental practices do this, too. So a really good example of this is we had a client that said, "Hey, we're going to do a bonus program for our fluoride." They had a really low fluoride percentage. They're like, "Hey, Jonathan, we've been trying to figure this out. [inaudible 00:16:11], the data consultant on it said to do this." They tried this, and it worked, was they said, "Okay, for every fluoride that we do over the next quarter, we're going to give $5 to this charity." It was a charity that the team had came up with, or I can't remember if the team came up with it or the doctor came up with it. But it was a charity that everybody wanted to help out with. So they said, "Okay, we're going to do these $25 fluoride ... We're actually going to offer them to patients."Jonathan:So they let the employees have more of a reason than just, "Hey, it's your job to offer fluoride to patients," have a reason to do it. They ended up getting something like, I don't know, $2,000 they ended up raising for this charity that was a big help to the charity. So it actually did something. Them doing the fluoride actually did something. An added benefit to that was once that incentive was over, the team had basically self-trained themselves on how to offer fluoride.Joseph:That's awesome. That's awesome. I like it. So we talked about inspire a shared vision, enable others to act, encourage the heart. The fourth piece of exemplary leadership is model the way. So one of the things that you'll hear a lot about in the leadership world is they'll talk about tone at the top. They'll talk about what kind of example are you leaving for your employees? So if you're constantly 15 minutes late to the office, you should expect your staff to be 15 minutes late. If you're on time, if you're early for stuff, if you present yourself in a very professional way, if you watch your language, if you keep things in a very professional way, you're modeling the behavior you want from your team members.Joseph:I think modeling the way is a really, really important thing, and it's not about being a prideful thing, "Everybody's got to be like me" kind of thing. But it's about how are you going to act in front of the patient? How are you going to treat that patient? Are you going to belittle your patient? Well, you should expect your staff to belittle the patient. Are you going to use their last name whenever you address them? Are you going to address them with respect? Are you going to call them. "Mr. Rucker, thank you for coming in today"? Are you going to be grateful? Are you going to be gracious? What is it that you're modeling for your staff in order to present the tone and present the kind of culture that you want at your office? I mean, are you going to belittle one of your team members in front of a patient in a way that's going to be very disrespectful and it's going to make them upset? Then you should expect your team to do that.Jonathan:I'm sure there's a lot of people that are nodding their heads and have seen that in the past, where you've had a boss that acted in a certain way. Then you look at and around you, and even though there might be some contempt about how the boss is handling the situations, that's kind of how all the situations got handled after that point. I've had bosses that lashed out at employees and would yell and scream and curse. Honestly, after I left those work environments, it was hard for me to kind of not think about things in that way, because the person that I had modeled in my mind as being the boss, that's how they reacted to those situations.Jonathan:So I had a lot of times I pulled myself away and thought, "No, Jonathan, you're a calm, collected guy. You're not a hothead. You don't have to act that way just because the other person acted that way. Doesn't mean it was right." That's something that even I have struggled with in the past to reconcile, because all these patterns are learned behaviors. So setting the tone at the top makes complete and utter sense. So yeah, that's a great one.Joseph:Yeah. Another thing is what are you going to tolerate? Whenever it comes to different stuff, how are you going to address things? Are you going to have the courage to address the things that you need to address? Those are all tough things. I think we could probably spend a whole podcast, Jonathan, talking about having crucial conversations and addressing things and what do you address and what do you not address and what's the best way to do that? So I think we should probably save that for another topic, but modeling the way is a big, huge piece of leadership.Jonathan:It reminds me a lot of just the culture conversation of businesses. What is the culture of the company? Even when you said, "How do you address people?," I mean, there are a lot of different ways you can address people. You can be incredibly professional and have that be done in multiple different ways. You be incredibly professional and be casual. You can be incredibly professional and be very manneristic, so Mr. and Mrs., making sure who it is. There's a lot of different ways you can do it, and all those little things are going to permeate throughout the business. They're going to create the culture of the company and the culture of the practice.Jonathan:That's one of the reasons why a lot of people sometimes tend to lean towards ... When I say a lot of people. I'm not saying the majority. I'm saying there's a lot of people out there that their ideal way of going into practice ownership is through a startup process, because they don't want to go into another culture and try and reshape that culture based off of their personality and style. So yeah, I definitely think we could probably have a whole episode about culture, and that's definitely a part of it.Joseph:For sure.Jonathan:So you want to go to the next piece?Joseph:Yeah. So the last piece is to challenge the process. We give you all kind of just cliches that are out there. If you keep doing what you're doing, you keep getting what you're getting. What's the definition of insanity? Doing the same thing over and over again and expecting different results. Insert your own cliche for doing things. We talk about Saly a lot in the accounting world, right? Who's Saly again, Jonathan?Jonathan:Same as last year. She's only got one L in her name, but she's [inaudible 00:21:52].Joseph:Yeah. So number five is to challenge the process. If we keep doing what we're doing, we're going to keep getting what we're getting. So as you get a chance to look at all of the different things that you're doing, are you doing things exactly the same way year after year? Are you having problems with your scheduling? All right. So if we keep having the same different pieces, do we have a lot of no-shows? If we have no-shows that are taken up time on the schedule, what are we going to do differently? What are we going to challenge the process, and how are we going to handle this in a different way? Is it because we're confirming appointments? Well, maybe we need to have a different system of confirming appointments. Maybe we've got all kinds of different stuff that we can try.Joseph:So one of the great things about being a business owner is that you get a chance to try all kinds of different things. If you don't challenge the process, if you just keep doing the same thing over and over again, you're going to continue to beat your head against the wall. So number five is challenge the process. What are your thoughts on that, Jonathan?Jonathan:I think that of all the leadership traits that I have that I enjoy versus the ones that I'm not as good at, challenging the process is the one that kind of is the reason our business got created, was because every CPA firm that I was a part of, I was building up and breaking down every process that we had, because I'm to a fault a person who likes the most efficient way of doing things. If it's not the most efficient way of doing things, then I'm probably going to space out real quick whenever I'm a part of that process. Joseph, you can amen that.Jonathan:So one of the things that I get a lot of eye-rolls about from our team is where I decide to add in a new app to our software stack, because we're always trying to find a better way of doing it. There comes a point where that can be detrimental, but yeah, you've got to be able to keep adapting and moving, or else your business model could end up going to the wayside. If someone else figures out a better way to do it than you that's substantially better, you've accidentally inherited some business risk. In dentistry, you'll probably be fine, but it's a danger to your business.Jonathan:So yeah, definitely challenge the process. I don't know how many times I've heard from so many owners throughout the country that the reason that this is a problem for us is because it's our patient base or it's our software or it's because of this insurance that we take or it's because ... There's a reason behind why this doesn't work for them. Yeah, sometimes it takes 5, 6, 7, 8, 9, 10, 12, 13, 15, 20 different ways until you finally figure out the way to do it the best way, but you've got to keep trying. You've got to keep challenging the process to see if you can make it better and do better at the end. The purpose of doing that is to meet that shared vision. There's a reason you're trying to do that. It's not just because you're trying to add two cents a dollar to your bottom line. It's because you're trying to meet that shared vision. That's how you get the buy-in from the team to be able to do that. So I'd love to hear your insights to challenging the process, working in our firm.Joseph:Yeah. So you mentioned that this is probably your biggest strength in this list, and this list isn't you have to get all of these right 100% of the time. It's really a guide work and a framework for you to determine your own style and to move forward and to help your practice move forward. You mentioned challenge the process as being your best one. That's probably the one that I don't do well at all. It's like, "Man, I've got this tried and true way of doing things. I know it. I don't have to learn a new process. I can just crank through as much as I possibly can. I've been using this same Excel file for this many years, and it's just bam, bam, bam, bam, bam."Joseph:So I think, interestingly enough, if this is what you would call your area of strength, it's definitely my area of weakness, is to challenge that process. It's not that I don't want to get better. I want to get better, too, but I don't want to take the time learning a new software, a new app, a new work process, a new workflow, all of those different things. I guess I've just been scarred over the years. I used to really good at this early in my career, like all these challenges and stuff. So I'd come up with all these different gadgets, all these different ways of doing things and spend all this time on it. Then it just wouldn't work. I'd be like, "Well, see, we should've just done it the same as last year," right?Joseph:So, anyways, I think that's why we complement each other well. When we look at this list, Jonathan, what would you say is your biggest challenge? I mentioned that the challenge process is my biggest weakness in this list, but between inspire shared vision, enable others to act, encourage the heart, model the way, challenge the process, what would you say is probably your most difficult piece in this list?Jonathan:It changes. It's fluid. I think of ones that have been challenges. So initially, inspiring a shared vision, we talked about one of the challenges at the beginning is that you're trying to build something successful. That's what you think the vision might be. I went along with that, too. I made that mistake when I started the business, until we became much more purposeful in the way that we did leadership inside the firm. So at one point, it was that. I feel like we're in a better space than that now. So at one point, that was it.Jonathan:The thing I think I've always been pretty good at, enables others to add, but there have been times where ... I tell my employees this all the time. If I'm handing something off to you, I have to hand it all off to you, because if I'm even touching it, I have to be a part of all of it. I can't just pass over a piece. It has to be all or nothing. So in a way, at one time, I probably wasn't great at it, because probably it was too of a min-max, or what's it called wherever you ... Micromanage people. But I think I've gotten better at that.Jonathan:Encouraging the heart, another one that I think we could probably do a little bit better at that now, but I feel like I do an okay job of that. Modeling the way, we're a virtual company, so we don't see each other every day. Sometimes whenever you've had a hard day or not slept in a few nights because you've got a newborn at home, you come into a meeting, and you're a little tired or something like that. Yeah, sometimes that can be hard to do, too. But I feel like over the time that I've had in this industry, as well as in this specific business that you're never going to be perfect at all of them. So you have to have to give yourself some grace in these things. But you have to be aware that you're working towards doing a better job. That's what I try to do every day, is I just try to be better. I try to be better while allowing myself to not be perfect.Jonathan:So I feel like I have minor weaknesses in all of them, but I would definitely say that my strength would probably ... See, with the one that I said I had the strength in, I said I had maybe to a fault that sometimes I like to challenge it too much, because maybe I'm trying to make something more efficient, and it ends up wasting everybody's time because we look at an app that we end up not implementing because it ends up being only a fraction of a second better or something like that or even be worse off than the other solution. So you're going to have your pros and cons to all of these. It's just you have to try and do as good of a job as you can on the ones that you can and then allow yourself the grace on the ones that you don't. So what about you? Where do you feel like the ones that are ... You mentioned that your weakness was your biggest strength.Joseph:I always like to be a cheerleader. I figured out a long time ago that it's very easy to be the worst part of somebody's day. The person at the drive-through does something bad, you can yell at them, and that five second encounter will be the worst part of their day. So I kind of flipped that on its head, and I said, "How can I try to be the best part of somebody's day?" So mine is encourage the heart. I really like to get a chance to tell people in a sincere way ... It's got to be honest, and it's got to be sincere. It's not just a Johnny good job kind of thing. It's got to be one of those things where it's honest and sincere and it means something and it's not handed out all day, every day. "Hey, congratulations for showing up to work on time today." Well, you're supposed to show up to work on time today. But you can say at the end of the week [crosstalk 00:30:15].Jonathan:[crosstalk 00:30:15].Joseph:Yeah. "I made it through another" ... Yeah. But you can say, "I really appreciate your dependability as an employee. I always know that I can count on you." That's honest, and that's sincere. "The other day, whenever you helped Ms. Jones out, she was having the pain with whatever, and you walked her through that and helped out with that. That really meant a lot. Thank you for putting our patient's mind at ease and helping them out." Having that kind of honest, sincere appreciation for your team members, that's one of the things that I really like a lot kind of to do. I don't know. It was a challenge that I figured out several years ago. I want to be the best part of somebody's day, because it's just so easy to be the worst part of somebody's day.Jonathan:I definitely agree with that statement. So cool. So is there anything else you wanted to add in terms of leadership? Leadership is a big topic, everybody. I mean, this is not a 30-minute thing that you're going to listen to that. "Now I'm ready to lead that Fortune 500 company. I'm ready to be the CEO." While I would love for that to have been the case with what we shared today, that's not going to be the case. But this is a really good framework to start, to start conceptualizing and looking internally on the ways that you're going to be able to impact the lives of your people inside of your practice, not just your employees, again, your patients and your community and your family and everything like that. So Joseph, is there anything else you wanted to add in terms of this topic?Joseph:Yeah, no, I think he nailed it on all of these things. This is a framework. This was the first framework I was introduced to, is learning how to be a leader. It's been very impactful for me, and I'm just glad that we got a chance to share it with our audience today. You're not going to be perfect at any of them. Leadership is a process. You've got to continue to learn and grow and learn as much stuff as you can about leadership and continue to challenge. Going back to challenge the process, challenge the process of how you're leading your team and continually seek out knowledge on that.Joseph:I mean, as you mentioned, we could spend hours and hours and hours talking through different leadership models and theories and all the different experiences that we've had in our life. I'd like for this to just kind of be a beginning, a beginning, the conversation with you about leading, having these five core principles according to Kouzes and Posner about exemplary leadership. Again, inspire a shared vision. It's not my vision. It's not your vision. It's our vision. We want to enable others to act. We want to encourage the heart. We want to be able to help people understand that they're doing a good job. We want to model the way, set the tone at the top, and we want to challenge the process. Saly is not always our friend.Jonathan:Perfect. Well, guys, thanks so much for listening to another episode of the Tooth and Coin podcast. This is episode number five. It's about leadership, where we talked about the problem being that if you don't take leadership seriously, your business just won't be as effective as it should be. It can cause a lot of issues and even cost you a lot of money in the long run. We've shared a framework that you can use and adapt to help conceptualize on how to do these and gain these skills in leadership and maybe even do some planning on how to impact your business on your own.Jonathan:If any of these topics have resonated with you, if you have stories to share about bad bosses, people who've done bad leadership in the past, that can be a really powerful tool to be able to share with people to see how to not do the stuff. One of the best ways to learn how to do something is to learn how to not do it. So if you have any stories about that, feel free to share them in the Facebook group, in the Tooth and Coin Facebook group. Thanks again for listening in to the Tooth and Coin podcast, and we will see you next time.Joseph:Bye, guys.Jonathan:That's it for today, guys. I hope you enjoyed this episode of the Tooth and Coin podcast. If you are going to be a practice owner or a new practice owner and you're interested in CPA services, head on over to toothandcoin.com, where you can check out more about our CPA services. We help out around 250 offices around the country. I would love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners, so people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up, or have become an owner in the past five years. That is our specialty. We'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan:If you enjoy today's episode, again, go to the Facebook group. Talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the long term. Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444. That's toothandcoin, no spaces, T-O-O-T-H-A-N-D-C-O-I-N to 33444. Apply with your email address. We'll send you the instructions in the Facebook group. We'll send you the resources when they're available, and we will see you next week.

Join the discussion on Facebook!Full Transcript:Jonathan:Welcome to the Tooth and Coin podcast where we talk about your adventure of being a dental practice owner. In these episodes we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so you can get past this problem in your practice. Some of these concepts are really big ones, some of them are very specific but we hope that these episodes help you along with your journey.Jonathan:Now a very important piece for you to understand is that this is not paid financial advise. This is not paid task or legal advice. We are not your financial advisors, we are not your CPA's, this is two CPA's talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand. Another thing that you need to know is that if you enjoyed today's content, join us on the Facebook group. We've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share, join us on the Facebook group. If you go to Facebook and you search for Tooth and Coin podcast, click on it to join it and be able to join us there.Jonathan:Finally, if you need some more help, we're developing a list of resources that are going to be centering around our topics of discussion to be able to help you a little bit more than what the content is doing. If you'd like access to that whenever it becomes ready, all you have to do is text the word Tooth and Coin, T-O-O-T-H-A-N-D-C-O-I-N to 33444. Again, that's Tooth and Coin, all one word, no spaces to 33444, reply with your email address and we'll email you instructions on how to get into the Facebook group as well as add you to the list to be able to send you those resources when they're available. If they're available, we'll go ahead and send them to you as well.Jonathan:Onto today's episode, hope you enjoy it. Hey there ambitious dentists, today on the Tooth and Coin podcast we're going to be talking about the number one most exciting thing in dentistry which is fraud. Everyone's afraid of it, everyone hates it, everyone hears this happening and thinks that it may happen to them. I've seen numbers from really smart people say that something like one out of every three, to one out of every two dentists will at some point in their career, be embezzled upon. It's a staggeringly high number of dentists may actually be effected by this in their practice. I get a lot of questions and a lot of confusion about, "Why does this happen? How does it happen? Is a CPA firm going to help me with this problem in my life?" And things like that.Jonathan:The answer is not... it's a nuanced answer like so many things are, it's not a one size fits all. Today's discussion we're going to be talking about the problem that is embezzlement in dental practices and I've already kind of highlighted what the problem is, people they can steal your money. To highlight that problem I'm going to be asking Joseph, Joseph has actually lectured on this topic before and then we're going to turn the tables around and Joseph's going to talk to me about in terms of the CPA firm helps with this problem inside of our clients and what our perspective is and how we view our service for our clients when it comes to this really nasty thing inside of not just dental practices, but all small businesses.Jonathan:Again, the main problem is that a lot of people are going to be embezzled upon, dental practices for some reason tend to be targeted a lot for embezzlement. Joseph, why don't you tell us why does fraud occur in small business, especially to dentists.Joseph:That number that you just spit out, that's nuts. I don't know that I've heard that. Somewhere between 30 to 50% of dentists get embezzled upon during their career. I guess if you look at the average dentist, we're talking about 30 plus years, we're talking most of them are going to own their own shop or at least the ones that are listening to our podcast are going to own their own shop at some point. I guess when you put it out that long, I guess that increases the odds. The Small Business Administration talks about the percentage of businesses that fail. Maybe dentists are so high because they're such a great business to be in and they've got such longevity with them, I don't know.Joseph:Man, that's a crazy stat for sure.Jonathan:It really is. I think the reason that is is because there's a lot of different forms of embezzlement, there's literally someone stealing tons and tons of money, and then there's people that are stealing supplies. Embezzlement has... or stealing hours even, just putting too many hours down compared to what they worked for. You may be one of those 50% but it may be that somebody padded hours for three months before you fired them. It doesn't necessarily mean that you're getting hundreds and hundreds of thousands of dollars stolen.Jonathan:Yeah, it's a big number and something you've got to be aware of. You've got to be on top of.Joseph:That'll wake you up in the morning. If you're listening to our podcast bright early in the morning, that should wake you up and get your attention.Jonathan:Oh yeah.Joseph:Jonathon, as CPA's we are specifically trained to think a certain way and you may think that this is right, you may think that this is wrong, but one of the things that they've just kind of ingrained in our brain is that everyone's going to steal from you given the right set of circumstances. That's kind of the way we're trained to think is, "How do we think about it in terms of those specific pieces?" Kind of the tried and true piece that we always point to in the CPA world is what's referred to as the fraud triangle. Do you remember the fraud triangle? Have you talked about the fraud triangle since you took the CPA exam?Joseph:Did you wake up in the morning, you're like, "Hey April, what's going on babe? Let's talk about the fraud triangle."Jonathan:The triangle that I usually refer to is the cheat, fast and quality, is that triangle. I don't usually talk about this triangle, the fraud triangle. Talk to me about the fraud triangle.Joseph:There's three sides to the fraud triangle, right? That's why we use a triangle, three sides. We've got three different pieces to fraud. The first part of the fraud triangle, and it doesn't really go in any specific order, but one of them is incentive. "Do I have an incentive to commit fraud?" I'm going to use your example. If I go and I pad my hours, in other words if I go out and I say, "I didn't work eight hours today, I worked eight and a half," but I actually only worked like seven in a half. That's padding my hours and I'm going to have a direct incentive from that.Joseph:Kind of the higher levels of financial management there is the incentive that if our PNL numbers look better, I'm going to get a higher bonus. If my overhead percentage stays under a point, then I'm going to get some sort of financial incentive. Incentive's the first piece of the fraud triangle, anything else that you might think of in the dental world that would be part of an incentive for fraud? Do we have any... I would imagine some of them. Go ahead.Jonathan:Yeah, there are tons of incentives for fraud in this world. There's tons of incentives for people to... really the main incentive that people have inside the dental world is usually just money. That's the incentive for people to try and take it. They want more money. Whether it's money that they deserve or not, that's what they are typically wanting.Joseph:Got it. Maybe you have a new patient bonus to where if you have X amount of new patients that are out there, and if you get those new patients numbers, that may be the incentive that somebody goes and then creates a new patient inside of the software, or something silly like that. Incentives the first piece of the fraud triangle.Joseph:The second piece of the fraud triangle is opportunity. Opportunity is probably the one that is easiest to understand so if I am working the front desk and somebody pays in cash and they give me $80 worth of cash. I have the opportunity to stick that cash right inside my pocket. I was just looking at some financials for one of our clients that has multiple employees that have the corporate credit card. If you're walking around with the corporate credit card in your wallet as an employee or team member of a dental practice, then you are presented every single day with the opportunity to whip that card out at wherever you want to and do that. Opportunity's the second piece.Joseph:The third piece that is I think the more psychological piece that's out there, is what's called rational. The rational basically is a way for our mind to justify that what I'm doing is okay. It may go something like this, "Well Mr and Mrs dentist is just doing so well, they're making all this money. I see all of these deposits come through. They pay me a pittance, I'm making minimum wage or not nearly enough." I've just rationalized in my head that it's okay to take money, to pad hours, to swipe the corporate credit card, to take any form of all these different pieces that are out there.Joseph:That's the three pieces of the fraud triangle that we were trained upon way back when inside of CPA land. Opportunity, incentive and then rational. What one kind of sticks out for you Jonathon?Jonathan:It's almost always opportunity to me is what it seems like to me in terms of why this happens. When it happens in this industry, I guess is a better way for me to say it. Usually it seems to be opportunity. Someone perceives a weakness in, this is CPA talk, internal controls which for everyone that's listening, internal controls are effectively like, "Hey, nobody's looking over my shoulder when I'm doing this, and I can just take that money if I want to. If you've ever seen Office Space, it's whenever they do the thing, they have this computer program that rounds it to the next penny and they're like, "No ones looking at this. All we have to do is round this fraction of a penny up and then put it into a different bank account and literally no one will ever figure it out because it's literally we're talking about hundreds of thousands of transactions. We're talking about a hundredth of a penny per transaction. That transaction will never be looked at or flagged so that money will just be in this bank account."Jonathan:It's opportunity is what typically happens in dental practices, is they think that, "Hey, I'm the only one who writes the checks. I'm the one who receives the inventory. I'm the one who pays the bill. I'm the one who signs the check. I'm the one who receives the patients money. I'm the one who enters it into the practice management software. I'm the one who takes it to the bank." There's no one really looking over their shoulder. Opportunity, usually to me I think is the first path towards... into the dental space of it, is they realize, "Hey, there's a little bit of an opportunity there."Jonathan:I'm fully, fully, fully, fully not going to downplay the fact that there's some type of motivation typically that makes them look for those types of things, but in dental practices, those opportunities seem to arise a lot. I think that's just due to the nature of it being in a smaller business. In your time as a CFO, did you ever have any moments there was the opportunity for fraud at your old place that you could... obviously if it's something that you're not allowed to talk about, don't talk about it but is there anything that you can think of that you've ran into in your career when it comes to fraud?Joseph:I think there are certainly things that as a CFO controller, as a business owner, there are certain steps that you take to try to prevent fraud. One of the things that you were just mentioning there was the same person that's opening the mail is making the deposits and entering stuff into the patient management software. One of the things that we talk about is an accounting term is segregation of duties. You don't want to have the same person that's doing all of those things.Joseph:One of the things that we had to always make sure was that every time a patient came in the door, it was a documented patient encounter that went into the patient management software. What that's going to do is that's going to generate the opportunity to create the coding for that specific encounter. What was the procedure that was done? What was the product that was delivered? Once that whole thing starts, then that really is a good catch about a bunch of different things.Joseph:If somebody came in for a pair of compression hose that were $80, that gets entered into the patient management software, that's then going to give them... they're going to have to pay the $80 because it wasn't covered by insurance. When you think about it in terms of that it's like, okay, if this $80 invoice gets generated, if the patient pays cash and the person that's taking the payment, the front desk person or the clinician or whoever it is, takes that $80 and puts it in their pocket rather than in the company deposit, what's going to happen is because it's in the patient management software, an invoice is going to get generated. Then the patient is going to go ahead and get a bill the next month. If you got a bill for something you already paid for Jonathon, what would be your first thought and what would you do next?Jonathan:If I got a bill for something I already paid for I'd say, "Hey, they've not processed your payment, we need to call the vendor and see what's going on."Joseph:Yeah. Not that that happened regularly, but that was just one specific piece that we had in place. I think the other stuff, I think that probably every CFO's big nightmare or controllers big nightmare is these company credit cards that are out there. Credit card companies make it really, really easy for you once you have a business credit card to order additional card holders and additional probably. I was always real hesitant to have somebody get added to the company credit card because it just creates this opportunity and if you take the opportunity and you take the rational, it may be one of those things where somebody's got the corporate credit card and it's time for them to go out to the lake and go fishing this weekend, and they just whip the company credit card out and fill their bass boat up with fuel on the company.Joseph:That's going to look like a charge to Exxon or Shell or Conoco, whoever it is, it's not going to be one of those things. Obviously if you've got somebody that's looking at all that stuff, they say, "Well typically the gas charge is $25, and all the sudden here's an $85 charge on Friday afternoon to Conoco," that may raise a red flag. I think that kind of goes back into the other piece of it is that if you do have a company credit card and you do have people that have those, you need to be reviewing those charges every single month. I don't want you to get carried away and review it daily and think that everybody's stealing from you but you definitely need to give it the old eyeball test.Joseph:Jonathon, I don't know if you're familiar with the formal term of eyeball test, but I was talking to a client about this the other day, I was like, "Man, you need to give it the eyeball test." He's like, "What's that?" I said, "Well, you just kind of take a look at it and see if things look out of whack." What I just mentioned is if typically your gas is $25, $30, $32 and then you have an $85 charge, that doesn't pass the eyeball test. That's something that you need to look into.Joseph:The other thing is that you've got... the IRS requires that you have documentation for every single thing that you're claiming as a business expense. If you've got these credit cards that are out running around, you've got to have some sort of system to collect the receipts and to document that and to say why it was an ordinary necessary business expense. If it comes under scrutiny, that's what the IRS is going to say. I was told by an IRS agent that whenever they presented proof that this was an ordinary necessary business expense, they pulled out the credit card statement and said, "Well, see right here it says Exxon Mobil $24," and they said, "A charge on a credit card statement is not enough documentation to prove that it's an ordinary necessary business expense.Joseph:Those are a couple of things that jump out. Having multiple people having dual controls and segregation of duties, those are big things. Making sure that every patient encounter is entered into your patient management software. One thing I was talking to a client about the other day was one of the things, if I'm sitting back in my CPA brain and I'm trying to invent ways to create fraud, is to review your adjustments report. Let's say, go back to this $80 compression hose, let's say that that patient comes in and they pay $80 and the person that's working the front gets really, really smart and they say, "Oh, we'll just put a patient credit adjust for $80," which means that that patient won't receive a bill and it'll show up as they had actually paid but the cash didn't make it to the company bank account.Joseph:That's something else that's out there. You need to be reviewing your adjustment reports. What would you think on adjustment reports? Is that something that we recommend that they do daily or weekly or monthly? What are your thoughts on those adjustment reports? We made our software so easy to just write balances off, I think somebody with some authority needs to be looking at those. What are your thoughts on that?Jonathan:There's a few. I don't know if it would be called an adjustment in whatever practice management software our clients are using, whether it be [inaudible 00:17:55] or [inaudible 00:17:56] dental, or soften, or whatever it is that they use. They all have the ability to do those types of things. One of the big dangers that a lot of these practice management softwares have 10 ways to do the same thing and really only one of them may be the right way. It will work on the surface but if you were to dig back the reason for doing it in a certain way, usually there's a reason you do it one of those 10 ways for whatever it was you were doing, and a lot of practices use practice management software incorrectly.Jonathan:One of the reasons we typically recommend having an office manager consultant person be able to come in and teach you how to do those the right way so that you are making sure everything goes in their correctly. In terms of the adjustment piece, yeah absolutely. One of the things that I tell people in regards to one of the best ways they can help prevent fraud, is to have a very solid end of day process in their practice. What I tell them is when I was in high school and college, I worked for what doesn't exist anymore, but a video rental store...[crosstalk 00:19:05]Joseph:You're dating yourself there.Jonathan:At the end of every night we had a countdown... yeah. At the end of every night we had to count down the registers which meant that you open the register, you printed out a report from the little software that was done in MS-DOS or some type of shell station. You print out this report, it comes out in that really big wide paper, it said, "This register had this much in cash. This much in checks, and these much in credit card payments go through this register." We had four registers and you had to countdown each register and make sure that every dollar was accounted for that went through that system.Jonathan:Then you had to, if it was cash you had to tie it up or put a rubber band around the cash and you had to put the checks, you had to have a ten key register printed out of that. You had all the credit card receipts, it's done together as well and you had to have it attached to that piece of paper that got printed out from that report and it had to go into the managers box every night.Jonathan:That was the first time I ever encountered something like this where you'd have two managers and they'd enter in an adjustment in a different way. Eventually one of those managers got in trouble because they weren't doing it the way that it needed to be done in order for the register at the end of the night to be accurately counting everything whenever it did the month end. It was one of those things where it worked for the day, but eventually it messed something up in the calculations down the road that that person didn't see until the manager was trying to do the month end closes and things like that.Jonathan:I tell people, one of the best things you can have in your small practice, because let's face it, a lot of people can't do segregation of duties. There's two people working in the front office and one of those might be the dentist in some of our practices. There's not much that they can do so what they do is it all gets housed under one persons hat. End of day process is really important and one of the things we tell the dentist they need to do everyday, or that we've heard from practice management consultants that are office people, have said that, "Have the dentist look at their day report everyday. Their day sheet and look at literally everything that came through the practice just to make sure that it makes sense."Jonathan:One of the things they said is to make sure that there's no adjustments to any patient accounts. There shouldn't be adjustments or deletions from patient accounts because if they're doing that then they've likely done something incorrectly. The way that it was explained to me, and again it depends on how your practice management softwares set up or whatever it is, is that there should be credits to accounts or there should be charges to accounts and then there should be write offs to accounts. There really shouldn't be adjustments to services after they've already been done unless there's a very valid reason. For example, "We accidentally billed this person for porcelain crown when it was a gold crown, so we had to take the porcelain crown off and add the gold crown charge in."Jonathan:There has to be a very specific reason, there should be an indication by each of those things done in that day sheet that you get that is a part of this. This is one of the things I also heard that you do whenever you're in a larger practice as well, if you're an associate for a larger practice you should be looking at your day sheet to make sure that you got credit for everything that you did that day. You didn't get put to the wrong provider, or you didn't... if you did something it actually got put onto the fee schedule so you actually got paid for it, so that the charge went to the patient account.Jonathan:That's something that I was told needs to be done on a daily basis as a part of that day end close process. That's one thing is the day sheet. The other thing is from the end of the day close, you should have what I mentioned for the video store rental place, you should have something from the practice management software saying, "We had this much in cash come in today, we had this much in checks come in today, we had this much in credit cards come in today." That should be tied together and there should be source documents there. There should be things showing you that those numbers are actually what happened.Jonathan:It gets a little bit complex in dental because you have all these insurance payments come in through electronic transactions. We get a letter in saying, "Hey, we're going to deposit this money into your account on the 24th of the month," and then it does get deposited on the 24th but it doesn't hit your bank account until the 25th. It's kind of hard to see how that happens because you enter it, you get that letter in a week in advance so the person in the front might be entering that notice into the system the week of when they get the letter, rather than the day it went into the account or even the day that it registered in the account.Jonathan:There's some complexities that can happen right there. Another really, really good reason to have a really good office manager type consultant, a person that we recommend a lot is Sandy Pardue, she's out of Louisiana. She's really, really great. There's also other programs out there that can help you with this if you're not familiar with how to do this. There are people that can help with this type of process and get this really set up strong for your office. Really important to have that. Really important to have that. That is not something that our office does. We are not practice management consultants.Jonathan:If you tell us what is happening in terms of the flow of the accounting dollars and cents that are coming into your office everyday, we can give you just a general understanding if we think that that's... where your areas of risk might be but that's really more of an informal feedback discussion between us than being a part of the service that we get paid for from our role as a CPA.Joseph:Interestingly enough, I'm sure that you get this all the time on sales calls but CPA's, we generally don't catch fraud. It's not something that's really a part of what it is that we do. I think the number one way that fraud is caught is by accident and not by something else. What are your thoughts Jonathon? As you get a chance to explain to clients what our role as CPA's is and fraud, what's a message that you're telling them as you kind of get that question, "Oh you guys are going to audit my books and catch fraud, right?" What's your message and what's your thoughts on the CPA's role in fraud?Jonathan:It's a really common misconception and I know that there are people out there that probably propagate that misconception in terms of CPA's that will say, "Oh yeah, we're going to catch that." The AICPA, the American Institute of Certified Public Accountants which for the dentists listening, that is like the American Dental Association for you guys. AICPA is the ADA for CPA's basically. The AICPA is very, very specific in how we as CPA's are to view ourselves in terms of audit, or in terms of fraud. That is basically to say that we're not here to catch fraud, that's not really our job. There are people that are CPA's that try to catch fraud, or to even be slightly more specific, they help track down how fraud was occurred after it's been discovered. Those are called forensic accountants.Jonathan:In general, fraudulent activity, there are very few services that CPA's offer that are actually designed to catch fraud. The most in depth service that CPA's offer small business, it's called an audit. There's actually a prescribed engagement called an audit under the AICPA guidelines and that audit even in that, it states in the engagement letter, or in the opinion letter that our services, even if we're doing an audit which is the most in depth thing, they're going to go top to bottom on your internal controls, and your processes and things like that. That audit will even say, "This is not meant to catch fraud." It's really just more to view how strong your internal controls are that could potentially lead to fraud.Jonathan:If they're very weak or if they're very strong, and as well as to give you an overall understanding of how your business operations are running from a business standpoint. That's the purpose of an audit. Even in the most in depth engagement, under the AICPA guidelines, it's still not designed to catch fraud. A CPA that's engaged with you to help with your tax compliance, tax planning, tax rejections, accounting services, management reports, things like that, those services are far, far, far, far less in depth than an audit would be. They are definitely not designed to catch fraud as well.Jonathan:The way that I tell people is that, "Has our firm caught fraud before? Yes, we have." We've seen credit card payments go into vendors that didn't exist. Someone had not in the office, gotten credit card information, was paying for stuff. We've seen... you and I were talking about this before, we had a client just this last weekend had a check that was written from their... this office was in California and the check was cashed in Florida with a different check number, different everything, it just happened to have their routing and account number on it. It's a $20,000 check that got cashed all the way across the country, it was just somebody had fraudulently found their information and put it down and made a fake check, and cashed this check for $20,000.Jonathan:That would be an example of something that our services are not designed to catch a fraud. One of the things that we do, is we ask our clients if we see a transaction that we don't know who the vendor is or who the payee is say, "Hey, what is this $20,000 for?" That would be an example of something that we would... I can't say that we would catch that as being fraud because what could have happened is we could ask the client, "Hey, who is Shelly Franklin and why did you write her a $20,000 check?" If for whatever reason the client had a mental lapse and just never replied to the email or said, "That was for equipment," maybe they paid Henry Shrine $20,000 and they just didn't connect the dots of being two different vendor names, then we would never know. That wouldn't change.Jonathan:That's a big example. $20,000 is a big number amount. What if it had been a $50 check? What if it had been an $80 check or something, a much smaller amount? The way our service is designed, if we don't know who the vendor is and there's no memo, there's nothing in the memo saying what it was for, then even on a smaller item like that we would ask the client who the vendor was and what the purpose was, but I know there's a lot of CPA firms out there that would just be like, "We'll just put that to contract labor. We'll put it to patient refunds," or something like that and just be done with it.Jonathan:Ours is specifically designed to ask that question the way that we do our stuff, but it's not designed to catch fraud, it's designed for us to ask questions about things that we aren't aware of. None of our services are designed to catch fraud, but it doesn't hurt to have somebody that is really familiar with the dental industry to know who the vendors are, to know, "Hey, Align Technology is a lab and A-L-I-G-N-E is not that same company." We need to make sure if a check gets written to A-L-I-G-N-E that we're going to ask, "Who is this person? Who is this vendor?" So you have that second set of eyes just kind of looking over those types of things.Jonathan:We do help. I interviewed multiple years back, and I've had dinner with him, really nice guy David Harris, he owns a company called Prosperident, it's the number one company in probably the world in finding embezzlement inside of dental practices. They help catch hundreds of people a year that have embezzled in dental practices, they're really, really good. He's a CPA, he's a CFE, he's all these things. He has way more letters behind his name then I'd ever care to have. I asked him I was like, "Hey, how can..." this was whenever we were starting the company I was like, "How can we help with this process of combating embezzlement in our practices?"Jonathan:He said, "Jonathon, we help out hundreds of practices a year catch embezzlement or to put these people behind bars if we can, or make them pay. Maybe one percent of the people that we find, the CPA ever even caught a sniffle of what they were doing." He said, "It's just because the services are not designed that way." It's a big misconception out there guys, but I want you to be certain to understand that just because you have a dental CPA does not mean you're fraud proof or you are embezzlement proof. It could mean that you have a little bit of help in someone else kind of keeping an eye on things for you, but at the end of the day, like Joseph had illustrated saying, "Hey, they used the company credit card for gas in the boat rather than gas in the car," if we asked the employee, "Usually it's a $30 gas charge, this time it was a $60 gas charge." And they say, "It was because I usually fill up when I'm at a half tank and this time I filled up... gas was expensive this week." Or, "Yeah, I ended up buying some stuff in the store," or something like that.Jonathan:We're not going to be able to tell if they're lying or not. We weren't' there. We're not going to go and put a dipstick into their gas tank and make sure that they're telling the truth about how much gas they got. You wouldn't want us to do that type of thing either because it would take us so much time you'd be paying us so much money to do that type of work that it would be a negative value consequence to you. It'd be a negative return on your dollars for doing that.Jonathan:To kind of recap that, we try to keep the episodes to 30 minutes length, the problem is a lot of dentists will get embezzlement done in some way. It occurs because of the triangle of fraud which was opportunity... tell me what they were. Opportunity...Joseph:Opportunity's one, incentive is one, like I'm incentivized to create fraudulent transactions, and then rational. "Poor little old me, I don't make enough money. I'm trying to feed my babies, I've got whatever reason, I'm trying to feed my cats. I don't have enough money because this penny pinching dentist doesn't pay me enough money." So the rational. Opportunity, incentive, and rational. The fraud triangle.Jonathan:Yeah, exactly. Those are the things you have to be watching out for. Your CPA can be helpful in this but they're not designed to be the person protecting you bar none from embezzlement. The only person who's going to be able to do that at the end of the day is going to be your internal controls in your practice, and yourself as the business owner. You're going to have to keep an open eye on what's happening. I don't want anybody out there to all the sudden start thinking that the girl in the front is this international person of mystery that's a spy that's going to be stealing all of your money. The way that you have to go about this is you need to have a lot of trust in the people that you hire, or else you hopefully wouldn't have hired them in the first place. You've got to have verification. You've got to have some tests that you'll put into place over time. Make sure that you have a super solid office set up to where you have a solid close. Make sure that you have a way that you're processing your payments to your vendors in a smart way.Jonathan:Don't give the person who's writing the checks a stamp to write your checks with. Don't...[crosstalk 00:34:58]Joseph:Signature stamps.Jonathan:Yeah. Exactly.Joseph:No, don't do that.Jonathan:Don't do that. Make sure that the person who's receiving the inventory is tying those inventories to... or having whatever's coming in also be verified so that you're getting what you're supposed to be getting, you're getting what you paid for. Make sure that your day sheets don't have too many adjustments on them. If they do have adjustments make sure they're totally verified. Make sure that you have a solid deposit set up going. There's a lot of things that you've got to have, make sure they're solid and strong and then the most important thing probably I would say to do at the end of all that is to randomly test those systems.Jonathan:Test them once a quarter will probably be fine, just pick five transactions to randomly test once a quarter, and you will probably be fine. Then outside of that look for weird behaviors from your employees. One of the more common ones that people talk about is there's that office manager that just they do everything, without them the system would fall over. Even the dentist doesn't know what she does. She's always the first one there and she's always the last one to leave, she never takes a vacation. If she does, she's really, really anxious about who's doing what in the office. That's kind of the tell tale sign of someone who has opportunity because they're the only person who knows what's going on. Doesn't mean that they're going to do it, but that is kind of the tell tale sign.Jonathan:Also, look at spending patterns, if you're paying your office manager $40, 50, 60,000 a year, and they always have a new vehicle and maybe they don't have a spouse or something like that, keep your eyes open on that. And keep an eye on your numbers, make sure that your ratios make sense. If they don't sometimes that can lead to it. This has been the episode on fraud, opportunities, how the CPA helps you and the misconceptions surrounding that, and a whole lot of information in the 36 minutes.Jonathan:Joseph, is there anything else that you wanted to state in terms of this topic?Joseph:Don't let your deposits have cash back on them. That's another one. That's a pretty simple step that you can take at the bank, that's one of the things I tell brand new practice owners. If you're not going to be the one taking the deposit to the bank, don't allow it to have cash back. "Oh, $10,000 deposits worth of checks and I get $8,000 back in cash." That's one thing I meant to mention earlier that I didn't. No cash back on deposits, set your accounts up that way.Jonathan:That's a good one. Yeah, that's a good one. Just as a quick story time in this one, I had an attorney call me and he was like, "Hey, we have a client that..." their controller was writing hot checks or something like that, the person that was inside of the business and they were doing something similar to that. They were like, "The CPA didn't catch it. The business owner took them 12 months to figure it out and the person who was doing it was sending the money overseas." The person ended up leaving the country before they realized what had happened.Jonathan:That's a really good example of after doing all the recording and stuff, there's also that step of getting it to the bank. That's definitely a real thing. Anyway, all right guys, we will see you next time on the Tooth and Coin podcast. This has been one about fraud, if you have any stories about fraud or any types of interesting situations that have happened with that, make sure to share it inside of the Facebook group and to share it with the community. We'd love to be able to hear more about it. We will see you guys next time.Joseph:Bye guys.Jonathan:That's it for today guys, I hope you enjoyed this episode of the Tooth and Coin podcast. If you are going to be a practice owner or a new practice owner and you're interested in CPA services, head on over to toothandcoin.com where you can check out more about our CPA services. We help out around 250 offices around the country and we'd love to be able to have the discussion about how we can help your new practice. We do specialize in new practice owners, so people who are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up, or has become an owner in the past five years. That is our specialty.Jonathan:I would love to be able to talk to you about how we could help you in your services with your tax and accounting services. And if you enjoyed today's episode, again go to the Facebook group. Talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the long term.Jonathan:Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444. That's toothandcoin, no spaces. T-O-O-T-H-A-N-D-C-O-I-N to 33444, reply with your email address, we'll send you instructions to the Facebook group, we'll send you the resources when they're available, and we will see you next week. 

Join the discussion on Facebook!Full Transcript:Jonathan:Welcome to the Tooth and Coin podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones. Some of them are very specific, but we hope that these episodes help you along with your journey. Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan:Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share. Join us in the Facebook group. If you go to Facebook and you search for Tooth and Coin podcast, click on it to join it and be able to join us there.Jonathan:Finally, if you need some more help, we're developing a list of resources that are going to be centering it around our topics of discussion, to be able to help you a little bit more than what the content is doing. So if you'd like access to that, whenever it becomes ready, all you have to do is text the word toothandcoin, T-O-O-T-H-A-N-D-C-O-I-N to 33444. And that's tooth and coin, all one word, no spaces, to 33444. Reply with your email address. And we'll email you instructions on how to get into the Facebook group, as well as add you to the list, to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you as well. So onto today's episode, hope you enjoy it.Joseph:Hello ambitious dentists and welcome to episode number three of the Tooth and Coin podcast. Today, we are going to discuss the challenges that come along with being a business owner alongside me, as usual, is my trustee co-host, Mr. Jonathan VanHorn.Jonathan:Hey, hey you guys.Joseph:So Jonathan, I think what we're going to talk about today is just to get a chance for our listeners to understand what are some of the challenges that come along with that. So I think first and foremost, maybe we start with dental school. So what is it that a dentist, and I'm relatively new to the profession, what is it that dentists learn in school? Like when they're in dental school, what do they teach them?Jonathan:Yeah, I mean, the biggest problem is the easy one. And that's that they go to dental school to learn dentistry and to become a doctor and to be able to help people with their oral health. They do not learn how to become a business owner, which the majority of dentists go on to become practice owners. And so the number one challenge people are facing and being a small business owner in the dental industry is that they got to become a business owner whenever they've never owned a business before, or had any type of training in it.Joseph:It's funny that you say that, I was thinking about when I was a kid and I went to the dentist, I was maybe 15, 16 years old, something like that. And I got to talking and my dentist came in and he said this, that and the other. And he said, "Have you decided if you're going to go to college or not?" And I said, "Yes, I plan on going to college. And he said, "Well, if you go to college, he said, you should major in business." And he said, basically exactly what you just said. And I said, "Business, why should I major in business?" He said, "Look, I'm a dentist now. And they taught me everything that I needed to know about dentistry to get started in practice, except for how to run a business, no matter what you want to do, you're going to need to know how to run a business."Joseph:And I was like, "Okay, duly noted." That was one of the first people that kind of told me that I should major in business, depending on wherever you go. He says, "You're always going to need to know business." So what do you see Jonathan, as some of the different elements that go along with that? I mean, to me, business at that age, I certainly, business seemed easy to me. People come in, they get services, you pay them, you kind of go home and do your own thing. So, as we think about maybe some of the challenges of "the business" or running the business, what are some things that kind of immediately come to mind for you?Jonathan:Well, what's funny is that we went to school in the business world being CPAs we had to have business training. Our school that was related to business, almost like parallel to business. Even having classes so far as in that, where they teach you things like strategic management and things like that. But it's all book stuff really. I mean, it's not real world experience. And there's just so many problems with traditional education of what it actually even brings to the table when it comes to actually being a business person, so to speak. So there's only so much that information or education can give you when it comes to understanding what happens when it comes to owning a business. So all the people that are listening now that are either soon to be practice owners, or even the people that are already practice owners that already know this is that you learn most of this when you first become the practice owner.Jonathan:The education can give you a little bit of background, give you a little bit of an understanding of what you're getting into, so to speak. But if you've spent 15,000 hours learning how to become a dentist and zero hours learning how to become a business owner, whereas us being CPAs, we spend tons of hours in business school. We have more information. We may not have the experience, but we definitely have more information whenever we go into that situation in the first place. So the problems are stacked up on dentists pretty much from day one. The biggest piece is they don't typically have the educational background. Now I talk to dentists all the time. We even have at least one client of ours, Joseph, for Tooth and Coin that was a CPA before he was a dentist.Joseph:Really? Okay.Jonathan:Yeah. So it's not like they found that the secret to success is they had education. It's not necessarily that. It's a lot of being able to learn while doing as well. And it's not just the learning while doing. It's also the ability just to be able to see what you're doing and see if the things are going the way that they're supposed to be. And if you don't go into it with that mindset, you can, a lot of times, get caught in traps of repeating things that have gone wrong in the past. So the first big barrier again is education, which thankfully there's tons of information that's out there nowadays.Jonathan:I mean, people that are listening right now are receiving information about the business of dentistry, so to speak. And so you're learning a little bit about this problem. If you highlight it, if you address it, then you have a chance to overcome that challenge. So the education piece is the first one, is the first big part of it. Add into the fact that in dentistry, you also get tons and tons of debt for the education that gets you to be skilled enough to be a person to do dentistry.Joseph:Wait, wait, wait, wait, wait, wait, wait, wait. So you're telling me you got to go into debt to become a dentist.Jonathan:Oh yeah.Joseph:That's not something that the federal government just writes checks for that?Jonathan:Everybody's really big public health, but we're not that big on it. So much so that the taxpayer money goes towards paying all the student loan debt off for all those dentists out there. Yeah. There's horror stories of people getting out of dental school with a million dollars in debt.Joseph:What? A million dollars for school?Jonathan:Yeah, just for school. Dave Ramsey, if you've ever listened to him talk to dentist on the phone, he's always just completely perplexed by the fact that, that's a possibility. So, that debt is really kind of probably the second biggest challenge is that you're going to have debt for school. You're going to have debt, because you're alive in 2021. And you're probably going to want to have a home if you're in certain areas of the country. You may end up having a car. You may end up having, if you have children, you probably have school. You may have childcare that you're paying for. There's so many things that just stack up against you in terms of your cashflow going out the door on a personal level, none the less, the business level. Everything is kind of stacked up against you in the very, very beginning.Jonathan:And that's before you get to the business side of things. The way dental school happens is there's tons of dentists that get out of school and they're already married and have two or three kids and by the time they're working their first job, just because of the way that the age range works. And so sometimes we even have the spouse's school on there as well. A lot of the times we have dentists that are married to other dentist. That's before you get to the business side. Now, if you get to the business side, your choices are typically to go work somewhere else as an associate, hone your chops for a little bit, get better at producing and things like that. Or learn a bit more about the industry and the real dental world or you can go and become a business owner at some point in time.Jonathan:Most people probably give it a year or two out of dental school before they jump into practice ownership. I think that's generally good advice for the majority of people. Get out there, learn on somebody else's dime for a little while, while you're getting some cash flow in the door. Getting things set. There are dangers around that, because you might get a little too set and you might start getting a little too comfy, not having to do some things, but at some point in time if you're listening to this podcast, you've probably made the decision or have made the decision in the past that you're going to be a practice owner. And so if that's the case, then you're going to have more debt. It's more business debt, which is-Joseph:Wait, they don't give these practices away. They don't just like, let you come in and just take over for free?Jonathan:Yeah. Like I said, we're big on public health in this country, but we're not big enough just to help people pay for getting their dental practice up and running in the areas they want them to be ran in.Joseph:Is it even possible for them to save up cash? How much cash would I have to save up to not have to take out debt for buying a practice? If I just wanted to say, you know what, I'm going to work my tail off and I'm going to save up, how much cash would you think that I would need to save up to even start that process?Jonathan:So we've had people do it and we've had people that they're like, I'm going to wait five or 10 years until after I get out of dental school to start my practice, because I want enough cash. I'm going to live frugally for five years, 10 years, and I'm going to be debt free and I'm going to start this practice and it's going to almost be all cash almost. If you're going the startup route, then I would say budget at least 300 to $500,000. Your market may vary, your practice style and philosophy may vary. A good friend, Jayme Amos with Ideal Practices, how to open a dental office.com. He does startups and they do hundreds or at least a hundred a year. And I've heard them speak on the topic.Jonathan:And they're like, it just kind of depends on, do you want Cadillac brand things? Do you want the Honda brand things? Or do you want the, or sorry, it's like Tesla, Cadillac and Honda. Which of these different choices do you want to have in your practice? And it kind of just depends on your style and your brand and your vision for your business and things like that. So that 300 to $500,000, it's a wide range. Now, if you're going to go buy the real estate that goes along with that, it depends on the real estate process in your area. In Lepanto, Arkansas, a dental practice office, the building is going to cost you probably 150 grand. Whereas if you're in New York city, you were looking at 150 million or something like that. It's a big difference on the real estate.Jonathan:Yeah. So, more and more debt comes up, more and more. If you end up buying a dental practice, it very much depends on what type of practice you're buying. My kind of sweet spot, I feel like most people get into in terms of the buying of the dental ... of acquiring a dental practice. They're usually paying somewhere between 600 and 700,000. Well, that's a little bit too narrow of a range. Probably 600 to $800,000 for a dental practice. It's a one owner practice that has a bunch of patients and they're not doing a whole lot of dentistry.Jonathan:And that's kind of like the ideal situation. So, if you're going into business debt, and then it depends on what all types of upgrades you need, what type of equipment they have and all those other types of things. So, on the safe side, I would say minimum 300 grand to be upwards to anywhere towards a million for the business side of the debt. So [crosstalk 00:12:54] those are numbers ... Yeah. You add that all into the personal debt stuff. And you've got this big mole hill you got to climb up in order to be able to start getting to break even. It's one of these really unique industries where you start with a huge negative net worth.Joseph:We're talking about net worth, what does it even mean to have a negative net worth? What does that even mean?Jonathan:So, whatever your assets minus your liabilities are, is your net worth.Joseph:Okay.Jonathan:So pretty much, and this is, I think it's fairly unique to the US, but pretty much every college graduate starts with a negative net worth in this country.Joseph:Meaning if I add up my car and my bank account and then I take out of that my student loan debt or credit card debt or whatever, I own less than I owe.Jonathan:Exactly. Precisely. If you own less than you owe, which is a great way of saying it. Let's say that you've got a $250,000 house, and you've got $400,000 of student loan debt and $50,000 in credit card debt. All of a sudden, you're up to $750,000 in debt, and you've got $5,000 in your bank account. You've got negative $745,000 net worth, is what your net worth is.Joseph:Would you say that it's common, Jonathan, whenever people are either thinking about going into practice ownership or that they do start and go into practice ownership? Is it pretty typical to see a negative net worth at that point in their career?Jonathan:Yeah. I mean, I would say that's more common than not. And that is something that stacked up against you, but I want to make sure to make the point that people need to understand that debt has different types of meaning. So, if you're buying that dental practice that I was talking about 600, let's call it $750,000 that you paid for a dental practice that had an ample patient base, plenty of production to go around, you're going to be able to turn that thing into something. It's going to be able to generate a return of 350 to $450,000 a year, that you're going to be able to take home. Yes, you're taking on debt, but you're taking on debt in order to be able to attack the debt better. It's an investment.Jonathan:And it's an investment with an extraordinarily low interest rate based on the interest rates as of today's recording. So, that's not ... Ooh, debt bad is what a lot of people like to say nowadays. There is such a thing as leveraging other people's money to be able to make your debt go away faster, which is what I'm talking about whenever you buy a dental practice in order to be able to attack that stuff better on later. So, that's an important distinction I want to make, because I don't want to gloss over ... I don't want people to be thinking, oh, I'm going to have $1.5 million in debt when I start my business day one, but that's like an insurmountable number to get around.Jonathan:It's really not. Because if you think about it in terms of net worth, not only is that ... So you use that debt and you've acquired that practice, but as that debt is paying itself off, you're not building equity into that business, as well as receiving a cash flow from that business. And so you're getting both of them. And yes, there is interest payments going on and things like that, but we've got plenty of clients that have paid off their business debt within five years of being a practice owner and their student loan debt as well. Just because they got in and they didn't really have a lifestyle change and they went on and just paid everything down. So, that's the big second one. So the first one is education, the second one's debt. And it's impossible for us to not talk about debt as being a big challenge that people have to get over.Jonathan:And funnily enough, to me, the solution of getting out of the debt is to take on more debt, which is maybe counterintuitive to some, but if you-Joseph:It doesn't seem like it should make sense.Jonathan:I know, right. But from a math based perspective, if you're in flow doubles, but your outflow grows by 2% or 5% you're going to be able to, once that debt amount is gone, that 5% goes away. So it becomes worth it because your inflows are going to be more valuable than your outflows at that point. There are some people that I've spoken with that have been making a lot of money as an associate. It's fairly rare. Pretty rare that I talked to somebody who had a really great gig as an associate and could make as much as a lot of dental practice owners make, but those gigs do exist. It's just, you got to be a really high producer and get a really, really good position with a really great practice in order to be able to have that be a reality for most.Jonathan:So, anyway, so yeah, so those are two of the big challenges. The other challenges are, is just the, once you begin the experience. So, let's talk about that. Let's get past the decision to become a practice owner. Now, you'll say you are a practice owner, and now there's a problem with the fact that you've never ran a business before. And this happens to everyone. And I want to circle back to the original part of the conversation, talking about how we had business training. Just how many people do we know that went through business school that never owned a business. I mean, would you say it's, in all honestly, it's more than 90% of the people that we've probably graduated with do not own a business.Joseph:Yeah, for sure. Yeah. I think that's a good number. Don't own a business, haven't owned a business, won't own a business. They'll always be sat in the back of a paycheck instead of front of one.Jonathan:Yeah, exactly. So, that education piece isn't everything. I want to just hammer that point home one more time. But once you start that experience of being the business owner, I find that the challenge is that a lot of the times you tend to just do what has been done in the past, especially with the acquisitions. One of the biggest challenges I see people have is that they become a new practice owner and they kind of just fall into what everybody was doing in the past. They just kind of keep doing it and they don't really change.Joseph:Well, it's easier right? It's easy.Jonathan:That's exactly, exactly. Even in the CPA world, a lot of the times, people would just do what they did last year. That's kind of the rule is they call it Saly, same as last year.Joseph:Saly? Yeah, Saly. Say, you do it the same.Jonathan:Exactly. So, in dentistry you'll get into a new place and they have this pegboard system, they haven't gotten those computers yet. Everything's on paper. It works, so they don't want to break it. And some people, most people nowadays don't, but some people will fall into the trap of just being like, well, I don't want to rock the boat. So we're just going to keep doing it, how it was done in the past. That's an extreme example, but that goes down to the minutia of like, this is how we've done it in the past. And so people get stuck into these trends or this idea that the way it was in the past is always going to be the best.Jonathan:And in business, especially in today's day and age, you've got to be willing to adapt. You've got to be willing to do things better. You got to be willing to work on efficiency. You've got to be able to understand that a business is like a machine and it constantly has to be oiled. It constantly has to be tweaked. It constantly can be better. Now, there is an idea, and there is a concept that you could argue that at some point it's not worth it to continue or at some point, you just let it run. But in general, most dentists are going to probably lean on the office manager that's been there forever to learn about how to do AR. And you'll hear about it all throughout the industry and in newspaper reportings or anything like that. Office manager steals $300,000 and embezzles from in the office or whatever it is.Jonathan:And so there's dangers in that. And so, you've got to be learning while doing. So it's a challenge, but it's something that I think that dentists can overcome. I know that most dentists can overcome, because they've gone through dental school and they've got their really hard curriculums and so they've learned. They know how to study and hopefully know how to learn. The problem is, is that that experience comes along with some pretty hard work. And in most businesses, in a lot of small businesses, the owner does, the owner works too. In dentistry, if you're open 36 hours a week, you better hope you're doing dentistry for 36 hours a week.Jonathan:Not learning about how AR works or how the practice management works or handling the computers went down or talking to the IT company or sending an email to your CPA, because they've asked what a couple of transactions were that came through your bank account. Or listening to a CBS or something like that, because there's a new stimulus bill that's coming out that may affect you or may affect your employees or talking to vendors or all the other things that come along with it. There's so much work to be done in the dental space. And so little time to do the business stuff. You know, I admit it, I was one of those people that was like, man, being a dentist would be really cool. You don't have to work on Fridays. They're only open four days a week.Jonathan:And then I got into the industry and I was like, man, that is the biggest misconception maybe in the general public. And that is a danger and don't get me wrong. That's a challenge. Some dentists probably do it that way. They're so exhausted on that fifth day, they go home and rest. But especially in the beginning stages, you got to be willing to start learning about what's going on and adapting and changing and doing things better. So that's another giant challenge is the experience of learning while doing, and having to work while you're doing it. Because literally, if you're not working and doing the dentistry, you're not making any money. And so all those other challenges are going to rack up on you.Joseph:Would you say, Jonathan, that it's pretty typical or not typical for a dentist to have either a half day or a whole day dedicated to CEO day? Is that something that's pretty typical that you see out there? Or is that something that's kind of atypical?Jonathan:I feel like people are trending away from it. So I feel like the pressures of the day, or getting to, well, there's another half day at capacity I could add on there, if I just did dentistry during that half day. And so that does tend to happen in really busy practices, where they're like, well, we don't have any more capacity during the day. So I don't really want to add an associate. I don't really want to add more chairs, so what if I just add hours? And so that gets taken away. But yeah I would like to see more of that in a lot of our clients.Jonathan:I'm not saying that it's not prevalent. Like, it is very common for practices to be open four days a week, incredibly common and not the fifth. And the fifth is hopefully the CEO day. What does tend to happen is over a couple of year period, eventually that CEO day starts becoming a, every other week CEO day and then it becomes in every other month. And then it's like, well, I'll look at this once a year type thing. So yes, I do feel like it's trending away.Joseph:Well, let me ask, I guess back to the CEO day. So if we're talking to a brand new practice owner and they say I think I'm going to have a CEO day. What are some things that you think would be like the best use of their time in a CEO day? And we don't have to get into specifics. We can certainly get into specifics in later episodes, but as you have a day that you dedicate to being the CEO, whether that's a Monday or a Friday, or I have a couple of clients that do it Wednesday afternoons they carve out as their CEO time. What's the best use of their time, would you say, whenever they carve out the time to be at the CEO day or CEO half day?Jonathan:Yeah. That's a great question. If I were in the shoes of my clients, what I would do is I would have, on my CEO day, I would have kind of like my little things pile, which is like you get something in from the Arkansas dental board and you need to respond to it or something like that. Just something that is like a, you got to pay your license review or something like that. You've got your AP, which is accounts payable, which just means your bills are there. You need to take a look at, your office manager has already prepared all the checks for it and if the checks are attached to the invoice, which is attached to the bill, whatever it is. And you're looking at those real quick, signing them off and you just have your little pile of little things that you get done, probably takes you 20 minutes to do all of them and it's done for the week.Jonathan:I wouldn't let those little things pile up. I wouldn't let those little things be things I try to hit while I'm going through the week, because it would just distract me from the rest of the business and the dentistry to be done. That'd be kind of the first thing that kind of just knock out and get some wins in. The next thing I'd probably have any type of employee issues. That would be something I'd be looking at during that timeframe. So any issues in terms of, if there was anything going on with an employee that I needed to address. Training, any type of education that I need to get or anything like that would be what I would be going for. And then finally, and probably the most important thing would be, I'd be thinking about strategy and a bigger concept.Jonathan:What is it that we're doing here in terms of our overall vision as a practice? What is it that we're trying to accomplish and how are we going about doing that and what have our results been? And then I'll be working on goals that our company could set. They could be actionable and achievable and then tracking the progress of those. And that's what I would be doing in my CEO day. What about you, in terms of working in a bigger medical company, what would be something that you saw your CEO do that was effective or things that you did in the CFO world?Joseph:One of the things that they always did that I always wanted to do weekly was look at the numbers. So certainly, if we have a meeting every Wednesday, that was when I got to visit with the CEO, one of those would be reviewing the monthly results. You're obviously not going to review the monthly results every week, but one of those four meetings would be review and how did we do for the month, the prior month? And how does that stack up to the prior year? And then there would always be something else when it had to do with the numbers, either a vendor contract that came through or an opportunity to purchase a piece of equipment or opportunities for different types of discounts or different ways to do things.Joseph:One of the things that that CEO always wanted to do was they always wanted to know where the numbers were. And we got to where we created this dashboard that also helped them understand where the cash position was. And we did that on a weekly basis. If we take our cash in the bank minus our outstanding credit cards, how much cash do we have today versus last week versus the week before? And then we got to a point where we felt like that number needed to be whatever it is, pick a number, 50,000, a 100,000, 200,000, whatever the size of the business is. Obviously if your accounts payable weekly run is $300,000, then you don't feel comfortable with $50,000 in cash in the bank. So each business is different, but those are the things that our CEO was looking at every week and alongside the other stuff that you already mentioned.Joseph:But I think one of the things is that you've got to have time as a CEO to sharpen the saw a little bit. So Stephen Covey in The 7 Habits of Highly Effective People talks about spending time. If you had to chop down a tree, he'd spend seven hours. If you had eight hours to do it, he'd spend seven hours sharpening the saw, and then one hour actually doing the work. So spending time to sharpen the saw for your practice. I think that's something that I've seen really, really good CEOs.Joseph:And I mean, as you and I we're sitting here trying to run an accounting firm here, and it's very, very easy as you know, to get caught up in all of the day-to-day stuff and delivering client care. How much time do we actually spend getting a chance to take a high level view? And that's something that we've had to as a firm, me and you and the leadership team, we had to get together and say, we need to carve out some time to actually talk about all the stuff that's going on and really work on the business rather than just in the business.Jonathan:Oh yeah, absolutely. Yeah. I completely agree. And so we'll talk a little bit more about little strategy piece and what we think you guys should be listening to, or should be considering in terms of strategy. From a business and financial perspective. We are not dentists. So we're not going to be able to tell you, here's how you should do your treatment notes so that you have really accurate notes for all of your patients, because we don't know what that is. We just know that they exist and I've heard other people talk about them. And I know that those are the things that are out there, but we'll talk about it on a level that makes sense from a numbers and business perspective. Joseph, is there anything else you can think of in terms of challenges that I may have missed?Jonathan:Again, the big ones to me is just the lack of business education, which I hope I've highlighted that it's an issue, but it's not the biggest issue out there. The giant amount of debt that comes up with that. And then the fact that you have to learn while doing and working. Those are the three biggest challenges to me, for people that have never owned a business before and are going to becoming a business owner in the dental field. Again, I'm not including the challenge of overcoming the mental barrier that you need to be a business owner. I feel like that may be a different topic altogether.Joseph:Sure. Well, if I wanted to add number four, I would say that oftentimes a dentist will walk into a new practice, not have ever led a team before. And that certainly is a challenge that you're going to walk into an office, and there are going to be five to 15 people that are all looking to you for leadership. And that's something that we'll spend some time on, for sure, inside of this podcast is kind of developing and honing your leadership skills and how to have those different conversations, how to lead your team well, what is it that motivates people? How do you make sure that you're supervising well and doing well, because at the end of the day people want to work for a good place.Joseph:They want to do something that makes a difference. And all of that really boils down to your individual leadership skills as the CEO, as the head clinician, as the practice owner. So I would add number four and say that's one thing that is vitally important. And as you and I both know the ones that we see the most successful practices are the ones that have a really good leader at the helm.Jonathan:Oh yeah, absolutely. And it's not just leading the employees, it's also leading the patients and your community and everything else that goes along with that too. Yeah. That's a great point. So, and one of the harder things for me in terms of leadership and I've been open with this with my team is that whenever you're thinking about being a practice owner, and you're thinking about all of your employees and things like that, you're thinking of it in more in terms of that machine that I was talking about. You're thinking more in terms of like, okay, I pay them money and they do their part. And that transaction is it, that's all it is, but there's so much more to it than just paying a paycheck. Because if you're just paying them a paycheck then all you're going to get as someone who's there for a paycheck.Jonathan:And if all they're there for is a paycheck, then their time there will likely be fleeting. Lots of really good topics we can talk about in terms of that. And employee engagement and leadership and everything like that. We'll get to you in a future episode. So, yeah. So great talking about different challenges that new business owners that have never owned a business before in the dental practice industry. Is there anything else you want to end on Joseph?Joseph:No, that's great. No, I'm looking forward to doing this with you. Lots of great nuggets inside of that conversation, for sure.Jonathan:Well, thanks so much, guys. We will see you on the next episode of the Tooth and Coin podcast, and I will see you all later.Jonathan:That's it for today, guys. I hope you enjoyed this episode of the Tooth and Coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com where you can check out more about our CPA services. We help out around 250 offices around the country. We'd love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners. So people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up or has become an owner in the past five years. That is our specialty.Jonathan:And we'd love to be able to talk to you about how we could help you in your services with your tax and accounting services. And if you enjoyed today's episode, again, go to the Facebook group. Talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the long term. Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444. That's toothandcoin, no spaces. T-O-O-T-H-A-N-D-C-O-I-N to 33444. Apply with your email address. We'll send you the instructions in the Facebook group. We'll send you the resources when they're available, and we will see you next week.

Join the discussion on Facebook!Full Transcript:Jonathan:Welcome to the Tooth & Coin podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones. Some of them are very specific, but we hope that these episodes help you along with your journey.Jonathan:Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid task or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan:Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share. Join us in the Facebook group. If you go to Facebook and you search for Tooth & Coin podcast, click on it to join it and be able to join us there.Jonathan:Finally, if you need some more help, we're developing a list of resources that are going to be centering it around our topics of discussion, to be able to help you a little bit more than what the content is doing. So if you'd like access to that, whenever it becomes ready, all you have to do is text the word toothandcoin T-O-O-T-H-A-N-D-C-O-I-N to 33444.Jonathan:Again, that's toothandcoin, all one word, no spaces, to 33444. Reply with your email address and we'll email you instructions on how to get into a Facebook group, as well as add you to a list to be able to send you those resources when they're available and if they're available, we'll go ahead and send them to you as well. So onto today's episode. I hope you enjoy it.Jonathan:Hello, ambitious dentist. So today we are talking about the CFO role in dental practices. One of the things that I talk to about, a lot of dentists about throughout all of my conversations is what a CFO is, what they do, how they are aligned with your business. Do you even need one? I'll be honest with you. There's a lot of confusion in the dental industry around the function of a CFO, what CFOs do and is your CPA your CFO? Is that who it is?Jonathan:There's a lot of misconceptions about it and Joseph and I are going to talk about that today. So if you didn't listen to the first episode, this is episode number two. On the first episode, we outlined a bit about what the podcast is going to be about. In this episode, we're going to talk a little bit more about that CFO role and what it is, how it works and things like that.Jonathan:Joseph was actually the CFO of a medical company that was in the services space and had a lot of success. Seeing that business go from around $3 million a year in revenue upwards to almost eight figures in revenue. So he's got a lot of insight to this and I'm going to be asking him and interviewing him on this topic. So Joseph, why don't we start with that. Let's start with what is a CFO and what do they do?Joseph:Great question. Thanks. So when we think about different roles inside of the organization, I think most people are familiar with a CEO and could probably even tell you what a CEO is, a chief executive officer, and you may have heard terms thrown around like C-suite. When we talk about C-suite, what we're talking about is all of the team leads that have C at the beginning of their name.Joseph:So you may have a CEO, you may have a CMO, a chief marketing officer. You may have a chief operations officer or COO, you may have a chief compliance officer. So the CFO is the chief financial officer of an organization. So I think that's first and foremost, as you look at the traditional C-suite has three seats, a CEO, chief executive officer. Basically the one that is spearheading everything, the CEO has the vision. They typically are the owner of the practice, owner of the deal.Joseph:You're going to have a chief operations officer. So somebody that makes sure that the operations of the company are out there and then you've got the chief financial officer who are making sure that all of the money works. That's as simple as I can break it down. What are your thoughts when you think about what a CFO is, Jonathan?Jonathan:Same. The financial side, the F in there which obviously stands for financial, not the other F, it is there to talk about money. It's talking about the numbers. Talking about the ways in which that business has measures and manages its money in terms of the way it's coming in and the terms of the way it's going out. Definitely that's what most people think about when they think about CFOs. What I find in small businesses though, is that there's not always room for a CFO. So the owner usually takes on in smaller businesses.Joseph:I think first and foremost, you got to have cash to run a business. You can't pay payroll on an IOU. So at some form or fashion, you've got to have somebody that is managing cash. So that is cash that comes in the business. That's cash that comes out of the business, that comes in and goes out lots of different ways. It may come in through a line of credit, a beginning working capital draw.Joseph:It may come in through patient sales and collections. It may come in through credit card transactions, and then it's going to go out by writing checks, paying credit card bills, paying employees, all of those different things. So first and foremost, a typical owner of a small practice is going to be the one that's making sure that the cash comes in and the cash goes out. At the basic, most simplistic level, that's the first role that people are doing.Jonathan:I agree. Usually the person who is the owner or ends up being the dentist, they basically have to be all three of those things. They've got to be the CEO, they've got to be the COO and they've got to be the CFO. In that CFO role, they've got to make sure that the money going in and out is going to the right places and that there is something to manage and there's things happening.Jonathan:So it's this unique problem that is in the dental industry, that you have to be all of these things in this organization. Now, pretty much every small business has that problem. Obviously I'm the CEO, CFO, COO of Tooth & Coin but I have other people that help me with those things, but I haven't always had those people because we haven't always been as big as we've had.Jonathan:So we've had to grow people into those positions as our company has grown and evolved and things like that, but in terms of that small dental practice owner, you mentioned you got to have cash and you got to move those things in and out. What is it that you see in the dental space, being the dentist are doing, maybe even unknowingly as CFOs? What is it that they're probably, whenever they're thinking about their practice at night, they're probably doing in terms of like what a CFO would normally do for you?Joseph:Great question. So I think that a lot of them are trying to figure out top line revenue which when we talk about top line revenue, what is the amount of services that have been delivered? We can measure revenue a couple of different ways. As someone comes in the practice and as they get a treatment and they get a cleaning, they get an exam, once that service has been performed, you are owed that money.Joseph:So that could be one way that we measure revenue. One of the ways that you can pull that out is pull that out of your practice management software. So they're trying to get an idea of how much revenue is generated. So the next piece of that, that I think that a lot of practice owners are looking at is how much cash is coming in the door?Joseph:So there are certain times that 100% of the service that you provide turns into cash the same day, or within a couple of days, if somebody writes you a check, brings you cash or pays with a credit card. So there's not often a lag time between those. What is most common is that there is a lag time between when the service is performed, when the revenue is generated and when the cash actually comes in the door. That's where there's often a difference in timing.Joseph:That timing, if you've got a great front office billing person, that's billing and pushing claims out the door, that may just be five days between the time we send it to the PPO insurance company and the time that an EFT shows up into our bank account. We may have patients that are paying us out a month to month to month.Joseph:We may have somebody that pays in full with care credit, or with a credit card that turns into money in the bank account within a couple of days. So all of those things, I think that small practice owners are trying to get their arms wrapped around all of these different things as money comes in the door, as revenue is generated. Then what they're trying to do is they're trying to figure out, okay, did I make enough money this month to pay rent, to pay my people, to pay my supply bill, to pay my lab bill, and hopefully to pay myself?Joseph:So if I'm set up and I've got payroll running out, hopefully I've generated enough cash coming into the practice to cover all of those expenses. Then at the end of the day, whatever is left over, it depends on who you talk to, but we'll just call it profit. Profit is the simplest way of doing that. As the money came in and the money went out, do you have more money in your bank account today than you did 30 days ago? Then I would call profit.Jonathan:So try and get some type of an understanding of how they're making money in practice from revenue to expenses, and then eventually paying themselves and profit and things like that. All within the responsibilities of that dental practice owner, who also is generating production and revenue every day, and managing employees, doing the marketing, doing all the different things that go along with their business. So, with that in mind, what was it that you saw whenever you went to your ... When you started your role as a CFO?Jonathan:Again, I could see many of my practices, and many of our clients here at Tooth & Coin are having the same issues as the business that you got into at the time that you got into it as the CFO. Around that $3 million in revenue mark, you got a lot of practices that are around that level, half a million, a million, 2 million, 3 million, but $3 million mark.Jonathan:They get to be pretty busy in a small business. So what is it that you saw whenever you walked into that business in the first day in the role of the CFO, that really just hadn't been done that needed to be done from a CFO perspective. Because again, that owner of that business couldn't do everything. There's just no way that you could have that type of skill set to be able to do everything on your own.Jonathan:There's a reason there's a million employees at Bank of America. The CFO there is not ahead of every financial element. The CEO doesn't do all the COO and CFO and all the other roles and things. There's reasons why there's more than one person doing all of these things. So what was it that you walked in at day one, your becoming a CFO from the smaller medical business to grow into where it was?Joseph:Sure. I think the first thing I noticed is the wild swings and cashflow. It wasn't a matter of, we had the same exact amount of money that would come in every month and every day and we were pretty product heavy. So we had to spend quite a bit of money to provide these specific devices and services before we ended up actually delivering the service. So as you're paying your lab bill, as you're paying your supply bill, there's all these huge outflows that go, and they don't always match up with your revenue perfectly.Joseph:So I would see these wild swings in our cashflow. So, as an inquisitive person, if you see wild swings in the cashflow, the first question you're going to ask is why. So the first question I started asking was, "Well, how do we get to deposits into the bank account?"Joseph:Well, insurance companies write us checks, patients write us checks, we take credit cards, all these different things. That's how money turns into the bank account. I'm like, "Okay, well, how much did we generate in services last month, for example?" Okay, we'll pull the rapport and we got all the billing done. We got all the services delivered and we would pull the report and they'd say, "All right, well, we did 300,000 this month. That was a great month."Joseph:I was like, "Oh, okay. Well, what kind of service was that?" "Well, we did 300,000 this month." I was like, "No, no, no, no. Like specifically, you've got eight lines of business here. How much did you do in each one of those?" They're like, "Well, we can think of those couple of big ones that we delivered. I know that our shoe business was big. We had some big shoe," but it was very clear early on that they were not measuring revenue by line items.Joseph:So when you translate that to the dental practice, it's like, well, how many cleanings are you doing? How much hygiene are you doing? How many crowns are you doing? How many are you doing that are implants? It's like, the first thing that you've got to do is you've got to measure what specific revenue pieces you did in each month. So, if we're looking at the month of January, I'm going to say we did X amount on this, X amount of that, X amount on that. Then we as accountants, what we like to do is we'd like to compare.Joseph:So I came in and said, "Okay, well, you did 300,000 this month. Well, what'd you do last month?" "Oh, we'll have to go back and rerun that report. We don't remember what we ran. Oh, but we remember that May, of last year was a really, really good month. We should run that month." So it became very clear and apparent that they weren't measuring how the practice was doing month by month by service line.Joseph:So that was the first thing. So the first thing I did is okay, why don't we categorize our sales? Why don't we just make it simple and just have three or four different big buckets of sales that are all kind of related and we'll just measure those specific line items, rather than trying to do some kind of procedure code, because the healthcare practice that I was in, we had a thousand different procedure codes. Some of them were the big numbers and some of them were the small numbers and there's all these add-on codes for these additional things.Joseph:So it's like, I don't want to look at a revenue by code line item because I've got a thousand codes that we use in the course of the month. Why don't we break that down and summarize that into three or four different ones that we can measure? Why don't we look at that for this month versus last month versus the month before, and let's figure that out. So the next thing that I figure out, I get in there and I'm like, "Okay, so that number of 300, tell me what that number is? What makes up that number?"Joseph:They pulled it up and I started looking at the individual patients that made up that line. It became very clear that what they were calling revenue was usual and customary. We may refer to that in the dental world as the UCR, the usual and customary rate, or you could just say, that's your general fee. I said, "Okay, well, of this 300,000 that you generated in revenue, is that going to be what turns into collections in the bank?"Joseph:They're like, "Oh no, no, no, no, no. Insurances, they all take their discounts." I'm like, "Okay, well, that's probably where we need to start measuring revenue. We didn't do 300,000 revenue. We did much less than that. So let's come up and figure out what's the allowed charge." The next thing that I figured out is that whenever I went into the allowed charge, they had taken a standard discount off of everybody.Joseph:So we had, in the business that I was in and we had the Medicare allowed fee. So basically what they did was they keyed in the Medicare allowed fee for every single patient that came through the door. What's the problem with that? Problem with that is not every single patient is on Medicare. We've got Blue Cross Blue Shield, we've got Humana, we've got UnitedHealthcare. We've got TRICARE, we've got a number of these different ones and I'm like, "Well, how do we know what Blue Cross is going to pay us whenever Blue Cross comes in?"Joseph:They were like, "Oh, well, we just adjusted off the EOB, or the explanation of benefits whenever it comes in." I said, "Okay. So what you're telling me is whenever we've measured that revenue, we measured it at the Medicare allowed rate, but we're not going to make an adjustment for the Blue Cross rate until next month when they pay the claim or next week when they pay the claim or whenever they decide to pay the claim?" They said, "Yeah, that's what we do. That's when we adjust it."Joseph:I said, "So this $300,000 number is not a real number. The $250,000 is not a real number. So why don't we drill in and figure out, well, what are our contracted rates for all of these different insurance companies?" And as you can imagine, Jonathan, they were all different. Blue Cross had a certain percentage off of the Medicare allowed, United had a certain fee schedule that they had determined. TRICARE had something different. We had a workers' comp that would take a percentage off of our usual and customary rate.Joseph:So one of the things that I've always subscribed to is the Pareto principle or the 80/20 rule. So I was like, okay, why don't we 80/20 this thing. What 20% of our payers make up 80% of our revenue? So obviously to go through, we had hundreds of contracts. To go through hundreds of contracts and trying to get all of those fee schedules immediately ready, that would have taken months.Joseph:So I was like, why don't we just take the top 20% of our payers, the ones that pay us the most money and why don't we go ahead and make sure that that is correct inside of our billing software so that we were able to get to an allowed fee. The other thing that I figured out was that the Medicare allowed fee changes every year. Some years it goes up, some years it goes down. I'm like, "Well, what's that Medicare allowed fee?"Joseph:They were like, "Oh yeah, we loaded that in a couple of years ago." I'm like, "Okay, we should probably upload the current Medicare allowed fee. We should probably upload the current Blue Cross Blue Shield fee." Because one of the things is that as your accounts receivable people have money that's coming in the door and they have an EOB, we should know and expect to know what Blue Cross is going to pay us for this specific client, for this specific line item and if they pay us different, we need to know about that.Joseph:We need to investigate that, we need to follow up on that and say, "Well, is it because they paid us incorrectly? Is it because this is a Tennessee Blue Cross Blue Shield versus a Texas Blue Cross Blue Shield?" What are these differences that are inside of this? So I think that was where it first started was we need to start measuring revenue.Joseph:We need to start measuring revenue. We need to record it. We need to be measuring it month to month. We need to figure out what is revenue and it's obviously not your usual and customary. I was having this conversation with the dentist the other day. I said, "What was your production for the month of January?" She said it was $30,000.Joseph:I said, "Okay, well, tell me more about that number. What is that number?" She's like, "Oh yeah, that's the UCR." I said, "Okay, you understand that the UCR is not what your insurance company is going to pay you that you're in network with?" She was like, "Well, yeah, that's not the right number." I was like, "Okay, well, the first thing we need to do is we need to figure out what are you generating."Joseph:Because her question to me was how much can I afford to spend on you know, this next thing or this next loan, or can I hire another employee or can I increase my salary? Can I take a draw? Is my rent too high? She started asking these questions. I said, "Well, the first thing we got to figure out is how much money is coming in the door and how much revenue is coming in the door."Jonathan:There's usually a reason that revenue is the first thing on a profit and loss, because it's the first thing you're supposed to be able to know about. I find a big misconception inside of the dental space is that the CPA equals the CFO. When I try and tamper expectations with all of our clients is that, look, there is a lot more to revenue than just that first line item. Whenever you file a tax return, you file income. Sometimes you have a cost of services or whatever it is that you put down there as well, but revenues is a one line on the tax return, but it's much more than that. So would you say that's a fair statement to say that one of the jobs of the CFO, one of the responsibilities of small dental practice owners in their role as the CFO is to understand their revenue?Joseph:Absolutely. I think that's got to be where it starts. It's got to be where it starts because we got to understand ... So we've got to put expense models together and figure out how much we can afford based on our revenue. Obviously your revenue is going to fluctuate month to month, year to year. I'm looking at financials in January. Financials in January look a lot better than December. Why is that? Well, we took a week off for Christmas to New Year's.Joseph:So January, we worked full month. February will probably be shortened because we've got crazy snow storms that have hit the United States and people have been shut down for a week. So there's always going to be some fluctuation of revenue, but it's got to start with that. So then if we can figure out, well, what's a general rolling average that we can forecast out for revenue, then we can break that down per month and we can say, "Well, what did we do in July of last year?"Joseph:"Well, July is always a great big month for us, but it never is quite as big as August. August is so big because the kids are coming back to school. They want to get all their dental work before they go back to school. So August is always a big month in dental. March is always a big month in dental because of spring break."Joseph:So then we can forecast that stuff out and understand what our revenue's going to look like so that we can build our expense models based upon that. I think that's a big thing for CFOs is, people like to talk and use the word budget all the time. They're like, "We need a budget."Joseph:I'm like, "Well, we need a forecast is what we need." How many patients came in the door last month? How many of those were new patients? What percentage of that? What was the percentage of each one of the different service line items? So can we expect that to come back? If it's a hygiene client, are they going to be expected to come back in six months?Joseph:Well, we had X amount coming in January. That means that we know that we're going to get a certain percentage of those to come back in July and we can look and compare that and say, "Okay, well, what percentage of hygiene clients actually keep up with every six months?" Okay, well, it's not 100%. We wish it was 100%, but it's not 100%. Is it 90%? Is it 80%? Is it 50%?Joseph:Well, if it's 50%, we've probably got some things that we need to work on with our front office staff to make sure that we're confirming appointments, whether they were doing all the things that you guys know that we do in order to make sure that people are coming in for their six month checkups, but we can start forecasting and start getting a picture of what things are going to look like from here on out.Joseph:We can say, "Okay, well, if revenue, this month is $30,000, but our goal is $50,000 and we know that we're projecting that next month is going to be $40,000, we know that we've got 10,000 that we got to make up. So where are we going to make that up? Is it going to be new patients?" All right. So let's say that it's going to be in new patients. How many new patients do we need? How many of those are going to be hygiene patients versus emergency patients versus some more complex procedures that we're running specials on?Joseph:So these are all the things that when you try to get a handle on your top line revenue and get a handle of the money that the business is generating, these are things that are all going to project out so that you figure out what you're going to do money-wise moving forward.Jonathan:So you mentioned a lot of strategic game plan that was coming up. To me, it's like, step one, understand revenue. Step two, create a baseline of what it is we know is happening currently and then step three, would be to design some type of a game plan to effect those numbers, to try and create something around those things.Jonathan:So like you said, maybe it's that where we find that our deficiency is in our hygiene recall rate. Do we have enough of our patients coming back in for hygiene after they come in for the first time? Do we have enough people to getting back on the schedule today compared to whenever they come back in the future? Or do we let too many people just walk out with our unscheduled treatment?Jonathan:How many treatment plans did we do today and how many of those were actually on the schedule? Did we have a conversion issue? Understanding those different components after you have a bigger picture idea and understanding of that revenue allows you to start optimizing and influencing those numbers. So is that what a CFO's role is or is the CFO's role to influence those numbers or is it to unearth those numbers?Joseph:So I think it's both. I think a great CFO is going to do both. I think that if you look at the accounting world, one of the things that's tough about the accounting world is we're always looking backwards in time. We're looking at what happened last month, what happened last year. We're generating a tax return four or five months later after the year's closed. So, if you're trying to figure out what you're going to do with your business in May of a year, but you're waiting on last year's tax return to get done or last year's books to get done, you're always looking backwards.Joseph:I think the best CFOs that are out there do a combination of both. Number one, they're reporting the results in a way that'll help us understand the past, but they're also looking at all of the different pieces that we know that are going to happen in the future.Joseph:We're going to take some projections. We're going to make some assumptions. We're going to look forward and try to figure out what is life going to look like moving forward. Then we say, "Okay, life looking forward. If I take the snapshot of it today, that's not where we want to be. So let's figure out where we want to be. Why don't we create some goals around this? Why don't we create a monthly goal? Why don't we create a daily goal? If it's a number of new patients that are coming in, how many new patients should you be getting per day?"Joseph:Then we can start to influence those numbers and we can say, "Okay, we know that where we're at today is X. We want to be at 2X of where we are. What's the plan to get there." So that is where I think good CFOs are able to really, really hone in on a practice and really help you move forward and help you project to the future and make good, smart business decisions and influence those decisions and help your team understand how they influence those decisions.Jonathan:So how would it be, again, this is, this is a question that I get a lot is do you think that a CPA, someone who works as a CPA for a dental practice, that that CPA should be the CFO of that company?Joseph:I just think that it's got to be a lot more granular than that. As CPAs, we're typically reconciling banks daily, weekly, monthly. We're looking at financial statements, we're trying to get everything to tie out. We're doing everything that we can to make sure that the books are right, which is a very important part of your financial picture is understanding what your books look like. But I don't think that CPAs are equipped to be out there and to be in your practice to know like, well, how many confirmation calls did we have on patient schedules today?Joseph:Okay, well, we can track that. We can get it in the software. We can create all these different systems that are out there, and then maybe the CPA can look at that, but I think that that's outside of the CPA's role just because we don't have access to all that. We don't have the boots on the ground.Joseph:Now, if you have a full-time CPA that works in your office, many practices do. Huge, huge practices. Once you get to several, several millions of dollars, you're going to have a controller onsite that's going to help you out with some of this stuff. Maybe they're going to have a CFO on site once they get to that 10 or $15 million mark so that you can do that. But if you're a CPA and you're working with 20, 40, 50, 100, 200 clients, there's just no way that we can project all of that granular detail out in order to to do that and to fulfill that CFO role. That's certainly my opinion anyways.Jonathan:I agree. I see a lot of it because I speak to Dennis every week and it's not uncommon for me to hear someone say one of two things. One being that I need a CFO and they think that they need a CFO because they need someone who's going to help with all of these things. Then we can start digging into it and it's like they're doing three, four, $500,000 a year in revenue. Or even all the way up to say a million to $2 million a year in revenue.Jonathan:I need a CFO because I need someone who's going to do all of these things for me. Completely get an understanding of my revenue, which just for the listeners out there, that means we're going to have to understand your production philosophies, we're going to have understand the way that you view dentistry, the way that you view your patient care.Jonathan:As you dentists know, every other dentist is going to be different. So every CFO is going to have to understand that about you as the provider, as well as any other providers in your office. The way that we do that as data people is, we look at the production procedure code, service mixes, things like that, to be able to see what that looks like, but that's on a very high level.Jonathan:If we were to be the CFOs for you, that would be what we would have to do from a provider standpoint, for us looking at our provider level. What I tell most of these people is, "No, you don't really need a CFO. You just need more production right now. You need more revenue, you need to do more dentistry or have more patients," and that's basically all I can tell you.Jonathan:That's exactly what a CFO would tell you if they were to be engaged with you right now is, "We don't have enough revenue, we don't have enough production and we don't have enough patients." There might be some small problems that that person could uncover, but the amount of money you would have to pay someone to be able to do that, to uncover those problems would be a negative value compared to what they find, because you'd be paying them a whole bunch of money because it takes a whole lot of time to understand all of these elements for every business.Jonathan:While dentistry, yes is an industry and single office owner practices are similar in nature, they're all different. They're all different nuances and things like that and most of that nuance comes from the provider, the person that is doing the production.Jonathan:So I completely agree that the CPA role is not designed around this and the cost structure is not designed around this. If we're charging someone say a $1,000 a month for accounting, bookkeeping, tax planning, tax prep, projections, keeping updated on all the things that are going on in the dental ecosystem from a financial perspective, we don't have the ability to be able to make sure that Susie in the front is entering in the production correctly into the computer. That's not what we're engaged to do. The amount of money that we typically are getting paid for that, we don't have enough time in the day to be able to be helping with those types of things.Jonathan:So it then falls back on the dental practice owner to do those things, unfortunately. So I completely agree. It's, CPA does not equal CFO. I guess that's the point I'm trying to make with that, is that people sometimes think that they're the same person. It's a very specific subset. It's a different skillset, number one, and number two, it's not typically what you're paying your monthly fee for whenever you're seeing these people come in.Jonathan:So I mentioned earlier, there's two things. The first one was the person I'm talking about. They need a CFO and I don't think they really need one, and the second one is that they'll have already had a CFO and they'll be looking for someone new, which is the reason they're talking to me and I'll look at the work that's been done and it's literally just CPA work that's been done. It's not CFO work.Jonathan:So it's what you're saying here. It's financial statement analysis is all that that CFO is doing. To me, financial statement analysis, yeah, your CPA can help you with financial statement analysis. Almost every CPA can do that. I'm asking this to you, Joseph.Joseph:Yeah, absolutely.Jonathan:So every CPA can help you with financial statement analysis. Financial statement analysis is like one line item of things that CFOs do out of hundreds of things the CFOs do. So CPAs can help you with financial analysis, which is the things we talked about. The way that our firm does that is through a management report that we send out every month, where we're calculating out and are rolling quarterly averages and doing overhead analysis and things like that, but that just is the overall picture of the results of the practice.Jonathan:It is not the granular detail of, we did, say, three times more crowns this month than we did the month before. That does not exist on a financial side, on the traditionally prepared financial statement done by a CPA firm. So a lot of times what I'll tell people is lean on these softwares that can pull these data elements out of their practice management softwares, like Dental Intel is really good. Practice By Numbers is really good and they can do some of these practice management data calculations for you, but don't lean on your CPA for those things because we're not traditionally trained for those types of roles.Jonathan:A lot of the times what I tell people is that CFO role, we can find the problems, but we can't usually find the solutions if we're not in that practice every day. So you're paying a lot of money for someone just finding problems. Whereas in this industry, to me, if you're a smaller business, you have to be paying a practice manager consultant to find and fix those problems a similar amount of money. So when is it to you that a dental practice should consider having an outsourced CFO or a CFO and just in general, that is not that owner of that business.Joseph:I think that all the stuff that you're hitting on definitely says to that. So the question is, we're dealing with dentist who are very, very intelligent people. They're all very entrepreneurial because they went out and started their own practice, or they're thinking about starting our own practice and want to start their own practice.Joseph:So they've got that grit and grind about them to figure all of this stuff out. I really don't think that it's something that they can't handle on their own. I think that it really boils down to time. Do you have the time to devote to this? Do you have the resources, the manpower that you've got in your office to help you out with it? At the point where you're doing dentistry five, six days a week, and you're busting at the seams and your schedule's full, that's probably time that you can probably hire somebody else to do that.Joseph:I certainly think a lot of startups can benefit from having an overall plan and just kind of having some goalposts to operate on to help them out with that, but I don't know that there's actually a magic moment where you say, "I need to outsource a CFO." Certainly as the practice grows, if you had 50, 60 employees or more, I think that's kind of like the traditional, that's the point where you need to have a CFO.Joseph:Once you're probably at probably 25 or 30 employees or more, you probably need to have some kind of a controller in place. Another question is like, well, at what point do you have an HR manager in place? Well probably when you get to about 75 employees. So I say that to say like the businesses that you and I work with, almost all of them are single office, two office, way, way smaller than that.Joseph:I think that they'll be able to wrap their arms around a lot of it, maybe with a little bit of coaching and some help on the side from some consultants and some practice analytics, different pieces that they can figure out there and certainly podcasts like ours, where they get a chance to go out and learn, like, what are the things we need to be looking at and measuring?Joseph:Okay, well, this is what we need to be looking at. Let's go measure it now inside of our software. We knew that we probably could, but now we know this is what we need to go look at. So I don't know. What are your thoughts on that, Jonathan? That's a really good question. It's probably one that several of our clients hem-haw around about.Jonathan:So to me, I don't see much of a reason for a CFO on a practice. From a traditional CFO role, I don't see any reason for a dental practice that's doing less than, probably at a minimum, 2 million a year in revenue. I don't see much of her need for a CFO. The money that you're going to pay for a CFO ... If we're talking dollars and cents here, if you're going to have a CFO, that's actually going to do the work that the CFO needs to do, you're talking like at a minimum, outsourced a day a week, maybe four grand a month, five grand a month is what you'll end up paying that person, if you're lucky.Jonathan:So 40, 60 grand a year for, not financial analysis, hopefully it's more than financial analysis, but basically looking for little problems and little tweaks that are going to have ... Let's say it adds a 10% increase to your revenue. That's great. That pays for that, but you got real lucky if that person finds a 10% change. More than likely what they're going to do is they're going to be overseeing stuff and helping set plans and game plans up and things like that.Jonathan:I just don't see that creating that much of an impact on that business. Conversely, you get a really good practice management consultant in there that can help you do a better job with your treatment planning or do a better job of turning nos into yeses when it comes to getting patients to accept care. Then that money spent is going to have a much higher impact on your practice from a dollars and cents perspective. So almost like my best financial advice is to not get financial advice from a CFO until you get to a level where the tweaks can be worth that dollar output effectively.Jonathan:To me, it depends on the practices and things involved. To me, it's probably at the three to $4 million range and about what you said. Somewhere 25, 30 employees. So for example, you hear about these practices and we have a few practices that are similar to this. That could be if expand and scale, but they'll do $2 million, $3 million in revenue and they'll have 20 or 15 employees.Jonathan:So they'll hit the revenue number, but not have as many employees. Those practices, they're probably already doing most of these things already because they got probably really high production per patient. They got really high operatory usage. They got really high efficiency from their employees, probably have really strong protocols in terms of their collections and payments and things like that. So those things are probably already in for those types of offices, but we're talking about is whenever there gets to be a lot of people involved, a lot of revenue and a lot of patients.Jonathan:That's, to me, when optimization starts creating an unexpected value that's high enough to be able to pay someone else to come in and help analyze and optimize and strategize around those numbers. So that's kind of my thing. So real rough numbers, but at the bare minimum, 2 million a year in revenue, probably closer to 3 million before you start having that conversation. Then also somewhere around that 30 employee and up mark is where you start having someone that can start doing this for you, or start paying someone to be able to do that for you.Jonathan:Real rough numbers, but every situation is a little bit different case by case basis, but that's in general what I would be saying. So we talked about some of the problems today that the dentists are facing is one, an understanding of revenue. Understanding what revenue is, how to analyze it, how to record it, how to you ... See what it is that you're doing.Jonathan:What does revenue equal, and what does that mean in dollars and cents perspective? Then what does cashflow mean? Then coming up with a game around those things. So one of the things that we're doing on this podcast is we're highlighting problems and then we're going to try and create episodes around how to address those problems. So expect in a future episode for us to talk about these problems and give you different ways, as a listener, to be able to come up with solutions and to be educated in these problems so that you can do some of these things on your own.Jonathan:So that is our episode on the CFO role in dental practices. We may do a follow-up episode in the future, but that is the episode for that. So any closing thoughts on the CFO's role in dental practices, Joseph?Joseph:I think the dental industry is just a great industry in general. It's something that I'm excited to be out helping dentists. Super, super smart men and women. Very, very, very hardworking. Very entrepreneurial. So a lot of this stuff, at the smallest of the small scales, at the small offices, they'll be able to figure it out. They'll be able to make those decisions internally and as you grow, that's going to be the point where you've got to figure out at what point does it make sense to invest in additional health.Jonathan:As a final thought, what are some of the other problems that a CFO can help with? We talked about understanding revenue, we talked about coming up with a game plan and I guess another thing would be to track the success or failures of that game plan. Is that accurate?Joseph:Yeah. I think one other things that I think a great CFO will help you out in the dental space with is figuring out what does your insurance reimbursement look like. I know there was a point in time where pick a company shows up and says, "Hey, we want you to be a network with us," let's say at Cigna, "And we're going to offer you X," and that's significantly below what your usual and customary is. So the question becomes, can we afford to take this contract?Joseph:It could be United or Concordia, or it could be any number of places. What's that look like? What's the financial impact of that look like? I talked to a client one time that was in the Midwest that was close to an insurance headquarters and they wanted to drop their reimbursements by, I think it was 30%.Joseph:I said, "Hey, by the way, we're making cuts. You guys are on the hook for 30%." So then the question becomes, and this is a great CFO question. So what percentage of your patient base does this insurance carrier represent and how much dollars in revenue does that mean per year and if we take a 30% hit in that specific insurance carrier, how does that project out? What this practice was able to figure out was that it would have been a couple of staff members.Joseph:I think that the impact of this was like two staff members. So they wrote the insurance company back and said, "We're not going to be in network with you anymore if you continue to say this, because every one of our staff members are important to us and you're taking away two jobs from our practice, and we choose not to do that."Joseph:That's a great CFO project to look at. Certainly, there's smaller contracts that you can afford to take bigger losses on and that kind of thing if you wanted to, but I think that understanding insurance reimbursements and your contracts and all those things. Of course, there's always plenty of people that you can outsource, you can do this with, but that's a big CFO role.Joseph:What's the impact of this specific contract going to be and how's that going to go? One of the markets that I was in had a big, huge FedEx plant and the FedEx switched insurance carriers and the insurance carriers dropped everybody that was in network. So it was like, oh my gosh, are we going to survive? Because so much of this town's employees ... And it was like, well, let's run the numbers. Let's see.Joseph:Well, it turned out that out of, let's say, 100% of the total revenue, only 5% of it was this specific insurance carrier. So I think we're going to be okay. It's not going to be great. It's not going to be helpful, but I think those are great things for CFOs to get a chance to look at for you.Jonathan:Cool, awesome. So we will follow up with those in future episodes. Stay tuned to the Tooth & Coin podcast to hear more about the different problems inside of the dental industry, from a financial management perspective that we will be addressing here on the Tooth & Coin podcast. So we thank you very much and we'll see you next time.Jonathan:That's it for today, guys. I hope you enjoyed this episode of the Tooth & Coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA service, head on ever to toothandcoin.com where you can check out more about our CPA services. We help out around 250 offices around the country and we'd love to be able to have the discussion about how we could help your new practice.Jonathan:We do specialize in new practice owners. So people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up or has become an owner in the past five years. That is our specialty. We'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan:If you enjoyed today's episode, again, go to the Facebook group. Talk to us about what we've talked about. Join in on the discussion and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the longterm.Jonathan:Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444. That's toothandcoin, no spaces. T-O-O-T-H-A-N-D-C-O-I-N to 33444. Reply with your email address, we'll send instructions in the Facebook group. We'll send you the resources when they're available and we will see you next week.

Join the discussion on Facebook!Jonathan:Welcome to the Tooth & Coin Podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones, some of them are very specific, but we hope that these episodes help you along with your journey.Jonathan:Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors, we are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan:Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. So, we've got a Facebook group that is active with Dennis that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share? Join us in the Facebook group. If you go to Facebook and you search for Tooth & Coin Podcast, click on it to join it, and be able to join us there.Jonathan:Finally, if you need some more help, we're developing a list of resources that are going to be centering in and around our topics of discussion, to be able to help you a little bit more than what the content is doing. So, if you'd like access to that whenever it becomes ready, all you have to do is text the word "toothandcoin," T-O-O-T-H-A-N-D-C-O-I-N, to 33444. And that's "toothandcoin," all one word, no spaces, to 33444. Reply with your email address, and we'll email you instructions on how to get into the Facebook group, as well as add you to lists to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you, as well. So onto today's episode, hope you enjoy it.Jonathan:Hello, ambitious dentists. So it is the Tooth & Coin podcast, episode number one, and we are here to discuss this new podcast learning experience that we're going to be creating and developing, and to be honest with you, learning a little bit more about the business of dentistry with everyone that is listening in. I have with myself, Mr. Joseph Rugger, who is a team member with Tooth & Coin, a long time friend of mine as well. Joseph, why don't you tell everybody about yourself, about your experience in the accounting and the dental world, the medical world?Joseph:Yeah, sure, absolutely. So, I always get a chance to tell my story and I get a chance to tell some funny parts of it and some fun sections of it, so hopefully that's of interest to your group. So, I grew up playing competitive baseball and ended up getting a chance to play college baseball at a small school in Batesville, Arkansas called Lyon College.Joseph:Ended up finishing three majors at Lyon: accounting, economics and finance. So, members and money are born and bred into me and formally educated. My first job out of college, I got a chance to go work for my collegiate fraternity, so my job for a year was to travel the country and hang out with college kids. It was a rough job, but somebody had to do it. I ended up doing that for about a year. I always tell people that my salary at the time was $17,000 a year, and I figured out that I was too smart to not make any money.Joseph:So, I went to grad school at IU Indianapolis and did a Master's of Professional Accounting there. Spent about two years working in public accounting in the Indianapolis, Indiana area. Worked for a top 50 CPA firm out of Carmel Indiana, and it was May... I think it was May. And I was still getting up, going to work, and I'd parked my car outside and I was scraping ice off my windshield, well into May living in Indiana, and a buddy of mine called me, and my friends of course, back home in Arkansas were all going to the lake in May and doing things outdoors and hiking, and here I was, scraping ice off my windshield well into May.Joseph:Anyways, so, buddy of mine, his parents owned a prosthetics company and he called me in the middle of the end of busy season in the accounting world. And he said, "Hey, our controller just left. Do you have any interest in coming to work for us in the prosthetics business?" And I said, "Absolutely, would love to come visit with you." And I got a chance to work in the prosthetics business for a company in northeast Arkansas for about 12 years, spent a couple of years as the controller and spent the bulk of my time there as the director of finance and administration, which is a fancy way of saying the CFO and the COO.Joseph:We got a chance to do all kinds of crazy fun stuff. We had four locations when I started there. After I'd been there for a little while, we divested two of our locations, so we went from four locations in two states to two locations, and then over the course of the next 10 years, we opened up a number of new branches, expanded into another state, and by the time I left, we had eight locations across two states, had about 75 employees. Did a whole bunch of work for folks. We ended up seeing about 10,000 patients a year as far as delivered services.Joseph:So, we got a chance to really head up the finance arm, got a chance to really understand the medical billing side. We used HCPCS codes in the prosthetics business, and got a chance to see and learn ICD-9, and then that became ICD-10, and everything in between, and got a chance to understand the difference between a usual and customary fee, or a UCR fee and allowed fee. I was having a conversation the other day with somebody about how to measure your revenue, but got a chance to spend 12 years in the prosthetics business.Joseph:And then, actually, just got reminded on LinkedIn the other day that it's my three-year anniversary at Tooth & Coin. I had all these people say, "Hey, congrats on your work anniversary." And I'm like, "What in the world are they talking about?" Sure enough, February was my three-year anniversary at Tooth & Coin.Jonathan:My wife can tell you that dates are the things that I forget the most. So, I was not one of the people that congratulated you. So that's on mem though. So it's a little dirty laundry for the listeners there. So, cool. So you were in the medical industry. For the listeners, what would be the equivalent of a small to mid-size DSO pro office, somewhere that had eight to 10 locations doing somewhere in the eight figure range of revenue? Is that about accurate?Joseph:I'd say that's pretty close. Yeah. Yeah.Jonathan:Yeah. So, that's what you did in terms of a CFO type role. By the way, one of the episodes that we're definitely going to record is, what is a CFO and what do they do? Because I get a lot of calls about that and I try to explain it, and I'd love to hear what a CFO actually does compared to what I think that they do, since I've never actually been the CFO of somewhere.Joseph:Sure.Jonathan:So, cool. So you're a CFO and you've been at Tooth & Coin for three years now. What else is relevant in terms of your accounting, CPA, financial background?Joseph:Well, I think it's always interesting for me to tell people how I ended up working for you at Tooth & Coin. I think that's always an interesting story. So, I moved to the Dallas, Fort Worth area a couple of years ago, and I was interviewing for a couple of different jobs and working with recruiters. And I ended up getting a call from a recruiter to talk to them about being the CFO for a big dental services organization, or DSO, here in the metroplex.Joseph:I think they had about 80 or 90 offices across Dallas and throughout north Texas. And anyways, Jonathan, you and I have been friends for a number of years, randomly sat next to each other at a continuing education in Little Rock, and struck up a conversation and became friends. That was what? 15 years ago, I think.Jonathan:Yeah.Joseph:But anyways, we'd stayed in touch and stayed friends over the years. So, I had this interview coming up with this DSO and I thought to myself, "Who do I know that I can pick their brain about the different stuff that I need to study and prepare for this interview?" So I called you and reached out to you and said, "Hey, I've got this interview coming up. Would you be willing to share some stuff?" Anyways, and we started talking and you told me... a couple of days later you were like, "Man, if he's interested in making a move, maybe he should come to work for us."Joseph:So that started that conversation. So, been with you at Tooth & Coin for the last three years. Got a chance to do all kinds of really, really cool stuff inside the CPA profession on both the professional level and also on the volunteer level. Education is something that is near and dear to my heart, so I've done continuing professional education and taught continuing education across the country for both the AICPA, and I think I'm up to 16 different states across the U.S. that I've taught in.Joseph:I've taught in two foreign countries. I got a call from the AICPA and they said, "Hey, do you have time on your calendar to come teach in the Caymans?" And I said, "You know what? Something just opened up. I do have time to do that."Jonathan:"I think I can make that work."Joseph:Yeah. Yeah. I got another call to say, "Would you like to come speak at The Bahamas Institute of Chartered Accountants?" And I said, "Absolutely. I think that would be good." So, I've gotten the chance to teach and coach at the CPA level and certainly with lots of other entrepreneurs across the dental industry and across a number of other industries, and I really, really enjoy the educational part of what we do, because... Warren Buffett, I think, said it best, that accounting is the language of business and it's up to us to figure out what the story is.Joseph:The numbers do tell a story, and we've got to figure out, number one, make sure the numbers are right, but number two is to figure out what story that's telling. And one of the things that I'm passionate about is I really, really want to help small businesses grow and succeed. That's something that I figured out early on in my education, is that as an accountant, we're going to have that ability, and I'm trying to simplify that even more, Jonathan. And what I really want to tell them is, "I want to help you win with money," which I think is near and dear to our hearts as CPAs.Joseph:So, I've gotten a chance to travel quite a bit. I've been to, I think, 30 countries or something like that, been to all 50 states, hope to come visit your state, whoever you guys are that are out listening, and come hang out, teach some stuff, and that kind of thing. So I think that's all certainly relevant to our discussion here. At this juncture, I'm getting ready to become the chair-elect of the Arkansas Society of CPAs.Joseph:It's a volunteer organization that I've been a part of since I became a licensed CPA, and we're doing lots of great stuff inside the Arkansas Society, and to get a chance to share that's an honor. I was telling you this the other day, I'll be the youngest chair in the history of the Arkansas CPA Society, which is a really, really great honor for me to have.Jonathan:Another honor that you had recently bestowed upon you was the AICPA Young CPA Leader of the Year Award? Did I get the title right of that?Joseph:Yeah, so that was really cool. It's funny. My wife was kidding with me the other day. She was like, "Are we still young?" I was like, "Yes, we are still considered young." But it's the AICPA Young CPA of the Year in honor of a guy named [Maximum McColloughby 00:11:20], and it was named in his honor. And it's an award that sets out to recognize volunteerism in the profession, who's helping capital markets and who's helping the profession move forward from every angle, both from a professionalism standpoint to a volunteer to, what kind of impact are we making inside of our communities?Joseph:So, I was awarded that in the middle of a global pandemic and we were supposed to go to Las Vegas for this big convention. And of course, all that got canceled, and we ended up having... the AICPA did a great job, and we ended up having a really cool virtual ceremony that went out on Facebook live that you could go check out where I got a chance to come talk about volunteerism and what it means to me and hear some of my friends talk about the profession and the awards and all that stuff. But yeah, that was a big honor that I got from the AICPA.Jonathan:Really was. And just for people that are listening, that's the equivalent of the ADA giving out a Young Dentist Leader Award, and they only give it out to one person a year. It's not like the thing that you get in high school where you get to sign up for the who's who-Joseph:Who's who.Jonathan:and pay some money to be a part of it. It's a big deal, and we're really proud of you for it for be able to do that. So, cool. So, for anyone who has not listened to Start Your Dental Practice or is not aware of Tooth & Coin, my name is Jonathan van Horn. I am the CPA and the owner of Tooth & Coin, which is a CPA firm. We are located in Arkansas, but we help dentists everywhere in the country in the United States. We have clients in just about every state. We have around 250 offices we help out.Jonathan:And our mission is to help bridge the gap between you being a successful dentist and you being a successful entrepreneur. We do that in ways that we can help. We try to not venture outside of the realms of the things that we don't know how to do. We find that a lot of people make the mistake of trying to get their hands in too many cookie jars. We've learned through experience that the best way to help our clients is to give them the advice that we know the most about, and that is the accounting, tax, and business financial world, so to speak.Jonathan:And from a numbers perspective, that does mean a lot of things. And what we hope to do on this podcast is talk about a little bit about those things and help solve some of the problems that are out there in the industry that seems to stem from the fact that most dentists spend about 15,000 hours learning how to become a dentist and almost zero hours learning how to be a business owner.Jonathan:So, this podcast is hopefully going to be informative and help a bit with that problem. So, a little bit more about me. I was driven to the CPA world from a young age. I was from a small business family. My parents owned a small business, my grandparents owned a small business. My parents owned a furniture store, my grandparents owned a manufacturing company. And whenever I was in the eighth grade, my parents sat us down in the living room.Jonathan:My dad sat down on the fireplace, and he said to us, "Jonathan," and my sister and my mom. "The business had failed. We are going through bankruptcy. We're going to have to sell the house. We're going to have to move away from our family home that we lived in since I was born, and leave the place that I had known and grown up and loved."Jonathan:And so we had to move halfway across the state from one Arkansas town to a more rural Arkansas town, and if you think that you live in a rural place, I went from a town of about 25,000 people to about 8,000 people, and moved out of a four bedroom, two bath house that was in a pretty nice area to a two bedroom, one bath apartment that was in an area that wasn't the best. And it was a really rough time for my family.Jonathan:And my dad always said, "Jonathan, the reason that the business failed wasn't because the business wasn't working. It was because I didn't keep up with the numbers. I didn't know about the business side." My dad was the sales and marketing person. He was not the business guy. He was the person that made the sales happen, made the revenue come in, but he didn't ever keep up with the business side of things, the financial side of things.Jonathan:He'd actually relied a lot on my grandfather, the one who owned the manufacturing company, to do those things. But unfortunately, my grandfather died about... I guess it was at this point almost 35 years ago. So, he wasn't around very long to help out with that furniture store. And my dad always said if he had had somebody there that could have kept an eye on the numbers, could have kept an eye on how the business was doing from a business standpoint, that we would have been okay, the business would have survived.Jonathan:It went through a bit of a hard time, but we would have made it out of there if he just had a better eye on the numbers and a better eye on the business side of things. So, he always said that. He even says that today still. Actually, we had a discussion about this about a month ago, and he's still saying the same thing about coulda, woulda, shoulda stuff.Jonathan:So, I grew up thinking that that's what CPAs did, because that was what my dad said CPAs did. And I went into school and I got real close to becoming a math professor. So, a big fan of numbers. Always enjoyed math as a subject and had way too much nerdy fun with it, but did end up going the route of CPA, much like Joseph said. He wanted to make some money in the world. So I figured being a teacher was probably not the best way to make money in the world. So I thought, "Let's go with the CPA route," and also I could also be able to help a lot more people. When I got out into the CPO world, very quickly found out that's not actually what CPAs do, as I find a lot of people are surprised about.Jonathan:CPAs don't typically really help with businesses. The CPA industry was created around compliance. It was created around making sure that you filed and paid your taxes so that you don't pay penalties and interest or go to jail. We call that compliance in our industry, and I didn't want to do just compliance. I wanted to do more. So, after working for five or 10 years in the public space, helping out people with compliance, I said, "Enough is enough. I'm going to go and start this new business." And that is how Tooth & Coin was born, and our mission statement of helping dentist bridge that gap of being a successful clinician with being a successful entrepreneur was born.Jonathan:So, that's the story of Tooth & Coin, my personal story of how I became a CPA, why I became a CPA, and just a little bit more into the mind of who it is that's talking to you through these things. There is a podcast out there that you can go and listen to. It's called Start Your Dental Practice. Our CPA firm does specialize in new practice owners, so we have about 250 offices we help out with as of today, which is the beginning of 2021, and over 200 of those were new practice owners whenever they came on with us and our firm.Jonathan:So if you're a new practice owner, someone who's within five years of ownership, we'd love to be able to talk to you about how we can help you out with your dental practice as well. But to this podcast, the Tooth & Coin podcast, what are we here for? Why are we doing this? Why are we talking today? The purpose is fairly simple. I discussed it briefly before I went with my intro is that there are a lot of problems that need to be faced inside of the dental industry and a lot of the lessons that need to be taught to people in terms of what business is and how to approach it.Jonathan:There's a lot of confusion around a lot of different subject matter, and who better to talk to you guys about those things than a couple of guys that have experience running a CPA firm that helps out 250 offices around the country, someone who acted as a CFO for 12 years for a very big medical organization, and has helped lots of our clients right now that are dentists, help get their way through the business of dentistry and be able to talk about the things that we know how to talk about?Jonathan:So, the purpose of the podcast is that. We're going to be highlighting problems, we're going to be talking about the solutions to those problems, and we're going to be trying to give you resources around ways to be able to solve those problems. I think one thing that Joseph and I do not want this podcast to turn into, just for full expectations for you so that you guys can hold us accountable is, we don't want this podcast to just be informational only.Jonathan:We want this podcast to be actionable. We want it to be something that you can execute based off of. We want it to actually solve problems, not just highlight them. Anytime you do any type of content, it's hard to sometimes bridge the gap between educational, entertainment, and action. And we're going to do our best to focus on highlighting the problems, and then giving you the solutions and giving you the resources to be able to take action on those solutions. So to me, that's the reason for the podcast. Joseph, what are some of the things you're wanting to solve with this podcast, as well?Joseph:I think at a high level, Jonathan, you and I, we've got just such varied and similar experience of the business of healthcare here, and as we sit back and think... I'm as guilty as anybody else. I think everybody knows the stuff that's in my head, and as we have new team members come on, as we have new dentists come on, I find that there's a whole lot of stuff that's inside my head that not everybody knows, that everybody's not read all the books that I've read.Joseph:They haven't listened to all the same stuff that I have. And I forget that. So, I look forward to getting a chance to just really share some insights and some things that we see, and some things that each individual listener can take home with them and can digest and see how does it apply to their individual practice, their individual situation? So we've got all this knowledge and expertise. We want to put it out into the world. We want to help you build a better business, a better practice, a better life, eventually. That's really what we're trying to do, here. We're trying to help you reach your entrepreneurial dreams and goals and help you with all those things.Jonathan:Yeah, exactly. And another important piece of all of it is, I find a lot of the times, when a client asks us a question, there is the book answer, and then there's the contextual answer. And I feel like we're in a unique position to be able to give a lot of context around some of these, about how to approach the book solution versus the real life solution of what we've seen happen. Other things that we're going to be looking to do with this podcast...Jonathan:So, we're going to be looking to have this be an engagement platform with other dentists that are out there in terms of ways that you guys have solved the problems we're talking about. So, this isn't only about us sharing what we know. It's also about you sharing what you know` with the rest of the people that are out there so that we can all have a prosperous and full lives, so that we can all do better.Jonathan:We all can live a life of abundance, and there's always information that can be shared. And so, we're going to be having ability to grow a community out of this podcast, and we're also going to be using real life questions from real life dentists that are having these real life problems, and talk about ways that could potentially have solutions, things that could be answered. We're going to be literally pulling questions from clients of ours, of course, with permission from the client, or have it be anonymous.Jonathan:We'll be pulling real questions that clients are having so that we can answer those things, because if our clients are asking those questions of us, I know that the people that are listening are probably having those same questions. They need to be answered by somebody. And hopefully, we can give that answer and be a resource to the industry. So, that's the problem that we're trying to solve. That's how we're going to try and solve it. Is there anything that else you wanted to add, Joseph, in terms of what we're trying to do here with the podcast?Joseph:I'm looking forward to going on this journey with you, Jonathan. You and I have been friends for a long time, and we both have two things that are inherent in us: we want to serve and help other people, and we want to educate. I'm looking forward to doing both of that to our audience, with our audience.Jonathan:Absolutely. So, to give some of our audience members some ideas of the different topics we're going to be approaching whenever we come down in these episodes, some of the topics that we've already highlighted that we want to talk about. Understanding the business model of dentistry. We want you to know how much cash do you really need to have in your business. How to pay less in taxes while your net worth is more important than you think and why it matters. What's a dental practice's true value?Jonathan:Fixed versus variable expenses and your breakeven point. Analyzing your overhead. Staffing percentages, personal finance. Recurring charges, and do you actually use them? The purpose of continuing education. How to understand your financial statements, and why it's also a total waste of time. How to manage expectations whenever it comes to leadership. How to lead people. How to handle turnover in your office. Training protocols. Crucial conversations. Understanding what your sales and production actually mean in your office. Understanding how to handle new patients and how to measure your growth and how to measure your marketing expenses and calculate your ROIs.Jonathan:And just tons of more things that we're going to try and talk about. Those are the ones that we've literally just brainstormed off the top of our heads over the course of a few conversations that we could give full and really good information on, as between Joseph and myself. For areas where we are not expert subject matters... or subject matter experts, rather, we plan on reaching out to the industry and finding the best people to be able to talk to you about those subjects.Jonathan:So for example, we will not be talking to you about how to increase your hygiene revenue. That's not something that we're going to be talking about because neither Joseph or I has ever had to talk to a hygienist and tell them how to do their job. Now, we could have a conversation about how to talk to an employee and how to manage an expectation, but we're not going to talk to you and say, "Hey, this person needs to be doing... 30% of their patients need to be receiving fluoride treatment, because that's an industry standard."Jonathan:Now, I can tell you that may be an industry standard, but how you go from where you are today to that standard is anyone's guess for Joseph and I. And so we're going to have somebody on that's going to be able to actually answer that question and give you some guidance and help you with those things. So, that is what we'll be doing in terms of the episode breakdown. Again, the current format that we're we're working with is, highlight the problem, talk about the solution, and then give resources.Jonathan:That's what our content's going to be about. We're going to try and keep our episodes somewhere in the 20-to-30 minute range. We don't want you to have to devote a full hour of your day just to listen to our podcast. That is giving us some accountability to keep the episodes on point and not to go down too many rabbit trails in terms of conversation, and so that we can really make the time that you're giving to us and putting us in your ears to be as high-value as possible.Jonathan:So, that is our plans with Tooth & Coin podcast. We hope to have you guys on the journey with us, and if you would, make sure to follow us on all the social media, and we will see you on the next episode.Jonathan:That's it for today, guys. I hope you enjoyed this episode of the Tooth & Coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com, where you can check out more about our CPA services. We help out around 250 offices around the country. I would love to be able to have the discussion about how we could help your new practice.Jonathan:We do specialize in new practice owners, so people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up, or has become an owner in the past five years. That is our specialty. We'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan:And if you enjoyed today's episode, again, go to the Facebook group, talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the longterm.Jonathan:Lastly, if you want access to those resources that we are currently building, just text the word "toothandcoin" to 33444, that's "toothandcoin," no spaces, T-O-O-T-H-A-N-D-C-O-I-N to 33444. Reply with your email address, and we'll send you the instructions on the Facebook group. We'll send you the resources when they're available, and we will see you next week.