The Rise in Dental Practice Buyers

In this episode of "Drilling It Down," Wes and Jonathan discuss the decline in dental practice ownership among younger doctors, dropping from 33% in 2020 to about 20% now, largely due to the appeal of Dental Service Organizations (DSOs). They explore the recent 30% increase in in-house inquiries for practice acquisitions, signaling a renewed interest in ownership. The conversation dives into the financial fears tied to student debt, the drawbacks of the “delayed sale” approach, and the continued viability of selling a practice. They encourage listeners to consider their options in the evolving dental marketplace.

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Listen to our sister show, Next Gen DDS! An all-in-one resource for dental students, residents, and early career doctors, discussing both clinical and business aspects of dentistry, hosted by Wes Lyon and Dr. Scott Menaker.

Episode Transcript

Wesley Lyon: Welcome back to another episode of drilling it down (00:02):
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Wesley Lyon: this is your host west lion co-hosting again jonathan (00:05):
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Wesley Lyon: martin jonathan welcome back to the show how you doing (00:08):
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Wesley Lyon: man oh pretty good pretty good i'm excited today uh this is one of my favorite (00:11):
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Wesley Lyon: topics uh we're going to talk about the uh rise of buyers into the marketplace (00:15):
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Wesley Lyon: we talked about dsos last time and you know what kind of the dsos they're They're (00:22):
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Wesley Lyon: still buying, not to a large degree though, (00:27):
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Wesley Lyon: but somebody's got to fill that void. (00:30):
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Wesley Lyon: So tell me a little bit about what you're seeing on the private practice market. (00:32):
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Jonathan Martin: Yeah, I mean, historically, and when I say historically, let's say recent history, (00:37):
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Jonathan Martin: you know, last five years or (00:41):
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Jonathan Martin: so, you know, we've seen a pretty dramatic decline in practice ownership. (00:43):
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Jonathan Martin: In fact, if you track it back further than that, and you know, (00:48):
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Jonathan Martin: the ADA publishes statistics on this annually. I mean, there's been a dramatic (00:51):
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Jonathan Martin: decrease in the overall percentage of doctors that own their own practice or (00:56):
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Jonathan Martin: a piece of their own practice. (01:02):
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Jonathan Martin: And that decline has been a lot more precipitous amongst younger doctors. (01:03):
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Jonathan Martin: Now, you know, and I don't remember the stats off the top of my head, (01:08):
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Jonathan Martin: but like in 2020, you know, about a third of all practicing docs with five years (01:12):
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Jonathan Martin: of experience owned their own practice. (01:18):
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Jonathan Martin: And now it's down like 20 percent. (01:21):
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Jonathan Martin: You know, it's more like, you know, 10, 12 percent of overall doctors. (01:23):
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Jonathan Martin: So, again, a pretty, pretty significant decline in a short period of time. (01:26):
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Jonathan Martin: And then, you know, alternatively, you've seen this dramatic increase in the (01:30):
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Jonathan Martin: statistics of doctors upon graduation going to work for DSOs. (01:35):
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Jonathan Martin: And, you know, that increase has been a lot more, a lot steeper in younger docs. (01:41):
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Jonathan Martin: You know, docs with five years or less of experience, like one out of every (01:47):
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Jonathan Martin: three of them are going to work for a DSO. (01:51):
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Jonathan Martin: And so you can't help but, you know, relate those two trends. (01:53):
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Jonathan Martin: Obviously, younger doctors are working for DSOs more. And as a function of that, (01:57):
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Jonathan Martin: they're buying less practices. (02:01):
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Jonathan Martin: And we've seen that, you know, that decline in practice ownership really continue (02:03):
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Jonathan Martin: year over year. All of a sudden, though, in 2023, when you look at the year-over-year (02:07):
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Jonathan Martin: declines, it almost flattened out in 2023. (02:12):
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Jonathan Martin: We didn't see the big steep drop that we'd seen year-over-year-over-year prior (02:17):
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Jonathan Martin: to that. And what we're seeing in 2024... (02:21):
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Jonathan Martin: At least in-house for us, is we've seen a very sharp increase in the number (02:26):
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Jonathan Martin: of buyers who are inquiring about practices. (02:32):
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Jonathan Martin: You know, we keep a buyer database, just folks who say, hey, (02:35):
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Jonathan Martin: you know, we're looking for a practice in XYZ geographic locations with such (02:39):
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Jonathan Martin: and such characteristics. (02:44):
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Jonathan Martin: Will you just add us to your database should an opportunity like that come along? (02:45):
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Jonathan Martin: And our database base has blown up this year. (02:49):
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Jonathan Martin: I mean, we've seen a 30% increase just since January, which, (02:53):
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Jonathan Martin: you know, compared to prior years, that's, there's something to that. (02:57):
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Jonathan Martin: So, you know, on top of that, we're seeing practices selling a lot quicker. (03:02):
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Jonathan Martin: You know, at the same time, we were seeing this decline that I mentioned, (03:07):
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Jonathan Martin: you know, practice sales, they were taking longer. (03:11):
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Jonathan Martin: And, you know, brokers aren't going to tell you this in general, (03:14):
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Jonathan Martin: because the way they get you is, you know, hey, I can sell this practice is quicker than anybody. (03:16):
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Jonathan Martin: I've got, you know, built-in buyers, blah, blah, blah, blah, (03:21):
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Jonathan Martin: blah, anything to get you to sign. Or when they contact you. (03:24):
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Wesley Lyon: Hey, I have five buyers that would love to buy your practice, but sign here. (03:26):
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Jonathan Martin: Yeah, yeah, you got to love that one. Because once you sign, (03:31):
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Jonathan Martin: you know, that's where they have you. (03:34):
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Jonathan Martin: But, you know, we've seen over, again, that same period of time, (03:36):
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Jonathan Martin: practice has taken a little longer, a little longer, a little longer to sell (03:40):
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Jonathan Martin: because just, again, fewer buyers out there. (03:43):
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Jonathan Martin: And so far, 2024, that trend has gone in the other direction. (03:45):
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Jonathan Martin: So, you know, what we're seeing in the numbers is, you know, (03:50):
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Jonathan Martin: this trend is reversing, and only time will tell, you know, how much that will bear out. (03:55):
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Jonathan Martin: But it also makes sense when you talk to young doctors who've kind of, (04:01):
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Jonathan Martin: you know, done their indentured servitude with a with a DSO, (04:05):
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Jonathan Martin: you know, they've gone, they've signed the contract. (04:11):
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Jonathan Martin: And we talked about this last week, but, you know, a lot of them getting pretty (04:13):
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Jonathan Martin: hefty signing bonuses and realizing, hey, if I break this contract, (04:16):
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Jonathan Martin: if I leave prematurely, I'm going to have to pay back a proportional share. (04:19):
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Jonathan Martin: So they're doing their full service. (04:22):
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Wesley Lyon: That's an odd one though, the signing bonuses. You're telling me the private (04:24):
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Wesley Lyon: doctors aren't throwing $100,000 signing bonuses out there? (04:27):
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Jonathan Martin: Well, yeah, that's kind of the doubt. That's, you know, it makes sense when (04:30):
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Jonathan Martin: you see one of out of every three docs going to work for you. (04:34):
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Wesley Lyon: No, I just want to poke that. We're going to come back to that in a little bit (04:35):
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Wesley Lyon: and we talk about the money and how this is shaken out and why, (04:38):
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Wesley Lyon: but part of it has to do with the money on the young doctors. (04:41):
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Wesley Lyon: Yeah. But yeah, now they're, I think we're heading is, you know, (04:44):
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Wesley Lyon: their indentured servitude is up. They no longer owe the $100,000 back, right? That's right. (04:48):
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Jonathan Martin: And they realize they don't want to practice this way anymore, (04:52):
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Jonathan Martin: you know? And so, a lot of the best candidates that we're seeing coming to the (04:55):
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Jonathan Martin: market are doctors who've worked (05:00):
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Jonathan Martin: for two, three, four, five years at a DSO and realize, hey, you know, (05:02):
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Jonathan Martin: I get it now. You know, I want to own my own practice. (05:07):
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Wesley Lyon: Yeah, I had a funny one where we were transitioning a practice to a dentist (05:11):
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Wesley Lyon: kid. And we weren't really having the kid pay. (05:15):
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Wesley Lyon: So, kid's in a really, really great spot. And, you know, the kid just was not (05:20):
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Wesley Lyon: getting the fact that he was getting all this stuff handed to him. (05:24):
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Wesley Lyon: You know, he's like, dude, he wasn't mad, but he maybe wasn't as thankful. (05:28):
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Jonathan Martin: Didn't see the value. (05:33):
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Wesley Lyon: Maybe. And then after a year or two of, you know, his buddies' promises on what (05:35):
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Wesley Lyon: they would get and his realization of what he has versus what they got promised and don't have, (05:40):
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Wesley Lyon: his tune flipped very quickly into, oh my gosh, I've got the best setup of everybody. (05:46):
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Wesley Lyon: And now his buddies are trying to, you know, I think this might be some of it (05:52):
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Wesley Lyon: too, is not everybody goes to work for DSOs, although I do think probably half, (05:56):
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Wesley Lyon: I don't know, a lot of them do, I would say, out of dental school. Like, it's a lot. (06:01):
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Wesley Lyon: It's not some two out of the class went. A lot of them go. (06:06):
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Wesley Lyon: But now, all of a sudden, they're all still friends. And, you know, (06:09):
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Wesley Lyon: five years in, you know, whatever percentage of them that went and bought practices (06:12):
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Wesley Lyon: have experience X, and the other ones are all complaining. (06:16):
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Wesley Lyon: And there's probably something in there that like, wait, you mean you bought one and it worked out? (06:19):
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Jonathan Martin: You know, and there is a, I get, you know, a stigma when it comes to the risk (06:25):
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Jonathan Martin: associated with buying, because it's not like it was 20 years ago. (06:30):
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Jonathan Martin: I mean, the amount of student loan debt these kids are coming out with is staggering. (06:33):
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Jonathan Martin: And so when you add to that, okay, now I'm going to have to borrow hundreds (06:37):
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Jonathan Martin: of thousands, if not in excess of a million dollars to buy a practice, (06:41):
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Jonathan Martin: you know, I get why that can be scary. (06:44):
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Jonathan Martin: And what makes it worse, honestly, is, you know, the information that's out there about, (06:47):
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Jonathan Martin: and it's mainly coming from, you know, the DSOs themselves, is that you can't (06:53):
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Jonathan Martin: afford to buy your own practice. (06:58):
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Jonathan Martin: And, you know, we've talked endlessly, you and I, about that not being the case. (07:00):
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Jonathan Martin: But, you know, our bullhorn is not as big as these DSOs who are at every single (07:04):
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Jonathan Martin: seminar, every single trade show talking about how, hey, you got too much student (07:10):
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Jonathan Martin: loan debt, you can't get a loan. (07:15):
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Wesley Lyon: Which is insane because, you know, every time I talk, my title of my presentation (07:16):
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Wesley Lyon: to them is why you can't afford to not buy a practice. (07:21):
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Wesley Lyon: And then I say, hey, did you notice how many banks are in the exhibit hall? (07:24):
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Wesley Lyon: And you're like, well, yeah, about every other exhibitor here is a bank, aren't they? (07:30):
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Wesley Lyon: All the sponsors are banks. And do any of you have any idea why? (07:34):
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Wesley Lyon: And it's like, well, they're all lined up here hoping to give you a loan. (07:38):
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Wesley Lyon: Like every single one of them. What would the best outcome be here? (07:41):
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Wesley Lyon: I got to make a practice acquisition loan. Sure, $200,000 loan for somebody (07:45):
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Wesley Lyon: to outfit their practice is great. (07:50):
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Wesley Lyon: But that's not what they're at this booth for. (07:51):
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Wesley Lyon: They're there to talk to this young doctor who's going to take a million dollar (07:54):
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Wesley Lyon: loan and they're going to be happy to do it. (07:57):
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Jonathan Martin: And get this, you know, this is to me the most telling thing. (08:00):
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Jonathan Martin: So not only will they give you a loan to do it, but they'll give you 100% of (08:03):
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Jonathan Martin: the funds necessary to buy that practice. (08:08):
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Jonathan Martin: And the doctor that they'll give it to will have little to no experience actually (08:10):
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Jonathan Martin: working as a dentist, zero experience running a business and negative net worth. (08:15):
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Jonathan Martin: And they'll still give you a hundred percent of the funds necessary to buy a (08:21):
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Jonathan Martin: practice. And the only reason they're doing that is because you're not likely to fail. (08:24):
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Wesley Lyon: And they give you working capital. (08:29):
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Jonathan Martin: Yeah. (08:31):
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Wesley Lyon: So they almost give you like 110% of what's necessary to acquire the practice. (08:32):
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Wesley Lyon: They'll sit there and say, Hey, the practice is going to cost a million dollars. (08:36):
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Wesley Lyon: You're going to need working capital. So we're going to give you a loan for (08:39):
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Wesley Lyon: 1.1 million. We're going to send you $100,000. Yeah. (08:42):
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Jonathan Martin: Banks are in the business of making money. If they thought that you were a risky (08:45):
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Jonathan Martin: investment, they wouldn't be giving people with no ownership experience all this money. No. (08:49):
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Wesley Lyon: The reason the interest rates are so low is the bank's borrowing the money from (08:54):
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Wesley Lyon: one place and they're lending it somewhere else. (08:57):
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Wesley Lyon: And when they kind of pull these loans together, they have to figure out what (09:00):
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Wesley Lyon: the interest rate on that risk class is going to be. (09:03):
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Wesley Lyon: Because, hey, if 5% of these loans are going to default, I'm going to have to (09:05):
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Wesley Lyon: charge this group of borrowers is a pretty high interest rate. (09:09):
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Wesley Lyon: Yet when they go into dentistry, I mean, (09:11):
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Wesley Lyon: Have you ever seen a business loan get a lower rate than dentists? (09:15):
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Jonathan Martin: No, not comparable to what everything else is lending for at the same time. (09:18):
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Jonathan Martin: And speaking of that default rate, you know what the default rate is on loans to dentists? (09:22):
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Wesley Lyon: I think it's less than one. (09:26):
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Jonathan Martin: Yeah, it's like half of 1%. It's crazy low. That's why there's so many banks (09:27):
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Jonathan Martin: that are willing to throw money at dentists. (09:32):
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Wesley Lyon: Let's define a default too. In some of those situations, you know, (09:34):
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Wesley Lyon: somebody probably came in, bought it, cleared it, you know, we might've just (09:37):
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Wesley Lyon: had a lazy dentist in there and all of a sudden, hey, we still got our money back. (09:41):
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Wesley Lyon: We just had to give it try number two on this practice with a new doctor. (09:44):
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Wesley Lyon: I mean, you can get a dental practice loan for a lower rate than you get a mortgage. (09:49):
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Wesley Lyon: That speaks a lot to the confidence they have that a dentist is going to pay back this loan. (09:53):
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Wesley Lyon: Apparently, if you just go off the interest rates, which I'm not a banker to (09:59):
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Wesley Lyon: tell you, but the interest rates would tell you that if you can get a 15-year (10:02):
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Wesley Lyon: practice loan for a lower rate than you can get a 15-year mortgage, (10:07):
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Wesley Lyon: they think more highly of people that are going to reap Repay their dental practice (10:10):
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Wesley Lyon: loan, then they're going to repay their mortgage. (10:14):
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Wesley Lyon: Now, I don't recommend necessarily paying your loan over 15 years. (10:16):
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Jonathan Martin: No, no, no, but point taken. (10:19):
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Wesley Lyon: The point is there are banks out there that will give you a 15-year loan at (10:20):
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Wesley Lyon: a lower rate than a 15-year mortgage. (10:25):
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Jonathan Martin: And so I get the fear, the hesitation, the concern over the risk and taking (10:26):
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Jonathan Martin: out that amount of money. (10:31):
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Jonathan Martin: But when you think about it from the perspective of these billion-dollar institutions (10:32):
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Jonathan Martin: are not worried about it. Maybe your worry is a little overblown. (10:36):
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Jonathan Martin: And so, you know, that's the thing is, like you said, I mean, (10:41):
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Jonathan Martin: young doctors, the ownership model is not for everybody. (10:45):
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Jonathan Martin: Just because you went to dental school doesn't mean that you're, (10:49):
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Jonathan Martin: you know, engineered to want to own and operate a business and to do it well. (10:52):
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Jonathan Martin: But, you know, there's a reason that the industry historically has the vast (10:55):
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Jonathan Martin: majority of dentists owning their own practices because, you know, (11:00):
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Jonathan Martin: the benefits outweigh the risks. (11:03):
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Wesley Lyon: Well, the other part, too, is some of the stuff when you buy a business is a (11:06):
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Wesley Lyon: pain, like getting the accounting to work, getting some of the payroll systems. (11:10):
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Wesley Lyon: Once you get through the first like six months, most of those systems you get on autopilot. (11:15):
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Wesley Lyon: So then you sit there and you're like, well, what are my biggest complaints (11:20):
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Wesley Lyon: about being a business owner? (11:23):
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Wesley Lyon: Well, one is getting new patients and that can't really be outsourced. (11:26):
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Wesley Lyon: And that's something you have to tackle head on. (11:30):
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Wesley Lyon: You have to learn how to talk to patients well. (11:33):
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Wesley Lyon: You know, you have to learn how to build the trust, get them to say yes, (11:35):
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Wesley Lyon: get referrals and grow organically. (11:39):
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Wesley Lyon: And that one, you know what, you're going to have to do it. (11:42):
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Wesley Lyon: The other one, though, that most people say, hey, what's your biggest pain point (11:45):
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Wesley Lyon: for an experienced dentist or experienced practice owner? It's very easy. It's the staff. (11:50):
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Wesley Lyon: But guess what? Whether or not you work for someone else or you work for yourself, (11:55):
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Wesley Lyon: guess what your biggest pain point's going to be? The assistant called out, (11:59):
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Wesley Lyon: the hygienist called out. (12:03):
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Wesley Lyon: Now, it doesn't hit your pocket when it's, you know, not your practice, (12:04):
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Wesley Lyon: but it still hits your stress level the same. (12:08):
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Wesley Lyon: So, you know, there's two ways of looking at it. One is, okay, it's not my problem. (12:10):
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Wesley Lyon: The other is, hey, it is my problem. At least this way I can fix it and get my people in place. (12:15):
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Jonathan Martin: Right, right. (12:20):
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Wesley Lyon: So, it's something everyone needs to do. And some of it, too, (12:21):
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Wesley Lyon: they get to the age where, you know, hey, when you're living a bachelor life (12:24):
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Wesley Lyon: and you're making $150,000 a year for a DSO, it's like, I'm rich. (12:28):
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Wesley Lyon: Then you get married. Then you have a kid. And you find out that I ain't rich anymore. (12:34):
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Jonathan Martin: Well, and then when you look at just regardless of what you're comfortable producing, (12:40):
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Jonathan Martin: because, I mean, we've worked with so many dentists. (12:45):
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Jonathan Martin: We've seen docs that, you know, they can't work out of more than one chair. (12:46):
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Jonathan Martin: And if they're producing $400,000 a year, hey, they don't see how they can produce a penny more. (12:52):
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Jonathan Martin: And then on the other side of the spectrum, we see docs doing, (12:57):
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Jonathan Martin: you know, $1.5 million of production on their own, working out of four operatories. (13:00):
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Jonathan Martin: And they're just, you know, they enjoy that level of production. (13:04):
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Jonathan Martin: And in every iteration in between, you know, not every doctor is going to, (13:09):
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Jonathan Martin: you know, produce the same amount. out. (13:14):
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Jonathan Martin: But if you're producing it as an associate, on average, you're getting paid (13:16):
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Jonathan Martin: 30, 35 percent of what you're generating. (13:20):
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Jonathan Martin: As an owner, you know, obviously it depends on the specialty, (13:23):
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Jonathan Martin: but let's just use general dentists, for example. (13:26):
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Jonathan Martin: You know, on average, your overheads, 57, 58 percent, okay? (13:29):
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Jonathan Martin: So, you're making 42 percent of every dollar that not only you generate, (13:34):
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Jonathan Martin: but what those hygienists generate. (13:39):
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Jonathan Martin: And so, you can be doing the exact same amount of clinical production, (13:41):
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Jonathan Martin: but you're making taking dramatically more owning your own practice. (13:45):
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Jonathan Martin: And what that means is, hey. (13:48):
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Jonathan Martin: I could potentially actually even work less to make the same amount of money. (13:51):
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Jonathan Martin: So, you know, that's where I say the benefits of ownership aren't always quantifiable. (13:55):
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Jonathan Martin: It's not always about the dollars and cents. (14:00):
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Jonathan Martin: It's about being your own boss. It's about controlling your own schedule. (14:02):
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Jonathan Martin: It's about, you know, controlling your own procedure mix, not having somebody over your shoulder. (14:06):
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Wesley Lyon: I love how you mentioned that one, being your own boss. Funniest one. It was a guy selling. (14:10):
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Wesley Lyon: But a guy was about to sign here in Charlotte to sell to a DSO. (14:15):
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Wesley Lyon: So, and the other guy sitting on the side of the table said, (14:20):
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Wesley Lyon: you know, hey, one of the best parts is here is, you know, we give you this flexibility. (14:24):
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Wesley Lyon: You want a day off. You just tell us you want the day off. (14:27):
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Wesley Lyon: And he looked back and goes, I don't ask people for day off because it's over. (14:30):
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Wesley Lyon: Like, what do you mean that's flexibility? Like, I want a day off. (14:36):
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Wesley Lyon: I tell the staff we ain't coming in next Wednesday. (14:39):
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Wesley Lyon: Like, you know, there is a lot there. You know, you get to just take a week off. (14:42):
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Wesley Lyon: You don't want to work that Thursday night. Yeah, you got to produce, (14:46):
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Wesley Lyon: but a lot of the doctors can get it to the point where, hey, (14:48):
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Wesley Lyon: we're producing, we can afford to do that. (14:52):
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Wesley Lyon: I've even seen some, we do this a lot with retiring doctors or, (14:55):
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Wesley Lyon: you know, once they get their financial goals, we bring them down to three days a week instead of four. (14:58):
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Wesley Lyon: And we say, hey, bonus the staff, you know, make sure they're getting paid for (15:02):
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Wesley Lyon: four as long as production stays the same and, (15:06):
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Wesley Lyon: Guess what happens to production every time we do that? (15:09):
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Jonathan Martin: I was going to say, my guess is it stays about the same. It goes up. Wow. (15:11):
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Wesley Lyon: It goes up. So you can really learn how to make the office run and be your office. (15:16):
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Wesley Lyon: And that's good and bad, but there's a ton of good there for the buyers. (15:22):
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Wesley Lyon: And I think they're just naturally realizing that. (15:27):
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Wesley Lyon: Before it was like, hey, they had mentors, people to tell them you should expect it to buy a practice. (15:30):
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Wesley Lyon: Now they hear from the DSOs more than they hear from the private doctors. (15:35):
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Wesley Lyon: And they, you know, everyone wants to listen to the message that's easiest. (15:38):
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Wesley Lyon: Oh, I'll go work for the DSO. I'll make just as much money. (15:42):
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Wesley Lyon: So they go do it and then it doesn't happen. And then all of a sudden, (15:45):
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Wesley Lyon: you know, it's, I said, you can lead them to the water. You can't make them drink. (15:49):
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Wesley Lyon: All of a sudden they think back to that professor. Oh yeah, this is what, (15:53):
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Wesley Lyon: you know, he meant or she meant when said, I'm going to need to buy my own practice. (15:57):
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Wesley Lyon: And now they're flooding the market. (16:01):
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Jonathan Martin: They have the bigger bullhorn, but now I think there's been enough time for, (16:03):
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Jonathan Martin: you know, those stories of situations where doctors didn't like working for (16:08):
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Jonathan Martin: the DSO, where things didn't go well. (16:14):
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Jonathan Martin: You know, I mean, this has been going on for 15 years, but really the intense, (16:15):
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Jonathan Martin: you know, rise in the, you know, level of consolidation started in, I'd say, 2017, 2018. (16:20):
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Jonathan Martin: So, you know, we're six, seven years into really DSOs occupying a significant (16:26):
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Jonathan Martin: portion of the overall industry, and you're starting to hear that other side of it more. (16:33):
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Jonathan Martin: And I think that's what we're seeing in 2024. I think the, you know, (16:38):
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Jonathan Martin: the winds are shifting and doctors are kind of coming back to the market. (16:42):
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Jonathan Martin: Only time will tell, but there's definitely no way to misinterpret what we're (16:46):
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Jonathan Martin: seeing in 2024, which is more buyers and shorter time on the market for doctors who are selling. (16:51):
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Wesley Lyon: Yeah, and this one might be just something biased because of who we are, (16:57):
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Wesley Lyon: but I've noticed we've got more doctors getting back involved with dental schools (17:01):
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Wesley Lyon: that are actively reaching out to us going, hey, we need help. (17:05):
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Wesley Lyon: You know, we've got a dental school, we've got, you know, 150 kids in here, (17:10):
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Wesley Lyon: and they're being told to go to DSOs, and we're trying to actively fix that. (17:14):
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Wesley Lyon: So I think you're getting it on both ends, too. (17:19):
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Wesley Lyon: A lot of people are going back into the dental schools, and they're passionate (17:22):
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Wesley Lyon: about it. I mean, Scott Medeker is helping us. (17:25):
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Wesley Lyon: He's passionate about it. I want to help these kids. It's not a, (17:28):
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Wesley Lyon: you know, to them, it's not a money thing. (17:31):
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Wesley Lyon: It's, hey, this was amazing to me for 30 years, and now I'm on the back end. (17:33):
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Wesley Lyon: And, you know, retirement ain't as easy as people think. So now you're sitting on the couch bored. (17:38):
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Wesley Lyon: What can I do that's really going to make me happy? And I'm like, (17:43):
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Wesley Lyon: yeah, I'm going to go wrangle these kids up and get them to buy practices. (17:45):
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Jonathan Martin: Yeah. And they had such – doctors like Scott had such a successful career and (17:48):
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Jonathan Martin: ownership did so much for them. (17:55):
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Jonathan Martin: It's good to see them wanting to share that because that's the thing is there's (17:57):
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Jonathan Martin: really outside of those doctors who are out there talking and preaching about (18:01):
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Jonathan Martin: the tenants and the benefits of private practice ownership. (18:05):
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Jonathan Martin: There's nobody out there talking about it other than, you know, you and me. (18:09):
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Wesley Lyon: Hey, we're backed in our corner here, you know. We need like a political super (18:13):
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Wesley Lyon: PAC so we can compete with the DSOs. (18:18):
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Jonathan Martin: Yeah, they have pretty deep coffers. I don't think we're competing with that. (18:20):
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Wesley Lyon: No, no, we don't charge those type of fees around here. (18:24):
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Wesley Lyon: So, unfortunately, we won't be buying our way into any of those huge things, (18:27):
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Wesley Lyon: but still get the word out the best we can. (18:31):
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Wesley Lyon: And I think naturally people are starting to look for how that goes. (18:33):
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Wesley Lyon: But I do want to kind of twist that. (18:37):
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Wesley Lyon: And the reason I wanted to do this follow-up episode here is we've talked about this a lot. (18:38):
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Wesley Lyon: I was talking to Matt on our team here, and there's more buyers in the market. (18:43):
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Wesley Lyon: And as you mentioned, we've seen that because the days to sale, (18:47):
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Wesley Lyon: meaning how long it takes a dental practice to sit on the market, (18:51):
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Wesley Lyon: has gone down dramatically this year. (18:54):
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Wesley Lyon: And obviously, it's got to have something to do with all these buyers listening in. (18:56):
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Wesley Lyon: But I also want to talk to you about, hey, what are these benefits of selling (19:00):
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Wesley Lyon: your practice privately? (19:05):
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Wesley Lyon: But most importantly, we talked (19:06):
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Wesley Lyon: to days on the market. We're not really talking about a partnership. (19:07):
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Wesley Lyon: We're not talking about, hey, guess what? I knew Junior coming back into town. (19:11):
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Wesley Lyon: So just naturally, we need to do the deal. I mean, these are practices being listed for sale. (19:15):
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Wesley Lyon: Obviously, they don't say Dr. Jonathan Martin's practice, but say practice in (19:20):
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Wesley Lyon: Charlotte area for sale. (19:25):
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Wesley Lyon: And it's funny throughout the years as you gain wisdom, I think I was more inclined (19:27):
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Wesley Lyon: to be willing to kind of not talk a doctor out of trying to find their own buyer career and. (19:35):
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Wesley Lyon: I've seen so many of them go wrong. I think it's a really, really good sign (19:43):
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Wesley Lyon: that the practices aren't sitting there. But I also want to talk about, (19:46):
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Wesley Lyon: hey, what are the benefits? (19:49):
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Wesley Lyon: If you're a senior doctor and you want to retire, what are the benefits of just (19:51):
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Wesley Lyon: straight up selling it in a brokerage capacity versus bringing in an associate or trying to find it? (19:56):
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Wesley Lyon: Because I'll just give you this example. We could probably apply to at least 100 doctors. (20:04):
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Wesley Lyon: Brings in associate. associate we're going to sell the practice (20:10):
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Wesley Lyon: in two years to said associate and I'm going to walk out the (20:13):
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Wesley Lyon: back door so said associate comes in you (20:16):
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Wesley Lyon: pay said associate 150,000 a year because they (20:19):
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Wesley Lyon: have to live your practice doesn't really have enough to justify them at least (20:22):
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Wesley Lyon: the first year so the second year maybe you break even on it and then come time (20:26):
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Wesley Lyon: to sign the paperwork what does said associate do runs off on you yeah and now (20:30):
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Wesley Lyon: you've hired staff you've paid this you've sunk a lot of (20:36):
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Wesley Lyon: money into said associate and they're just running out the back door on you. (20:40):
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Wesley Lyon: And it doesn't happen all the time. I don't want to necessarily scare people too much. (20:45):
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Wesley Lyon: When you've got the right person and it's going to work, it's definitely the right thing to do. (20:49):
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Wesley Lyon: But more and more when doctors approach me, hey, I'm going to do the old school (20:53):
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Wesley Lyon: way. I'm going to find an associate. (20:59):
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Wesley Lyon: I'm going to bring him in here and ask him why. Well, I don't want to pay the brokerage fees. (21:00):
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Wesley Lyon: So I go, well, we're going to pay the doctor $150,000 to avoid the $80,000 brokerage (21:04):
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Wesley Lyon: fee. Is that what I'm hearing you say? (21:10):
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Wesley Lyon: Most of them at that point, they're kind of like... (21:12):
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Jonathan Martin: Doesn't make a whole lot of sense. (21:14):
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Wesley Lyon: Yeah, you're right. This doesn't make a whole lot of sense. But from your end, (21:15):
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Wesley Lyon: at least, I want to talk to you about a little bit, hey, would these benefits, (21:18):
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Wesley Lyon: have you seen any of them really get screwed up? (21:21):
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Wesley Lyon: Because to me, I think I've seen a really, really bad one that I think you guys (21:23):
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Wesley Lyon: probably worked on as well. (21:29):
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Wesley Lyon: However, in relation to how bad this was for the doctor's life, (21:31):
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Wesley Lyon: And, you know, we had to get an attorney involved for a couple of weeks and, (21:35):
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Wesley Lyon: you know, shut down a situation. (21:39):
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Wesley Lyon: But otherwise, he still had his money. (21:41):
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Wesley Lyon: He was still retired and he just doesn't get along with the new doctor. (21:44):
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Wesley Lyon: And that's about the worst I've seen. You got anything worse than that? (21:48):
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Jonathan Martin: Yeah. So I guess just to back up a second in general, obviously, (21:51):
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Jonathan Martin: and you'll hear me say this anytime we're talking transitions. (21:55):
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Jonathan Martin: I mean, there's pros and cons, there's inherent risks to the different ways of transitioning. (21:58):
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Jonathan Martin: And, you know, what we're talking about right now is, okay, if I would just, (22:04):
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Jonathan Martin: if I'm going to take the approach of selling the whole thing at once, (22:08):
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Jonathan Martin: you know, not doing a partnership, (22:11):
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Jonathan Martin: not affiliating with the DSO, but if I'm selling the whole thing at once, (22:12):
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Jonathan Martin: do I wait until I'm ready, put it on the market, sell it, walk away, (22:16):
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Jonathan Martin: or do I do what we call a delayed sale, which is I go find an associate, (22:21):
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Jonathan Martin: plug them in, let them work for a while, and then sell them the practice. (22:27):
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Jonathan Martin: And, you know, both of those arrangements can work, (22:32):
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Jonathan Martin: but the risks of the delayed sale, of bringing the associate in are, (22:39):
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Jonathan Martin: you're essentially bringing somebody in, letting them test drive the car, (22:46):
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Jonathan Martin: And giving them time to decide for one reason or another that they don't want the car, you know. (22:51):
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Jonathan Martin: You know, maybe they don't like the patient base. Maybe their spouse decides, (22:57):
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Jonathan Martin: you know what, we've been here for a year and we just don't want to live here. (23:01):
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Jonathan Martin: We're going to move somewhere else. (23:05):
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Wesley Lyon: Not only that, but not only are you letting them test drive it, (23:06):
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Wesley Lyon: but you're actually paying them. (23:08):
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Jonathan Martin: That's right. (23:10):
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Wesley Lyon: To test drive it. (23:11):
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Jonathan Martin: That's right. (23:11):
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Wesley Lyon: This isn't like a lease for 12 months and give it back to me. (23:12):
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Wesley Lyon: This is a, I'm going to write you a check, make sure you're comfortable while you test drive my car. (23:15):
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Jonathan Martin: Yep. And you've, by definition in that scenario, you're not out there looking (23:21):
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Jonathan Martin: at other options, right? You've put all your eggs in one basket. (23:25):
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Jonathan Martin: And in the scenario that you outlined, if that doctor gets in a year or two (23:29):
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Jonathan Martin: years or three years or whatever the agreement was, (23:34):
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Jonathan Martin: and they just decide, eh, you know what, I'm going back to specialty school, (23:36):
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Jonathan Martin: or we're going to move somewhere else, or we just want to be associates forever and never own. (23:40):
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Jonathan Martin: There's an infinite number of things that can happen. They don't buy the practice. (23:45):
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Jonathan Martin: You're back at square one at the date state that you thought you were going to be out. (23:49):
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Jonathan Martin: And then on top of that, you've got an associate in there who's been doing probably (23:54):
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Jonathan Martin: a significant amount of the production. (23:58):
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Jonathan Martin: And you got to hope you're in a state that, you know, allows for covenants not (24:00):
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Jonathan Martin: to compete to be enforceable. (24:03):
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Jonathan Martin: It can, it can impede your ability to, from a timeframe standpoint, (24:04):
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Jonathan Martin: and just actually from a functional standpoint, transition out of your practice. (24:10):
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Jonathan Martin: You know, having an associate that decides to back out can very much deviate (24:16):
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Jonathan Martin: you from your desired time frame and impede your ability to sell at all, (24:20):
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Jonathan Martin: again, if they're doing a significant amount of the production. (24:24):
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Jonathan Martin: So, you know, that is just one of the big inherent risks of that approach. (24:27):
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Jonathan Martin: And that's why, from my standpoint, there's only a few scenarios where I really (24:30):
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Jonathan Martin: recommend even doing that. (24:35):
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Jonathan Martin: You know, to me, it's a lot less risky, as you pointed out, that if you just (24:38):
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Jonathan Martin: find the buyer and sell it to them, well, hey, if any of those things happen (24:43):
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Jonathan Martin: after they've bought the practice, you're no longer at risk. (24:46):
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Jonathan Martin: You got paid, cash is in the bank, and, you know, what they decide ultimately (24:50):
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Jonathan Martin: to do can't hurt you financially. (24:55):
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Wesley Lyon: I was kind of like back to the car example too. I think the biggest benefit (24:59):
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Wesley Lyon: is, okay, you're at the car dealer and you're the one selling it. (25:02):
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Wesley Lyon: And you're selling a Suburban. One person comes in, they want to test drive (25:06):
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Wesley Lyon: it for 12 months and maybe they'll buy it afterwards. (25:09):
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Wesley Lyon: Somebody else comes in and says, hey, you got a black Suburban. I need a black Suburban. (25:11):
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Wesley Lyon: Let's talk about the price and I'm going to drive out of here with the thing. (25:17):
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Wesley Lyon: It's like, you know 100% what the intentions of that person are. (25:19):
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Wesley Lyon: Because everyone's going to look out for themselves. So maybe your intention (25:25):
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Wesley Lyon: is to sell it to them in two years. (25:28):
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Wesley Lyon: Maybe their intention is they just don't have another job offer. (25:30):
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Jonathan Martin: That's right. That's right. And we've seen that happen. And so going back to (25:33):
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Jonathan Martin: the few scenarios where I do recommend the delayed sale, really it's due to a lack of other options. (25:37):
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Jonathan Martin: You know, if you're in an area where there's just not going to be a lot of interest, (25:44):
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Jonathan Martin: not a lot of candidates, and you have a candidate that comes along and says, (25:49):
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Jonathan Martin: hey, I want to test drive the car before I buy it. (25:53):
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Jonathan Martin: You're not really in a position of strength. (25:56):
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Wesley Lyon: Or sometimes I recommend they go down that road because you know what? (25:58):
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Wesley Lyon: The right person comes along, but you aren't financially ready or you're not (26:03):
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Wesley Lyon: emotionally ready to say, hey, let's do a delayed sale. (26:08):
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Wesley Lyon: I'll sell it to you in two years. And when y'all do that, you freeze the goodwill, right? (26:12):
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Wesley Lyon: So, hey, if you grow the practice while you're here for these two years, (26:16):
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Wesley Lyon: I'm not I'm not going to charge you on the growth. (26:20):
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Wesley Lyon: It's going to work for me. It's going to work for you. (26:21):
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Wesley Lyon: But I think that's a candidate first, delayed sale, second scenario versus, you know, I think, (26:24):
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Wesley Lyon: I'm not saying it's the worst idea in the world, but some doctors just go into (26:31):
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Wesley Lyon: it with the idea of, I'm going to do a delayed sale ahead of time. (26:35):
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Wesley Lyon: And it's, I mean, we just went through one, (26:39):
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Wesley Lyon: here with a shared client where, you know, he got a little upset that, (26:42):
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Wesley Lyon: you know, the guy didn't want to buy it from him ultimately and backed out the deal. (26:45):
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Wesley Lyon: And, you know, emotionally a little bit, you know, upset. Am I going to be able (26:50):
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Wesley Lyon: to get out of here? What's going to happen? (26:53):
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Wesley Lyon: And then, you know, boom, the next buyer comes in and she's just happy to be there. (26:55):
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Jonathan Martin: And if it's the same doctor I think we're talking about, that actually worked (27:00):
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Jonathan Martin: out in their favor too, because he didn't have to sell it for the low price (27:04):
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Jonathan Martin: that they'd agreed to for the doctor who'd been there. (27:08):
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Jonathan Martin: He got to sell it for current market value with all the growth factored in that (27:10):
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Jonathan Martin: that associate had brought to the table. (27:14):
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Jonathan Martin: And he was in a great market where, look, no matter what happened, (27:15):
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Jonathan Martin: he was going to be able to find a buyer. (27:20):
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Wesley Lyon: Oh, and she just, you know, she looked at the numbers. They were fair. (27:22):
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Wesley Lyon: Yes, thank you. I have a bank loan. When can I buy it? (27:26):
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Jonathan Martin: Exactly. Exactly. (27:29):
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Wesley Lyon: And that's where it's just, hey, look, somebody on the car lot looking for what (27:30):
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Wesley Lyon: you're selling is worth a whole lot more than somebody bruising Facebook marketplace at 3 a.m. (27:34):
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Jonathan Martin: Well, and I think the broader point, if you kind of take a step back from this (27:40):
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Jonathan Martin: specific scenario we're talking about, the broader point is, (27:43):
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Jonathan Martin: look, there's a lot of transition options out there. (27:47):
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Jonathan Martin: And, you know, they all have their pros and cons. (27:49):
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Jonathan Martin: The biggest mistake I see doctors make is they like to put their head in the (27:53):
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Jonathan Martin: sand and just, you know, hey, status quo is great. (27:57):
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Jonathan Martin: I just want to keep doing what I'm doing. And I don't want anything to change. (28:01):
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Jonathan Martin: And the reality is, hey, change is coming for every single one of us. (28:05):
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Jonathan Martin: And we have no idea what the timeline is for that change. But we cannot work forever. (28:08):
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Jonathan Martin: We can't maintain the same practice modality forever. (28:14):
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Jonathan Martin: At some point, we're going to, you know, come across health issues. (28:17):
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Jonathan Martin: We're going to want to slow down. We're going to need to transition our practice. (28:21):
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Jonathan Martin: And, you know, the sun shines brighter on folks who plan. (28:24):
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Jonathan Martin: And for some folks, a full sale, and I would say for the majority of folks, (28:27):
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Jonathan Martin: a full sale, putting the practice up on the market, selling it to another doctor (28:32):
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Jonathan Martin: is the most realistic and the best fit from a transmission standpoint. (28:36):
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Wesley Lyon: That's what I love. If you're a one doctor practice, you got your six staff (28:41):
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Wesley Lyon: members, maybe a little bit more if you're a different specialty, (28:47):
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Wesley Lyon: tea, maybe a little bit less, and you don't have the buyer. (28:49):
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Wesley Lyon: It's just, hey, you find this, you get to interview them. It's not like a live auction on eBay. (28:55):
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Wesley Lyon: If somebody comes in, you don't like them, you don't have to sell it to them. (29:01):
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Wesley Lyon: But you just, one day, they come in, they give you a boatload of money that the bank lends them. (29:05):
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Jonathan Martin: And you're out the back door. (29:12):
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Wesley Lyon: You take your money. And hey, if you're going to work back, whatever it is, (29:13):
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Wesley Lyon: but if there's a a disagreement on the back end, I've never had any of those really go wrong. (29:16):
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Wesley Lyon: I've had plenty of doctors call me up and just go, hey, you know what? (29:21):
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Wesley Lyon: Me and him didn't really mesh. I like him. (29:24):
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Wesley Lyon: But we just didn't really mesh well in there. So, you know, I kind of called (29:26):
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Wesley Lyon: them and said, hey, you know, do you really need me in there? (29:30):
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Wesley Lyon: That's the majority of the time. That's the worst thing that happens. Right. (29:32):
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Wesley Lyon: You just get two people that don't mesh well. And, hey, one of them got a payment. (29:36):
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Wesley Lyon: One of them didn't. We know who's in charge. And usually the senior doctor, (29:39):
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Wesley Lyon: you know, neither of them really want to be in the position. (29:43):
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Wesley Lyon: So, it's always funny how it works out. (29:45):
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Wesley Lyon: Usually the senior doctor is the one to just call a spade a spade and say, (29:47):
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Wesley Lyon: hey, you know, I think you're feeling guilty. (29:50):
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Wesley Lyon: But I don't think me and you are really working well together. (29:53):
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Wesley Lyon: Other, call me if you need me. (29:55):
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Wesley Lyon: I'm still here. And it ends in a friendly terms. We don't have to sit there (29:57):
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Wesley Lyon: and we discovered we don't work well together while you're an associate and (30:02):
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Wesley Lyon: you're supposed to buy the thing from me in six months. (30:06):
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Jonathan Martin: And most practices aren't big enough to facilitate multiple doctors anyway. (30:08):
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Jonathan Martin: So, it's not anything that you ever have to deal with. But like I said, (30:12):
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Jonathan Martin: you know, while that's the plan that works for most people most often, (30:15):
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Jonathan Martin: there's other plans that accomplish different goals. (30:20):
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Jonathan Martin: And so, you know, the further in advance you plan and really it all starts with kind of your world. (30:23):
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Jonathan Martin: Just make sure financially you're in the right spot so that when it comes time (30:28):
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Jonathan Martin: to be thinking about this, (30:33):
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Jonathan Martin: you can do what you want to do, as opposed to what so many doctors that come (30:34):
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Jonathan Martin: to us are in position to have to do, (30:38):
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Jonathan Martin: which is they have to get the maximum amount of money out of their practice (30:40):
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Jonathan Martin: transition because they can't (30:45):
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Jonathan Martin: afford not to, because they They didn't plan because they didn't save. (30:47):
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Jonathan Martin: And, you know, that's one of the big drivers of all these doctors who've sold (30:50):
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Jonathan Martin: to DSOs is they couldn't afford to walk away from the big check, (30:54):
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Jonathan Martin: which, you know, it's unfortunate because, and we talked about this on the last episode, (30:58):
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Jonathan Martin: you know, you really need more than one reason to go that direction. (31:02):
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Jonathan Martin: You know, it can't just be all about the money or you're looking at not being very happy. (31:06):
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Jonathan Martin: But, you know, if you do everything right, I still would say, (31:11):
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Jonathan Martin: you know, for the foreseeable future, the primary way doctors are going to continue (31:14):
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Jonathan Martin: to transition in and out of practice ownership is a full and immediate sale, (31:20):
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Jonathan Martin: not preceded by an associateship. (31:25):
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Wesley Lyon: Yeah, it's an awesome way. For everyone out there listening, (31:28):
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Wesley Lyon: though, you should consider every single transition option. (31:31):
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Wesley Lyon: It's just, we wanted to talk about this one today because there's a reality (31:36):
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Wesley Lyon: when I sit down with most of my clients and we go through all of them, (31:38):
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Wesley Lyon: but, you know, before I send them over to your way and I go, (31:41):
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Wesley Lyon: okay, well, what do you think about this? (31:45):
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Wesley Lyon: What do you think about that? And I just, you know, poke around and ask a couple of questions. (31:46):
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Wesley Lyon: Well, how much do you want to spend on an associate? Zero. (31:49):
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Jonathan Martin: Okay, well, let's go. It's not that easy. (31:52):
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Wesley Lyon: Let's cross that one off. You (31:54):
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Wesley Lyon: know, hey, you're not big enough for a partnership, so we're out the door. (31:56):
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Wesley Lyon: Or you are big enough for a partnership, but did you just tell me you want out in two years? (31:59):
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Jonathan Martin: Exactly. (32:03):
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Wesley Lyon: Why are we entering into a seven-year deal when you want out in two years? (32:03):
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Wesley Lyon: Like, that one's off the table. (32:06):
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Wesley Lyon: Eventually, a lot of times, you just end up narrowing it down to going, (32:09):
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Wesley Lyon: well, yeah, there's this one option here. (32:12):
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Wesley Lyon: It's very, very simple, very clean and easy, and I'm guaranteed to get my money. (32:15):
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Wesley Lyon: And that's where people end up. So we don't necessarily want to push people (32:20):
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Wesley Lyon: that, hey, you have to do it this way. (32:23):
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Wesley Lyon: I think a lot of you are just going to realize that this is your simplest way to do it. (32:25):
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Jonathan Martin: Yeah. Yeah. And the good news being, hey, it's not something that is going to (32:29):
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Jonathan Martin: continue to atrophy and go away like we were kind of thinking over recent years (32:34):
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Jonathan Martin: with the, you know, the decrease in practice ownership, (32:40):
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Jonathan Martin: the longer wait times on the market. (32:43):
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Jonathan Martin: So things are looking up in that respect, which is good if you're a seller. (32:45):
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Wesley Lyon: Yeah, it was a phase. DSOs are here to stay. It's not like they're going away, (32:48):
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Wesley Lyon: but it's not going to continue like it is. (32:53):
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Wesley Lyon: But all that to say, big takeaways here. Hey, if you're looking at selling, (32:56):
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Wesley Lyon: we got plenty of buyers in the marketplace. (33:00):
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Wesley Lyon: Practices aren't taking as long to sell. (33:03):
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Wesley Lyon: I've even been shocked with someone where they're selling. So they're selling all sorts of places. (33:06):
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Wesley Lyon: So if you're looking at transitioning, all that stuff, give us a call. Make sure you talk to us. (33:10):
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Wesley Lyon: Jonathan Wade help you out get you in good shape but you don't need to listen (33:16):
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Wesley Lyon: hey you don't need to sell your DSO to make sure you get money, (33:21):
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Wesley Lyon: New doctors, they'll do it, and the banks are lined up. They're still lending. (33:24):
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Wesley Lyon: I don't think the banks really ever stopped lending. (33:29):
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Jonathan Martin: They didn't. They didn't. Rates have gone up, of course, but still. (33:30):
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Wesley Lyon: Hey, they cut back down. I got a text message from one of the bankers, five and a half. (33:34):
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Jonathan Martin: Whoa, that's a good one. (33:38):
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Wesley Lyon: I mean, I know we all sat in la-la land when it was, you know, (33:40):
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Wesley Lyon: I've got some loans out there at 2.7, 2.5 on a practice. is. (33:45):
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Wesley Lyon: So, okay, if we exclude that short period of time, you could really get sub four. (33:48):
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Wesley Lyon: Five and a half is a really, really good interest rate. It's a really good rate. (33:53):
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Jonathan Martin: When I started doing this rates were almost 9%. So, hey, you know, (33:57):
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Jonathan Martin: it could always be worse. Yeah. (34:00):
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Wesley Lyon: Come on, I didn't think you were that old. (34:01):
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Jonathan Martin: I'm not, Wes. I'm not that old. (34:04):
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Wesley Lyon: You just gave it up there. People are going to look up one more interest rate is 9%. (34:06):
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Jonathan Martin: People who are watching this can see he's not that old. (34:09):
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Wesley Lyon: Yeah. I didn't think you were either, but man, 9%. Yeah. (34:12):
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Jonathan Martin: Yeah. It was 20 years ago. So. Yeah. (34:16):
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Wesley Lyon: Man. Well, now we appreciate everyone tuning in though. Jonathan, (34:18):
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Wesley Lyon: thanks for joining us. And remember, there are private buyers for your practice. (34:21):
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Jonathan Martin: Hey, good to see you. (34:26):
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